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Citation: 2004TCC17
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Date: 20040108
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Docket: 2003-2484(IT)I
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BETWEEN:
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BRIAN P. BEECH
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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
Informal Procedure was heard at Nanaimo, British Columbia, on
November 28, 2003. The Appellant testified. The Respondent called
Linda Beech, Brian's wife, to testify and the auditor on the
file, Cynthia Pacheco.
[2] Paragraphs 4 to 12 of the Reply to
the Notice of Appeal read as follows:
4. In respect
of the Notices of Objection that are attached to the Notice of
Appeal, he admits that:
(a) the Appellant
has prepared and submitted on a timely basis income tax returns
for all taxation years,
(b) the
Appellant's major source of income is from services that he
provides as a faller, and he does report the applicable T4 as
employment income on his personal income tax returns,
(c) the Appellant is
married to Linda Beech ("Linda") who has only rental
income,
(d) the Appellant
operates a business known as Brian Beech Contracting (the
"Business"),
(e) the Appellant
does, with the assistance of a bookkeeper, prepare a statement of
revenue and expenditures for each taxation year,
(f) the
Business is operated from the matrimonial home located at 1670
Jenkins Crescent in the municipality of Nanoose Bay,
(g) the Appellant
was advised by Cynthia Pacheco of CCRA that she would be
attending to the place of business on September 9, 2002 to
conduct an audit of the books and records,
(h) the auditor did
on October 11, 2002 advise the Appellant that she was proposing
certain adjustments to the income reported by the Business,
including a proposal to disallow wages paid to Linda, and
(i) the CCRA
did issue Notices of Reassessment for the taxation years 1999,
2000 and 2001 per the auditor's letter dated December 20,
2002.
5. He denies
all the other allegations of fact contained in the Notice of
Appeal and the attachments.
6. In filing
his Returns of Income for the 1999, 2000 and 2001 taxation years,
the Appellant claimed expenses of $12,000.00, $10,000.00 and
$8,000.00, respectively, (the "Amounts") in respect of
wages paid to Linda.
7. The
Minister of National Revenue (the "Minister") initially
assessed the Appellant for the 1999, 2000 and 2001 taxation years
on May 26, 2000, June 1, 2001 and April 29, 2002, respectively,
allowing the Amounts.
8. On January
13, 2003, the Minister reassessed the Appellant for the 1999,
2000 and 2001 taxation years, disallowing the Amounts. The total
of all amounts claimed, allowed and disallowed for the 1999, 2000
and 2001 taxation years are set out in Schedules A, B and C,
respectively, attached to this Reply.
9. The
Appellant filed Notices of Objection for the 1999, 2000 and 2001
taxation years and by way of a Notice dated June 13, 2003,
the Minister confirmed the reassessments dated January 13, 2003
for the 1999, 2000 and 2001 taxation years.
10. In so confirming for
the 1999, 2000 and 2001 taxation years, the Minister relied on
the following assumptions of fact:
a) the
Appellant is a falling safety supervisor and has been employed in
the logging industry for the past 37 years;
b) at all
relevant times, the Appellant was a full-time employee of
Bendickson Contractors Ltd ("Bendickson");
c) the
Appellant's employment income from Bendickson in the 1999,
2000 and 2001 taxation years was $89,124.00, $85,823.20 and
$90,010.90, respectively;
d) in the
years under appeal, the Appellant also operated the Business;
e) the
Business, which the Appellant started in 1982, consisted of
renting chainsaws, axes and other logging equipment to other
employees of Bendickson;
f) the
Appellant would transport the equipment to the logging site and
would take it back home with him at the end of each job or to be
repaired if necessary;
g) the
Appellant also kept a step van at the logging site for any
on-site repairs;
h) Bendickson
would collect the rental amounts from its employees and then
remit the amounts to the Appellant less amounts for any fuel that
had been consumed;
i) the
Appellant's neighbour provided bookkeeping services to the
Appellant such as recording information into a manual ledger on a
monthly basis, making year end adjusting entries and preparing
financial statements and filing tax returns, including GST
returns;
j) no
remuneration was paid to the neighbour for the bookkeeping
services she provided;
k) the
Appellant reported the following amounts as income from the
Business in the 1999, 2000 and 2001 taxation years:
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Year
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Gross Business Income
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Net Business Income
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1999
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49,638.00
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498.00
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2000
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42,661.00
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689.00
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2001
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34,804.00
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259.00
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l) the
Amounts were claimed as expenses in calculating the net business
income for each year;
m) it would not have
been reasonable in the circumstances for Linda to have received
significantly more income from the Business than the Appellant,
who was the proprietor;
n) no payroll
deductions were made by the Appellant on Linda's behalf and
no T4 slip was prepared by the Appellant in respect of Linda;
o) no amounts
were ever paid to Linda by the Appellant; and
p) Linda did
not provide any services to the Business.
B. ISSUES
TO BE DECIDED
11. The issue is whether
the Appellant is entitled to deduct the Amounts in the 1999, 2000
and 2001 taxation years.
C.
STATUTORY PROVISIONS RELIED ON
12. He relies on
paragraphs 18(1)(a) and 18(1)(h), section 67 and subsection
248(1) of the Income Tax Act (the "Act"),
as amended for the 1999, 2000 and 2001 taxation years.
[3] Assumptions 10 (a), (b), (c), (d),
(f), (g), (i), (j), (k), (l) and (n) were not refuted by the
evidence.
[4] With respect to the remaining
assumptions:
(e)
and (h)
The
Business rented to Bendickson which paid the rental amounts.
(m)
There are many small businesses in Canada from which an
employee received significantly more income than the proprietor.
This "assumption" is, in itself, a fallacy.
(o)
The Appellant alleges that the following amounts were paid to
Linda from the Business. They are recorded as follows in the
Business records copied in the last 3 pages of Exhibit A-5
(undated in the photocopies):
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P1
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Transfer
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$2,000.00
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P2
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Transfer
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4,000.00
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P3
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Sears
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3,091.67
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TH Furnishing (?)
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2,000.00
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United Carpet
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1,530.65
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TH Furnishing (?)
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819.20
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TH Furnishing (?)
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500.00
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The (?) are inserted because the writing is unclear. The
transfers were to Brian and Linda's joint bank account. From
the context of Brian's testimony, the payments on page 3 were
to have been to renovate and refurbish the household kitchen.
(p)
Linda did provide services to the Business. The evidence is
that she did not do the Business books, the neighbour
did them. Linda did sort the bills, clean the office premises,
get parts and supplies for the Business, answer the phone and
ship parts to Brian when he was in the woods with the Business
equipment for about 20 days per month at remote, fly-in locations
on the British Columbia coast during the logging seasons.
[5] It is accepted law in income tax
cases that where a business owned by a husband employs a wife,
everything must be done in the same way that any ordinary
business does respecting its employees. The employee must work
scheduled hours even if part time. Records of time served must be
kept. Pay should be made by cheque. Pay should be in regular pay
periods and be deposited in the employee's individual account
so that tracing is clear. Withholdings must be made and remitted
and the timely filings must be made to the appropriate
authorities respecting the employee.
[6] None of this was done in this
case.
[7] Even the two "transfers"
of $2,000 and $4,000 were (1) "transfers" and (2) made
to a joint bank account. The kitchen was a household kitchen, not
Linda's own separate kitchen and those payments are not an
ordinary employer-employee transaction.
[8] Because Linda did in fact render
services to the Business and the Court finds there was a transfer
of funds to the joint account. The Court finds that one-half of
those funds were paid to Linda, namely, $1,000 and $2,000.
However, they were not paid to her as an employee. Rather they
were paid to her for services rendered as a contractor.
[9] The appeal is allowed and this
matter is remitted to the Minister for reconsideration and
reassessment for the appropriate years respecting those two
payments, the dates of which are not on the Exhibit and were not
given in testimony. For the remaining year or years, the appeals
are dismissed.
Signed at Saskatoon, Saskatchewan this 8th day of January,
2004.
Beaubier, J.
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