REASONS
FOR JUDGMENT
Graham J.
[1]
Ian Leith is an investment advisor with BMO
Nesbitt Burns. In his 2006 and 2007 tax years, Mr. Leith claimed various
deductions from his employment income. The Minister of National Revenue denied
those deductions for a number of reasons and Mr. Leith appealed. Mr. Leith also claimed
farming losses in his 2006 and 2007 tax returns. The Minister denied those
losses on the basis that Mr. Leith was not engaged in the business of
farming. The Minister takes the position that Mr. Leith’s farming activities were
a personal endeavour. Mr. Leith has appealed the denial of his farming
losses.
Employment
Expenses
[2]
The issues that I must determine for the
employment expenses are as follows:
a) Did Mr. Leith comply with his obligations under the Income Tax
Act regarding the provision of T2200 Declaration of Conditions of
Employment forms?
b) If Mr. Leith complied with his obligations regarding the provision
of T2200’s, did he incur the employment expenses for the purpose of earning
income from employment?
c) If Mr. Leith incurred the employment expenses for the purpose of
earning income from employment, did he meet the remaining conditions set out in
paragraph 8(1)(f) of the Act that would allow him to deduct those
expenses?
Did Mr. Leith
comply with his obligations regarding the provision of T2200’s?
[3]
Subsection 8(1) allows certain employees to
deduct certain expenses from their employment income. Subsection 8(10), places
certain restrictions on those deductions. It states:
An amount
otherwise deductible for a taxation year under paragraph (1)(c), (f),(h)
or (h.1) or subparagraph (1)(i)(ii) or (iii) by a taxpayer shall
not be deducted unless a prescribed form, signed by the taxpayer's employer
certifying that the conditions set out in the applicable provision were met in
the year in respect of the taxpayer, is filed with the taxpayer's return of
income for the year.
[emphasis
added]
[4]
The prescribed form for the purposes of
subsection 8(10) is a T2200 Declaration of Conditions of Employment
form. Mr. Leith did not file T2200’s with his 2006 and 2007 tax returns. It
would appear on the face of subsection 8(10) that a failure to file a
T2200 with a tax return would be fatal to a claim to deduct expenses pursuant to
any of the paragraphs described in subsection 8(10). However, as set out below,
I find that this is not the case.
[5]
The fact that Mr. Leith did not file T2200’s
with his tax returns is not surprising. The forms themselves specifically told
him that he did not have to do so. The second sentence of the T2200’s clearly
states that “The employee does not have to file this
form with his or her return, but must keep it in case we ask to see it.”
[6]
Subsection 220(2.1) of the Act states:
Where any
provision of this Act or a regulation requires a person to file a prescribed
form, receipt or other document, or to provide prescribed information, the
Minister may waive the requirement, but the person shall provide the document
or information at the Minister's request.
[7]
I find that the second sentence of the T2200
form has the effect under subsection 220(2.1) of waiving the requirement under
subsection 8(10) for a taxpayer to file a T2200 with his or her tax return so
long as the taxpayer provides the T2200 to the Minister upon request. Accordingly,
Mr. Leith was not required to file T2200’s with his 2006 and 2007 tax returns
and his failure to do so is not fatal to his ability to deduct the employment
expenses.
[8]
Carol Nourdine was the CRA auditor assigned to
audit Mr. Leith. Ms. Nourdine testified at trial. I found her to be a
credible witness. She stated that she had asked Mr. Leith’s accountant to
provide her with his T2200’s for 2006 and 2007. She identified two T2200’s that
she had received from Mr. Leith’s accountant following that request. I find that the provision by
Mr. Leith’s accountant to Ms. Nourdine of those T2200’s satisfies the
condition in subsection 220(2.1) that the forms be provided at the Minister’s
request.
[9]
Based on all of the foregoing, I find that Mr. Leith
has satisfied his obligations pursuant to subsection 8(10) regarding the
provision of T2200’s.
Did Mr. Leith
incur the employment expenses for the purposes of earning income from
employment?
[10]
The Minister made assumptions of fact that Mr.
Leith did not incur the employment expenses in respect of any employment or
business activities.
While Mr. Leith testified at length about the expenses that he says incurred
for employment purposes, I did not find him to be credible. Accordingly, I find
that Mr. Leith failed to demolish the Minister’s assumptions of fact and thus
that he is not entitled to deduct the employment expenses.
[11]
My findings as to Mr. Leith’s credibility were
based, in part, on various implausible statements that he made in his testimony
regarding specific expenses but, more importantly, on two sets of documents
that were entered into evidence: altered T2200’s and backdated versions of his
personal calendars.
Altered T2200’s
[12]
Mr. Leith entered a set of T2200’s as exhibits
at trial
that differed from the T2200’s that his accountant had provided to Ms.
Nourdine. I will refer to the set of T2200’s Mr. Leith entered as exhibits as
the “Trial T2200’s” and the set that was provided
to Ms. Nourdine as the “Audit T2200’s”. Ms.
Nourdine testified that the Audit T2200’s were the only T2200’s that she
received from Mr. Leith. Mr. Leith made no mention of the Audit T2200’s in his
direct testimony.
[13]
John Casey was the branch manager of Mr. Leith’s
BMO Nesbitt Burns branch in 2006 and 2007 and was the individual who signed Mr.
Leith’s T2200’s. Mr. Casey was called as a witness. I found him to be credible.
He explained the process by which T2200’s were prepared in the branch in 2006
and 2007. BMO Nesbitt Burn’s accounting department would provide the branch
with the necessary forms and a memo explaining how they should be filled out.
The branch administrator would fill the forms out in accordance with the memo. The
completed T2200’s would then be distributed to the investment advisors. The
investment advisors would review the forms and, if necessary, make changes. The
investment advisors would then give the forms to Mr. Casey. He would review the
forms, sign them and return them to the investment advisors. By signing the
T2200’s, Mr. Casey was certifying on behalf of BMO Nesbitt Burns that they were,
to the best of his knowledge, correct and complete. Based on Mr. Casey’s
evidence, I accept that I should not be alarmed if Mr. Leith’s T2200’s for 2006
and 2007 contain alterations made by Mr. Leith so long as I am comfortable that
the alterations occurred before Mr. Casey signed the forms.
[14]
Mr. Leith made handwritten alterations to all of
the T2200’s. He made changes to the Audit T2200’s that are different than those
he made to the Trial T2200’s. Mr. Casey’s signature appears on both the Audit
T2200’s and the Trial T2200’s. It was implicit in Mr. Casey’s testimony that he
would not have signed more than one T2200 for a given investment advisor for a
given year or approved a previously signed form after it had been amended. Since the Audit T2200 for each
year is different from the Trial T2200 for that same year, they should not both
bear Mr. Casey’s signature. There are two possible explanations. Either one of
those documents was altered after Mr. Casey signed it or both of them were
altered after Mr. Casey signed some other original document. By altering the
documents after Mr. Casey signed them, Mr. Leith rendered Mr. Casey’s
certification invalid. More importantly, by presenting such documents as having
been properly certified, Mr. Leith seriously damaged his credibility. The
details of the alterations and my conclusions arising therefrom are set out
below.
[15]
The Audit T2200 for 2006 contains one handwritten
alteration made by Mr. Leith. Question 6 on the T2200 asks whether the employee
was required to pay certain types of expenses. The response prepared by BMO
Nesbitt Burns indicates that Mr. Leith was required to pay “sales & promotions & entertainment” expenses.
Mr. Leith has added the words “EDUCATION COACHING”
to the response to Question 6. It is not possible to determine from the 2006
Audit T2200 whether this addition was made before or after Mr. Casey signed it.
[16]
The Trial T2200 for 2006 contains a number of other
handwritten alterations that were made by Mr. Leith:
a) Question 8 asks whether the employee was required to be away for at
least 12 consecutive hours from the place where he or she normally reported for
work and, if so, how frequently. A box marked “No”
beside this question was ticked on the 2006 Audit T2200. On the 2006 Trial
T2200, the tick in the “No” box has been scratched out and a new tick placed in
the “Yes” box. I conclude from this that the
2006 Audit T2200 cannot have been created by altering the 2006 Trial T2200. The
words “AS REQUIRED IN HIS DETERMINATION” have
also been added to describe the frequency of Mr. Leith’s travel.
b) The words “EDUCATION COACHING” added
by Mr. Leith to Question 6 in the 2006 Audit T2200 are not present in the 2006
Trial T2200. The words “TRAVEL + AUTO + EXPENSES”
appear in their place.
c) Question 2 asks where the employee was required to travel. The 2006
Audit T2200 contains the following answer prepared by BMO Nesbitt Burns: “ONTARIO”. The 2006 Trial T2200 contains the following
additional phrase: “+CANADA + MASS + CALIFORNIA WHERE
HE IS LICENSED + WHERE HE HAS CLIENTS + WITH CLIENTS”
[17]
I conclude from the above that either the 2006
Trial T2200 was prepared by altering the 2006 Audit T2200 after it was signed
by Mr. Casey or the 2006 Audit T2200 and the 2006 Trial T2200 were prepared by
altering a common original T2200 after that original document was signed by Mr.
Casey. Either way, the inescapable conclusion is that Mr. Leith altered the
2006 Trial T2200 after it was signed by Mr. Casey. He may also have altered the
2006 Audit T2200 after it was signed.
[18]
The Audit T2200 for 2007 contains the following
handwritten alterations made by Mr. Leith:
a) Mr. Leith’s address has been changed.
b) The field for Mr. Leith’s job title has been filled in with the
description “INVESTMEN ADVISOR PORTFOLIO MANAGER”.
c) Question 2 asks where the employee was required to travel. The 2007 Audit
T2200 contains the following answer prepared by BMO Nesbitt Burns: “Ontario”. The phrase “+ BC +”
has been added to this description.
d) Question 6 asks whether the employee was required to pay certain
types of expenses. The response prepared by BMO Nesbitt Burns indicates that
Mr. Leith was required to pay “sales, promotions,
entertainment” expenses. The phrase “, TRAVEL,
AUTO EXPENSES” has been added to this description.
[19]
It is not possible to determine from the 2007
Audit T2200 whether these additions were made before or after Mr. Casey signed
it.
[20]
The Trial T2200 for 2007 contains a number of
additional handwritten alterations:
a) Mr. Leith has added the following additional phrase to the response
to Question 2: “CANADA WHERE HE IS LICENSED + WHERE HE
HAS CLIENTS + WITH CLIENTS”. This phrase follows the phrase “+ BC +”, which appears in the 2007 Audit
T2200.
b) Question 8 asks whether the employee was required to be away for at
least 12 consecutive hours from the place where he or she normally reported for
work and, if so, how frequently. The words “AS REQUIRED
IN HIS DETERMINATION” have been added to describe the frequency of
Mr. Leith’s travel.
c) Mr. Leith’s social insurance number has been added.
[21]
I conclude from the above that either one or
both of the 2007 Audit T2200 and the 2007 Trial T2200 were altered by Mr. Leith
after being signed by Mr. Casey.
[22]
Mr. Leith denied altering the T2200’s for the
purpose of his dispute with the Minister. He appeared to claim that the alterations
that he made were for the purpose of reflecting the reality of his employment
situation rather than for the purpose of affecting the outcome of the trial. It
was as if Mr. Leith wanted me to believe that he had an altruistic interest
outside of his tax dispute in having the T2200’s reflect a more accurate
picture of what occurred. The simple fact is that in his direct testimony Mr.
Leith falsely presented the 2006 Trial T2200 as having been altered before Mr.
Casey signed it, failed to draw my attention to the fact that he had provided a
different set of T2200’s to his accountant and failed to draw my attention to
the fact that one or both of the 2007 T2200’s had been altered after Mr. Casey
signed them. On cross-examination when faced with the two differing sets of
T2200’s, Mr. Leith was evasive and vacillated in his explanations of what had
occurred. It was unclear exactly what Mr. Leith’s position was. At first he appeared
to insist that any alterations he had made had been approved by Mr. Casey and
had been made before April 30 of the years in question. This, of course, does
not explain why he would have given a different set of documents to his
accountant than the documents he filed in Court. At another point in his
testimony he insisted that the Audit T2200’s were incorrect although he did not
explain why he would have given incorrect T2200’s to his accountant. Finally he
appeared to concede that he may have altered some of the T2200’s after Mr.
Casey signed them but insisted that those alterations had only been made for
the purpose of reflecting the truth of his employment situation. The overall
impression that I had was that Mr. Leith was drowning in his own deceits and
was desperately grasping at anything that he thought might save him. A witness
who falsely presents altered documents either to the CRA or as evidence at
trial cannot reasonably expect to either be found to be credible or to be found
to have presented the documents for a reason other than to influence the
outcome of his or her dispute with the Minister.
[23]
As a side note, it is possible that at least
some of the alterations to the Audit T2200’s were made by Mr. Leith after Mr.
Casey signed them. However, based on Mr. Casey’s testimony as to how T2200’s
were prepared, it is also possible that those alterations were made before he
signed them. The Minister did not make any assumptions of fact on this point. I
am unable to determine simply by looking at the T2200’s whether the Audit
T2200’s had been altered before Mr. Casey signed them. Had I concluded that
they had, I would have found against Mr. Leith on the previous issue since
providing the Minister with false T2200’s would not have satisfied Mr. Leith’s
obligations under subsection 220(2.1) to provide T2200’s on request.
Backdated
Calendars
[24]
Mr. Leith also filed into evidence, two marked
up calendars: one for 2006 and one for 2007. He testified that he had printed
those calendars at the end of the years in question and noted in handwriting
the mileage that he had driven for employment purposes on the relevant days. Mr.
Leith testified in detail about how he would note the mileage on the back of
meal receipts, collect the receipts in a bag until the end of the month, then
transfer the receipts to monthly envelopes and finally, at year end, transfer
the information from the back of the receipts to the calendar.
[25]
The date May 14, 2010 appears in the bottom
right hand corner of both of the calendars. It seemed highly unlikely that such
a date would appear on calendars supposedly printed in 2006 and 2007. To ensure
that I was not drawing an incorrect inference from that date, at the end of Mr.
Leith’s testimony I asked him what the date was. He stated that it was the date
that the calendars were printed. Not only does that contradict his own
testimony regarding when he printed the calendars, it also calls into question
his entire detailed description of how he maintained his records and suggests
that he was attempting to backdate evidence. The fact that the auditor first
spoke to Mr. Leith’s accountant on May 12, 2010 and the calendars were
printed on May 14, 2010, further suggests that the calendars were created not
in the course of Mr. Leith’s usual record keeping practices but rather to
satisfy the auditor. All of the foregoing affects my view of Mr. Leith’s
credibility.
Did Mr. Leith
meet the remaining tests in paragraph 8(1)(f)?
[26]
Given my conclusion that Mr. Leith has failed to
demolish the Minister’s assumptions of fact that he incurred the employment expenses
for the purposes of earning employment income, it is not necessary for me to
consider whether Mr. Leith met the remaining tests for the deduction of
those expenses under paragraph 8(1)(f).
Farming Losses
[27]
In 2006, Mr. Leith purchased a farm located in
Duncan, Ontario. The farm buildings and fencing were in a state of disrepair. He
spent a significant amount of money repairing and improving the property. The
losses that he claims are mostly related to those costs.
[28]
Mr. Leith submits that he was in the business of
farming and is thus entitled to deduct the full amount his farming losses against
his employment income.
[29]
I do not accept that Mr. Leith was in the
business of farming. While Mr. Leith denies a personal motivation for the
purchase of the property, given my conclusions regarding his credibility, I am
not prepared to accept his assertions at face value. I find that there was a significant
personal element to the property. There is a house on the property. Mr. Leith
testified that it was his ultimate intention to live full time on the property.
The property is located approximately 20 minutes from both the Blue Mountain and
Beaver Valley ski resorts. Mr. Leith was an avid skier, although he can no
longer ski. He gave vague testimony regarding when he stopped being able to ski
but I note that the 2007 calendar that he filed has him skiing in what appears
to be Denver for four days in January. Based on this, I conclude that he was
able to ski when he purchased the property in 2006 and continued to ski in
2007. Mr. Leith testified that he spent most weekends at the property. Mr.
Leith has a number of friends in the area. While some of those individuals may
have been clients or potential clients, it appears that their connection was
far more social in nature.
[30]
Given the presence of a personal element in
respect of the property, it is appropriate for me to consider whether Mr.
Leith’s predominant intention was to make a profit from farming and whether the
farming that he engaged in was carried out in accordance with objective
standards of businesslike behaviour.
[31]
Mr. Leith did not own, buy or sell any cattle in
2006 or 2007. He did not breed any cattle in those years. He did not raise
crops. He did not purchase any farming inventory or feed. He did not have a written
business plan. He testified that he knew exactly what he planned to do but he
did not provide any details as to what that was nor did he provide any
financial projections as to how or when the farm would become profitable. Mr.
Leith provided no evidence as to his farming knowledge or, to the extent that
it was lacking, how he intended to gain that knowledge. While he made the
fields on the property available to some neighbours’ cattle in exchange for $1,000
per year, those cattle did not use the barn and Mr. Leith’s involvement with the
cattle extended, at most, to checking in on them on weekends when he was at the
property.
[32]
Based on all of the foregoing, I conclude that
in 2006 and 2007 Mr. Leith’s farming activities were a personal endeavour.
At best he was preparing the property for a potential future use in an as yet
uncommenced farming business.
[33]
Mr. Leith made alternative submissions regarding
restricted farming losses. In light of my conclusion that he was not engaged in
the business of farming, it is not necessary for me to consider those
submissions.
Costs:
[34]
Costs are awarded to the Respondent. Counsel for
the Respondent asked that the Respondent be given an opportunity to make
submissions on costs. If the parties fail to reach an agreement on costs within
30 days, the parties may file and serve written submissions on costs within 30
days thereafter.
Signed at Vancouver, Canada, this 3rd day of December, 2015.
“David E. Graham”
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