Brulé T.C.J.:
1 These appeals, heard on common evidence, were as a result of the Minister of National Revenue (the “Minister”) disallowing business expenses claimed by the Appellants against their personal income in the taxation year 1993.
Facts
2 The Appellants incorporated Merlin Air Freight Ltd (Merlin) and then proceeded as the only employees of the company to deduct motor vehicle and other office expenses personally but not required under the contract of their employment.
3 This contract was very simple in nature and apart from being described as a service contract between the corporation and the Appellants had only the following clauses:
It is understood that John MacKinnon and June MacKinnon will provide administrative, sales and operational services on behalf of Merlin International Inc. on an ongoing basis.
Remuneration for these services will be based on the overall performance of Merlin International and is subject to periodic review.
4 The amounts deducted were $10,163.27 for Mr. MacKinnon and $10,163.27 for his wife in 1993. The Appellants failed to produce adequate receipts, invoices or other records in support of the expenses claimed. Original documentation of employment expenses was not produced, hence the reassessments and the appeals.
Analysis
5 While it was stated in evidence that Merlin kept a ledger which showed expenses by the company, those claimed by the Appellants were out of pocket expenses claimed by them. The Income Tax Act under section 230 requires the keeping of records and these were lacking here. In addition the Court was directed to the case of R. v. Jennings (1994), 94 D.T.C. 6507 (Fed. C.A.)wherein the Federal Court of Appeal said at page 6508:
...the losses of one legal entity to be used to offset the income of another. Only in the clearest of cases, and in compelling circumstances and after thorough legal analysis could the “normal rule” be displaced. In reaching this perfunctory conclusion, it is unnecessary to deal with a multitude of subsidiary issues. For example, how would a judgment allowing for corporate losses to be applied against the respondent's income be implemented given the fact that the taxation years of the respondent and his corporation do not coincide?
6 In view of the above the Appellants are not correct in their behaviour and treatment of the expenses and accordingly their appeals are dismissed.
Email this Content