Citation: 2008TCC629
Date: 20081119
Docket: 2007-748(IT)I
BETWEEN:
SARASWATI P. SINGH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1] The Appellant, in his Notice of Appeal, raised a number of issues related
to the reassessment of his tax liability for 2000, 2001, and 2005. Prior to the
hearing of these appeals, the Respondent filed a Motion to Quash the parts of
the Appellant's Notice of Appeal related to the 2005 taxation year on the basis
that the Appellant had not filed a Notice of Objection to the assessment of his
tax liability for 2005. Also prior to this hearing, the Appellant and the
Respondent filed a Partial Consent to Judgment in which the parties agreed to
the following:
A: that the Appellant's appeal, with
respect to the 2005 taxation year, should be quashed, without costs;
B: that the following amounts should
be allowed in relation to 2000 and 2001:
1. The Appellant's cost of goods sold for the 2000
taxation year should be increased by $7,094;
2. The Appellant’s non-capital losses from his 1994
taxation year should be carried-forward to his 2000 taxation year; and
3. The Appellant should be allowed an additional
deduction for capital cost allowance in relation to his rental properties in
the following amounts:
|
Taxation Year
|
Amount
|
|
2000
|
$3,633.00
|
|
2001
|
$2,608.79
|
[2]
In the Partial Consent to Judgment
there were a number of issues that remained unresolved. At the commencement of
the hearing, counsel for the Appellant noted that the number of issues that
will be dealt with at the hearing was reduced to four and these were as
follows:
1. Whether the $25,000 that the Appellant had received
from NCE Petrofund Corp. (“NCE”) was properly included in the Appellant's
income for the 2001 taxation year;
2. Whether the Appellant is entitled to deduct any
further expenses in 2000 or 2001 as set out in the appendix attached to the Partial
Consent to Judgment;
3. Whether the Appellant's net business income should be
reduced by $1,054 in 2000 as a result of a till shortage (The Respondent agreed
that the income should be reduced by $254 and therefore only $800 of the amount
of $1,054 was in dispute); and
4. Whether the Appellant should be allowed to argue that
he should be allowed to claim additional capital cost allowance with respect to
the Dodge Caravan in 2000 and 2001 and, if the Appellant is allowed to
make such argument, whether the Appellant is entitled to claim additional
capital cost allowance with respect to the Dodge Caravan in 2000 and 2001, and
if so how much is he entitled to claim.
Amount received from NCE
[3]
The Appellant owns a parcel of
land on the west side of Edmonton at 184th Street at about 25th Avenue. There were three operating oil
wells on this property and an existing underground pipeline. The Appellant was
approached by someone acting on behalf of NCE as NCE wanted to replace the
existing pipeline. When he was first approached, he indicated he would not
consent to NCE accessing his property to replace the pipeline. The Appellant
described his contact with the person representing NCE as follows:
Q: And what did he convey to you was the purpose of the visit?
A: He told me that he would like to excavate the area where the
pipeline was located, change the pipe, would take some additional land and
would - after replacing the pipe would - would fill it.
Q: And what was your response to that request?
A: My response was quite negative in the sense that that pipeline
was fairly close to a number of houses that had been in place for some time,
and there is always a little likelihood that pipe could burst and also that we
would not be able to build on that. And there may be some emissions, the
emissions coming of the well itself, but if something happens from the pipeline
to and also would be something that one would not be able to use it as if it
were the land -- say, for example, you will not be able to build on that part
of the land, and if he wanted to do something in the area, then you had to
locate the pipe, and for the number of adverse effects that were likely to
arise, and my reaction to him was very briefly that no, I wouldn't like.
[4]
In relation to the issue of
whether any additional land was taken by NCE, the following exchange took place
between the counsel for the Appellant and the Appellant:
Q Well, in
any event, sir, was any additional land taken?
A No. I
mean from the diagram that they have shown here, it seems they have not, but my
agreement with them was that they would take this additional amount of land
that they are saying, .25 acres, and I am still not quite sure whether or not
they have taken this additional land. Maybe that they did. Because they are
showing it here .25 acres so -- but they are saying it as work space which they
release the land later, but I'm not quite sure of that.
[5]
There was no evidence that any
additional land was taken by NCE and because the Appellant’s testimony was
vague on this point, I find that no additional land was taken by NCE.
[6]
The Appellant signed two separate
documents with NCE. Each document consisted of only a few paragraphs. One
document, which was dated July 10, 2001, provided as follows:
I (We), Saraswati Prasad Singh of Edmonton, in the province of Alberta,
being the registered owner (s) of the following land:
Portion
of SW ¼ 4-52-25-W4M
hereby consent
to the Grantee, NCE Petrofund Corp. to enter upon and use those portions of the
said land as shown outlined in green on the plan attached hereto for the
purpose of a Work Space to be used on a temporary basis for construction
operations.
This consent
is granted on the understanding that the Operator shall clean up and restore
the Work Space area following construction.
CONSIDERATION
for the granting of this Consent shall be Two Hundred Fifty ($250) Dollars.
[7]
The other document, which is dated
the same date as the first document (July 10, 2001) stated as follows:
NCE Petrofund
Corp. agrees to pay the undersigned a total of Twenty-four Thousand Seven
Hundred Fifty ($24,750) Dollars. Payment acknowledges time and trouble to
execute a Work Space Agreement, associated Routing Consent and Not-Objection to
the EUB issuing NCE Petrofund Corp. a permit to construct the subject
pipelines.
Payment also
represents value to NCE Petrofund Corp. for avoiding time delays and hearing
costs for your titled interest in the subject lands.
The following hand written part was
added:
Payment to be made as soon as permit issued [for]
the [construction].
[8]
The position of the Appellant is
that the amount of $25,000 received from NCE was received on account of
capital. Counsel for the Appellant, in his closing argument, stated that the
evidence showed that the new pipeline was larger than the old pipeline.
However, the evidence did not disclose that there was to be any change in the
size of the pipeline. The only reference by the Appellant, in his direct
examination, in relation to the changes made to the pipeline was in the part
that is quoted in paragraph 3 above. In cross-examination, the following
exchange took place:
Q So they
dug up a pipeline that was already there and they replaced it with a new
pipeline and then they covered it back up?
A That --
that -- that's correct.
[9]
There was no evidence that was
presented to indicate that the size of the pipeline had changed from the
pipeline that was there before.
[10]
The only cases that were referred
to by either counsel were cases from 1954 -- 1956. These cases were
decided prior to the introduction of a tax on capital gains in 1972. With the
introduction of the tax on capital gains, the definitions of disposition and
proceeds of disposition were added to the Income Tax Act. These
definitions are, in part, as follows:
248(1) In this
Act
…
“disposition”
of any property, except as expressly otherwise provided, includes
(a) any
transaction or event entitling a taxpayer to proceeds of disposition of the
property,
54. In this
subdivision
“proceeds of
disposition” of property includes,
(a) the sale
price of property that has been sold,
(b)
compensation for property unlawfully taken,
(c)
compensation for property destroyed, and any amount payable under a policy of
insurance in respect of loss or destruction of property,
(d)
compensation for property taken under statutory authority or the sale price of
property sold to a person by whom notice of an intention to take it under statutory
authority was given,
(e)
compensation for property injuriously affected, whether lawfully or unlawfully
or under statutory authority or otherwise,
(f) compensation for property damaged and any amount payable under a
policy of insurance in respect of damage to property, except to the extent that
such compensation or amount, as the case may be, has within a reasonable time
after the damage been expended on repairing the damage,
…
[11]
A property does not have to be
sold in order for an amount received to be included in proceeds of disposition.
The definition of proceeds of disposition includes compensation for property
injuriously affected or damaged. It seems to me that in order for the amount
received to be treated as proceeds of disposition (and hence received on
account of capital) it must be an amount included in this definition.
[12]
However, in this case, prior to
2001 there was an existing pipeline on the property. Therefore the Appellant's
comments with respect to not being able to build on the property or having to
locate the pipeline first before any work could be done on the property were
equally applicable before this work was done in 2001. Since there already was a
pipeline on this property prior to 2001, any restrictions on building on the
property and the necessity to locate the pipeline would be applicable whether
the work was done in 2001 to replace the pipeline or not. As noted there was no
evidence that the new pipeline was any larger than the old pipeline and
therefore there is no reason to suggest that the restrictions on how close a
building could be built to the pipeline would be any different than before the
pipeline was replaced.
[13]
The Appellant’s concerns with
respect to leaks would presumably be with respect to leaks during construction
since it would seem logical that a new pipeline should be less prone to leaks
than an older pipeline.
[14]
It seems to me that the amount
that the Appellant received in 2001 was simply an amount that he received to
allow NCE to have access to the property to do the necessary work. This is also
consistent with the written documents that were signed and in particular the
written document related to the payment of $24,750 which stated that:
Payment
acknowledges time and trouble to execute a Work Space Agreement, associated
Routing Consent and Not-Objection to the EUB issuing NCE Petrofund Corp. a
permit to construct the subject pipelines.
There
is no reference to any part of the payment being made for any injurious
affection or damage to the property.
[15]
The $25,000 that the Appellant
received in 2001 was not compensation for property that was injuriously
affected or damaged. The work that was done was simply to replace the pipeline
that was already there. The amount received was simply to obtain the consent of
the Appellant to enter the property to do the work without requiring NCE to
make an application to the EUB for a permit without the consent of the
Appellant which could have resulted in a hearing as provided in subsection
15(5) of the Surface Rights Act (Alberta) (and hence delays and
additional costs for NCE). As a result, I find that the $25,000 that the
Appellant received in 2001 from NCE should have been included in the
Appellant's income in 2001.
Additional Expenses
[16]
In preparing for this appeal, the Appellant
has determined that he incurred additional expenditures and he is seeking to
claim these as expenses in computing his income for 2000 and 2001 from his
liquor store business that he operated in Devon,
Alberta as a sole proprietorship. The
additional expenses that the Appellant is claiming for 2000 and 2001 are as
follows:
2000
|
Item
|
Percentage Claimed
|
Amount Claimed
|
|
DVD
R & M (for liquor store)
|
100%
|
$460
|
|
TV
(for liquor store)
|
50%
|
$967
|
|
DVD
(for liquor store)
|
50%
|
$295
|
|
Monitor
& cameras for liquor store
|
100%
|
$800
|
|
Mike
Terry – house repairs
|
30%
|
$135
|
|
|
|
$2,657
|
2001
|
Item
|
Percentage Claimed
|
Amount Claimed
|
|
Office Drapes
|
30%
|
$71
|
|
Irene Sonsen – cleaning
|
30%
|
$11
|
|
Doug Adams – snow removal
|
30%
|
$20
|
|
Eva Bowing – cleaning
|
30%
|
$13
|
|
Doug Adams – cleaning
|
30%
|
$20
|
|
Winnifred Stewart
|
30%
|
$6
|
|
Mike Terry – car repairs
|
55%
|
$143
|
|
Susan Nguyen – for Graymac cleaning
|
100%
|
$260
|
|
Doug Adams – snow removal
|
30%
|
$20
|
|
|
|
$564
|
[17]
The “DVDs”, TV, and monitoring
cameras were items that the Appellant acquired to monitor the liquor store
business he was operating in Devon. One “DVD” was presumably a DVD recorder that was at
the store premises and the other “DVD” was presumably a DVD player that was
kept at the Appellant’s house so that the Appellant could review the DVDs that
were recorded. The Appellant stated that he was having problems with theft from
the store so he wanted to monitor the operations.
[18]
However, the DVD recorder, the DVD
player, the TV and the monitoring cameras are all capital assets as they are
assets of an enduring value. Therefore the cost of acquiring these assets is a
capital expenditure and not deductible in computing his income (paragraph
18(1)(b) of the Income Tax Act), except to the extent that the Appellant
chooses to claim capital cost allowance in relation to these assets based on
the extent to which such assets were acquired for the purpose of earning income
and subject to the limitations imposed by the Income Tax Act and the Income
Tax Regulations on claiming capital cost allowance. Justice Abbott of the
Supreme Court of Canada in Minister of National Revenue v. Haddon
Hall Realty Inc., [1962] S.C.R. 109, [1961] C.T.C. 509, 62 DTC 1001, 31
D.L.R. (2d) 201 stated that:
6 The
general principles to be applied in determining whether a given expenditure is
of a capital nature are fairly well established: Montreal Light Heat and
Power Consolidated v. Minister of National Revenue; British Columbia Electric
Railway Company Limited v. Minister of National Revenue. Among the tests
which may be used in order to determine whether an expenditure is an income
expense or a capital outlay, it has been held that an expenditure made once and
for all with a view to bringing into existence an asset or an advantage for the
enduring benefit of a trade is of a capital nature.
[19]
The only submission made by the
Appellant in relation to these items is that they should be allowed as
expenses. The Appellant did not make any alternative argument that he should be
allowed to claim capital cost allowance on these items. Therefore the only
issue in these appeals is whether the Appellant is entitled to deduct the full
cost of these items in computing his income for 2000. Since the DVD recorder,
the DVD player, the TV and the monitoring cameras are assets of an enduring
value, to the extent that the Appellant incurred costs to acquire these assets
for his business, such costs would be on account of capital and the full amount
of the cost would not be deductible in 2000.
[20]
Since the only issue raised was
whether the full amount that was allocated to the business use could be
deducted in 2000, there is no need to consider whether the percentages of
business use were reasonable. I would note that since the DVD recorder and the
monitoring cameras were only used for the purposes of monitoring the business
premises, it seems that the full cost of these assets could have been added to
the appropriate class of depreciable property for the purpose of claiming
capital cost allowance (subject to the provisions of paragraph 1100(2) of the Income
Tax Regulations (the “half-year rule”)). Since the assets were used in
2000, a claim for capital cost allowance in relation to these assets would not
have been subject to the restrictions imposed by subsection 13(26) of the Income
Tax Act in relation to the amount that can be added to the undepreciated
capital cost of assets of a prescribed class for assets that are not available
for use.
[21]
The allocation of 50% to the TV
and the DVD player located at the house appears excessive. The Appellant was
unable to provide any detailed information concerning the amount of time that
the TV and the DVD player were used for personal viewing and the amount of time
that they were used to monitor the operations in the store. To say that an
equal amount of time would have been spent watching the store operations as
watching regular programs or DVDs does not seem reasonable. If the business use
portion of the amounts spent to acquire the TV and the DVD player were to be
added to the appropriate prescribed class of depreciable property (subject to
the half-year rule), I would only have allowed 10% of the cost for the TV and
20% of the cost for the DVD player as the portion for business use.
[22]
There are several items for which the
Appellant is claiming business use of 30%. These items relate to the office
that was located in the Appellant's home. The Appellant’s evidence was that his
office in his house was mainly used in relation to the liquor store business. Subsection
18(12) of the Income Tax Act provides as follows:
(12) Notwithstanding any other provision of this Act, in computing an
individual's income from a business for a taxation year,
(a) no amount
shall be deducted in respect of an otherwise deductible amount for any part (in
this subsection referred to as the “work space”) of a self-contained domestic
establishment in which the individual resides, except to the extent that the
work space is either
(i) the
individual's principal place of business, or
(ii) used
exclusively for the purpose of earning income from business and used on a
regular and continuous basis for meeting clients, customers or patients of the
individual in respect of the business;
(b) where the
conditions set out in subparagraph (a)(i) or (ii) are met, the amount for the
work space that is deductible in computing the individual's income for the year
from the business shall not exceed the individual's income for the year from
the business, computed without reference to the amount and sections 34.1 and
34.2; and
(c) any amount
not deductible by reason only of paragraph (b) in computing the individual's
income from the business for the immediately preceding taxation year shall be
deemed to be an amount otherwise deductible that, subject to paragraphs (a) and
(b), may be deducted for the year for the work space in respect of the
business.
[23]
Since the principal place of business
of the liquor store was not the Appellant’s home and since there was no
evidence that he regularly met clients or customers at his house, these expenses
will be not be deductible as a result of the provisions of subsection 18(12) of
the Income Tax Act.
[24]
The Appellant is claiming $143 for
the amount paid to Mike Terry for “car repairs”. This was 55% of the total
amount paid for “car repairs”, excluding GST. The Appellant had also submitted
a claim for an amount paid to Mike Terry for house repairs so Mike Terry must
repair houses and cars. The Appellant had two vehicles -- a van and a car. He
indicated that the car was used for personal use and the van was used for
business use. The Appellant consistently referred to the van as either the
Caravan or the van. Since the only evidence related to the vehicle that was
repaired by Mike Terry is the notation on the cheque which is “car repairs”,
it seems to me that this amount was probably spent on repairs to the car and
not the van. No invoice was submitted to establish that it was the van and not the
car that was being repaired. As a result, this amount will not be allowed as a
deduction in computing the Appellant’s income for 2001.
[25]
For 2001 the Appellant is claiming
$260 for Susan Nguyen for Graymac cleaning. The Appellant owned a rental
building in Edmonton that was referred to as the Graymac building. A copy
of the cheque for this payment was introduced into evidence. The notation on
the cheque is “Loan to Graymac Cleaning”. No explanation was provided to
clarify why the notation on the cheque referred to a “loan”. As a result the
Appellant has failed to establish that this amount was paid for the purpose of
earning income and not as a loan.
Till shortage
[26]
The Respondent had conceded that
$254 of the amount claimed as till shortage should be allowed as a reduction in
business income and therefore the only issue in this case is whether his
business income should be reduced by an additional amount of $800. The
Appellant indicated that this additional claim for $800 related to a robbery that
occurred at the liquor store in March of 2000 when $800 in cash was stolen. The
position of the Respondent is that the Appellant did not satisfy the onus that was
on him to prove that his amount was stolen. The onus of proof that is on the
Appellant is to establish, on a balance of probabilities, that this amount was
stolen.
[27]
The Appellant stated that the
robbery occurred at the end of the day and therefore the amount taken would
have reflected the amount received in cash for that day, plus the cash float
from the beginning of the day. In the Reply, it is stated the Appellant’s gross
income from the liquor store business in 2000 was $307,858. Assuming that the
liquor store was open 365 days per year (the number of days that the liquor
store was open was not in evidence), this would yield daily sales of $843 per day.
If the liquor store was open fewer days in the year, then obviously the daily
sales would be a greater number. Since this daily sales number (using 365 days)
is very close to the amount that the Appellant claimed was stolen, I find that
the Appellant has established on a balance of probabilities that the amount of
$800 was stolen in 2000 and therefore his business income for 2000 should be
reduced by $254 as agreed upon by the Respondent and by the additional amount of
$800 for a total reduction of business income for 2000 of $1,054.
Additional Capital Cost Allowance
[28]
The Appellant, in filing his income
tax return for 2000, had claimed capital cost allowance in relation to the van.
However at the hearing he wanted to increase the amount of the capital cost
allowance that would be claimed in relation to the van based on a higher
percentage business use than he had claimed when filing his tax return. When he
filed his tax return he only claimed capital cost allowance on the basis that
the van was used approximately 8.3% in relation to the liquor store business
and approximately 0.83% for the purpose of earning income from the rental of
the Graymac building. At the hearing he was claiming that the van was used 50%
for the liquor store business and 5% for the purpose of earning income from the
rental of the Graymac building.
[29]
The testimony of the Appellant
was that his wife would drive the van from their home in Edmonton to the liquor
store in Devon. His wife was managing the liquor store for him, and
she would be at the store on a regular basis. The store was operated as a sole
proprietorship and the Appellant’s spouse was an employee.
[30]
Counsel for the Appellant had
argued that this was part of the arrangement between the Appellant and his wife
and hence part of her compensation as an employee was that she would be allowed
to drive the van to work and back home. The following exchange took place on
cross‑examination of the Appellant:
Q Did you
have any kind of contract with your wife with respect to the work she was doing
at the liquor store?
A Yes, she
was an employee, yes.
Q She was
an employee? Did her employment contract say anything about paying for her
transport to work?
A You mean
if the -- if the -- no, would you -- would you please reword it what exactly
you are asking?
Q Did you
have an agreement with your wife about her transportation from home to work?
A No, we
didn't because this -- this van we used to use for business. And -- and she
was using it for business purposes, so we didn't have any agreement as such
that -- that she -- let me put it -- let me put it this way. She was not
supposed to use the personal vehicle for business purposes, so she did not use
the Oldsmobile Cutlass '88 for business purposes. She used this -- this Caravan
for business purposes. And for that, she was -- and there were no separate
payment to her for -- for -- for any transportation. This was -- this vehicle
belonged to the business and she used it.
[31]
Therefore there was no agreement
between the Appellant and his spouse that this would be part of her employment
and there was no indication that any amount had been included in the income of
the Appellant’s spouse as a benefit from employment for the use of the van to transport
herself to her place of employment. Rather, it appears that the Appellant was
assuming that this use of the van would qualify as business use of this vehicle.
[32]
In my opinion this use of the van
by the Appellant’s spouse would not qualify as business use unless the
Appellant’s spouse recognized the benefit from employment related to this
personal use by her of the van to transport herself from her home to her place
of employment and back again. This benefit would consist of a stand-by charge
determined pursuant to paragraph 6(1)(e) and subsection 6(2) of the Income
Tax Act and an operating expense benefit determined pursuant to paragraph
6(1)(k) of the Income Tax Act.
[33]
Since the Appellant was carrying
on business as a sole proprietor, the other alternative would be to treat the
use of the van by the Appellant’s spouse as personal use with no deduction for
capital cost allowance (and no deduction for operating costs) in relation to
the use by the Appellant’s spouse and no benefit from employment. If the use of
the van, to the extent that it was used by Appellant’s spouse, is treated as
personal use, then there would be no benefit from employment as she would
simply be using the family vehicle to travel to work (that was provided to her
by the Appellant as her spouse and not as her employer) and no deduction in
relation to this use would be claimed in computing the Appellant’s income for
the purposes of the Income Tax Act. Without any evidence that the
Appellant’s spouse was including a benefit from employment in her income, it
seems more likely than not that this was how the parties were treating this and
therefore the use by the Appellant’s spouse in commuting to work would not be a
business use of the van.
[34]
As a result I find that the
Appellant has not established that the van was used in the liquor store business
to any greater extent than the amount that he had claimed in filing his tax
return for 2000. Although the Partial Consent to Judgment had referred to a
claim for additional capital cost allowance in relation to the van for 2000 and
2001, the evidence only related to a claim for 2000 and at the hearing the Appellant
restricted this claim to only the 2000 taxation year.
[35]
With respect to the proposed
increase in claim for capital cost allowance in relation to the use of the van
for the purpose of earning income from the rental of the Graymac building, no
explanation was provided for the claim based on a percentage usage of only
0.83% that was made when he filed his tax return for 2000. Presumably, since an
amount was claimed in this tax return, a determination must have been made at
that time of the appropriate percentage that the van was used for the purpose
of earning income form the Graymac rental building. The evidence at the hearing
in relation to this use of the van was limited and vague. The main focus of the
Appellant was in relation to the liquor store business. The Appellant failed to
establish that the van was used for the purpose of earning income from the
Graymac rental building to any greater extent than the percentage that was used
when he filed his tax return.
[36]
As a result no adjustment will be
made to the amount of capital cost allowance that will be allowed in relation
to the van.
Conclusion
[37]
As a result, based upon the Partial
Consent to Judgment and based upon my findings on the issues as presented at
the hearing:
(a)
The Appellant's appeal, with respect
to the 2005 taxation year, is quashed, without costs;
(b) The appeals, with respect to the 2000 and 2001
taxation years, are allowed in part and without costs, and the matter is
referred back to the Minister of National Revenue for reconsideration and
reassessment on the basis that:
1.
The Appellant's cost of goods sold
for the 2000 taxation year be increased by $7,094;
2.
The Appellant’s non-capital losses
from his 1994 taxation year be carried-forward to his 2000 taxation year;
3.
The business income for 2000 be
reduced by $1,054 as a result of a till shortage of this amount for 2000; and
4.
The Appellant be allowed an
additional deduction for capital cost allowance in relation to his rental
properties in the following amounts:
|
Taxation Year
|
Amount
|
|
2000
|
$3,633.00
|
|
2001
|
$2,608.79
|
Signed at Halifax, Nova Scotia, this 19th day of November 2008.
“Wyman W. Webb”
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