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Citation: 2004TCC483
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Date: 20040630
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Docket: 2002-4406(IT)I
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BETWEEN:
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ROGER KENNETH BLOUSE,
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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
Rip, J.
[1] Roger Kenneth Blouse appeals his
1999 income tax assessment on the basis that an amount of $47,067
ought not to have been included in his income by the Minister of
National Revenue. He claims the $47,067 represented
"legitimate reimbursements" for expenses incurred by
him on behalf of I.C.I. Steel-Tech Inc. ("ICI"), a
corporation of which he was a shareholder and officer.
[2] ICI installs industrial and
commercial steel siding on buildings throughout Ontario. Mr.
Blouse owns 47 per cent of the issued shares of ICI,
Mr. John Jetter owns 52 per cent of the shares of ICI
and Mrs. Jetter owns one per cent. Mr. Blouse organizes jobs for
ICI and is the company's liaison with employees and
contractors. Mr. Jetter runs the office, attending to job
estimates, payroll, bookkeeping, banking and other administrative
functions. Mr. Jetter "handles the money".
[3] Mr. Blouse explained that he
frequently purchased supplies with cash from
"non-regular suppliers" such as Canadian Tire and
Home Depot and is reimbursed by ICI. He also incurred expenses by
purchasing meals and "drinks" with cash for employees
and customers and is reimbursed by ICI. He testified he would
submit receipts to Mr. Jetter and ICI would issue a cheque.
Mr. Blouse's position at trial was that the $47,067
represented cheques issued to reimburse him for these types of
expenses. He stated that he did not know what happened to the
bulk of the receipts he submitted to ICI but did produce a folder
containing copies of receipts totalling $11,187.29.
[4] The bulk of the receipts filed by
Mr. Blouse are receipts from restaurants. There are also receipts
from suppliers such as Beaver Lumber, Canadian Tire, Home Depot
and service stations as well as from municipalities and Canada
Post. These receipts total approximately $2,300; the balance was
from the Beer Store, wine stores and various restaurants.
Unfortunately Mr. Blouse could not "remember back to
1999" and could not identify any particular expense. Also,
he acknowledged that he has never seen ICI's cancelled
cheques for the reimbursed amounts; he stated that the cheques
may have been "made out to cash", although they were
"likely" made out in his name.
[5] Mr. Blouse has one child who was
12 years of age in 1999. Sometimes, he said, he would meet
"people with kids" in a restaurant and suggested that
could be the reason for receipts that referred to children's
meals at McDonalds and other restaurants. Also, he suggested, a
person, such as himself, may not be that hungry and would order a
children's meal. There were also receipts for meals for one
person. Mr. Blouse did concede that about 15 per cent of the
meal receipts were for personal consumption. As far as liquor
purchases are concerned, Mr. Blouse stated that he may have
purchased beer for a meeting of employees dealing with safety at
work and, also, for contractors and subcontractors.
[6] In his notice of appeal Mr.
Blouse, through his agent, Ray Imbeau, suggested that the
"Minister's definition of the $47,067 as income from an
office or employment ... be considered as dividends from 1136302
Ontario Inc." (I do not know what the relevance of this
latter corporation is to ICI or to Mr. Blouse, although I would
gather that 1136302 Ontario Inc. was the erstwhile corporate name
of ICI.) In an earlier letter of February 28, 2002 to Ms. Linda
Compton, an appeals officer with the Canada Customs and Revenue
Agency ("CCRA") at the time, Mr. Imbeau asked that
$37,114 of the amount in issue[1] be "re-determined" as dividends
paid to Mr. Blouse and that the "remaining $10,000
(less the reimbursed amount of $7,418.18 which is really
reimbursement to Roger Blouse for cash expenses he paid on behalf
of the company during the 1999 year ...) equalling an additional
$2,581.82 to be determined as additional subcontract fees taxable
to Roger Blouse". Apparently Mr. Blouse reported his
income from ICI as business income, on the basis that he was an
independent contractor and not an employee of ICI. Mr. Blouse
reported $20,000 as his gross business income in 1999. His
reported net income, after provision for automobile, accounting
and interest expenses, was $8,450. The Crown treated Mr. Blouse
as an employee. There was no evidence produced by Mr. Blouse to
combat the fisc's view. Among other things, Mr. Blouse was an
officer of ICI, had authority to hire and fire employees and
carried out his work as part of the business of ICI.
[7] Ms. Compton testified that during
the course of dealing with Mr. Imbeau, the latter failed to
submit any documentation to establish that Mr. Blouse received
reimbursements from ICI. Ms. Compton stated that since the CCRA
did not consider Mr. Blouse an independent contractor, the Agency
was of the view that he did not qualify to deduct any expenses
from his income pursuant to section 8 of the Income Tax
Act ("Act").
[8] In any event ICI subsequently
filed an amended T4 form for 1999 showing no remuneration paid to
Mr. Blouse, a T5 form for 1999 that it paid an actual amount of a
dividend of $47,114 and a T5 form that a dividend was paid to
Mr. Blouse in the actual amount of $47,114. However, the
financial statements attached to the corporate tax return of ICI
for its 1999 taxation year do not reflect any dividends paid to
shareholders in 1999. ICI's statement of earnings for the
11 months ending December 31, 1999 report advertising and
promotion expenses of $2,384 and meals and entertainment expenses
of $2,559. The corporate tax return was filed on January 30,
2001, according to Ms. Compton, and preceded the filings of
the amended T4 and T5 forms.
[9] An amended T4 form for ICI for
1999 was prepared by the CCRA in the year 2000 to deny Mr.
Blouse's status of independent contractor. An amount of
$47,067 was added to Mr. Blouse's employment income.
[10] Mr. Jetter testified he "went
through the bills" submitted to him by Mr. Blouse for
reimbursement. Mr. Blouse would submit the receipts weekly and
Mr. Jetter would issue a cheque "paid to cash". He
explained ICI did not have any credit cards in 1999 and he did
not find it uncommon for Mr. Blouse to have incurred $47,000 in
expenses for ICI in 1999. Mr. Jetter declared that sometimes
Mr. Blouse would buy beer for a crane operator to
"repay favours".
[11] As far as meals were concerned, he
suggested that he had no problem with Mr. Blouse taking out
a contractor and his family for a meal.
[12] The bulk of the receipts presented for
reimbursement and invoices "disappeared" during office
renovations; the receipts were kept in a bag in the office, Mr.
Jetter declared. He did not know where the other receipts were or
which receipts were taken into account in preparing ICI's tax
return. All he could find were "odds and ends" which
were produced at trial.
[13] Mr. Jetter believed an entry "cash
expense repaid" was put in the books of the corporation as
cheques were issued for the receipts, but he was not certain. In
any event no such books were produced at trial.
[14] Mr. Jetter could not recall if ICI
reimbursed Mr. Blouse for expenses incurred on behalf of the
corporation in years other than 1999. In his view, "any
employee would be reimbursed", as would he, for expenses
incurred on behalf of ICI.
[15] Mr. Jetter also could not recall if Mr.
Blouse was an employee or independent contractor in 1999. Mr.
Blouse was paid by cheque for the hours he worked. Mr. Jetter
estimated Mr. Blouse's pay in 1999 for hours worked for ICI
at approximately $39,000.
[16] During cross-examination, Mr.
Jetter was queried on information reported in ICI's 1999 tax
return. He stated that perhaps the meals and entertainment
expenses were $2,500 for a particular party put on by ICI and did
not reflect meals and entertainment for the eleven months ending
on December 31, 1999.
[17] Again, Mr. Jetter could not recall if
any dividend of $47,000 was paid in 1999 to Mr. Blouse.
[18] Upon completion of the evidence,
appellant's counsel was permitted to file an amended notice
of appeal; the original notice was filed by Mr. Imbeau. The
respondent was entitled, of course, to file an amended reply to
the notice of appeal and did so. Counsel subsequently submitted
their arguments in writing.
[19] While it may well be that from time to
time Mr. Blouse may have purchased supplies for cash on behalf of
ICI or paid for ICI's customers' meals with cash, there
is no clear disinterested evidence that it is so and I am not
satisfied that these cash purchases, if they were made,
approached anywhere near $47,000 in 1999. The claimed purchases
and meals and entertainment expenses are nowhere reflected in
ICI's financial statements for 1999. The testimonies of both
Mr. Blouse and Mr. Jetter are wanting.
[20] Mr. Imbeau, the person who prepared
ICI's financial statements and made representations to CCRA
on behalf of Mr. Blouse, was in court throughout the trial.
However, he was not called as a witness. I infer that his
evidence would not have been favourable to the appellant.
[21] Appellant's counsel submitted that
in determining the issue of credibility and the manner of
testifying, I consider the level of education of Mr. Blouse and
whether or not he is a sophisticated person with special skills
or experience. Mr. Blouse has a grade nine education, did
not learn a trade and has no special education or training. I
find this submission nonsense. My experience on the bench has
confirmed that one's credibility has nothing to do with
one's level of education or training. Credible and honest
witnesses are found in all education levels, as are non-credible
and dishonest witnesses.
[22] In the case at bar neither Mr. Blouse
nor Mr. Jetter answered candidly to questions, the answers to
which would prejudice the appellant's appeal. They could not
remember or feigned ignorance. Mr. Blouse could not recall whom
he treated to meals or the relationship of any entertained party
to ICI's business. ICI's tax returns are silent with
respect to the quantum of these expenses claimed by Mr. Blouse
for meals and entertainment and for which he says he was
reimbursed. I do not believe Mr. Blouse when he says he ate
children's meals at some fast food restaurants while
purporting to eat with an ICI business contact.
[23] Also there is a dispute between Mr.
Jetter and Mr. Blouse. The appellant reported gross business
income from ICI of $20,000; Mr. Jetter believed Mr. Blouse
was paid $39,000 by ICI.
[24] For these reasons, the appeal is
dismissed.
Signed
at Ottawa, Canada, this 30th day of June, 2004.
Rip. J.
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