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Citation:2004TCC835
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Date: 20041221
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Docket: 2003-3586(IT)I
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BETWEEN:
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FREDERICK WILLIAM WINDSOR,
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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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REASONS FOR JUDGMENT
O'Connor, J.
[1] This appeal relates to whether the
Appellant is entitled to certain business expenses in the years
1999 and 2000.
[2] The material facts may be
summarized as follows:
a) The Appellant was
employed full-time as a fleet mechanic with Hydro One for the
years 1999 and 2000;
b) The Appellant operates an
auto repair service operating as M & W Enterprises
(M & W);
c) The Appellant has
operated M & W since 1985;
d) The Appellant is also
involved in a venture operating as Windsor's Antique Auto
Restoration (WAAR) to restore vehicles for resale. This venture
started in 1998 but although some vehicles and parts had been
acquired no sales had occurred in any year prior to 2001 and
quite possibly later;
e) The Appellant owns 23
vehicles. Of these, 10 are plated and 13 are not plated.
[3] With respect to M & W the
Appellant reported revenues from only two jobs in each taxation
year, (i) in 1999 the jobs were performed for L. Ellis and
S. Ellis, friends of the Appellant; (ii) in 2000, the jobs
were performed for L. Ellis and M. Thompkins, friends of
the Appellant. L. Ellis is a lady who lives next door to the
Appellant and S. Ellis and M. Thompkins are related to L.
Ellis.
[4] The Notice of Appeal dated October
3, 2003 simply states as follows:
I wish to object the audit of 1999 and 2000 taxation years. I
object to all revisions of 1999 and 2000 income tax returns
including expenses of my business and will prove these changes to
be incorrect in court.
[5] The Reply to the Notice of Appeal
("Reply") attempts to set forth the facts in greater
detail and the two Schedules attached to the Reply give the
following details of the Appellant's income and expenses for
1999 and 2000:
1999 Summary of Business Income
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Amount
Assessed
May 8, 2000
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Adjustment
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Revised
Amount
July 29, 2002
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Revenue
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$
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1,069.49
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$
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0.00
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$
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1,069.49
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Opening Inventory
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0
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0
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0
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Purchases
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362.86
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(362.86)
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0
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Closing Inventory
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0
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0
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0
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Cost of Sales
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362.86
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(362.86)
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0
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Gross Profit
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706.63
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362.86
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0
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Vehicle
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4,374.67
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(3,471.36)
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903.31
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Supplies
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287.39
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(287.39)
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0
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Telephone
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863.41
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(752.43)
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110.98
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CCA
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105.46
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0
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105.46
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Total Expenses
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5,630.93
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(4,511.18)
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1,119.75
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Net Income/(Loss)
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$
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(4,924.30)
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$
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4,874.04
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$
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(50.26)
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2000 Summary of Business Income
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Amount
Assessed
April 26, 2001
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Adjustment
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Revised
Amount
July 29, 2002
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Revenue
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$
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1,242.63
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$
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0.00
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$
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1,242.63
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Opening Inventory
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0
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0
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0
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Purchases
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612.34
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(32.50)
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579.84
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Closing Inventory
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0
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0
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0
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Cost of Sales
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612.34
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(32.50)
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579.84
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Gross Profit
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630.29
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32.50
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662.79
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Dues
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100.00
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(100.00)
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0
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Repairs
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542.60
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(542.60)
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0
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Vehicle
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5,399.82
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(4,899.82)
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500.00
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Supplies
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465.72
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(315.27)
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150.45
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Telephone
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1,143.62
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(1,042.63)
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100.99
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CCA
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77.33
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0
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77.33
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Total Expenses
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7,729.09
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(6,900.32)
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828.77
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Net Income/(Loss)
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$
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(7,098.80)
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$
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6,932.82
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$
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(165.98)
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[6] As appears from these Schedules,
the Respondent is allowing deductions of business losses of
$50.26 for 1999 and $165.98 for 2000. Paragraph 7 of the Reply
allows the Appellant additional purchases of $362.86 for 1999 and
$32.50 for 2000, thereby increasing the deductions of business
losses to $413.12 for 1999 and $198.48 for 2000.
[7] With respect to business use of
home, the details of which are also included in the said
Schedules, it was explained to the Appellant and accepted by him
that considering subsection 18(12) of the Income Tax Act
("Act") the Appellant could not use expenses
from the business use of his home to increase the business losses
which he had experienced in 1999 and 2000. It was agreed by the
Respondent and the Appellant that, as contemplated in paragraph
18(12)(c) of the Act, whatever final expenses were
eventually determined with respect to business use of home, they
were to be carried-forward to a future year when they could be
used and were not to be determined by or ruled upon in this
judgment.
[8] Counsel for the Respondent
submitted that the following details and calculations in the
Reply to the Notice of Appeal were correct:
..
Purchases
i) The
Appellant provided invoices totalling $2,628.37 and $2,816.12 for
the 1999 and 2000 taxation years respectively;
j) The
Appellant claimed $362.86 and $612.34 as purchases for the 1999
and 2000 taxation years respectively;
k) Of the
invoices provided for the 2000 taxation year, the Minister
disallowed $6.15 and $132.22 for a total of $138.37, but allowed
these amounts in the expense category for supplies;
l) The
Appellant did not identify the purpose of each purchase as being
for M & W, for WAAR, or for personal vehicles;
Vehicle
m) The Appellant did
not keep a log of business use for vehicles used;
n) For the
1999 taxation year, the Appellant included in vehicle expense
$4,017.67 for gas, $280 for insurance and $77 for plates for a
total of $4,374.67;
o) For the
1999 taxation year, the Appellant provided evidence to support
$4,892.25 in vehicle expense for gas and insurance for three
vehicles as follows:
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taped gas receipts
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$3,214.15
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91 Chevrolet Lumina
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322.00
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86 Ford F150 Pick-up
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548.00
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86 Mercury Grand Marcuis
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808.00
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$4,892.25
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p) For the
1999 taxation year, the Minister allowed 25% of $3,214.25 for
gas, 25% of $322 for the Lumina for insurance and 25% of $77 for
plates for a total allowed of $903.31;
q) For the
2000 taxation year, the Appellant claimed vehicle expense of
$5,399.82;
r) For
the 2000 taxation year, the Appellant provided evidence to
support $4,131.11 in vehicle expense for gas and insurance for
three vehicles as follows:
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taped gas receipts
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$3,202.11
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91 Chevrolet Lumina
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337.00
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86 Ford F150 Pick-up
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251.00
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78 Empress 26' Motor Home
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341.00
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$4,131.11
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s) For the
2000 taxation year, the Minister allowed $500 calculated as
approximately 1250 kilometres at $0.405 per kilometre;
Telephone
t) The
Appellant provided telephone bills totalling $712.01 and $646.52
for the 1999 and 2000 taxation years respectively;
u) The
Appellant claimed telephone expense of $863.41 and $1,143.62 for
the 1999 and 2000 taxation years respectively;
v) The
Appellant had only one telephone for both personal and business
use;
w) The Minister
allowed 50% of the long distance charges as follows:
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Taxation Year
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Total Long Distance
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50% Allowed
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1999
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$221.96
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$110.98
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2000
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$201.99
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$100.99
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Supplies
x) For the
1999 taxation year, the Appellant did not provide documentation
to support the amount claimed;
y) The
Appellant claimed supplies expenses of $287.39 and $465.72 for
the 1999 and 2000 taxation years respectively;
z) The
Minister did not allow an amount for the 1999 taxation year;
[Although not mentioned here the Schedule indicates that the
Minister allowed $150.45 for the 2000 taxation year].
Dues
bb) The Appellant did not
provide documentation to support the $100.00 claimed for the 2000
taxation year;
cc) The Minister did not
allow an amount for the 2000 taxation year;
Repairs
dd) The Appellant did not
provide documentation to support the $542.60 claimed for the 2000
taxation year;
ee) The Minister did not
allow an amount for the 2000 taxation year;
...
[9] Counsel for the Respondent also
submitted generally that:
a) There was a total
absence of adequate receipts to justify the expenses and to
distinguish business expenses from personal expenses. Moreover,
no logs were kept with respect to the various vehicles that were
used, apparently both in the business of M & W and
that of WAAR.
b) Some expenses were not in
fact expenses but rather represent items to be capitalized and
only to be taken in as expenses when sales occur. This was mainly
applicable to the renovation business where no sales had
occurred.
c) The renovation activity
was not really a business but rather was more of a hobby. This
was more or less admitted by the Appellant who explained that
when he retired from his every day work at Hydro One he would get
more involved in the renovation venture.
d) The Respondent could have
taken the position that there was no expectation of profit,
considering the nature of both businesses (one with minimal sales
to friends and the other a hobby) and thus allowed no expenses
and that the Minister in allowing some expenses was in effect
"taking the high road" or being generous.
e) The Appellant had been
working for Hydro One Inc. for approximately 10 years, 5 days per
week, and that routine continued in the years 1999 and 2000, that
the Appellant used his personal vehicle at one time, a Grand
Marquis, until October 1999 and thereafter a Lumina which he
purchased in October 1999. These vehicles were used to go to and
from work, a distance of approximately 20 miles. The inference is
that gasoline was consumed in that manner, further gasoline was
consumed with respect to at least one of the antique vehicles
retained for eventual completion and ultimate sale and gasoline
was also consumed by the pick-up vehicle in rounding-up antique
vehicles.
[10] The Appellant's main concern
related to vehicle expenses and that items dealing with gasoline
consumed by the vehicles used to pick up antique automobiles,
parts and other items and repairs to those vehicles should have
been expensed in the year the amounts were expended and allowed
as expenses. The Appellant appeared concerned that the principal
reason for him being assessed related to correspondence from CCRA
where there was an indication that many invoices had been billed
to Hydro One Inc. (where the Appellant worked) and indicating
that that was not reasonable proof that an expenditure for the
business was actually incurred.
Conclusion
[11] I reviewed Exhibit A-1 and various
receipts submitted en masse as Exhibit A-2 which total
approximately $400.00 and I have come to the conclusion that it
is not because expenses were shown as billed to Hydro One Inc. or
Ontario Hydro Services that caused the Minister to deny the
expenses. In other words the Minister appears to have accepted
certain expenses notwithstanding the fact that they were billed
to Hydro One Inc. or Ontario Hydro Services. The Appellant also
referred to Exhibit A-3 being a letter to the Appellant dated
October 22, 2002 from William V. Baker, Assistant
Commissioner, Compliance Programs Branch of CCRA, which contains
certain general comments with respect to why certain expenses
were not allowed and why others should be capitalized. This
letter also refers to the invoices billed to Hydro One and
attempted to explain that that was not the sole reason for
disallowing certain expenses. The letter advised that the
Appellant should have declared a separate business for the car
restoration activities such that they could be distinguished from
car repair expenses. The Appellant points to that statement as
leaving him with the impression that 'no log was absolutely
required' and consequently he did not retain a log. The
difficulty is that the Appellant has not succeeded in presenting
evidence that would establish what expenses related to the car
repair business, what related to the car restoration venture and
what related to personal expenditures. The conclusion from this
is that the CCRA auditor in charge of the audit was put in the
impossible position of attempting to allocate the various
expenses claimed. In my view the auditor did the best he could in
the circumstances and, if anything, was generous in allowing the
expenses he did.
[12] In conclusion, all matters considered,
I find that the Minister's reassessments were reasonable,
correct and in accordance with the Act and sound
accounting principles for the calculation of profits and losses
from a business. Consequently, the appeals from the reassessments
made under the Act for the 1999 and 2000 taxation years
are dismissed with the exception that, as conceded by the
Minister, the Appellant shall be entitled to additional purchases
in respect to his business of $362.86 in the year 1999 and $32.50
in the year 2000.
Signed at Ottawa, Canada, this 21st day of December, 2004.
O'Connor, J.
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