REASONS
FOR JUDGMENT
Woods J.
[1]
The appellant, Vincent DiCosmo, was reassessed
under the Income Tax Act for the 2003, 2004 and 2005 taxation years to
disallow certain deductions that were claimed in computing income.
[2]
Four issues are raised by Mr. DiCosmo:
(a)
Was it proper for certain amounts claimed as
employment expenses to be disallowed?
(b)
Was it proper for amounts claimed as allowable
business investment losses to be disallowed?
(c)
Was an amount claimed as a representation fee
properly disallowed?
(d)
Are the reassessments statute barred?
[3]
The statute bar issue will be dealt with first.
Are reassessments statute barred?
[4]
Mr. DiCosmo submits that the relevant notices of
reassessment are statute barred because they were issued after the normal
reassessment period had ended.
[5]
This matter was not raised as an issue in the
pleadings and first came to my attention in Mr. DiCosmo’s written submissions
received after the hearing. Not surprisingly, the Crown submits that this
argument should not be considered because the Crown would be prejudiced by the
late notice.
[6]
I agree with the Crown’s position on this issue.
The Crown properly based its case on the issues to be decided as stated in the
notice of appeal. Accordingly, no evidence was led by the Crown concerning a
statute bar issue.
[7]
Mr. DiCosmo submits that there is no prejudice
because the Crown was aware there was a disagreement between the parties as to
the date of the notices of reassessment. This is clear, it is suggested, from
the Amended Reply which states that the Crown does not agree with the statements
in the notice of appeal as to these dates.
[8]
I do not agree with this submission. Taxpayers
are required by the applicable Rules of the Court to state in their notices of
appeal basic information as to the appeal, including the issues to be decided.
Fairness dictates that the Crown can rely on these statements. In Mr. DiCosmo’s
notice of appeal, he states the issues to be decided and the statute bar issue
is not among them. Accordingly, the Crown properly led no evidence on this
point. It would be unfair to the Crown to have the Court consider this issue
and I decline to do so.
Background
Employment expenses
[9]
Over the three taxation years at issue, Mr.
DiCosmo was employed as a salesman for three corporations, selling
telecommunication equipment to customers such as Shaw and Rogers.
[10]
Mr. DiCosmo was entitled to reimbursement by all
three corporations for expenses he incurred in relation to his employment. For
the 2003, 2004 and 2005 taxation years, he received reimbursements as follows:
$58,522, $12,812, and $35,802, respectively.
[11]
In addition to the reimbursed expenses, Mr.
DiCosmo also claimed deductions for unreimbursed employment expenses in his tax
returns. For the 2003, 2004 and 2005 taxation years, respectively, the
following amounts were deducted: $40,830, $40,591, and $40,867.
[12]
In the reassessments at issue, the Minister
allowed only a very small portion of the deductions claimed, namely: $3,910,
$5,062, and nil.
Allowable business investment losses
[13]
For each of the 2003, 2004 and 2005 taxation
years, Mr. DiCosmo claimed deductions on account of allowable business
investment losses in the following amounts: $63,999, $22,000, and $39,500,
respectively.
[14]
Mr. DiCosmo submits that these losses relate to
investments that were recommended by his tax accountant, Dean Jones. According
to the testimony of Mr. Jones, the investments consisted of loans and shares in
two corporations that carried on active businesses, Robert Leeder Sales Limited
and Fortuity International Inc.
[15]
In the reassessments, the Minister disallowed
the losses in their entirety.
Representation fee
[16]
Mr. DiCosmo claimed a deduction for the 2005
taxation year on account of a representation fee paid to Mr. Jones’ firm, Jones
and Associates. The amount of the deduction is $38,213.
[17]
The deduction was disallowed in its entirety.
Discussion
General
[18]
I will first briefly summarize my conclusion,
which is that this appeal should fail mainly because Mr. DiCosmo did not
provide sufficient reliable evidence to rebut, on a prima facie basis,
the key pleaded assumptions of fact made by the Minister of National Revenue to
support the reassessments.
[19]
To a large extent, the evidence in support of
Mr. DiCosmo’s case was oral testimony. There was a woeful lack of supporting
documentation.
[20]
As for the oral testimony, the main testimony
came from Mr. DiCosmo and Mr. Jones, his tax accountant, and support was
provided by Robert Leeder, who according to the testimony is the shareholder of
Robert Leeder Sales Limited and is also a client of Mr. Jones. I did not find
the testimony of any of these individuals to be reliable in relation to key
aspects of this appeal.
[21]
I would also comment that a document that was
introduced into evidence by Mr. DiCosmo as the invoice supporting the
representation fee paid to Jones and Associates was later admitted by Mr. Jones
to be an “incorrect” invoice after a different invoice with the same date was
introduced by the Crown on cross-examination.
[22]
Mr. Jones suggested in his testimony that the
document originally introduced was an administrative error. Although this is
possible, it seems highly unlikely. It is more likely that the “incorrect” document was fabricated to support the tax
deduction.
[23]
There are two reasons for this conclusion.
First, the document which is admitted to be incorrect purports to be an invoice
for investment advice, and accordingly appears to be an attempt to support the
deduction claimed in the tax return for a representation fee. The document that
Mr. DiCosmo submits is the true invoice is for general tax services. I do not
believe that this is an administrative error, as suggested by Mr. Jones. The
incorrect invoice appears to have been created to mislead as to the nature of
the services provided. In addition, it appears that the incorrect document was
prepared subsequently because the total amount in both invoices is the same
except that the incorrect document adds GST to an already GST-included total in
the actual invoice. In other words, it appears that the incorrect document was
prepared subsequently based on the amount owing in the actual invoice. The
circumstances strongly suggest that the incorrect document was intended to
mislead.
[24]
The introduction into evidence of what appears
to be a false document does not assist Mr. DiCosmo in this appeal because his
appeal relies to a great extent on the reliability of his own testimony and
that of Mr. Jones.
Employment
expenses
[25]
I will first consider the claim for employment
expenses. Based on the Minister’s assumption stated at paragraph 10(r) of the
Amended Reply, Mr. DiCosmo must establish on a prima facie basis
that he incurred unreimbursed employment expenses of more than the amounts
allowed by the Minister.
[26]
Over the three taxation years at issue, Mr.
DiCosmo received significant reimbursements for employment expenses from his
employers, over $100,000 in total. Mr. DiCosmo testified that this did not
represent all his employment expenses and that he purposely did not ask for
reimbursement for all of the expenses because of the large amounts expended.
Mr. DiCosmo deducted additional amounts representing unreimbursed employment
expenses totalling over $120,000 for the three years. The Minister allowed
deductions totalling approximately $9,000.
[27]
Mr. DiCosmo’s stated rationale for not claiming
all the expenses was that such a large reimbursement claim could adversely
affect his remuneration.
[28]
In his testimony, Mr. DiCosmo also provided an
explanation for why he is certain that none of the amounts deducted in the tax
returns were actually reimbursed. He testified that he sent original receipts
to his employers, and that he did not have copies. Accordingly, the receipts
provided to Mr. Jones for deduction in the tax returns had to be for
non-reimbursed expenditures, he stated.
[29]
The main problem with this testimony is that it
is self-serving. Virtually no supporting documentation was provided. The deduction
of employment expenses by taxpayers should generally be supported by
contemporaneous documentation so that the Court can be satisfied that the
deductions are proper. In this case, Mr. DiCosmo needed to provide
sufficient evidence to support the deductions claimed, including supporting
documentation that the amounts had not been reimbursed. I find Mr. DiCosmo’s
testimony to be completely unsatisfactory in this regard.
[30]
Mr. DiCosmo relied in support on documents that
had been prepared by the CRA auditor which appear to summarize the expenses.
The auditor was not called to testify to explain these documents and it is not
appropriate to give them much weight. I would also comment that the
reassessments at issue only allow approximately $9,000 in total.
[31]
I would also mention one item in particular. Mr.
DiCosmo seeks a deduction for salaries purportedly paid to his spouse and two
of his children in a total amount of $44,000 over the three years. Mr. DiCosmo
stated that his children worked in his home office doing such chores as
cleaning and that his spouse did some administrative work, such as answering
phones. There was no documentation to support the salary expenditures, and Mr.
DiCosmo could not even provide a breakdown of the amounts paid to each of the
family members. Overall, the testimony supporting these expenses was too vague
to be considered reliable.
[32]
Counsel for Mr. DiCosmo submits that the oral
testimony should be believed because much of the evidence was not contradicted
by the Crown and the Crown did not call the CRA auditor. The problem with this
submission is that the true facts in this case are within the knowledge of Mr.
DiCosmo. It is up to him to make a prima facie case.
[33]
Counsel for Mr. DiCosmo also submits that the
CRA auditor did an unsatisfactory job in the audit. I fail to see how this
assists Mr. DiCosmo in this appeal. If the audit is flawed, Mr. DiCosmo had the
opportunity to establish the correct result by providing reliable evidence at
the Court hearing. The evidence provided fell far short of this.
[34]
Mr. DiCosmo’s position seems to be that the
Court should accept self-serving testimony as to employment expenses without
further support. The Federal Court of Appeal stated long ago that this is not
satisfactory: Njenga v.The Queen, 96 D.T.C. 6593, at para. 3:
The
Income tax system is based on self-monitoring. As a public policy matter the
burden of proof of deductions and claims properly rests with the taxpayer. The
Tax Court Judge held that persons such as the Appellant must maintain and have
available detailed information and documentation in support of the claims they
make. We agree with that finding. Ms. Njenga as the Taxpayer is responsible for
documenting her own personal affairs in a reasonable manner. Self written
receipts and assertion without proof are not sufficient.
Allowable business investment losses
[35]
An allowable business investment loss (ABIL) is
a type of capital loss that is partly deductible against any source of income.
In general, an ABIL may be claimed in respect of a loss arising from a loan or
shares in a corporation which qualifies as a small business corporation, as
defined in the Act. Mr. DiCosmo submits that he incurred losses in each
of the taxation years at issue in respect of loans and shares of two qualifying
corporations, Robert Leeder Sales Ltd. and Fortuity International Inc.
[36]
The assumptions made by the Minister to disallow
the losses, as pleaded, are reproduced from paragraph 10 of the Amended Reply:
[…]
s) the appellant claimed allowable business
investment losses on his income tax returns of $63,999, $22,000, and $39,500
for the 2003, 2004, and 2005 taxation years, respectively;
t) the appellant represented that the allowable
business investment losses claimed for the 2003 and 2004 taxation years were
with respect to loans made to Robert Leeder Sales Limited and Fortuity
International Inc.
u) the appellant provided no details regarding
the nature of the investment giving rise to the allowable business investment
loss claimed for the 2005 taxation year;
v) the appellant did not loan any funds to
either Robert Leeder Sales Limited or Fortuity International Inc.;
w) the appellant did not loan any funds to any
other small business corporation;
x) the appellant did not dispose of any shares
of a small business corporation during the years under appeal;
y) the appellant did not dispose of any debt
owed to him by a small business corporation during the years under appeal;
z) neither Robert Leeder Sales Limited nor Fortuity
International Inc. were small business corporations at any relevant time;
aa) Fortuity International Inc. did not carry on
an active business in Canada at any relevant time, as it was a holding company;
bb) Fortuity International Inc. did not cease any
operations during or prior to the 2004 taxation year;
cc) Fortuity International Inc. did not have any
debt obligations outstanding during the years under appeal;
dd) Robert Leeder Sales Limited did not carry on
an active business in Canada at any relevant time, as it was an investment
corporation;
ee) Robert Leeder Sales Limited did not have any
debt obligations outstanding, other than to its shareholders, during the years
under appeal;
ff) the
appellant was not a shareholder of Robert Leeder Sales Limited;
[…]
[37]
In my view, there is not sufficient reliable
evidence to rebut the key assumptions on a prima facie basis, namely the
assumptions in paragraphs 10 (v) to (ff), inclusive.
[38]
Mr. DiCosmo had very little recollection of the
details of these corporations or his investments, which he stated he made on
the recommendation of Mr. Jones, his tax accountant. The investments were
relatively large. Since an ABIL can be claimed for only one-half of the amount
of the loss, Mr. DiCosmo’s position must be that he invested over $240,000 in
these two corporations.
[39]
It makes no sense that Mr. DiCosmo, an
experienced and highly paid salesman, would invest large amounts of money in
corporations in which he had little knowledge. Mr. Dicosmo testified that he
was comforted in part by the potential for tax relief if the investments were
lost, but this relief is only for a relatively small portion of the amount
invested. It is highly unlikely that such large investments would be made
without Mr. DiCosmo fully understanding the likelihood that the investments
would be profitable. I did not find Mr. DiCosmo’s testimony to be convincing.
[40]
Second, there was absolutely no documentation to
support the deductions that were claimed. It is highly unusual that such
investments would be made with no documentation to back them up.
[41]
There were no loan agreements, share
documentation, agreements for sale, financial statements of the corporations,
or even documentation supporting the existence of the corporations. A
bankruptcy document was introduced but this appears to relate to Robert Leeder
personally and not a corporation.
[42]
I was also not satisfied by the oral testimony
of Mr. Jones, the tax accountant, or Robert Leeder, the purported shareholder
of Robert Leeder Sales Limited. Mr. Jones was responsible for preparing the tax
returns of Mr. DiCosmo which included the claiming of these losses. Mr.
Jones was not an independent witness, and I did not believe his testimony.
[43]
As for Mr. Leeder, his testimony was vague and
not convincing. I would note that he is also a client of Mr. Jones and their
relationship may have influenced his testimony.
[44]
As for Fortuity International Inc., no one from
the corporation testified. I would also comment that the purported shareholder
of this corporation is the brother of Mauro Marchioni, who is Mr. DiCosmo’s
counsel in this appeal. If Mr. Marchioni’s brother had evidence that was
helpful to Mr. DiCosmo, I would have expected him to testify.
[45]
As far as the evidence as a whole reveals, there
were no investments made by Mr. DiCosmo in either of these corporations. The
appeal of the allowable business investment losses will be disallowed.
Representation fee
[46]
Mr. DiCosmo seeks a deduction for the payment of
an invoice for tax services paid to Mr. Jones’ firm, Jones and Associates. The
amount is documented in an invoice dated December 30, 2005 in the amount of
$38,213.
[47]
The assumptions made by the Minister in support
of the assessment, as pleaded, are set out below.
[…]
gg) the appellant claimed a deduction of $38,213
for a representation fee in respect of the 2005 taxation year;
hh) the appellant claimed the deduction of the
representation fee in respect of amounts paid to Jones and Associates;
ii) the appellant claimed the deduction of the
representation fee in respect of services rendered by Jones and Associates in
the 2003, 2004 and 2005 years;
jj) Jones
and Associates are the appellant’s accountants; and
kk) the principal business of Jones and Associates
is not providing investment advice or providing administration or management of
investments.
[…]
[48]
According to the evidence of Mr. Jones, which I
accept, this amount is for general tax services, including advice regarding the
holding of shares such as shares provided under employee stock option plans.
[49]
Counsel for Mr. DiCosmo did not point to any
statutory provision that would give a deduction for this expense, and there was
no reliable evidence that links the expenditure, or a portion of it, to any
particular deductible amount. Further, even if a portion of the expenditure is deductible
under some provision, there is no basis on which the Court could reasonably
apportion it. The deduction will be disallowed.
Conclusion
[50]
For the reasons above, the appeal will be
dismissed, with costs to the respondent.
Signed
at Toronto, Ontario this 11th day of December 2015.
“J.M. Woods”
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