|
Citation: 2003TCC773
|
|
Date: 20031029
|
|
Docket: 2002-3478(IT)I
|
|
BETWEEN:
|
|
COMPREHENSIVE HEALTH CLINIC INC.,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
____________________________________________________________________
Agent for the Appellant: Michael Venneri
Counsel for the Respondent: Ifeanyichukwu
Nwachukwu
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench at
St. Catharines, Ontario, on September 4, 2003)
Miller J.
[1] The Appellant in this informal
procedure appeal, Comprehensive Health Clinic Inc.
(Comprehensive), is a management company for
Mr. Venneri's chiropractic and related professional
practice. Mr. Venneri is the sole shareholder of
Comprehensive. The only issue in this matter is the deductibility
of $60,000 which Comprehensive maintains was a consultant fee
paid in 1997 to Nancy Cannon, a chiropractor in the United
States. The Crown contends that the $60,000 was not paid by the
company in 1997, or if it was, it was not reasonable nor incurred
for the purpose of gaining or producing income.
[2] Mr. Venneri's home is St.
Catharines. When he completed chiropractic school in Illinois, he
very much wanted to return to practice in the St. Catharines
area. His investigation of possibilities in St. Catharines led
him to the conclusion that St. Catharines had a
disproportionately high number of chiropractors per capita, with
some leading figures in Ontario practising here. As a young
chiropractor starting out, he felt he needed help in carving a
niche for himself. The statistics on chiropractic failures were
not promising. For this reason, he testified that he enlisted the
help of a chiropractor he knew from his education days in
Illinois who offered practice-consulting assistance.
[3] Mr. Venneri incorporated
Comprehensive in 1996, though initially he testified he thought
it was 1997 and questioned whether the corporate records from
Ontario Corporate Registry correctly identified his company. He
submitted an Agreement dated January 15, 1997,[1] between himself personally and
Nancy Cannon. He testified, however, that he understood that he
was acting for the company, though there was no mention of
Comprehensive anywhere in the Agreement. Notwithstanding that he
had been in the throes of attempting to resolve this issue with
Canada Customs and Revenue Agency (CCRA) for some considerable
period of time, the CCRA auditor had never been shown this
Agreement. Mr. Venneri testified he was unclear as to the
import of the document and had not personally been asked for it.
The auditor confirmed that she had asked Mr. Venneri's
accountant, not Mr. Venneri directly. The Agreement
identifies the duties to be performed by Ms. Cannon. It is a
fairly extensive list.
[4] I will just read a few items from
the Agreement. This is from article 3.1 of the Agreement:
... Cannon will provide but not be limited to: Office
location, Sign Development, Marketing, ... Office Management, ...
Acupuncture Training, ... Accounting Procedures, ... Contract
with Massage Therapists, Office Forms, ... Selecting Supplies,
... Billing Set-up procedure, Hyperbaric Oxygen Research,
...
and there are several other items listed. It also stipulates
Ms. Cannon was to be paid US$54,000 for the one-year
contract.
[5] Mr. Venneri went into some
length as to what she did for him. The following is a summary of
those activities that Mr. Venneri claims she provided:
research on appropriate techniques; types of training;
motivational help on dealing with the terminally ill; mentoring
generally; help with writing articles; establishing forms and
procedures for Workers' Compensation work; marketing;
developing smoking-related programs; home programs for
patients; preparing office manual; and helping establish
hyperbaric oxygen facility.
[6] Mr. Venneri provided copies
of brochures of other organizations suggesting what they offered
was what Ms. Cannon provided to him. He offered copies of
forms saying that she helped to prepare those forms. He offered
copies of newspaper articles saying Ms. Cannon was the
marketing manager behind these. He then indicated how his
professional income was significantly higher than the average
chiropractor and concluded that was because of
Ms. Cannon's efforts.
[7] Mr. Venneri's testimony
was at times contradictory and confusing for, as he put it, he
was not an accountant. He struggled with explaining the interplay
between his professional practice and the management company. At
one point he stated the company only managed his own professional
practice, but at other times suggested it managed the services of
other professionals at the clinic. At one point he suggested the
other professionals, nutritionists, massage therapists and
others, were subcontracted by the company, but later said no,
they were subcontracted to him personally.
[8] He said the company earned fees by
charging a 15 per cent up-charge on his expenses incurred
in the professional practice. He later indicated it also earned
fees on other services. The financial statements of the company
for 1997 showed revenue of $302,000 with cost of sales of
$245,000, which included the $60,000 claimed for the Cannon fee,
plus approximately $140,000 for other consultants' fees. When
asked who the other consultants were, he could not initially
recall, but when suggested to him they were his parents and
siblings, he acknowledged that fact. The $140,000 consultant fee
for family were for renovation work, computer work and other such
services. CCRA allowed that deduction as it was supported by
invoices, cancelled cheques and reporting of the income by the
family.
[9] Mr. Venneri presented phone
records from 1997 indicating approximately 3,000 minutes of calls
to Illinois throughout the year. He maintained these were for the
management services provided by Ms. Cannon. He also
testified she came to St. Catharines on occasion to assist
directly. Ms. Cannon did not testify. With respect to the
payment to Ms. Cannon, Mr. Venneri indicated he paid
her cash both when visiting her in the United States and also
when she came to Canada. He provided a page from a Daytimer which
listed all the months of the year. It had a handwritten
"1997" at the top of the page. Payments of 4, 5 or
$6,000 were shown in each month except March, totalling C$75,000.
The page appeared to be a summary rather than an original expense
ledger. He could offer no explanation why payments were $75,000
and the company only claimed $60,000 other than to say it was
something he had asked his accountant. He could offer no
explanation why payments were in Canadian dollars and not U.S.
dollars, as called for by the contract. He offered no evidence of
how the exchange rate was determined. His explanation for paying
Ms. Cannon in cash and not by cheque or money order was that
she was concerned about whether his cheque would clear, and also
concerned about the time it would take for the cheque to
clear.
[10] Mr. Venneri stated he did not have
a bookkeeper in 1997 but subcontracted with a person to make
deposits. That person was not called to testify. He could not
recall how the company got paid from his professional practice in
1997 though thought it may have been a year-end payment.
Later he indicated payment may have been by cash or cheque or a
combination. He suggested his accountant would know that
information.
[11] Notwithstanding an opportunity of a
day's adjournment so Mr. Venneri could call his
accountant, he was unable to make that arrangement.
Mr. Venneri thought goods and services tax was paid on the
fee but was not sure. He testified no withholding was made on any
of the payments to the non-resident.
[12] The issue is simply whether
Comprehensive incurred a $60,000 deductible expenditure in 1997.
I find it did not. Mr. Venneri, you must have satisfied me
on balance that the company paid Ms. Cannon $60,000 for
services she provided to the company for the purpose of gaining
income. You simply have not been able to move that balance in
your favour when I weigh all the evidence.
[13] The first issue which
Mr. Nwachukwu raised is whether Ms. Cannon was paid by
the company. Mr. Venneri submitted a page of a Daytimer with no
indication other than a written-in year as to what year it
pertains, indicating a listing of one or two cash payments a
month. He provided no formal expense ledger, accounts, anything
at all resembling business records to support those payments. No
other expenses were listed in this fashion.
[14] Mr. Venneri, you were operating a
one-half of a million-dollar business in 1997, yet this
considerable expense is not formally recorded. A simple page of a
Daytimer is not adequate or persuasive evidence of the payment.
The following factors have also influenced my finding: - the
discrepancy as to the actual amount you say was paid, $75,000,
and the amount claimed, $60,000, - no explanation of why the
payment was in Canadian funds, - no explanation of exchange
rates; - a questionable explanation of why payments were in cash;
- some confusion as to whether the payment was from
Mr. Venneri himself or the company; - no bank records of
withdrawals; - no expense ledgers in a one-half of a
million-dollar business; - no third-party testimony
or corroborating evidence. I am led to conclude that while there
is a possibility the company paid $60,000 to Ms. Cannon,
there is an equal possibility some differing amount was paid or
that the company was not the payor. In other words, the balance
has not been tipped in favour of the proposition that the company
paid $60,000.
[15] Mr. Venneri, it is not always the
case that cash payments are not deductible or that lack of
hard-written evidence of an expense is fatal, but in this case I
simply do not find sufficient evidence of the payment to
Ms. Cannon by the company to support your claim. Had you got
over the hurdle of proving the payment, you must then have
satisfied me that the payment was for the purpose of gaining or
producing income. There is no question a consultant can add value
to a small business first starting out. Your business appears to
have flourished and you have attributed a good deal of that to
the consultant. But, again, you have provided no direct
link -- no memos and reports authored by her, no
reference to her efforts in any of the pamphlets or articles you
provided, no correspondence, no advertising materials from her
suggesting she does this type of consulting, no evidence of her
credentials, no evidence other than the phone records of time
spent. With respect to the phone records, there is nothing to tie
those calls in with the nature of the advice she offered during
those calls. Mr. Venneri, this is a difficult, expensive
lesson to learn, but business calls are best tracked as
such. The phone bill just shows a call was made.
[16] I have not been convinced Ms. Cannon
did all that you suggest, let alone that the effect of her
efforts was directly to increase your bottom line. I have no
doubts you are very good at what you do and are to be commended
for building a successful, diverse professional practice in what
you have described as a difficult market. But generalizations of
this success without any support of independent witnesses or
documents is insufficient proof that Ms. Cannon's
activities were as extensive, focused, and productive as you
suggest.
[17] Mr. Venneri, while I appreciate it
is difficult for someone to represent themselves, I have been
influenced in my decision by how you presented your testimony. In
answer to a straight-forward question about the
incorporation of Comprehensive, you suggested the government
record shown to you might pertain to another company. In answer
to the question of who were the other consultants, who earned
$140,000 in 1997, you could not recall, but later acknowledged
they were your family. You have not produced Ms. Cannon, nor
your accountant, nor any of your employees to support your
position. Many of the documents you tendered related to other
consultants or training programs and not to Ms. Cannon. The
key agreement with Ms. Cannon was with you, not with
Comprehensive, an agreement you did not produce until trial on
the basis you were not personally asked for it.
[18] These factors all negatively influence
the weight I attach to your claim that the company paid
Ms. Cannon for consulting advice that effectively increased
your bottom line, and as was indicated by Mr. Nwachukwu, the
onus is on you to prove that claim and you simply have not done
so for the reasons I have given.
[19] Theappeal is dismissed.
Signed at Ottawa, Canada, this 29th day of October, 2003.
Miller J.
Email this Content