TAX COURT
IN RE: The Income tax Act
2004-4802(IT)I
BETWEEN:
FRANCIS C.Y. CHEN
Appellant
- and -
HER MAJESTY THE
QUEEN,
Respondent
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Held before Mr. Justice Hershfield, in Courtroom 603, 6th Floor,
701 West Georgia Street, Vancouver, B.C., on Monday, December 12, 2005.
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APPEARANCES:
Mr. Francis Chen, On His Own Behalf;
Mr. Kevin McGillivary For the Respondent.
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THE REGISTRAR: C.
DeSantos
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Allwest
Reporting Ltd.
855
Homer Street
Vancouver,
B.C.
V6B
2S5
Per: S. Leeburn
REASONS FOR JUDGMENT
(Delivered Orally in
Vancouver)
JUSTICE: First of all, you've said many many times here
today, including in your opening remarks that nobody responded to you from the
Department, and that maybe you could have provided them with this evidence or
other evidence. And I told you repeatedly that the Department's failure to
respond to you the way in which you hoped that they would respond, the way in
which anybody might hope to respond, does not prevent them from putting the
burden of proof on you here today.
And that burden of proof, you failed to meet it. And the
reason that you failed to meet it is not because nobody responded to you, you
failed because you didn't keep ledgers. You're an accountant. You should tell
all of your clients to keep their ledgers of their expenses and you have the
names of where everything goes, keep a ledger of -- that's what you didn't
provide them. You didn't provide them because you didn't have ledgers.
You give receipts. Those receipts aren't for expenditures
that were incurred directly by you. You've got receipts that were paid by
other people, your business partner, your business partner who can't use those
expenses. Now, I know you say that's somebody's assumption, but we've got
nobody here to tell us otherwise. You haven't established your burden of proof
that in fact you incurred these expenses for the purposes of gaining or
producing income. You have to have those records. You have to have those
ledgers. If you don't have them, and you provide receipts by other people, all
you do is draw a curtain of suspicion around your entire case. These are all
cash transactions. Nobody can follow them.
And I understand your credit card has been suspended.
That's your evidence. I can even accept that, but I still have other evidence
that you could have brought to me. And you're an accountant. You have to come
and represent people. You have to understand you just can't come and say,
"Oh, a couple of thousand dollars of promotion expenses should be accepted
just because I say so. And I won't say who the gifts are for." Or,
"Maybe I could have told you who the gifts were for if you had asked me
before." You can't depend on being asked. This is a self-assessing
system. You must keep those records. So whether you are asked by the auditor
or asked by me, you must show me your ledgers that you kept in that year and
name the clients that you gave the gifts to.
And I don't accept that you put on your forms four names
that are really two people. This is your other partner. She's right on these
forms in respect of a travel business. You say these are all your expenses and
your gifts. I think it looks suspicious.
Your partner is not here to say she didn't give any of these
gifts, these coins were never there for any of the travel business customers.
I think it's suspicious. And whether or not I'm wrong in my suspicions is
irrelevant, Mr. Chen. What's relevant is, this is a self-assessing system, you
must keep your records, and you must lay everything out in your ledgers on a
day-to-day basis that describe exactly what these expenses are. And you
haven't done that.
In relation to your rent, which is the major part of this, I
accept the lease is in your name. I accept that you paid it out of your own
bank account. And even if I accept that you were never reimbursed, which again
in the circumstances of this -- there's some bartering, arbitrage aspect of
this. You are too close to this fifty percent partner for me to trust actually
that there was no other way in which you could have been subsidized by your
partner. But even if I accept there was absolutely no subsidy from your
partner, that has nothing to do with the legal requirements for you to only
deduct the portion of your space that is reasonably attributable to the
business that you are allocating it to. Okay?
It doesn't matter if you are paid, it doesn't if you pay, it
doesn't matter if the lease is on your name, you can only deduct the portion of
it that's reasonably apportioned or reasonably attributable to the business
that you are ascribing it to. You say 95 percent. I have no corroboration on
that.
Your testimony on this, to be quite frank, again is not
entirely credible. And I'll tell you my picture and you just haven't -- you
just haven't offset this in your evidence. I picture an accounting business
that's a sole individual whose primary work, according to your own testimony is
doing the tax returns, and all the nonresident work that's associated with
individual tax returns. It might be U.S. filing was slightly different filing
dates. But there's a block of time that you have substantially used your
space, and it has to do with the filing periods for tax returns.
And then you've got a travel business. Nothing for me to
offset the assumption that the travel business is a year-round business
grossing a million dollars a year. There's a lot of business going on here.
It's not seasonal, necessarily. Or if it has seasons, it has seasons running
throughout the year.
So I'm looking at a large business where there's been no
allocation. No allocation because rent not paid; that's not relevant. No
allocation because lease not on your name; not relevant. No allocation because
they didn't sign a sublease; that's not relevant. The only issue is what space
is attributable to your business, and I'm not satisfied that its 95 percent,
and I'm therefore going to go along with the assumption by the respondent that
it's 50 percent.
And if you are faced with this sort of an appeal again, or
faced with clients, you'd better bring corroboration. Bring to the Department
floor plans, pictures, corroborating testimony, if that what it takes so that
you become bolstered with more credibility so that on, even a test of
probability, your credibility is buoyed. And I'm just not satisfied, on the
evidence that you presented, that even on a balance of probability that it's 95
percent in relation to the accounting business. There's a substantial travel
business going on here according to the evidence.
So the appeals are dismissed for those reasons. Thank you.
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