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Citation: 2005TCC421
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Date: 20050901
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Docket: 2005-467(IT)I
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BETWEEN:
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DANIEL TOMPKINS,
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Appellant,
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And
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HER MAJESTY THE QUEEN,
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Respondent.
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AMENDEDREASONS FOR JUDGMENT
Little J.
A. FACTS:
[1] The Appellant and his spouse own and operate a farm (the "Farm") located in Carvel in the Province of Alberta.
[2] When the Appellant commenced his farming operation in 1990 he owned approximately 280 acres. By 1995 the Appellant owned or leased approximately 1,100 acres with approximately 800 acres under cultivation.
[3] The Appellant raised beef cattle and other animals on the Farm until 2001. The beef cattle were sold in 2001. The Appellant also produced canola, barley and hay on the Farm. Any grain that was not required for the farm animals was sold by the Appellant to various customers.
[4] When the Appellant filed his income tax returns for the 2001 and 2002 taxation years he reported net farm losses of $76,646.07 and $69,493.51, as follows:
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2001
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2002
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Gross Farm Income
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$ 92,752.75
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$ 73,555.92
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Total Farm Expenses
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(131,728.82)
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(115,275.43)
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C.C.A.
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(37,670.00)
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(27,774.00)
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Net Farm Loss
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($76,646.07)
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($69,493.51)
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[5] By Notices of Reassessment dated March 11, 2004 the Minister of National Revenue (the "Minister") decreased the net farm losses in 2001 and 2002 to $57,829.00 and $53,435.00 respectively, as follows:
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2001
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2002
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Gross Farm Income
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$ 94,982.75
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$ 82,569.92
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Total Farm Expenses
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(115,141.75)
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(108,230.92)
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C.C.A.
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(37,670.00)
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(27,774.00)
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Net Farm Loss
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($57,829.00)
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($53,435.00)
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[6] The March 11, 2004 Reassessments decreased the 2001 and 2002 net farm losses as adjustments were made on the following basis:
(a) Entertainment expenses claimed in 2001 and 2002 of $2,892.00 and $2,722.00 respectively represented the cost of Edmonton Oilers' season tickets. The Minister determined that the cost of the season tickets were personal expenses of the Appellant and were not expenses incurred for the purpose of gaining or producing income from the Farm;
(b) Renovations to the Appellant's home of $8,507.00 in the 2001 taxation year were determined to be personal expenses by the Minister and were not expenses incurred for the purpose of gaining or producing income from the Farm;
(c) Repairs for a car belonging to the Appellant's son of $1,083.00 in 2001 and $966.00 in 2002 were disallowed as these expenses were not expenses incurred for the purpose of gaining or producing income from the Farm;
(d) The purchase of steel toed boots in the 2001 taxation year was a personal expense of the Appellant or the Appellant's son and was not an expense incurred for the purpose of gaining or producing income from the Farm; and
(e) Other adjustments to revenue and expenses that are not in issue in these appeals were made.
[7] The Appellant filed Notices of Objection to the Reassessments for the 2001 and 2002 taxation years. The Notice of Objection was received June 3, 2004. In the Notice of Objection the Appellant stated, among other things, that:
(a) Home repairs were a farm expense and in the alternative, capital cost allowance on the square footage of the home that was used for business purposes of $2,250.00 in 2001 and $2,025.00 in 2002 should be allowed;
(b) The entertainment expenses should be allowed;
(c) The payment of repairs for his son's car was a wage "in-kind";
(d) The Appellant has not claimed any wages to his children. Wages of $6,800.00 in 2001 and $6,000.00 in 2002 should be allowed; and
(e) The cost of steel toed boots should be allowed.
[8] In response to the Notice of Objection for the 2001 and 2002 taxation years, the Minister confirmed the assessment of tax by notification dated November 12, 2004.
B. ISSUES:
[9] The issues to be decided are:
(a) Whether the Appellant is entitled to deduct the expenses outlined in paragraph [7] above for the 2001 and 2002 taxation years.
C. ANALYSIS AND CONCLUSION:
Entertainment Expenses
[10] The Appellant testified that he paid for one season ticket to the Edmonton Oilers Hockey Games and his friend Mr. Vern Kibblewhite paid for one season ticket. The Appellant and Mr. Kibblewhite agreed to share the tickets with Mr. Kibblewhite using the two tickets to attend one-half of the home games and the Appellant using the two tickets to attend one-half of the home games. The Appellant also testified that he used the tickets to entertain customers of the Farm, i.e. he would take a customer of the Farm to a hockey game. The Appellant provided a list of the customers that he took to a hockey game. The Appellant said that the customers that he took to the hockey games purchased beef, pork, grain and hay from the Farm (Exhibit A-1).
[11] I accept the Appellant's testimony regarding the entertainment expenses. The Appellant will be allowed to deduct the following amounts:
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2001
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2002
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$1,446.00
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$1,366.00
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(50% of $2,892.00)
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(50% of $2,722.00)
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(Note: The Appellant is precluded by subsection 67.1(1) of the Income Tax Act (the "Act") from deducting the cost of the ticket that he personally used to enable him to attend the hockey games.)
Renovations to the Home
[12] The Appellant claimed the following costs as building repair expenses:
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Oak Spindle Stair Railing
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$945.00
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Cabinets and Shelves
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$4,545.00
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Carpeting and Installation
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$2,296.00
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Siding and Window Trim
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$992.00
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[13] The Appellant testified that he used the kitchen in his home to meet various customers of the Farm. The Appellant also testified that the cabinets and shelves were necessary to store clothes and supplies used to operate the Farm.
[14] I have concluded that the Appellant should be allowed to deduct the amount of $4,545.00 that was paid for the cabinets and shelves in determining his income for the 2001 taxation year.
[15] I have concluded that the amounts of $945.00, $2,296.00 and $992.00 referred to above were non-deductible personal expenses.
Wages Paid to Children
[16] When the Appellant filed his income tax returns for the 2001 and 2002 taxation years he did not claim any expenses paid to his children.
[17] When the Appellant filed Notices of Objection to the Notices of Reassessment issued for the 2001 and 2002 taxation years he claimed that the following wages should be allowed in determining the expenses of the Farm:
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2001
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$6,800.00
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2002
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$6,000.00
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(See Exhibit A-2.)
[18] The Appellant testified that his wife and children assisted him in the operation of the Farm. The Appellant also testified that rather than paying "wages" to his children he sometimes paid for various expenses on their behalf.
[19] I am convinced from the Appellant's testimony that the children worked on the Farm. However, the Appellant did not produce sufficient records to establish all of the amounts that he attempted to deduct as wages paid to the children.
[20] I have concluded that the Appellant is entitled to deduct the following amounts:
1. Wages paid to David
June 13, 2001 $160.00
July 26, 2001 $100.00
September 17, 2001 $1,000.00
October 9, 2001 $200.00
November 8, 2001 $190.00
Total $1,650.00
(See Exhibit A-3.)
2. Automobile purchased for son Mathew 2002
(See Exhibit A-4.) $1,000.00
3. Automobile purchased for son David 2001
(See Exhibit A-4) $1,800.00
4. Spent for driving school for Mathew 2002
(See Exhibit A-6) $344.83
5. Cheque to the Bank of Montreal 2001
August 27, 2001 $1,500.00
(See Exhibit A-8.)
[21] The Appellant testified that the cheque (Exhibit A-8) was used to obtain cash and the cash was used to pay wages to the children.
[22] I am not satisfied from the evidence that any further claim should be allowed as wages paid by the Appellant to the children. In this connection I have concluded that expenses such as the expense of $84.10 that was paid to repair a bicycle for his son Chris was more in the nature of a personal expense that a parent would pay for his child than a "wage" paid by the parent to his son. Some of the other expenses claimed by the Appellant as "wages" were similar to the bicycle repair expense.
The Cost of Steel Toed Boots
[23] Counsel for the Respondent conceded prior to the hearing that this amount should be allowed as a deduction.
[24] The appeals for the 2000 and 2001 taxation years are allowed, without costs, and the assessments are referred back to the Minister for reconsideration and reassessment on the basis that the Minister is instructed to make the adjustments referred to above.
Signed at Toronto, Canada, this 1st day of September 2005.
Little J.
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