Date: 20010330
Docket: 2000-2104-IT-I
BETWEEN:
GANADEROS INTERNATIONAL CORPORATION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(delivered orally from the Bench at Calgary, Alberta on March 30, 2001)
Beaubier, J.T.C.C.
[1] This appeal, pursuant to the Informal procedure was heard in Calgary, Alberta on March 30, 2001. Allan Kurtz, the principal shareholder and John Marshall, C.M.A., the corporate accountant and minority shareholder of the Appellant were the witnesses. Patricia McCulloch, the Appeals Officer, also testified.
[2] The Appellant was reassessed respecting expenses and income for its fiscal years 1993 to 1996 inclusive. As a result, certain expenses claimed were disallowed and income was increased. This appeal followed.
[3] The Appellant had reported on a cash basis and reassessment was done on an accrual basis. Due to the nature of the Appellant's business, this did not change its results appreciably and that change is not in dispute. The corporation operates as an idea source for businesses under the trade name "Market Force".
[4] One matter in dispute at the hearing was capital cost allowance for a computer and a copier. Patricia McCulloch testified that the correct capital cost allowance was allowed for both items and this evidence is accepted.
[5] The second matter in dispute is the treatment of money spent by Mr. Kurtz out of corporate funds. He said he mixed funds. For 1993, 1994 and 1995 he personally reported no income. For 1996 he reported $6,200.00 income. Mr. Kurtz reported his income in his income tax returns in those years on this basis.
[6] Patricia McCulloch examined the corporate records in detail and prepared working sheets, Exhibit R-1, pages 21 to 32. These details were not disputed. They show about 50 percent of the withdrawals from the Appellant's corporate account to Mr. Kurtz or to Trudy, presumably Allan Kurtz's wife. Kurtz's mortgage payments were also made from the corporate account at times, as were life insurance premiums, Book of the Month Club payments and similar personal amounts.
[7] The result is that Mr. Kurtz did not report the amounts taken personally from the corporate account as salary. When he reported his income for tax purposes the Appellant corporation did not do this either at the appropriate time. The Appellant treated them as business expenses. They were not. They must each live with their reports as filed. They elected their positions then.
[8] Having regard to Exhibit R-1, they did this knowingly at the time. In essence, the Appellant made false reports of alleged business expenses when the record is clear that Mr. Kurtz and his family were withdrawing or using corporate funds personally.
[9] Because they were not reported as Mr. Kurtz's salary, they could only be shareholder's benefits to Mr. Kurtz.
[10] Certainly these expenditures were not for the purpose of the Appellant gaining income. Rather, they were for the benefit of the principal shareholder, Mr. Kurtz.
[11] Upon the submissions of counsel for the Respondent the appeal is allowed only insofar as to refer this matter to the Minister of National Revenue for reconsideration and reassessment to allow $800.00 in additional expenses for 1996 and to allow the appeal of the penalties assessed under subsection 163(2) of the Income Tax Act.
Signed at Ottawa, Canada, this 26th day of July, 2001.
"D. W. Beaubier"
J.T.C.C.
COURT FILE NO.: 000-2104(IT)I
STYLE OF CAUSE: Ganaderos International Corporation v.
The Queen
PLACE OF HEARING: Calgary, Alberta
DATE OF HEARING: March 30, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge D. W. Beaubier
DATE OF JUDGMENT: March 30, 2001
APPEARANCES:
Agent for the Appellant: John W. Marshall
Counsel for the Respondent: Michael Taylor
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada