Date: 19971003
Docket: 96-4413-IT-I
BETWEEN:
KESTENBERG'S FASHIONS LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered orally from the Bench, on September 16, 1997, at Toronto, Ontario, by)
Bowie, J.T.C.C.
[1] These appeals are from the disallowance by the Minister of National Revenue of certain expenses claimed by the appellant corporation in its 1990 and 1991 taxation years. The expenses in question are substantial.
[2] The Minister disallowed the total of $44,022 in l990 and $8,075 in 1991 on the basis that these amounts were disbursed not for legitimate expenses of the business but for items of a personal nature for Mrs. Kestenberg and members of her family.
[3] Mrs. Kestenberg was the sole or, if not, almost the sole shareholder of the company. Its business is retail ladies wear, and in the years in question it operated three outlets in the Toronto area.
[4] Much, but not all, of the amounts disallowed relate to trips taken by Mrs. Kestenberg and members of her family to cities in the United States for purposes of purchasing inventory. There is no doubt that some such trips were legitimately made for business purposes, and that the expenses related thereto are deductible.
[5] The expenses recorded for travel and buying trips appear in the company's statements of operations as follows: for the taxation year 1990, $66,607, and for the year 1991, $78,667. Of these, the Minister disallowed $44,222 for l990 and $8,075 for 1991. The amount for l99l disallowed was initially $65,726, but on reassessment this was reduced to $8,075, which, it appears from the income tax return for that year, simply eliminated the claimed loss in that amount for the 1991 year.
[6] It is clear from Mrs. Kestenberg's evidence that some personal expenses were charged to her company's credit card account. The difficulty is that she did not establish with any certainty in her evidence the extent to which the amounts charged are personal expenses, and not business expenses. Exhibit R-3 is a sampling of the credit card accounts of the company.
[7] In addition to many legitimate expenses, there are numerous items which are clearly not business related such as, for example, a chiropractor's bill and theatre tickets, to name only two.
[8] Although Mrs. Kestenberg testified that the entries relating to the theatre tickets were mistakenly charged to the company's account and were later reversed, I can find no corresponding credit on the bills.
[9] There are a very large number of bills for dining in restaurants in Toronto, where the company's business is located. While a retailer may, I suppose, occasionally take a good customer to a restaurant for a meal, I do not believe that all of the meals, or even most of them, which are charged to the company in restaurants in the Toronto area in Exhibit A-3, were business related expenses.
[10] It is trite to say that the appellant has the onus of leading evidence which will displace the Minister's assumptions of fact which underlie the assessment. The appellant in this case has not done so.
[11] Mrs. Kestenberg admitted on cross-examination that personal expenses were to some extent intermingled with the business expenses claimed. Her evidence was that there were very few such items of a personal nature. In my view she attempted in her evidence to minimize the extent of this, once it had been revealed. For this reason, and because no apparent effort had been made to exclude the personal items in the preparation of the company's financial statements, I can have little or no confidence in her evidence on this point.
[12] The company's accountant was not called to testify, and the only explanation offered for this was that he had at some point ceased to be the company's accountant. It was not suggested to me that he could not be located.
[13] Mr. Kestenberg, acting as agent for the Appellant, suggested to me in argument that the personal expenses charged were only 5%, or maybe 10%, of the total amount. However, I have no basis in the evidence upon which to make such a finding. The Appellant has not discharged the onus upon it in that regard, and the appeals are therefore dismissed.
"E.A. Bowie"
J.T.C.C.