Date: 20001128
Dockets: 2000-2268-IT-I, 2000-2388-IT-I,
2000-2490-IT-I
BETWEEN:
KIL CHA PAK,
SOON SUK LEE,
SOON SUK LEE
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Beaubier, J.T.C.C.
[1]
These Informal Appeals were heard together on common evidence by
consent of the parties at Vancouver, British Columbia, on
November 22, 2000. Soon Suk Lee was a witness as was the
parties' accountant, Mr. Hun Sunwoo. Sonja Mitchell testified
for the Respondent. The issue is essentially one of law.
Paragraphs 2 to 14 inclusive of the Reply to the Notice of Appeal
of Soon Suk Lee read:
2.
With respect to the fourth paragraph under B. of the Notice of
Appeal he admits that the income for the period ending
31st December 1995 qualified for a reserve under the
provisions of subsection 34.2(4) of Income Tax Act, R.S.C.
1985, c. 1 (5th Supp.), as amended (the
"Act") but denies that the amount of the claimed
reserve was calculated in accordance with subsection 34.2(4) of
the Act.
3.
He denies that the deduction was lawful.
4.
The Minister of National Revenue (the "Minister")
initially assessed the Appellant for the 1997 year by Notice
dated 8th June 1998.
5.
By Notice dated 17th June 1996, for the 1995 taxation
year, the Minister assessed the Appellant net business income as
filed in the amount of $6,341, which included additional business
income in the amount of $1,833 and a reserve in the amount of
$1,742. The Appellant's calculation of the reserve is shown
in Exhibit "A" to this Reply.
6.
By Notice dated 2nd June 1997, for the 1996 taxation
year, the Minister assessed the Appellant net business income as
filed in the amount of $8,230, which included the reserve of
$1,742 deducted in calculating the 1995 income and a reserve of
$1,553 for the 1996 taxation year. The Appellant s calculation of
the reserve is shown in Exhibit "B" to this Reply.
7.
In computing income for the 1997 taxation year the Appellant
deducted a reserve calculated as shown in Exhibit "C"
to this Reply.
8.
In assessing the Appellant, by Notice dated 8th June
1998, for the 1997 taxation year the Minister disallowed the
deduction of the reserve.
9.
In so assessing the Appellant, the Minister relied on the
following assumptions of fact:
a)
the Appellant and Soon Suk Lee operated a partnership doing
business Dundas Market (the "Partnership");
b)
the Partnership commenced before the 1995 calendar year;
c)
the Partnership had a fiscal period ending on 30th
September;
d)
the Partnership converted the fiscal year end to 31st
December in 1995;
e)
the Partnership had two fiscal periods ending in 1995;
f)
the Partnership's income for the fiscal period ending
30th September 1995 was $12,498;
g)
the Partnership's income for the period ending
31st December 1995 was $3,667;
(h)
the Partnership's cumulative eligible capital expenditures at
the fiscal period ending 30th September 1995 was
$30,776;
(i)
the undepreciated capital costs of the Partnership's assets
at the year ending 30th September 1995 were as
follows:
class
8
$ 5,480
class 13 $25,646
class
10.1
$10,996;
j)
in calculating the reserve for 1995 pursuant to subsection
34.2(4) of the Act the Partnership did not deduct from
income any amount with respect to the cumulative eligible capital
nor any amount with respect to capital cost allowance as required
by 34.2(2) (the "Error"); and
k)
as a result of the Error the Partnership's calculation of
reserves per subsection 34.2(4) in the 1995 through 1997 taxation
years was incorrect.
10.
The allowable reserves for 1995, 1996 and 1997 are shown in
Exhibits "D", "E" and "F"
respectively.
11.
The Minister concedes that the Appellant is entitled to deduct a
reserve up to $511 in the 1997 taxation year.
B.
ISSUES TO BE DECIDED
12.
The issue is the amount of the reserve the Appellant may claim
under the provisions of subsection 34.2(4) of the Act.
C.
STATUTORY PROVISIONS RELIED ON
13.
He relies on section 34.2 of the Act.
D.
GROUNDS RELIED ON AND RELIEF SOUGHT
14.
He respectfully submits that the Appellant is entitled to a
reserve for the 1997 taxation year, under the provisions of
subsection 34.2(4) of the Act, up to the amount of
$551.
Schedules D, E and F in both of the Lees' Replies were
amended by consent of the parties in an effort to clarify the
calculation.
[2]
The assumptions in paragraph 9 are correct.
[3]
Mr. Sunwoo filed claims for the Appellants which were based on
the optional provision respecting capital cost allowance
("CCA") set out in section 20 of the Income Tax
Act (the "Act").
[4]
However, in the amendments to the Act contained in section
34.2 which require that CCA be used as stated therein, that
option is taken away and the usage of CCA set out is mandatory.
In particular, subsection 34.2(2)(c) reads:
(2) Computation of December 31, 1995 income
For the purpose of the definition "December 31, 1995
income" in subsection (1), a taxpayer's income or loss
from a business for a qualifying fiscal period shall be
computed as if
...
(c) the maximum amount deductible in respect of any reserve,
allowance or other amount were deducted; and
(emphasis added)
[5]
In essence, this interpretation is merely the application of the
rule of statutory interpretation that the expression of the
particular overrides the expression of the general.
[6]
The same principle was applied by Bowman, A.C.J. in Cho and
Shin v. Her Majesty the Queen, 2000 2 C.T.C. 2714.
[7]
For these reasons these appeals are dismissed.
Signed at Ottawa, Canada this 28th day of November,
2000.
J.T.C.C.
COURT FILE
NO.:
2000-2268(IT)I, 2000-2388(IT)I and
2000-2490(IT)I
STYLE OF
CAUSE:
Kil Cha Pak v. Her Majesty the Queen
Soon Suk Lee v. Her Majesty the Queen
Sung Sook Lee v. Her Majesty the Queen
PLACE OF
HEARING:
Vancouver, British Columbia
DATE OF
HEARING:
November 22, 2000
REASONS FOR JUDGMENT
BY:
The Honourable Judge D.W. Beaubier
DATE OF
JUDGMENT:
November 28, 2000
APPEARANCES:
Agent for the
Appellant:
Hun Sunwoo
Counsel for the
Respondent:
Kristy Foreman Gear
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-2268(IT)I
BETWEEN:
KIL CHA PAK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the
appeals of Soon Suk Lee
(2000-2388(IT)I) and Sung Sook Lee
(2000-2490(IT)I)
on November 22, 2000 at Vancouver, British
Columbia, by
the Honourable Judge D.W.Beaubier
Appearances
Agent for the
Appellant:
Hun Sunwoo
Counsel for the
Respondent:
Kristy Foreman Gear
JUDGMENT
The
appeal from the assessment made under the Income Tax Act
for the 1997 taxation year is dismissed in accordance with the
attached Reasons for Judgment.
Signed at Ottawa, Canada this 28th day of November,
2000.
J.T.C.C.
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