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Citation: 2003TCC677
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Date: 20030924
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Docket: 2003-807(IT)I
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BETWEEN:
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FRANK QUAIDOO,
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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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____________________________________________________________________
Agent for the Appellant: Charles Rubayiza
Counsel for the Respondent: Galina M. Bining
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench at
Edmonton, Alberta, on August 22, 2003)
Miller J.
[1] Mr. Quaidoo appeals by way of
informal procedure the Minister's assessment of his 1999
taxation year, in which the Minister denied
Mr. Quaidoo's losses arising from business in that year.
Mr. Quaidoo claims he incurred 50 per cent of a loss of
$27,291.18 from his export business. The Respondent claims Mr.
Quaidoo was not in business in 1999. Alternatively, if he was, he
has not proven expenses in excess of receipts or his expenses
were unreasonable in the circumstances.
[2] In 1999, Mr. Quaidoo completed the
final two months of a mechanic's course. He determined early
in the year to start an auto repair business, which he would
conduct in his spare time. He sought the advice of an accountant,
Mr. Rubayiza, after which he registered the trade name of
Tri-Quaid Services. Shortly after this, in discussions with his
brother, he hatched the idea of exporting car parts, accessories,
equipment, bikes and similar goods to Ghana. His brother had
recently spent some considerable time in Africa. His parents were
from Ghana. He saw an opportunity to supplement his income.
Initially he did not have sufficient funds to undertake such an
enterprise, but he found a partner, some business or organization
called Parthonics. Mr. Quaidoo did not elaborate on this contact
other than to indicate he received $5,000 from his "silent
partner" (an expression that Mr. Quaidoo used).
[3] His testimony was confusing as to
exactly who carried on the export business. As he stated,
Parthonics and he were to share income and losses, yet it was his
wife who filed as a partner in the export business. He indicated
he paid back the $5,000, but there is no evidence of a receipt or
repayment of such funds. Mr. Quaidoo acknowledged that he
looked on this venture into the export market as a trial run. If
he could make money he would pursue it. That was the extent of
his plan. He did not make money.
[4] Mr. Quaidoo claims that some time
between April and September he acquired a variety of items in the
form of engines, bikes, carburetors, vehicles and similar type
machine goods. He submitted his own handwritten listing of these
goods on four forms that looked like bills, that were dated June
26, two dated June 27 and one dated June 28, 1999. He said he
acquired the goods at garage sales and auctions. He was no more
specific than that. No receipts were tendered, no names or
addresses or any other corroboration of these acquisitions.
[5] He arranged to have the goods
shipped to Ghana. He traveled to Ghana to attend to selling the
goods. He submitted three documents, all titled
"Invoices", which served as receipts from three
different organizations in Takarodi, Ghana. The first, from
M.T.O.A. Car Dealers Association, which showed the purchase of
one Nissan King cab, one Toyota 4 Runner, tires and auto parts
for $7,700. The second invoice from Mister Yesterday Technicals
showed the purchases of transformers, speakers, fridge, tools and
like equipment for $318; and the third from 124 Enterprise, which
showed the purchase of 37 bikes for $310. All three invoices,
which were tendered as receipts, look similar. Mr. Quaidoo
testified the bikes were sold by word of mouth through someone he
met at the Port in Ghana. The other two purchases appear to have
been contacts of Mr. Quaidoo's brother, though his evidence
was not completely clear on that point.
[6] This was Mr. Quaidoo's second
visit to Ghana, as the year previously he had traveled there with
his parents and his new wife to introduce her to his family in
Africa. When he traveled back to Ghana in 1999 for three weeks,
he stayed at an apartment owned by his parents, though they
normally reside in Canada.
[7] Mr. Quaidoo filed his 1999 return
reporting income of $12,725, which closely matches the sales to
the three Ghana organizations if the dollars are considered U.S.
dollars, which Mr. Quaidoo testified they were. This left
virtually no income being recorded from his auto repair business.
Mr. Quaidoo also claimed the following expenses:
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Supplies
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$17,525
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Shipping
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$ 8,516
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Office & General
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$ 3,316
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Telephone
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$ 3,004
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Rent
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$ 2,164
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Travel
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$ 2,143
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Auto Expenses
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$ 1,418
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Storage
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$ 1,156
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Insurance
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$ 408
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Home use
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$ 362
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Total
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$40,016
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This resulted in a loss claimed by Mr. Quaidoo of $27,291, of
which he claimed 50 per cent.
[8] The Respondent conceded the
shipping expense, the travel expense and the storage customs
expense, as well as $37.99 of office and general expense for a
total of $11,853, only if I were to decide that Mr. Quaidoo had a
business.
[9] Mr. Quaidoo's agent argued
that Mr. Quaidoo had proven his business and the income and
expenses associated with it. The Respondent maintained that there
was a personal element in Mr. Quaidoo's venture, being his
family connection in Ghana, which, based on the Stewart,[1] Walls[2] and
Moldowan[3] cases, required an analysis of the
following factors to determine if Mr. Quaidoo was indeed in
business.
[10] First, the profit or loss in the past;
as this was a new venture there was none. Second, Mr.
Quaidoo's training in the export business; he had none.
Third, his intended course of action; which was in effect to have
a trial run. Fourth, the capability to show profit; the Crown
suggested there was no such capability. Fifth, the infamous
reasonable expectation of profit test; objectively there was no
reasonable expectation of profit. Certainly, the Appellant had
been unable to prove any. Sixth, the nature of the expenses; not
all the expenses appear to relate to an export business.
[11] The Respondent thus concluded there was
not a business. At best there may have been some pre-business
steps, but there was insufficient diligence to prove the business
commenced with this trial run. Alternatively, the Respondent
argued, if there was a business in 1999 the Appellant has been
unable to prove his expenses, and based on the Federal Court of
Appeal in Njenga,[4] there was an onus on the Appellant to do so. He may
have proven shipping, travel and storage costs, but he had not
proven supplies, telephone, or automobile expenses. Further, home
expenses were precluded by the application of subsection 18(12)
of the Act, limiting such to income from the business.
That was the Respondent's position.
[12] Turning to the first issue of whether
Mr. Quaidoo was in business. I do not find that simply because a
brother has lived in a possible market place and that parents
have a property there, that this is the type of personal element
that justifies finding Mr. Quaidoo was in a personal endeavour as
opposed to the pursuit of profit. He simply stayed at a place
owned by his parents while in Ghana, and relied upon some of his
brother's contacts. There was no evidence that goods were
sold or distributed to family or friends, or that the activity
itself had a personal element. I find there was no personal
element.
[13] What then was Mr. Quaidoo engaged in?
Did he have a source of income? I do not accept the
Respondent's suggestion that this trial run was a
pre-business step. It was simply too involved a commercial
activity to be considered such. The act alone of acquiring a
container and shipping goods at a cost of $8,000 goes beyond mere
pre-business inquiries. Yet Mr. Quaidoo showed none of the more
formal trappings of a business. He had no business books, no
business records, kept no logs, no addresses of contacts, no
information from where he acquired the goods. He said he had a
plan, but there was nothing in writing, no banking information.
Indeed, virtually no documentation at all, apart from the three
receipts, oddly disguised as invoices.
[14] At best, Mr. Quaidoo engaged in an
adventure, an adventure in the nature of trade. This expression
is perhaps well suited to what Mr. Quaidoo did. He ignored the
formalities of actually carrying on a business and all that
entailed, and simply rushed into an adventure, an adventure in
the nature of trade. For tax purposes, however, that is a
business.
[15] What then were his revenues and
expenses from the adventure? Although the three documents
verifying Mr. Quaidoo's income from his adventure do not meet
the normal expectation of a receipt based on North American
standards, I find that they are adequate, as I do not fully
appreciate what is common commercial practice in Ghana. They do
describe the equipment, they are dated at the time Mr. Quaidoo
was in Ghana, they do show amounts, and in two cases they are in
fact signed, though the signatory was not identified by Mr.
Quaidoo. I accept that Mr. Quaidoo received the income reported
by the three documents, amounting to approximately $12,500
Canadian.
[16] With respect to the expenses, the
Respondent and Appellant are agreed on the following: the
shipping of $8,516, the travel of $2,143, the storage of $1,156,
and office expenses of $37.99. I accept the Respondent's
argument that home-related expenses are precluded by the
operation of subsection 18(12) of the Act.
[17] With respect to the remaining expenses
of telephone, auto and supplies, supplies being the major
expense, the Appellant has presented no evidence whatsoever in
support of these amounts, other than his oral testimony. As I
have already indicated, there are no journals, no ledgers, no
suppliers' names, no banking records, no financial
statements, no cancelled cheques, nothing has been submitted in
support.
[18] Section 230 of the Act requires
a taxpayer to keep books and records. How else in a
self-assessment system is the government to assess properly and
not arbitrarily? Mr. Quaidoo has the onus of proving the
Minister's assumptions and consequently his assessment is
wrong. He is the only one in a position to do so. There may be
exceptional situations where the only proof is verbal and a
highly credible taxpayer may satisfy Canada Customs and Revenue
Agency or this Court as to the proper expenditures. The Federal
Court of Appeal put it this way in Njenga[5] at paragraphs 3 and
4:
The income tax system is based on self monitoring. As a public
policy matter the burden of proof of deductions and claims
properly rests with the taxpayer. The Tax Court Judge held that
persons such as the Appellant must maintain and have available
detailed information and documentation in support of the claims
they make. We agree with that finding. Ms. Njenga as the taxpayer
is responsible for documenting her own personal affairs in a
reasonable manner. Self-written receipts and assertion without
proof are not sufficient.
The problem of insufficient documentation is further
compounded by the fact that the trial judge, who is the assessor
of credibility, found the applicant to be lacking in this
regard.
[19] While I accept Mr. Quaidoo's
position that he entered upon a commercial venture, his lack of
record keeping, the oddity of invoices as receipts, his vagueness
as to exactly what goods were acquired and how, his vagueness as
to the nature of the business as a proprietorship or partnership,
and if the latter with whom, leaves me unable to rely solely on
his oral testimony as to his expenditures. If a taxpayer is going
to incur significant expenses with a hope of earning a profit, he
must be diligent in accounting for those expenditures. He cannot
expect the government to guess. The system would fall apart.
[20] This has unfortunately been an
expensive lesson for Mr. Quaidoo, but he has simply been unable
to prove that his expenses exceeded his income. Without that
proof his appeal must be dismissed.
Signed at Ottawa, Canada, this 24th day of September,
2003.
Miller J.
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