Date: 20010330
Docket: 2000-2104-IT-I
BETWEEN:
GANADEROS INTERNATIONAL CORPORATION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(delivered orally from the Bench at Calgary, Alberta on March
30, 2001)
Beaubier, J.T.C.C.
[1]
This appeal, pursuant to the Informal procedure was heard in
Calgary, Alberta on March 30, 2001. Allan Kurtz, the principal
shareholder and John Marshall, C.M.A., the corporate
accountant and minority shareholder of the Appellant were the
witnesses. Patricia McCulloch, the Appeals Officer, also
testified.
[2]
The Appellant was reassessed respecting expenses and income for
its fiscal years 1993 to 1996 inclusive. As a result, certain
expenses claimed were disallowed and income was increased. This
appeal followed.
[3]
The Appellant had reported on a cash basis and reassessment was
done on an accrual basis. Due to the nature of the
Appellant's business, this did not change its results
appreciably and that change is not in dispute. The corporation
operates as an idea source for businesses under the trade name
"Market Force".
[4]
One matter in dispute at the hearing was capital cost allowance
for a computer and a copier. Patricia McCulloch testified that
the correct capital cost allowance was allowed for both items and
this evidence is accepted.
[5]
The second matter in dispute is the treatment of money spent by
Mr. Kurtz out of corporate funds. He said he mixed funds. For
1993, 1994 and 1995 he personally reported no income. For 1996 he
reported $6,200.00 income. Mr. Kurtz reported his income in
his income tax returns in those years on this basis.
[6]
Patricia McCulloch examined the corporate records in detail and
prepared working sheets, Exhibit R-1, pages 21 to 32. These
details were not disputed. They show about 50 percent of the
withdrawals from the Appellant's corporate account to Mr.
Kurtz or to Trudy, presumably Allan Kurtz's wife. Kurtz's
mortgage payments were also made from the corporate account at
times, as were life insurance premiums, Book of the Month Club
payments and similar personal amounts.
[7]
The result is that Mr. Kurtz did not report the amounts taken
personally from the corporate account as salary. When he reported
his income for tax purposes the Appellant corporation did not do
this either at the appropriate time. The Appellant treated them
as business expenses. They were not. They must each live with
their reports as filed. They elected their positions then.
[8]
Having regard to Exhibit R-1, they did this knowingly at the
time. In essence, the Appellant made false reports of alleged
business expenses when the record is clear that Mr. Kurtz and his
family were withdrawing or using corporate funds personally.
[9]
Because they were not reported as Mr. Kurtz's salary, they
could only be shareholder's benefits to Mr. Kurtz.
[10] Certainly
these expenditures were not for the purpose of the Appellant
gaining income. Rather, they were for the benefit of the
principal shareholder, Mr. Kurtz.
[11] Upon the
submissions of counsel for the Respondent the appeal is allowed
only insofar as to refer this matter to the Minister of National
Revenue for reconsideration and reassessment to allow $800.00 in
additional expenses for 1996 and to allow the appeal of the
penalties assessed under subsection 163(2) of the Income
Tax Act.
Signed at Ottawa, Canada, this 26th day of July, 2001.
"D. W. Beaubier"
J.T.C.C.
COURT FILE
NO.:
000-2104(IT)I
STYLE OF
CAUSE:
Ganaderos International Corporation v.
The Queen
PLACE OF
HEARING:
Calgary, Alberta
DATE OF
HEARING:
March 30, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge D. W. Beaubier
DATE OF
JUDGMENT:
March 30, 2001
APPEARANCES:
Agent for the
Appellant:
John W. Marshall
Counsel for the
Respondent:
Michael Taylor
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
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