Date: 20011009
Docket: 1999-2875-IT-I
BETWEEN:
GARY D. KNIGHT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Lamarre, J.T.C.C.
[1]
The appellant was assessed for his 1993 and 1994 taxation years
pursuant to subsection 152(7) of the Income Tax Act
("Act"). The summary of business income as
assessed is found in schedules A, B, C and D to the Amended Reply
to the Notice of Appeal.
[2]
The evidence disclosed that the appellant has been delinquent in
the past in filing his income tax returns. In fact, it appears
that no returns were filed before 1993 and after 1994 and that
the tax returns for those two years were only filed after
repeated requests by Revenue Canada, as it then was.
[3]
It is not disputed that the appellant worked on a contract basis
for the Senate of Canada as a researcher for Senator Stanley
Haidasz in the years at issue (see Exhibits R-5, R-6 and R-7). At
the outset, counsel for the respondent stated that the gross
income assessed for 1994 should be reduced by the amount of
$20,419 that was included under the item "T-4A - The
Foundation for Educational Exchange Between Canada & the
U.S.". The appellant does not challenge the balance of the
amount of gross income assessed, with the exception of an amount
of $840 for 1993 that he claims was included in his income for
1994. The respondent no longer disputes that point.
[4]
With respect to the expenses claimed, I am prepared to allow only
the following:
(a)
The legal expenses which are substantiated by a receipt. I will
give the appellant the benefit of the doubt and accept these
expenses as having been incurred for his research work for
Senator Haidasz.
(b)
The salary expenses for his wife, Sheila Dawson ($840 in 1993 and
$834 in 1994) since she testified that she worked for the
appellant in computerizing his research data and she has shown
that that income was declared in her own tax returns (see Ms.
Dawson's tax returns which were produced after the hearing at
my request, copies of which were sent to counsel for the
respondent). I will also accept as a deductible expense the
salary paid to Paul Lauzon (Exhibit A-9) because there is a
receipt signed by him. Although he was not present at the hearing
- and his presence obviously would have been preferable --
I will nevertheless accept the receipt as constituting sufficient
evidence given that the appellant had summoned him as a witness
on the date this hearing was first scheduled to be heard and
given that the hearing was for some reason adjourned at the
request of this Court even though all parties were ready to
proceed.
[5]
All the other expenses claimed by the appellant will be
disallowed. Indeed, it has not been shown that they were incurred
for the purpose of earning income from the appellant's
research activities for the Senate of Canada or from any other
business.
[6]
First, I consider the meal and entertainment, automobile, office
and advertising expenses to be personal and not reasonable in the
circumstances within the meaning of
paragraph 18(1)(h) and section 67 of the Act.
At the Senate, the appellant had access to an office with all the
necessary equipment and I consider all the office expenses
claimed unreasonable in the circumstances. The meal expenses
claimed were mainly for when the appellant ate at the Senate
alone or with pals or with his wife. In my opinion, these meal
expenses are personal. The automobile was used principally to go
from home to his work at the Senate; expenses for trips outside
Ottawa were normally reimbursed by the Senate of Canada upon
provision of receipts, if those expenses were considered
reasonable (according to the testimony of Senator Haidasz's
secretary, Ms. Kathleen O'Mara). Furthermore, the appellant
did not keep a logbook of his business trips, if any, that were
not reimbursed by the Senate. As for the terminal loss in the
amount of $4,112 claimed for the 1993 taxation year for the 1981
Dodge van, I find this claim completely unreasonable. The
evidence disclosed that it was through pure negligence on the
part of the appellant that the old rusted van was towed,
impounded and finally destroyed by the City of Ottawa, after the
appellant had literally abandoned it. Furthermore, the appellant
has in no way proven that the depreciated value of that old
rusted van amounted to $4,112, which, in my view, is clearly
exaggerated.
[7]
Second, the appellant has not shown that he met the requirements
of subsection 18(12) of the Act as regards the deduction
for workspace in the home. More particularly, the evidence did
not disclose that the appellant's home (a one-bedroom
apartment) was his principal place of business, nor that it was
used exclusively for the purpose of earning income from a
business, nor that he met clients there on a regular basis. In
fact, the appellant admitted that he performed his work for the
most part at the Senate (see Exhibit R-1, page 1,
paragraph 2) and that he rarely, if ever, met people in his
home.
[8]
Third, with respect to expenses claimed in respect of amounts
paid to an entity called "A Single Voice", the evidence
disclosed that the appellant's brother might have operated a
business under the name "A Single Voice" in the United
Kingdom. However, the appellant has not shown that he himself was
operating that business with his brother. The contract filed
(Exhibit A-3) shows that the appellant was hired as agent and
promoter in the Americas with respect to the musical arts of
"A Single Voice". In this contract, the appellant
agreed to advance monies to his brother, David Knight, for
the purpose of, inter alia, supporting the development of
production technique and covering costs incurred in making the
products. Those are the expenses claimed by the appellant.
[9]
In the event of sales in the Americas, the appellant was to
receive 25 per cent of the profits. Regardless of that fact,
the appellant had to prove, first of all, that he was operating a
business and, if so, that the expenses were incurred to earn
income therefrom. The appellant said that he was trying to
promote the business. It was registered in Canada in 1995
(Exhibit A-1) in the name of his brother. Nothing was in the
appellant's name. The documents filed by the appellant show
that David Knight was thankful to the appellant for his support
but do not show that the appellant was also running the
business.
[10] The
appellant would have earned 25 per cent of the profits made
here if there had been any sales. However, he specifically
mentioned that, for reasons of his own, he did not attempt to put
on sale in Canada any CD produced by "A Single Voice".
It is, therefore, difficult for him to argue that he was
operating a business here. There is no evidence to show that the
monies advanced by the appellant to his brother in the United
Kingdom were expenses incurred for a business operated by the
appellant himself or in which he was a partner. Furthermore,
"A Single Voice" was only registered in Canada in 1995,
which is the year following the years at issue. Consequently,
none of the expenses relating to "A Single Voice" are
deductible (including telephone calls to the United Kingdom).
Signed at Ottawa, Canada, this 9th day of October 2001.
"Lucie Lamarre"
J.T.C.C.
COURT FILE
NO.:
1999-2875(IT)I
STYLE OF
CAUSE:
Gary D. Knight v. The Queen
PLACE OF
HEARING:
Ottawa, Ontario
DATE OF
HEARING:
September 26, 2001
REASONS FOR JUDGMENT BY: The
Honourable Judge Lucie Lamarre
DATE OF
JUDGMENT:
October 9, 2001
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Pascal Tétrault
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
Email this Content