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Docket: 2000-1285(IT)G
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BETWEEN:
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WAYNE LENHARDT,
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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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_______________________________________________________________
Appeals heard on November 26, 2003, at Calgary,
Alberta
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By: The Honourable Justice E.A Bowie
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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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John O'Callaghan
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_______________________________________________________________
JUDGMENT
The appeals from assessments made under the Income Tax
Act for the 1995 and 1996 taxation years are allowed and the
assessments are referred back to the Minister of National Revenue
for reconsideration and reassessment on the following basis:
1. The Appellant did not
fail to report income from disbursements in the amounts of
$10,819 and $23,871 in his 1995 and 1996 taxation years;
therefore, in computing the Appellant's income for the 1995
and 1996 taxation years, the Minister will delete the amounts of
$10,819 and $23,871, respectively.
2. In computing income for
the 1995 and 1996 taxation years, the Appellant is entitled to
deduct expenses in the following amounts:
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1995
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1996
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Salary expenses
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$26,311
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$34,700
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Auto expenses
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3,866
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3,866
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3. In computing income for
the 1995 and 1996 taxation years, the Appellant is entitled to
deduct additional insurance expenses in the amount of $880 in
each taxation year.
4. In computing
professional income for the 1995 taxation year, the Appellant is
entitled to deduct a bad debt expense in the amount of $5,109.
The Appellant is not entitled to deduct any amount in his 1996
taxation year respecting bad debt expenses.
5. The Appellant is not
liable for gross negligence penalties in the amount of $1,027.30
and $1,601.10 for the Appellant's 1995 and 1996 taxation
years, pursuant to subsection 163(2) of the Act.
A summary of the above is contained in the attached Schedule
"A".
Each party shall bear their own costs.
Signed at Ottawa, Canada, this 6th day of April, 2004.
Bowie J.
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Docket: 2000-2132(GST)I
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BETWEEN:
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WAYNE LENHARDT,
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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 November 26, 2003, at Calgary,
Alberta
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By: The Honourable Justice E.A Bowie
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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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John O'Callaghan
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_______________________________________________________________
JUDGMENT
The appeal from the assessment made under the Excise Tax
Act notice of which is dated June 17, 1998, and bears number
10CT9800120 for the period October 1, 1994 to September 30, 1996
is allowed and the assessment is referred back to the Minister of
National Revenue for reconsideration and reassessment on the
following basis:
1. To delete the Goods and
Services Tax (GST) with respect to the reported disbursements for
the reporting periods of October 1, 1994 to September 30, 1996 in
the following amounts:
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31-Dec-94
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31-Mar-95
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30-Jun-95
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30-Sep-95
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Total
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$189.33
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$189.33
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$189.33
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$189.33
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$757.32
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31-Dec-95
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31-Mar-96
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30-Jun-96
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30-Sep-96
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Total
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$417.74
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$417.74
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$417.74
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$417.74
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$1,670.96
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2. To delete the GST for
bad debt adjustments for the reporting periods ending between
October 1, 1994 and September 30, 1995 in the following
amounts:
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31-Dec-94
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31-Mar-95
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30-Jun-95
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30-Sep-95
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Total
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$89.41
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$89.41
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$89.41
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$89.41
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$357.63
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3. To allow additional
input tax credits for travel expenses for the reporting periods
of October 1, 1994 to September 30, 1996 as follows:
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31-Dec-94
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31-Mar-95
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30-Jun-95
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30-Sep-95
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Total
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$67.75
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$67.75
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$67.75
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$67.75
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$271.00
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31-Dec-95
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31-Mar-96
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30-Jun-96
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30-Sep-96
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Total
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$67.75
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$67.75
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$67.75
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$67.75
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$271.00
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4. To delete the amount
assessed under section 299 of the Act (Risk Loss
Evaluation) in the amount of $2,932.28 for the period October 1,
1994 to September 30, 1995 and in the amount of $1,417.32 for the
period October 1, 1995 to September 30, 1996.
A summary of the above is contained in the attached Schedule
"A".
Each party shall bear their own costs.
Signed at Ottawa, Canada, this 6th day of April, 2004.
Bowie J.
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Citation:2004TCC281
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Date: 20040406
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Docket: 2000-1285(IT)G
2000-2132(GST)I
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BETWEEN:
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WAYNE LENHARDT,
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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 AS TO COSTS
Bowie J.
[1] These appeals have a long and
undistinguished history. The Appellant's two general
procedure appeals from income tax assessments for the 1995 and
1996 taxation years and his informal procedure appeal from an
assessment for goods and services tax (GST) under Part IX of the
Excise Tax Act (ETA) for the period between October
1, 1994 and September 30, 1996 were launched on March 7, 2000 and
February 25, 2000, respectively. In general terms, they are
concerned simply with the revenues and expenses of the
Appellant's law practice. By the time they came on for
hearing before me in Calgary in November 2003, the parties had
resolved most of the issues as the result of a pre-hearing
conference. At the beginning of the hearing, both parties agreed
that the three appeals should proceed on common evidence, and
that the issues in the GST appeals were sufficiently parallel to
those in the income tax appeals that resolution of the latter
would effectively resolve the former. At the conclusion of the
hearing, I gave reasons for my disposition of the two issues that
remained to be tried. Counsel for the Respondent then submitted a
substantial written brief in support of a submission that his
client is entitled to costs on a solicitor-client basis. I have
since received an equally bulky brief on that issue from the
Appellant, and a further brief (said to supercede the original
one) from counsel for the Respondent. The Appellant, while not
specifically using the expression solicitor-client costs, asks
for an award of costs in his favour in the amount of $50,000, or
alternatively,
... costs equivalent to the taxes and interest and any
penalties for late payment for the tax owing on the extra taxable
amounts for the years 1995 and 1996 (whatever those end up being,
once the department computer comes up with a number) for both
actions, might be an appropriate award.
[2] The income tax appeals were not
complex. There were six areas of contention between the Appellant
and the Respondent for each of the two years under appeal. I
shall summarize them. The Minister assessed the Appellant for
unreported income of $10,819 in 1995 and $23,871 in 1996, and he
disallowed salary expenses claimed of $26,311 in 1995 and $34,700
in 1996. The disallowed salary was the amounts that the Appellant
claimed to have paid to his wife, who worked in his office. Other
expenses that the Appellant claimed and the Minister disallowed
were:
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Expense
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1995
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1996
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Automobile
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$3,866
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$12,428
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Insurance
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$4,274
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$3,874
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Bad debt
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$20,362
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$21,246
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The Minister also assessed penalties of $1,027 and $1,601
under subsection 163(2) of the Income Tax Act (the
Act).
[3] The Appellant was assessed for GST
owing on the basis of $2,428 relating to the allegedly unreported
income, $2,912 relating to the adjustment made to the bad debt
expense, and $5,490 for excessive claims for input tax credits
(ITCs), to which were added penalties of $3,262 and interest. The
Appellant's total jeopardy, therefore, under the three
assessments amounted to the income tax exigible on some $162,500
of income over two years, GST of about $10,800, penalties of
$4,489, and an undeterminable amount of interest on those
amounts.
[4] A pre-hearing conference was held
by telephone in April 2003, following which Rip J. ordered the
parties to file Minutes of Settlement on or before May 16,
2003, evidencing the agreements that they had reached and
defining the issues remaining to be tried. Two documents styled
Minutes of Settlement were filed as a result of this Order, and
they disposed of much of the three assessments in the
Appellant's favour. I shall summarize the concessions
made:
Income Tax Appeals:
Unreported
income: The
Respondent conceded this issue for both years.
Salary
expense:
The Respondent conceded all but $5,000 in each year.
Automobile expense: The
Respondent conceded $2,400 in each year, leaving in dispute
$1,466 for 1995 and $10,028 for 1966.
Insurance
expense: No
amount was conceded.
Bad debt
expense:
The Respondent conceded $5,109 for 1995. A total of $36,500
remained in dispute.
Penalties:
The Respondent conceded the penalties for both years, a total of
$2,628.
GST Appeals:
The Respondent conceded GST of $2,786 and ITCs of $4,686, a
total of $7,472.
[5] At this point, there remained in
dispute the tax on $66,142 over the two years, and GST of $3,360.
It is something of a misnomer to describe the documents filed as
Minutes of Settlement, as the Appellant had conceded nothing at
this stage and several issues remained unsettled. The matter came
on before me for trial in November 2003, on the basis that all
the amounts that the Respondent had not conceded remained in
issue. Following a short recess after the cases were called, the
parties returned to Court to advise me that they had reached
agreement with respect to the remaining amounts of salary expense
claimed and disallowed, and with respect to the automobile
expenses. The Respondent now conceded the full claim for salary
expenses, and the parties were agreed that the automobile
expenses for each year should be allowed in the amount of $3,866,
which was the amount claimed for 1995. This represented a further
concession by the Respondent of about $11,467, and by the
Appellant of about $6,162.
[6] I then heard evidence and argument
with respect to the two remaining issues, the claims to deduct
premiums paid to secure group insurance coverage for the
Appellant and his wife through the Canadian Bar Association, and
to deduct bad debt expense. Success on the first of these issues
was more or less evenly divided, for reasons that I gave orally
at the conclusion of the hearing. The Respondent was entirely
successful on the second, for the simple reason that the
Appellant had no records that could substantiate this claim. I
should add, however, that, although the Appellant's record
keeping was less than exemplary, this was due at least to some
extent to the fact that during the period of the audit, his
accountant had been diagnosed with what proved to be a terminal
disease. His practice was taken over by another accountant, but
his search of the records failed to uncover any documentary
evidence that would permit the Appellant to establish that the
debts were written off in circumstances that satisfy the
requirements of subparagraph 20(1)(p)(i) of the
Act.
[7] Both parties now ask for costs on
a solicitor-client basis, each citing the alleged misconduct of
the other. Mr. Lenhardt's allegations of misconduct are not
aimed at Mr. O'Callaghan, but at the Canada Customs and
Revenue Agency's assessor and the appeals officer, who he
says acted improperly in assessing him, and in confirming the
assessments, in the face of what he describes as obvious
inconsistencies between the facts and the assessments. For his
part, Mr. O'Callaghan says that the Appellant acted
unreasonably in a number of ways. First, he did not maintain
adequate books and records from which his net income could be
ascertained, despite the fact that this Court had criticized him
on an earlier occasion for the deplorable state of his records.
Second, he was unresponsive on a number of occasions to letters
and telephone calls from Mr. O'Callaghan. Third, he
agreed orally to terms of settlement two days before the hearing,
but resiled from the agreement the next day before executing
Minutes of Settlement.
[8] Although both parties filed
exhaustive briefs on the subject of costs, replete with extracts
from the correspondence passing between them, there are no
affidavits or other sworn evidence before me bearing on the
respective allegations of unreasonable conduct. I do have the
Court's earlier judgment suggesting that the case then before
the Court should have been settled, and blaming Mr. Lenhardt
and his then accountant for the fact that it was not. In these
circumstances, I do not intend to make any finding as to degrees
of fault in these appeals. I have little doubt that there was a
regrettable lack of communication and cooperation between Mr.
Lenhardt and the Agency officials responsible for his file. There
also was a period between May and November 2003 when
Mr. Lenhardt apparently was less than prompt in responding
to Mr. O'Callaghan's letters and telephone calls.
Without proper evidence I am not in a position to say that fault
lay entirely on one side or the other. I do not accept Mr.
O'Callaghan's argument that Mr. Lenhardt should be
punished in costs because his failure to respond promptly to
letters and telephone calls is a breach of the Code of
Professional Conduct of the Law Society of Alberta. In these
proceedings Mr. Lenhardt was simply an unrepresented
Appellant. Perhaps he was impolite, but bad manners alone will
not attract an order for solicitor-client costs. Nor am I
impressed by the submission that Mr. Lenhardt improperly used
this Court as leverage against a potential defendant in an action
for negligence.[1]
It is simply conjecture, not supported by any evidence. It does
appear from one letter that the Appellant had discussions with
the insurers of his accountant, but the nature of those
discussions is not known.
[9] Mr. O'Callaghan also relied on
his letter of November 24 to Mr. Lenhardt setting out the terms
of their oral agreement as being a written offer to settle that
should entitle the Respondent to costs. This letter can only be
interpreted as offering an amount greater than the
Appellant's success at trial by ignoring the salary issue
that was settled during the trial in the Appellant's favour.
I do not consider that to be realistic, given that the Crown
conceded the balance of the salary before any evidence was led.
Moreover, to the extent that it can be characterized as an offer
to settle, it came much too late to be given significant
weight.
[10] The Supreme Court of Canada said in
Young v. Young:[2]
Solicitor-client costs are generally awarded only where there
has been reprehensible, scandalous or outrageous conduct on the
part of one of the parties.
...
The basic principle on which costs are awarded is as
compensation for the successful party, not in order to
punish a
barrister.
(emphasis in the original)
Nothing in this case fits the test for awarding
solicitor-client costs. Nor is there a degree of success on
either side that cries out for compensation. Mr. O'Callaghan
claims victory at trial on the basis that the amount of the bad
debt expense claim considerably exceeds the amount of the
Appellant's success on the insurance issue. This ignores the
fact that $10,000 of salary expense was only conceded by the
Crown after the trial had begun. It also ignores the very
considerable concessions that were made by the Crown in May 2003
after the pre-hearing conference. Almost all of the time and
expense of these appeals had been expended by then. The
proceedings on November 26 occupied less time than the
examination for discovery of the Crown officer. Over the three
and one-half years that the matter languished before the Court,
the Appellant succeeded in having the assessments reduced by
roughly two thirds. Looking globally at the three assessments and
at the resulting judgment, and keeping in mind that the Appellant
does not appear to have improved his record-keeping a great deal
between the first judgment in November 1993 and the years in
issue here, I can see no reason to compensate either party. The
parties shall each bear their own costs.
Signed at Ottawa, Canada, this 6th day of April, 2003.
Bowie J.
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