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Docket: 2003-1609(IT)I
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BETWEEN:
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ROMULUS R. FUNDEANU,
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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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____________________________________________________________________
Appeal heard on October 22, 2003, at Hamilton,
Ontario,
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By: The Honourable Justice C.H. McArthur
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Appearances:
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For the Appellant:
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The Appellant himself
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Counsel for the Respondent:
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Bonnie Boucher
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____________________________________________________________________
JUDGMENT
UPON motion by the Respondent for an Order quashing the
purported appeal from an assessment of tax made under the
Income Tax Act for the 1997 taxation year for failure of
the Appellant to commence an appeal within the prescribed
time;
AND
UPON reading the affidavit of Elizabeth Leger, filed;
AND
UPON hearing the Appellant and counsel for the Respondent;
It is ordered that the purported appeal for the 1997 taxation
year is quashed.
The
appeal from the assessment of tax made under the Act for
the 1998 taxation year is allowed, on consent of the Respondent,
and the assessment is referred back to the Minister of National
Revenue for reconsideration and reassessment on the basis that
the Appellant may claim motor vehicle expenses of $4,179 and
meals and entertainment expenses of $320. In all other respect
the appeal is dismissed.
Signed at Ottawa, Canada, this 1st day of March, 2004.
McArthur J.
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Citation: 2004TCC144
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Date: 20040301
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Docket: 2003-1609(IT)I
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BETWEEN:
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ROMULUS R. FUNDEANU,
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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
McArthur J.
[1] This is an appeal from an
assessment of the Minister of National Revenue for the 1998
taxation year disallowing business expenses pursuant to
paragraphs 18(1)(a) and (h) of the Income
Tax Act. The 1997 taxation year appeal is not properly before
the Court and is quashed. The appeal was not commenced within 90
days after the mailing of the Notice of Confirmation (subsection
169(1)) and no extension of time was sought and no extension of
time can be granted at this time (subsection 167(1)). I do not
believe the Appellant contested the Minister's position.
There were two reassessments arising out of the Appellant's
1997 income tax returns. The second reassessment was conducted
after the Appellant requested adjustment under section 220 of the
Act. The Minister's decision under the fairness
provisions can only be reviewed by the Federal Court Trial
Division by way of a judicial review.
[2] I will now deal with the 1998
taxation year with respect to the disallowed expenses. The facts
are somewhat convoluted. The Appellant is an engineer who
operated "Romulus F. Engineering" from his home in
Oakville, Ontario. In 1998, his business took him to the Sudbury
area from January to July, where he worked on remote control and
data acquisition projects for Falconbridge Limited in Onaping
Falls, approximately 500 kilometres north of Oakville. He
travelled there weekly totalling some 30,000 kilometres in 1998.
He claimed expenses for the use of an in-home office of one
bedroom, allocating 25% of the home expenses to office use. He
claimed travelling expenses, meals, entertainment, lodging and
salary payments to his wife and son.
[3] In reassessing the Appellant for
the 1998 taxation year, the Minister disallowed the
Appellant's business expenses in the amount of $43,146.68
inclusive of:
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i)
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Insurance
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$2,013.35
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ii)
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Management and Administration
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1,200.00
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iii)
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Meals and Entertainment
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5,400.00
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iv)
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Motor Vehicle
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12,733.23
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v)
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Salary
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17,000.00
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vi)
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Travel
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4,800.00
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Total expenses disallowed
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$43,146.58
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At the hearing, the Minister amended some amounts as follows:
meals and entertainment: $5,180 and motor vehicle expenses:
$8,554.
The items that remain in contention are:
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i)
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Insurance
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$2,013
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ii)
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Management and Administration
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1,200
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iii)
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Meals and Entertainment
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* 5,180
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iv)
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Motor Vehicle
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* 8,554
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v)
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Salary
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17,000
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vi)
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Travel
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Not in dispute
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Total expenses disallowed
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$33,947
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* Reduced by the Minister. In all instances I have dropped the
cents.
[4] In May 2001, the Appellant was in
a serious car accident. He testified that his computer containing
business-related files was destroyed and boxes of documents
pertaining to this appeal were exposed to torrential rain and
were destroyed. This was, I believe, 18 months after the Minister
first requested these documents.
[5] For 1998, the Appellant reported
gross professional income of $55,180 and expenses of $66,354 for
a net loss of $11,174 leaving nothing but debt to live on. In
reassessing the Appellant, the Minister disallowed $43,146[1] of the expenses
claimed on the basis that the expenses were not supported by
invoices or other records and they were not made for the purpose
of gaining income (paragraph 18(1)(a)) and were
personal or living expenses (paragraph 18(1)(h)). I will
review the outstanding expenses in the order set out in the
Minister's submissions.
Insurance
[6] The Minister submits that the
insurance claim was abandoned by the Appellant's accountant
and that there is no evidence other than it was personal. I agree
with this conclusion and the insurance claim of $2,013.35 is
disallowed. The Appellant did not establish a business purpose
for this expense.
Management and Administration
[7] The management and administration
was dropped by the Appellant's representative prior to trial
and it is disallowed. He had two accounting firms during
different periods representing him. I believe he dismissed both.
He did not substantiate this claim. I do not know to whom the
$1,200 was purported to be paid to and for what service.
Meals and Entertainment
[8] I accept the Minister's
disallowance of $5,180 for meals and entertainment. Again an
accountant representative of the Appellant agreed to the amount
allowed during negotiations prior to trial. No convincing
evidence such as receipts or other documentation was presented by
the Appellant. I have difficulty in accepting that his boxes of
invoices were destroyed. In any event, it would appear that the
Minister's auditor reviewed his invoices prior to the car
accident. The Appellant did not meet his onus of establishing
that he spent more. He seemed to acknowledge his claim was
excessive and asked for a lesser compromised amount. He offered
little evidence to establish a greater amount than that presented
by the Minister.
Motor Vehicle Expenses
[9] Initially, $12,733 of motor
vehicle expenses were disallowed. This was reduced by $4,179,
leaving $8,554 disallowed. The Appellant's evidence was that
he travelled 50,000 kilometres on business in 1998. Yet, this is
contradicted by the evidence that he travelled to Sudbury only
the first six or seven months of 1998. Allowing him 1,000
kilometres per week, the mileage does not exceed 30,000
kilometres. Again the Appellant's evidence was unsatisfactory
and I accept the Minister's amount allowed.
Salary
[10] The Appellant claimed $17,000 the
Minister allowed nothing. The Appellant stated $17,000 was paid
to his wife and son. They did not attend the hearing and I
believe are presently living in California. There was no
evidence, other than the Appellant's general statements that
any services were rendered by his wife and son nor was there any
proof of payment. Mrs. Fundeanu did not report any payment from
the business in her income tax returns. The $17,000 claim for
salary expense is disallowed. The Appellant claimed to have paid
$17,000 to have his business expenses recorded and documented,
then, many months after the Minister's audit began, he claims
that most invoices were destroyed in his damaged car by
torrential rains. Why were they in his car if he had an office
and recordkeeper? The Minister had requested records and
documents from the Appellant over an 18-month period without
being satisfied. Counsel states the car accident was 18 months
after the first request.
[11] In cross-examination, the Appellant
acknowledged that he could not prove his expenses but asked for
something more than what was offered by the Minister. He had no
evidence that he paid his wife $12,000 and his son $5,000 but
stated it was a reasonable amount and they did do work while he
was in Sudbury. He did not establish what they did. They did not
keep adequate books and records. He had very little documentation
at trial and several times stated it was destroyed after the car
accident. As stated I do not accept this explanation.
Travel Expenses
[12] He attempted to charge flights to
California which he stated were made to look for business. It
appears his wife and son were in California at the time of the
trips. The Minister did not accept this California expense. In
any event, the Appellant withdrew his travel expenses prior to
the hearing.
General Comments
[13] Exhibit A-2 is a series of bank
statements that are of little assistance. The first statement of
January 1998 includes the following:
Card Number 4510 xxxxxxxx 9109
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05 Jan 98
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Petrocan 350 Speers Rd
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Oakville
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ON
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37.14
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06 Jan 98
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Pioneer #177
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Chelmsford
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ON
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31.07
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07 Jan 98
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Burlington Post
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Burlington
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ON
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21.99
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09 Jan 98
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Esso
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Chelmsford
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ON
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36.00
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09 Jan 98
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Candent
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Mississauga
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ON
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218.33
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09 Jan 98
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Duncan Instruments Ltd.
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Weston
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ON
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684.25
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12 Jan 98
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Petrocan 350 Speers Rd
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Oakville
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ON
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35.05
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12 Jan 98
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Shell 645 Third Line
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Oakville
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ON
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44.48
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The last statement reads as follows:
Card Number 4510 xxxx 9109
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14 Oct 98
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Burlington Post
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Burlington
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ON
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23.54
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14 Oct 98
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Burlington Post
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Burlington
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ON
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30.07
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Card Number 4510 xxxx 90116
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20 Oct 98
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Provont MTO Licensing
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Oakville
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ON
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148.00
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23 Oct 98
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Pioneer Petroleum #28
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Burlington
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ON
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31.25
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02 Nov 98
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Esso Dorval - Speers
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Oakville
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ON
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16.58
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10 Nov 98
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Siemens Canada Limited
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Mississauga
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ON
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228.85
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Card Number 4510 xxxxxxxx 9024
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14 Oct 98
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Speers Road Aquatics Ltd.
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Oakville
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ON
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31.03
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20 Oct 98
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Highland Packers Ltd
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Stoney Creek
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ON
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29.77
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20 Oct 98
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Biway Oakville
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Oakville
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ON
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43.66
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20 Oct 98
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Winners #206
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Oakville
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ON
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305.78
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22 Oct 98
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Ambassador Duty Free
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Windsor
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ON
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70.40
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22 Oct 98
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Cyclepath - Oakville
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Oakville
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ON
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48.13
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28 Oct 98
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Biway Oakville
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Oakville
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ON
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42.69
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29 Oct 98
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Winners #206
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Oakville
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ON
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91.98CR
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03 Nov 98
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PTB Pym from Sav
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- 3560
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100.00CR
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06 Nov 98
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PTB Payment
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- 4740
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1200.00CR
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Little can be taken from this to enhance the Appellant's
position. He provided no explanation. Exhibit A-3 is a Purchase
Order from Falconbridge Limited which is inconsequential. Exhibit
A-4 appears to be various medical invoices with respect to the
Appellant's accident in 2001 which are irrelevant to this
appeal. Exhibit A-5 includes 1998 bank statements and
cancelled cheques for Romulus F. Engineering. As in Exhibit A-2
they are of no assistance.
[14] In cross-examination, he was asked how
he supported his wife and family if his expenses exceeded his
income in 1998 and previous years. He answered that they lived on
the $300,000 proceeds of a car accident settlement his wife had
received some years previously. He offered no details other than
she invested in a house and mutual funds. There was no indication
of this in her returns. I do not accept his explanation. His
business expenses were made through a joint bank account making
it difficult to differentiate between his expenses and those of
his wife. He deducted automobile expenses and capital cost
allowance for two vehicles. Although they were both registered in
his name, his wife used one of them.
[15] Elizabeth Leger, appeals officer,
testified on behalf of the Minister. She was an impressive
witness and when in conflict, I accept her evidence over that of
the Appellant. At the outset of her audit, she received boxes of
material which she reviewed carefully. The Appellant explained to
her that Mrs. Fundeanu did not claim the $12,000 income he paid
her in cash because her expenses were in excess of her income.
Apparently she claimed some of the same expenses her husband did
although this is unclear. When a taxpayer claims to have paid
salaries in cash as did the Appellant, I am skeptical. In this
instance, I do not believe that the Appellant paid any salary to
his wife or son. The Appellant submitted $907 per month as rent
for his home office space. I accept the auditor's reduced
amount of $400 as being more reasonable. It is a well-settled
rule in income tax appeals that the taxpayer has the onus of
demonstrating that the factual assumptions upon which the
assessment is based are wrong and do not support the assessment.
The Appellant's oral evidence consisted of many generalities
and unsupported statements. For the most part, I do not accept
his testimony. He did not establish a prima facie case. In
any event, the cross-examination of the Appellant and the
evidence of the Minister's auditor displace the oral
testimony of the Appellant.
[16] The appeal for the 1998 taxation year
is allowed, on consent of the Respondent, and the assessment is
referred back to the Minister on the basis that the Appellant may
claim motor vehicle expenses of $4,179 and meals and
entertainment expenses of $220. In all other respect the appeal
is dismissed.
Signed at Ottawa, Canada, this 1st day of March, 2004.
McArthur J.
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