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Citation: 2003TCC914
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Date: 20031219
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Docket: 2001-2535(IT)G
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BETWEEN:
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AL BYERS,
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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
Beaubier, J.
[1] This appeal pursuant to the
General Procedure was heard at Nanaimo, British Columbia on
November 24, 2003. The Appellant testified and called Charles
Young, a teacher who had crewed on the Appellant's Yacht;
Alan MacSween a Master Mariner who inspected the boat in
2000 and 2001 upon the application of the Appellant to certify it
for carrying passengers for charter purposes; and Sigfried Rogge,
a former Dock Master at Stone's Marina in Nanaimo where the
Yacht had been docked. The Respondent did not call any
witnesses.
[2] Paragraphs 3 to 12 a) and 13 of
the Respondent's Amended Reply dated October 5, 2001
read:
3. He admits
that the Appellant operated a charter boat activity from a sail
boat.
4. He admits
that the Minister of National Revenue (the "Minister")
denied a majority of expenses claimed by the Appellant on the
basis of a ratio of days of charter trips in a year over total
days in a year but denies that this method was unfair.
5. He denies
all other allegations of fact set out in the Notice of Appeal and
puts the Appellant to the strict proof thereof.
6. The
Minister initially assessed the Appellant for the 1996, 1997 and
1998 taxation years by Notices dated 7 April 1997, 15 April
1998 and 25 March 1999.
7. In
computing income for the 1996, 1997 and 1998 taxation years the
Appellant deducted the amounts of $28,228.00, $36,818.00 and
$37,529.00 as business expenses.
8. By Notices
dated 4 May 2000, the Minister reassessed the Appellant for the
1996, 1997 and 1998 taxation years to disallow expenses in the
amounts of $25,921.00, $33,470.00 and $33,270.00 and impose gross
negligence penalties in respect of each of those years.
9. By Notice
filed 1 August 2000, the Appellant Objected to the Minister's
reassessments.
10. By Notices dated 6
April 2001, the Minister further reassessed the Appellant to
allow additional expenses in the amounts of $749.00 and $558.00
over and above the amounts previously allowed in the 1997 and
1998 taxation years respectively, and to delete the gross
negligence penalties in respect of the 1996, 1997 and 1998
taxation years.
11. In so reassessing the
Appellant, the Minister relied on the following assumptions:
a) at all
material times the Appellant was engaged in full-time employment
as a high school principal;
b) the
Appellant is a long time avid sailor;
c) in 1991 the
Appellant purchased a 51 foot 1981 Cooper Yachts Motorsailer
named the Windshadow X for $168,000.00 (the
"Yacht");
d) the
Appellant purchased the Yacht primarily for personal use and
refurbished the Yacht in anticipation of his retirement;
e) the
Appellant has resided on the Yacht full-time since its purchase
and maintains no other residence;
f) there
are three staterooms on the Yacht, one of which is permanently
assigned to the Appellant for his use;
g) since the
date of its purchase, the Appellant has reported business losses
relating to the charter of the Yacht (the "Activity")
for the years and in the amounts set out in Schedule A to this
Reply;
h) in the
1996, 1997 and 1998 taxation years, the Appellant reported
revenue and expenses in respect of the Activity as detailed in
Schedule B to this Reply;
i)
during the 1996, 1997 and 1998 taxation years, the Appellant
carried out five to six charters each year for a total of 24
days, 37 days and 31 days respectively;
j) for
the 1996, 1997 and 1998 taxation years, the Appellant reported
personal use of the Yacht as amounting to 19%, 19% and 6%
respectively;
k) revenue
reported for the 1998 taxation year included $2,400 which
represented the Appellant's payment to himself for personal
use of the Yacht;
l) the
actual personal portion of expenses relating to the Yacht was not
less than 93%, 90% and 91.5% in the 1996, 1997 and 1998 taxation
years respectively;
m) the increase of
the portion of personal use, as well as the disallowance of 100%
personal expenses, expenses that were unsupported and expenses
that were capital in nature (the "Disallowed Expenses")
reveals that the Appellant in fact made profits from the Activity
in the amounts of $8,693.75, $17,903.28, and $12,696.45 in the
1996, 1997 and 1998 taxation years respectively, as detailed in
Schedule C to this Reply;
n) the
Appellant claimed certain amounts of fuel, moorage and meal
expenses during months when the Yacht was not chartered;
o) some of the
expenses reported as repair and maintenance were actually related
to the upgrading and refurbishing of the Yacht and were not in
the ordinary course of maintenance required to maintain a boat
for charter;
p) a marine
survey completed on 25 March 1998 comments on the extensiveness
and quality of upgrades to the Yacht and appraises the Yacht at a
fair market value of $280,000;
q) in an
effort to maintain the pristine condition of his residence, the
Yacht, the Appellant was selective about who he chartered it
to;
r) in
the 1996, 1997 and 1998 taxation years, the Appellant's
customers were primarily identical in each year or were
associated with a bi-annual trans-Pacific Yacht race known as the
Vic-Maui Race;
s) the
Appellant carried out limited advertising for the Activity and
did not have a white pages or yellow pages telephone listing for
the Activity;
t) food
was not included in the price of the Appellant's charters and
the Appellant did not provide food to any of his customers;
u) the
Appellant did not prepare a business plan prior to commencing the
Activity and is not planning any changes to the Activity that
would reduce expenses; and
v) the
Disallowed Expenses were not incurred for the purpose of gaining
or producing income for a business or property, but were personal
or living expenses of the Appellant, were not incurred or were
capital in nature.
B. ISSUES
TO BE DECIDED
12. The issues are:
a) whether
expenses in excess of the amount allowed by the Minister were
incurred by the Appellant for the purpose of gaining or producing
income from a business or property; and
...
C.
STATUTORY PROVISIONS RELIED ON
13. He relies on sections
3 and 9, subsection 248(1) and paragraphs 18(1)(a), 18(1)(b),
18(1)(h) and 18(1)(l) of the Income Tax Act, R.S.C. 1985,
c. 1 (5th Supp.), as amended (the "Act").
[3] The Respondent specifically did
not plead subsection 18(12).
[4] Assumptions 6 a), b), c), e), f),
g), h), i), j), k), m), n), o), p), q), r), s), t) and u) were
not refuted by the evidence. But the Appellant was a
vice-principal, not a principal, a); and when chartered, the
Appellant did not use a state room if it was used by passengers,
f).
[5] With respect to the remaining
assumptions:
6 d) is true. The Appellant lived on the Yacht
permanently from when he bought it in 1991 until he sold it in
about 2001. It was his personal residence, and was purchased for
that purpose. (See Exhibit R-1).
6 l) is based on the actual time in which the Yacht was
chartered as a percentage of the total days in each calendar year
as a ratio of total expenses. The Appellant stated that fuel
during charters varied from the norm as did insurance for
charters. But he did not present alternate or comparable
figures.
6 m) was admitted, but has since been varied slightly
by the parties in Exhibit R-4.
6 q) was not refuted, but any landlord is highly
selective of his tenants if he wishes to maintain his property in
good condition at reasonable cost. This is part of the reason why
the Court also believes that the Appellant's advertising
practises were business-like; to obtain a quality customer,
selective advertising is better than broadcast advertising.
6 r) is the question in dispute.
[6] In his testimony, the Appellant
did not acknowledge that living on the Yacht constituted personal
use for pleasure. However the Court finds that it does so. The
Appellant chose to sell his home in Whistler and to use the
proceeds to buy the Yacht and reside on it. His loan application
to buy the Yacht stated that the purpose of the purchase was so
that he could reside on it. (Exhibit R-1). The Appellant pointed
out that such a loan was for a lower rate of interest and could
be obtained faster than a commercial loan. The Appellant must
live with the purpose that he stated in Exhibit R-1, but, more
importantly, the fact is that it was his residence from the time
he bought it until the time that he sold it.
[7] Respondent's counsel submitted
J. Paul Fingold v. The Queen, 96 DTC 1305 as the basis
upon which the Respondent assessed the Appellant. The
Appellant's original claims of expenses are not accepted by
the Court on the basis of the assumptions as already described.
The Appellant objected to the method proposed by the Respondent,
but did not present any alternative figures or detailed itemized
explanation of the expenses in question upon which the Court
could base an alternative calculation. In these circumstances,
the Court finds that the percentages assessed by the Respondent
are correct, based upon Sobier, J.'s reasoning in
Fingold. The percentages of personal use are:
1996: 93%
1997: 90%
1998: 91.5%
Accordingly the "personal allocation" submitted by
the Respondent in Exhibit R-4 is confirmed by the Court for the
purposes of this matter being remitted to the Minister of
National Revenue for reconsideration and reassessment exactly as
set out as to form in Exhibit R-4, with the appropriate
insertions based upon this finding.
[8] The adjustments in the
Appellant's favour are minor and relate only to the
accounting changes as reviewed in examination for discovery. In
these circumstances, the Respondent is awarded party-and-party
costs in this appeal.
[9] At the opening of the hearing the
Appellant advised that his address henceforth for the purposes of
this appeal is:
10920
Chemainus Road
Ladysmith, British Columbia
V9G 1Z4 (added by the Court)
E-mail: alanbyers@shaw.ca
Telephone: (250) 245-5180
That is so ordered.
Signed at Saskatoon, Canada, this 19th day of December
2003.
Beaubier, J.
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