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Citation:2004TCC737
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Date: 20041123
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Docket: 2003-3024(IT)I
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BETWEEN:
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DAVID J. HARRIS,
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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] The history of how these appeals
evolved and the issues are described in the following paragraphs
of the Reply to the Notice of Appeal ("Reply"):
...
2. By a letter
dated January 12, 2001, the Minister of National Revenue
("Minister") requested that the Appellant file his 1999
income tax return.
3. By a letter
dated February 27, 2001, the Minister reminded the Appellant of
the previous request to file his 1999 income tax return.
4. By a letter
dated January 9, 2002, the Minister requested that the Appellant
file his 2000 income tax return.
5. By a letter
dated February 22, 2002, the Minister served a demand on the
Appellant to file his 2000 income tax return.
6. By Notices
dated June 6, 2002, the Minister initially assessed the Appellant
for the 1999 and 2000 taxation years under subsection 152(7) of
the Income Tax Act ("Act"), for taxable
income of $42,428.89 and $37,965.64, respectively, as detailed in
the attached Schedules "A" and "B". The
Minister also assessed the Appellant for late filing penalties in
accordance with section 162 of the Act.
7. The
Appellant objected to the assessments by Notice of Objection
dated October 17, 2002.
8. On October
21, 2002, the Appellant submitted his 1999 and 2000 income tax
returns, and reported taxable income of $31,126.85 and
$26,131.64, respectively, as detailed in the attached Schedules
"A" and "B".
9. By Notice
dated May 21, 2003, the Minister confirmed the assessments for
the Appellant's 1999 and 2000 taxation years.
10. In assessing taxes for
the 1999 and 2000 taxation years and in confirming those
assessments, the Minister assumed the same facts, as follows:
a) the
Appellant earned employment income of $40,583.01 in 1999 and
$37,965.64 in 2000 from 3003300 Nova Scotia Company operating as
Petsmart, and $830.00 in 1999 from The Rockhouse Indoor Climbing
Centre Ltd.;
b) the
Appellant also realized a net capital gain of $1,015.88 in 1999
from the disposition of securities issued by Canada Life;
c) the
Appellant did not earn other employment income of $7,230.26 in
1999 and $4,396.68 in 2000;
d) the
Appellant did not incur expenses of $9,863.56 in 1999 and
$11,230.62 in 2000 to earn income from employment;
e) the
Appellant did not incur expenses of $7,369.96 in 1999 and
$6,000.00 in 2000 to gain or produce business income;
f) the
Appellant's spouse earned not less than $6,290.00 in 1999 and
$6,754.00 in 2000;
g) the
Appellant did not submit income tax returns for the 1999 and 2000
taxation years until October 21, 2002; and
h) the
Appellant filed his 1999 and 2000 income tax returns beyond the
time limit, and therefore late filing penalties in the amounts of
$1,351.27 for 1999 and $2,613.54 for 2000 were payable by
him.
B. ISSUES
TO BE DECIDED
11. The issues are
whether:
a) the
Minister properly determined the taxable income of the Appellant
for the 1999 and 2000 taxation years; and
b) the
Minister properly levied late filing penalties under section 162
of the Act.
...
16. The Appellant is not
entitled to claim a spousal amount of $5,718.00 in 1999 and
$6,140.00 as a non-refundable tax credit under paragraph
118(1)(a) of the Act, as his spouse's income was in
excess of the base amount for each of the 1999 and 2000 taxation
years.
[2] Schedules "A" and
"B" of the Reply read as follows:
SCHEDULE "A"
David J. Harris - Tax Court of Canada Appeal
#2003-3024(IT)I
Income, deduction and non-refundable tax credits
claimed and allowed for 1999
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June 6, 2002
Assessment
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Oct. 21, 2002
Revised Claim
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Amounts
In Issue
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Income:
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Employment income
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$
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41,413.01
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$
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41,130.01
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$
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283.00
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Other employment income
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-
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7,230.26
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(7,230.26)
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Taxable capital gains
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1,015.88
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-
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1,015.88
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Discrepancies
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-
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0.10
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(0.10)
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Total Income
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42,428.89
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48,360.37
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(5,931.48)
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Deductions:
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Other employment expenses
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$
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-
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$
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9,863.56
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$
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(9,863.56)
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Other deductions
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-
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7,369.96
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(7,369.96)
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Total Deductions
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-
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17,233.52
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(17,233.52)
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Net & Taxable Income
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$
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42,428.89
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$
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31,126.85
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$
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11,302.04
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Non-refundable Tax Credits
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Basic personal amount
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$
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6,794.00
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$
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6,794.00
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$
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-
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Spousal amount
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-
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5,718.00
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(5,718.00)
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CPP contributions through employment
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1,186.50
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1,186.50
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-
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Employment insurance premiums
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994.50
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936.00
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58.50
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Total Non-refundable Tax
Credits
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$
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8,975.00
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$
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14,634.50
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$
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(5,659.50)
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SCHEDULE "B"
David J. Harris - Tax Court of Canada Appeal
#2003-3024(IT)I
Income, deductions and non-refundable tax
credits claimed and allowed for 2000
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June 6, 2002
Assessment
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Oct. 21, 2002
Revised Claim
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Amounts
In Issue
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Income:
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Employment income
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$
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37,965.64
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$
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38,965.58
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$
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(999.94)
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Other employment income
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-
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4,396.68
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(4,396.68)
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Total Income
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37,965.64
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43,362.26
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(5,396.62)
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Deductions:
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Other employment expenses
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$
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-
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$
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11,230.62
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$
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(11,230.62)
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Other deductions
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-
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6,000.00
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(6,000.00)
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Total Deductions
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-
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17,230.62
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(17,230.62)
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Net & Taxable Income
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$
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37,965.64
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$
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26,131.64
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$
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11,834.00
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Non-refundable Tax Credits
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Basic personal amount
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$
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7,231.00
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$
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7,231.00
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$
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-
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Spousal amount
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-
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6,140.00
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(6,140.00)
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CPP contributions through employment
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1,329.90
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1,329.90
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-
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Employment insurance premiums
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911.19
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877.36
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33.83
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Total Non-refundable Tax
Credits
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$
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9,472.09
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$
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15,578.26
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$
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(6,106.17)
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[3] It should be noted at the outset
that the Appellant has the burden of proof to prove the
assessments wrong. Speaking generally, in view of the almost
total lack of documentation, such as receipts and/or other proofs
of expenses, and record keeping, the Appellant had an extremely
difficult task of meeting that burden of proof. He was given
considerable delays to file documentation and to a very great
extent these delays were never met. Documentation continued to be
submitted in dribs and drabs as late as one week prior to the
hearing of these appeals.
[4] Having stated the above, it is to
be noted that the following matters were agreed to by the parties
or otherwise established at the hearing.
1. The capital gain of $
1,015.88 referred to in paragraph 10(b) of the Reply was properly
assessed.
2. The "other
employment incomes" of $ 7,230.26 in the year 1999 and
$4,396.68 in the year 2000 referred to in paragraph 10(c) of the
Reply were not earned and therefore were not taxable.
3. The credits for spousal
amounts of $5,718.00 in the years 1999 and $6,140.00 in the year
2000, referred in paragraph 16 of the Reply and in Schedules
"A" and "B" were correctly disallowed because
the Appellant's spouse's incomes were in excess of the
base amounts for these years.
4. The correct credits for
employment insurance premiums were $994.50 in the year 1999 and
$911.19 in the year 2000, as indicated in Schedules "A"
and "B" of the Reply.
5. Although not mentioned
in the Notice of Appeal nor in the Reply, the Appellant had net
rental income of $447.21 in the year 1999 and $398.18 in the year
2000 from the rental of space in his home in Mission, British
Columbia to Rockhouse Indoor Climbing Centre Ltd.
("Rockhouse").
6. The Appellant has
established:
(i) that Rockhouse was a wholly
owned subsidiary of SCM Industries Ltd., the shares of which were
in turn owned 33 1/3 by the Appellant, 33 1/3
by another person and 33 1/3 by a third
person;
(ii) that Rockhouse in 1999 and
2000 operated an indoor rock climbing centre at Richmond, British
Columbia;
(iii) that during those years the
Appellant provided to Rockhouse consultancy services and to a
lesser degree other services such as banking, lines of credit,
arranging loans with the Federal Business Development Bank,
G.S.T. and workmen's compensation matters, license
requirements, marketing and business proposals;
(iv) that the Appellant devoted 20 -
35 hours per week to the Rockhouse operation and,
(v) that the Appellant was also in the
years in question an employee of a Nova Scotia company acting as
Petsmart, where he worked 60 - 70 hours per week. The Appellant
points to this extremely heavy work load and the Rockhouse
operation as an excuse for not being able to spare the time to
properly locate and present all the necessary documentation and
receipts to prove the expenses he has claimed.
7. The parties have agreed
that the debate is about the expenses that the Appellant claims
in respect to the consulting business with Rockhouse.
[5] It is proposed to discuss the
various expenses under the headings submitted by the parties.
Travel
The Appellant's uncontested testimony is that the travel
distance from the Mission office to the Rockhouse gym facility in
Richmond was 120 kilometres round trip. At first the Appellant
indicated that this distance was actually 240 kilometres but on
clarification from the Appellant's Agent, the Appellant
agreed that the actual amount of the round distance travelled was
120 kilometres. The Appellant claims on the basis of the trips
from the office in Mission to the gym facility in Richmond about
3 - 4 times per week plus trips to perform banking and marketing
operations, trips to drive another shareholder from time to time,
trips to Squamish, British Columbia, to attempt to set up an
outdoor rock climbing site, all using his Mazda truck, that he
travelled 24,960 kilometres in 1999 and 18,987 kilometres in 2000
which at 37 cents per kilometre entitled him to claim travel
expenses of $9,235.20 in the year 1999 and $7,025.19 in the year
2000. Because the Appellant could not produce receipts or other
evidence or a travel log nor essentially any satisfactory proof
of the actual business travel, the Minister of National Revenue
("Minister") allowed zero dollars in each year.
[6] In my opinion there must have been
some travel, given the description of the work that the Appellant
performed and although the Appellant was extremely remiss in
documentation I believe it is reasonable to allow a reasonable
estimate which in my opinion is 20 percent of the amounts
claimed, 20 percent of $9,235.20 being $1,847.04 in the year 1999
and 20 percent of $7,025.19 being $1,405.04 in the year 2000.
Telephone
The Appellant claimed expenses for telephones as follows:
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1999
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cell
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$ 674.57
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home telephone
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$1,966.38
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2000
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cell
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$1,369.01
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home telephone
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$1,535.24
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The Minister allowed a total of $486.00 in 1999 and $511.00 in
2000. The Minister cited reasons for the lesser amounts allowed
in both years in Exhibit R-2 which was elaborated upon in the
verbal testimony of Janice Wandler, an Appeals Officer of
Canada Revenue Agency ("CRA"). In my opinion the
amounts allowed by the Minister were reasonable in the
circumstances. Once again in this respect the Appellant was
unable to accurately establish the correct amounts for the
business use of the telephones.
Meals and Entertainment
The amounts originally claimed by the Appellant were $705.88
in the year 1999 and $310.85 in the year 2000. The Minister has
allowed zero dollars as the proof of the expenses was extremely
unsatisfactory. Some of the expenses submitted as business
entertainment were clearly receipts for personal meals and in my
opinion the zero dollar amounts allowed in both years by the
Minister were reasonable.
Office Expenses
The Appellant claimed $1,112.52 in the year 1999 and the
Minister allowed zero dollars. In the year 2000 the Appellant
claimed $705.47 as office expenses and based on receipts
submitted the Minister allowed an amount of $70.00 plus a further
amount of $66.00 representing capital cost allowance. In my
opinion owing to the lack of receipts or other documentation the
assessments for office expenses by the Minister were reasonable
in the circumstances.
Supplies
The Appellant claimed $1,613.75 in the year 1999 and the
Minister allowed zero dollars. In the year 2000, nothing was
claimed and nothing was allowed. Again in my opinion the
Minister's assessments were reasonable.
Other Expenses
The Appellant claimed $361.85 in the year 1999 and $123.84 in
the year 2000 and again because of absence of proof and
documentation and lack of receipts the Minister's allowances
of zero dollars in each year are reasonable in the
circumstances.
Operating Expenses
No further operating expenses were allowed by the Minister as
either the expenses were not proven or in certain cases certain
items were personal. In my opinion the allowance of zero dollars
by the Minister was reasonable in the circumstances.
Conclusion
[7] In conclusion, the appeals from
the reassessments made under the Income Tax Act for the
1999 and 2000 taxation years are allowed and the reassessments
are referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that:
(1) the Appellant is entitled to
deductions:
(i) for travel expenses of
$1,847.04 in the year 1999 and $1,405.04 in the year 2000;
(ii) for telephone expenses of
$486.00 in the year 1999 and $511.00 in the year 2000; and
(iii) for office expenses and supplies
of $70.00 plus $66.00 for capital cost allowance, (a total of
$136.00) in the year 2000;
(2) on the further basis that the
Appellant's incomes are increased by adding net rental
incomes of $447.21 in the year 1999 and $398.18 in the year 2000;
and
(3) that the penalties assessed by the
Minister for late filing were properly assessed in accordance
with section 162 of the Income Tax Act, the whole in
accordance with these Reasons for Judgment.
Signed at Ottawa, Canada, this 23rd day of November, 2004.
O'Connor, J.
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