REASONS
FOR JUDGMENT
Masse D.J.
[1]
This
is an appeal from reassessments and redeterminations made under the Income
Tax Act for calendar years 2007 and 2010, for taxation years 2008, 2009 and
2010, and for base taxation years 2007, 2008, 2009 and 2010. The Appellant is
of the view that, in arriving at the reassessments and redeterminations that it
did, the Canada Revenue Agency (the “CRA”) made errors of fact and law in reassessing her for the taxation years
in question and also that the CRA engaged in an overzealous application of the
law where it should have exercised leniency.
Factual
Context
[2]
The factual
context for this matter is taken from the pleadings and the evidence of the
Appellant who was the only witness.
[3]
In computing
income for the 2007 taxation year, the Appellant reported gross professional
income of $3,591. She claimed professional expenses of $12,364. Her employment
income was nil but she claimed employment expenses of $8,989.
[4]
In computing
income for the 2008 taxation year, the Appellant reported gross professional
income of $800, professional expenses of $4,750, employment income of $24,758
and employment expenses of $11,790.
[5]
In computing tax payable for the 2008 and 2009
taxation years, the Appellant claimed a gross non‑refundable tax credit
in respect of the following:
|
Year
|
Spouse or Common‑law Partner Amount
|
Canada Child Tax Benefit
|
Transfer of Spouse’s unused Deductions
|
|
2008
|
$9,600
|
NIL
|
$13,135
|
|
2009
|
$9,149
|
$6,267
|
$7,196
|
[6]
Her spouse’s
unused deductions consisted of his claimed disability tax credit and his
claimed Canada child tax benefit. The CRA has on file two Disability Tax Credit
Certificates (form T2201) dated December 17, 2009 and July 22, 2010, respectively,
that relate to the Appellant.
[7]
In computing tax payable for the 2010 taxation
year, the Appellant claimed a non‑refundable tax credit in respect of
tuition fees totalling $5,112.
[8]
The Appellant also claimed an employee and partner
GST/HST rebate (“GST/HST rebate”) of $781.62 for
2007, $2.30 for 2009 and $2.42 for 2010. She claimed a working income tax benefit
(“WITB”) of $1,019.00 for 2008 and $2,142.50 for
2009.
[9]
Initially, the Minister of National Revenue (the
“Minister”) accepted all of the amounts claimed
by the Appellant and issued Notices of Assessment and Notices of Determination for
the taxation years. The Minister assessed zero federal tax payable for each of
the taxation years. However, the Minister subsequently undertook a review of
the Appellant’s professional expenses and revised these expenses downward to
$394 for 2007 and $163 for 2008 based on the limited information that had been
provided by the Appellant. The Minister also disallowed the claimed employment
expenses for 2007 and 2008 as well as the other amounts claimed except for the Canada child tax benefit for 2009 and the GST/HST rebates for 2009 and 2010. The Appellant’s
claim for deduction of tuition fees in the amount of $5,112 for 2010 was also
disallowed and was revised downwards to $852.
[10]
The Minister also redetermined the Appellant’s
entitlement to the Canada child tax benefit (“CCTB”)
and her entitlement to the goods and services tax/harmonized sales tax credit (“GST/HST credit”) for the applicable taxation years
based on the changes to the Appellant’s and her spouse’s net incomes resulting
from their reassessments and redeterminations.
[11]
The Minister issued Notices of Reassessment and
Notices of Redetermination disallowing the amounts of deductions or tax credits
claimed and redetermining the Appellant’s entitlement to benefits as discussed
above. These reassessments and redeterminations still resulted in zero federal
taxes payable. However, these reassessments and redeterminations did result in
a fiscal debt owing by the Appellant.
[12]
The Appellant objected to these reassessments
and redeterminations but the Minister confirmed them so the Appellant appealed
to this Court.
[13]
The Appellant
testified that when she lived in a house on 191 Dennis Street, in Rockwood, all of their receipts
for the taxation years in question were in cardboard boxes in the basement.
There was flooding in the basement and all of their documents were destroyed.
She asked the CRA to dispense with the necessity of producing documents in
proof of her claims but the CRA refused. This has left her in the precarious
position of having to obtain duplicate documents from other sources. This can
certainly be a daunting task but not an impossible one. However, she has not
produced to this Court any documentation in support of her position.
[14]
She testified that
while she was collecting Employment Insurance (“EI”) benefits,
she was attending the CIMT College in Brampton. This was being funded by EI.
The documents relating to her claim for educational expenses were also
destroyed. She did not provide any documents that could have been obtained from
other sources.
[15]
She also claimed expenses for childcare but they
as well were disallowed by the CRA. No details of these expenses were provided.
[16]
At one point in
time, she was operating a daycare facility in her own home. She claimed the
costs of running this daycare as professional business expenses but they were
disallowed.
[17]
In determining the
Appellant’s reassessments and redeterminations, GST/HST rebates, WITBs, CCTBs
and GST/HST credits, as applicable, for calendar
years 2007 and 2010, for taxation years 2008, 2009 and 2010, and for base
taxation years 2007, 2008, 2009 and 2010, the Minister relied on certain
assumptions of fact as set out in paragraph 25 of the Reply to the Notice of Appeal. In her
cross‑examination, the Appellant agreed with practically all of the
assumptions of fact that the Minister relied upon. The particulars are set out
in the following discussion.
Employment
expenses (2007 & 2008)
[18]
The Appellant agrees that she did not work as an employee for any
organization at any time during the 2007 taxation year. The Appellant agrees
that she was employed by the Rocking Horse Early Learning Center (“Rocking Horse”) during the 2008 taxation year.
[19]
The Appellant also agreed that while she worked
as an employee of Rocking Horse, she was not required to pay for her own
expenses, and that she was not normally required to work away from Rocking
Horse’s place of business.
[20]
The Appellant agrees that she did not obtain and
provide any completed T2200 form (“Declaration of
Conditions of Employment”) from Rocking Horse or any other employer for
the 2007 and 2008 taxation years. She agrees that she did not incur any
expenses that were related to her employment with any employers in respect of
those taxation years.
GST/HST
rebates (2007, 2009 and 2010)
[21]
In her testimony, the Appellant was confused and
could not agree nor disagree when asked if she incurred or paid any goods and services
tax (“GST”) or harmonized sales tax (“HST”) on employment expenses for the 2007 taxation
year. However, she had already agreed that she was not working as an employee
that year and therefore, logically, she could not have paid or incurred any GST
or HST on employment‑related expenses. The Appellant could neither
confirm nor deny that she had paid GST or HST on employment‑related
expenses of no more than $20 for 2009 and $21 for 2010 as claimed by her. As
she has stated in her evidence, all of her documents were destroyed and so she
could not produce any documents to dispute this assertion.
Professional
business expenses (2007 & 2008)
[22]
The Appellant agrees that she operated a daycare
business in her home as a sole proprietorship under the name of “Mobeen’s Home Daycare” during the 2007 and 2008
taxation years. She agrees that her income from the business was no less than
$3,591 in 2007 and $800 in 2008. She agrees that in 2007, she incurred business
expenses of $300 on account of meals for the children and $50 for toys. She
agrees that in 2008, she incurred expenses of only $66 on account of meals for
the children and $54 for toys. She also agrees that, other than the meals and
toys herein referred to, the only other business expenses claimed for the 2007
and 2008 taxation years were for the business use of her home.
[23]
The total expenses
in relation to the home that she lived in and in which she ran her daycare
business are:
|
|
2007
|
2008
|
|
Heat
|
$1,662.73
|
$1,892.52
|
|
Electricity
|
$899.96
|
$983.64
|
|
Insurance
|
$645.84
|
$645.84
|
|
Mortgage Interest
|
$17,816.37
|
$17,265.39
|
|
Property Taxes
|
$4,674.21
|
$4,674.21
|
|
|
|
|
[24]
The Appellant
agrees that all of the above‑noted expenses were in relation to the
entire house and not just that part of the house dedicated to her daycare
business. The Appellant also agreed that her home is a large home of 4,000 sq. ft. and that only 400 sq. ft.
were dedicated to her daycare business. She only had children in her care for
15 days of each of the taxation
years and when she did have children in her care, this was for only 10 hours of the day.
Family
income amounts
[25]
The maximum family
net income applicable in respect of the WITB for the 2008 and 2009 taxation
years of spouses married and living together throughout the taxation year, who
both qualify for the disability tax credit, is $24,969 and $31,867
respectively. The Appellant agrees that the family net income for her and her
spouse exceeded these maximums.
Theory of
the Appellant
[26]
The Appellant submits that the CRA has been
overzealous in its application of the law. She submits that equity and fairness
should have been exercised in her case and due regard should have been paid to
the fact that many of her supporting documents were destroyed when the basement
of their residence was flooded. In view of the fact that many years have gone
by since 2007, receipts have been destroyed, she has moved many times, she
suffers from a disability, she has no employment and in view of the cumulative
amount for which she is being held liable to pay, she beseeches the Court to
take a lenient view and to absolve her from paying what she considers to be
draconian assessments including interest and penalties. Also, despite the lack
of a T2200 form, she claims that she still had to incur employment expenses, which
she feels should be deductible from her income. It is also argued that when she
operated her daycare facility, the children made use of the kitchen and the TV
lounge which was not included in the 400 sq. ft. that
were being used for the daycare; it may not have been 100% of the house but it
was not just restricted to 400 sq. ft.
[27]
The Appellant therefore prays that her appeal be
allowed.
Theory of
the Respondent
[28]
The
Respondent submits that what the Appellant is really seeking is to be absolved
from her liability to pay taxes, which is obviously a remedy that this Court
cannot grant. All the Court can do is determine the amount of taxes to be paid
according to the evidence presented and the applicable tax statutes. The
Respondent submits that the instant case is a collection issue that is dealt
with after the correct tax assessment is determined.
[29]
The Respondent submits that when it comes to
employment‑related expenses, such may not be claimed without first
obtaining and presenting a T2200 form. The absence of a duly completed T2200
form is fatal to the deduction of any employment expenses even if they were in
fact incurred.
[30]
With
respect to the GST/HST rebate, it is argued that if there have not been any
expenses, then there has not been any GST or HST paid on those
expenses and so that claim has to fail as well.
[31]
Regarding
the business‑related expenses,
the Appellant agreed that she incurred the expenses as set out in the Reply for
meals and toys. However, if she took care of children in her daycare centre
only 15 days out of the year, for 10 hours of those days, it is really ludicrous to claim a
large portion of the total household expenses. The amounts claimed for business
expenses are really in the nature of personal or living expenses and therefore
are not legitimate business expenses.
[32]
It is argued that the Appellant has not
presented any evidence or argument to show that the manner in which the
allowable expenses were recalculated, or the manner in which any of the credits
claimed were redetermined, was wrong in fact or in law.
[33]
The Respondent therefore submits that the appeal
should be dismissed.
Legislative
Provisions
[34]
The relevant provisions of the Income Tax Act,
R.S.C., 1985, c. 1 (5th Supp.), as amended (the “Act”), are as follows:
8(1) Deductions allowed — In computing a taxpayer’s income for a
taxation year from an office or employment, there may be deducted such of the
following amounts as are wholly applicable to that source or such part of the
following amounts as may reasonably be regarded as applicable thereto:
. . .
(2) General Limitation — Except as permitted by this section, no
deductions shall be made in computing a taxpayer’s income for a taxation year
from an office or employment.
. . .
(10) Certificate of employer — 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.
. . .
18(1) General Limitations — In computing the income of a taxpayer
from a business or property no deduction shall be made in respect of
(a) general
limitation — an outlay or expense except to the extent that it was made or
incurred by the taxpayer for the purpose of gaining or producing income from
the business or property;
(b) capital
outlay or loss —an outlay, loss or replacement of capital, a payment on
account of capital or an allowance in respect of depreciation, obsolescence or
depletion except as expressly permitted by this Part;
. . .
(h) personal
and living expenses — personal or living expenses of the taxpayer, other
than travel expenses incurred by the taxpayer while away from home in the
course of carrying on the taxpayer’s business;
. . .
(12) Work space in home — Notwithstanding any other provision of this Act, in computing an
individual’s income from a business for a taxation year,
(a) no
amount shall be deducted in respect of an otherwise deductible amount for any
part (in this subsection referred to as the “work space”) of a self‑contained
domestic establishment in which the individual resides, except to the extent
that the work space is either
(i) the
individual’s principal place of business, or
(ii) used
exclusively for the purpose of earning income from business and used on a
regular and continuous basis for meeting clients, customers or patients of the
individual in respect of the business;
(b) where
the conditions set out in subparagraph (a)(i) or (ii) are met, the
amount for the work space that is deductible in computing the individual’s
income for the year from the business shall not exceed the individual’s income
for the year from the business, computed without reference to the amount and
sections 34.1 and 34.2; and
(c) any
amount not deductible by reason only of paragraph (b) in computing
the individual’s income from the business for the immediately preceding
taxation year shall be deemed to be an amount otherwise deductible that,
subject to paragraphs (a) and (b), may be deducted for the
year for the work space in respect of the business.
. . .
67. General limitation re
expenses — In computing income, no deduction shall be made in respect of an
outlay or expense in respect of which any amount is otherwise deductible under
this Act, except to the extent that the outlay or expense was reasonable in the
circumstances.
67.1(1) Expenses for food, etc.
[or entertainment] — Subject
to subsection (1.1), for the purposes of this Act, other than
sections 62, 63, 118.01 and 118.2, an amount paid or payable in respect of
the human consumption of food or beverages or the enjoyment of entertainment is
deemed to be 50 per cent of the lesser of
(a) the
amount actually paid or payable in respect thereof, and
(b) an
amount in respect thereof that would be reasonable in the circumstances.
. . .
230(1) Records and books — Every person carrying on
business and every person who is required, by or pursuant to this Act, to pay
or collect taxes or other amounts shall keep records and books of account
(including an annual inventory kept in prescribed manner) at the person’s place
of business or residence in Canada or at such other place as may be designated
by the Minister, in such form and containing such information as will enable
the taxes payable under this Act or the taxes or other amounts that should have
been deducted, withheld or collected to be determined.
Analysis
[35]
The Tax Court of Canada only has jurisdiction to
determine whether the reassessments and redeterminations under appeal are
correct in fact and in law. It is not open to the Court to grant relief on the
grounds of fairness or equity. This Court also does not have jurisdiction to
grant any relief from the application of interest or penalties. Only the Minister
has that power pursuant to subs. 220(3.1) of the Act. The Court also has no jurisdiction to
relieve the Appellant from the obligation to pay taxes for which she is liable
to pay.
[36]
It is clear that the Minister, in making
assessments, proceeds on assumptions of fact and the initial onus is on the
taxpayer to demolish the Minister’s assumptions. The burden of proof is on the
balance of probabilities: see Hickman Motors Ltd. v. Canada, [1997] 2 SCR 336.
[37]
Bearing these principles in mind, I now turn to the issues at hand.
Employment expenses
(2007 and 2008)
[38]
In considering the claimed employment expenses
for 2007 and 2008, it is undisputed that the Appellant has not obtained a T2200
form from her employer, Rocking Horse. The provisions of subs. 8(10) of the Act in relation to
the T2200 form is a mandatory provision failing which a taxpayer cannot claim
any employment‑related expenses pursuant to s. 8 of the Act. The failure to obtain a T2200 form is fatal to
the Appellant’s claim even if she in fact did incur employment expenses.
GST/HST
rebates (2007, 2009 and 2010)
[39]
I agree with the Respondent’s assertion that the Appellant has not
established that she was entitled to a GST/HST rebate during the 2007 year, and
that she was entitled to no more than what was allowed for the 2009 and 2010 years;
she was neither an employee nor
a member of a partnership in any of those years and she
did not establish that she paid any GST or HST for the expenses involved in
those years.
GST/HST
credit (2008, 2009 and 2010 taxation years)
[40]
The Appellant has not shown that the Minister’s
redeterminations of her entitlement to GST/HST credits for the taxation years are
erroneous. This claim must therefore fail.
Professional
business expenses (2007 and 2008)
[41]
The Appellant’s home is a large home of
4,000 sq. ft. and only 400 sq. ft.
were dedicated to her daycare business. She only had children in her
care for 15 days of each of the taxation years and when she did have
children in her care, this was for only 10 hours of the day. Consequently,
it is seen that only 10% of the home was used for business purposes and this
for less than 2% of the total time. Yet the Appellant claimed professional
business expenses of $12,364 for 2007 and $4,750 for 2008. These amounts are
clearly disproportionate to the use of her home that was actually made for
business purposes. As such, these disallowed expenses were personal or living
expenses and not business expenses. These expenses were not connected to the earning
of the business income. I am of the view that the amounts of $44 for 2007
and $43.52 for 2008 that the Minister actually allowed for business use of the
home are reasonable in the circumstances. The Appellant did not demonstrate
that they were not.
Claim for
WITB (2008 &2009)
[42]
The maximum family net income applicable in
respect of the WITB for the 2008 and
2009 taxation years of spouses married and living together throughout the
taxation year, who both qualify for the disability tax credit, is $24,969 and
$31,867 respectively. The Appellant agrees that the family net income for her
and her spouse exceeded these maximums and therefore she would not qualify for the WITB for those taxation years.
CCTB (2007,
2008, 2009 and 2010 base taxation years)
[43]
The Appellant has simply not proven that the
Minister’s redeterminations of her entitlement to the CCTB for the taxation
years are erroneous. This claim must therefore fail.
Provincial
benefits
[44]
The Appellant also appears to be appealing
reductions to the Ontario child benefit and the Ontario tax credits. This Court
has no jurisdiction to grant any relief under the Ontario Income Tax Act,
R.S.O. 1990, c. I.2, and the Ontario Taxation Act,
2007, S.O. 2007, c. 11, Sched. A, or any other provincial law. The Court’s jurisdiction is limited
to those statutes and those matters that are specifically listed in s. 12 of the Tax Court of Canada Act,
R.S.C., 1985, c. T‑2,
and none other.
Conclusion
[45]
The only evidence that the Appellant adduced to
support her position and to challenge the presumptions of fact relied upon by
the Minister, was her own verbal testimony. Her testimony was found wanting. In
addition, she agreed with practically all of the presumptions of fact relied
upon by the Minister. She has not provided any documentary evidence to support
any of the amounts that she claimed. The fact that her records were destroyed
may have made it more difficult to obtain necessary documentation but it did
not make it impossible. The Appellant has simply failed to discharge the burden
of proof that is incumbent upon her. It is clear that she was not entitled to
claim the deductions that she did claim nor was she entitled to receive the
benefits that she claimed beyond what the Minister redetermined her to be
entitled to.
[46]
For all of the foregoing reasons, this appeal is
dismissed.
Signed at Kingston, Ontario, this 6th day of August 2015.
“Rommel G. Masse”
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