97-1671(IT)I
BETWEEN:
RUBIN SUSTERAS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 5 and on September 2, 1998, at Toronto, Ontario, by
the Honourable Judge D. Hamlyn
Appearances
Agent for the Appellant: E.C. DeFreitas
Counsel for the Respondent: Eleanor Thorn
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1993 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 24th day of September 1998.
|
"D. Hamlyn" |
J.T.C.C.
Date: 19980924
Docket: 97-1671(IT)I
BETWEEN:
RUBIN SUSTERAS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hamlyn, J.T.C.C.
[1] This appeal is in respect of the Appellant's 1993 taxation year.
FACTS
[2] A Partial Agreement as to Facts, Documents and Issues was filed. It reads in part as follows:
1. This is an appeal for the 1993 taxation year. The Appellant's income tax return for his 1993 taxation year with attachments is attached hereto as Exhibit 1.
2. At all material times, the Appellant was a driver for Muscillo Transport, driving his own truck since 1988 under the business name of Rubin Susteras Haulage ("Haulage").
3. He was principally involved in short haul trips from the pick-up point at Keele Street and Lawrence Avenue, and hauled garbage to the dumpsite at Keele Valley.
4. He was paid by tonnage hauled and usually made about 5-6 trips a day.
5. Haulage reports on a fiscal period from February 1st to January 31st each year.
6. From January to December 1993, the Appellant was also employed by Majestic Furniture Warehouse ("Warehouse") as a commission salesman.
7. The Appellant's employment commission received from the Warehouse and expenditure claimed thereof were reported as that of Rubin Susteras Sales and Distributing Company ("Sales").
8. The period reported in the Appellant's 1993 income tax return for Haulage was from February 1, 1992 to January 31, 1993. The period reported for Sales (Warehouse) was from January 1, 1993 to December 31, 1993.
9. The Appellant's 1993 revenue from Haulage was reported as $73,250.00, and his commission income from Warehouse for that year was reported as $32,425.00. His total gross income from Haulage and Warehouse for the 1993 taxation year was $105,675.00
10. In computing income for the 1993 taxation year, the Appellant reported expenses in the amount of $82,703.00 plus capital cost allowance in the amount of $7,343.00 and claimed a business income loss of $16,796.00 from his operation of Haulage. As well, he also claimed other employment expenses of $11,105.00 from his employment at Warehouse. The total expenses claimed by the Appellant for operating Haulage and for his employment for the 1993 taxation year was $101,151.00.
11. By Notice of Assessment dated August 29, 1994, (Exhibit 2) the Minister of National Revenue (the "Minister") assessed the Appellant for the 1993 taxation year as filed.
12. By letter dated January 19, 1995, (Exhibit 3) the Appellant was advised that his 1993 taxation year has been selected for review and he was requested to supply original receipts and vouchers to substantiate his business income expenses and other employment expenses claimed.
13. The Appellant produced proof for some of his expenses on February 28, 1995, and his 1993 taxation year was audited and reassessed. The result of this audit is as set out in the auditor's Working Paper attached hereto as Exhibit 4. Some expenses claimed were allowed although no documentary proof was provided.
14. In reassessing the Appellant for the 1993 taxation year by Notice of Reassessment dated April 24, 1995, (Exhibit 5) the Minister disallowed business expenses in the amount of $44,287.00 and other employment expenses in the amount of $7,088.00. The amounts of expenses allowed as a result of this audit for the Appellant's 1993 taxation year were $45,758.60 for Haulage and $4,017.00 for Sales to a total of $49,775.00.
15. Itemized amount of expenses claimed for Warehouse and disallowed for lack of substantiation are as follows:
Claimed Disallowed
a) Accounting, Legal $50.00 $0.00
a) Advertising Interest $2,110.00 $2,110.00
c) Bank Charges/Comm. $195.00 $195.00
d) Supplies, Materials $1,943.00 $1,943.00
Automobile Expenses $5,667.00 $0.00
Less: Personal Use $1,700.00 $0.00
e) Allowable Amount $3,967.00 $0.00
f) General Office $1,423.00 $1,423.00
g) Administrative $1,417.00 $1,417.00
Total: $11,105.00 $7,088.00
16. Subsequently, the Appellant requested a review. The Minister reviewed additional submissions made by the Appellant and reassessed the Appellant's 1993 taxation year. The result of this review is as set out in the Working Paper (Rev.) attached hereto as Exhibit 6. Some additional expenses claimed were allowed although not supported by documentary proof.
17. The Minister allowed the Appellant additional expenses in regard to Haulage in the amount of $8,036.00 for the 1993 taxation year by Notice of Reassessment dated July 31, 1995 (Exhibit 7). As a consequent of this review, the amounts of expenses allowed for the Appellant's 1993 taxation year were increased to $53,794.60 for Haulage and $4,017.00 for Sales to a total of $57,811.00.
18. The Appellant served a Notice of Objection dated September 1, 1995 for the 1993 taxation year regarding the disallowed expenses for Haulage (Exhibit 8).
19. By letter dated March 5, 1996, (Exhibit 9) the Appellant was requested to produce evidence to substantiate his claims. Statement of Expenses in the Working Paper (Rev.) in Exhibit 6 was also provided to the Appellant in this letter.
20. The Minister confirmed the reassessment of the Appellant's 1993 taxation year by Notification of Confirmation dated June 27, 1996 (Exhibit 10).
21. Itemized amounts of expenses claimed for Haulage and disallowed for lack of substantiation are as follows:
Claimed $ Disallowed $
Road Expenses - night meals, tools, etc. 2,741.00 2,741.00
Bank Charges and Interest 3,211.00 3,211.00
Brokerage Fees/Comm. 12,920.00 236.91
Equipment Leases/Subcontracts 5,984.00 5,984.00
Truck - fuel, repairs, rentals, 45,914.45 20,553.94
insurance, etc.
General and Office 210.00 210.00
Insurance 5,317.00 1,930.00
Phone, Pager, Heat, Hydro, Water 1,752.00 552.00
Capital Cost Allowance 7,343.00 833.00
Total 85,392.85[1] 36,251.85
ISSUE
[3] The issue to be decided is whether the Appellant had incurred, for the purpose of gaining or producing income from Rubin Susteras Haulage ("Haulage") $36,251.85 more than the $53,794.60 expenses allowed by the Minister of National Revenue (the "Minister") from Haulage's gross revenue of $73,250.00.
ANALYSIS
[4] At all material times, the Appellant was a driver for Muscillo Transport, driving his own truck since 1988 under the business name of Rubin Susteras Haulage. The Appellant was principally involved in short haul trips and usually made five or six trips a day. He was paid by the tonnage. From January to December 1993, the Appellant was also employed by Majestic Furniture Warehouse ("Warehouse") as a commissioned salesman. According to the Partial Agreement as to Facts, Documents and Issues, the issue to be decided between the parties is limited to expenses claimed by Haulage. The Appellant's 1993 revenue from Haulage was reported at $73,250. In computing his income for the 1993 taxation year, the Appellant reported expenses in the amount of $82,703 plus capital cost allowance in the amount of $7,343 and claimed a business income loss of $16,796 from his operation of Haulage. The total expenses claimed by the Appellant for operating Haulage and from his employment for the 1993 taxation year was $101,151.
[5] By Notice of Assessment dated August 29, 1994, the Minister assessed the Appellant for the 1993 taxation year. By letter dated January 19, 1995, the Appellant was requested to supply original receipts and vouchers to substantiate his business income expenses and other employment expenses claimed. The Appellant produced proof for some of his expenses on February 28, 1995 and his 1993 taxation year was audited and reassessed. The itemized amounts of expenses claimed for Haulage and disallowed for lack of substantiation are at paragraph 21 of the Partial Agreement as to Facts, Documents and Issues. In reassessing the Appellant for the 1993 taxation year by way of a Notice of Reassessment dated April 24, 1995, the Minister disallowed business expenses in the amount of $44,287.00. The amounts of expenses allowed as a result of this audit for the Appellant's 1993 taxation year were $45,758.60 for Haulage. After a review requested by the Appellant, the amount of expenses allowed for Haulage was increased to $53,794.60. Some of the expenses claimed were allowed although no documentary proof was provided. The Minister confirmed the reassessment of the Appellant's 1993 taxation year by Notification of Confirmation dated June 27, 1996.
[6] As a starting point for the analysis of this case, it must be determined whether the Appellant must provide vouchers or receipts for those expenses that were disallowed. The expenses that have been disallowed by the Minister due to lack of vouchers or receipts are the bank charges, brokerage fees, equipment leases, truck expenses and general and office expenses. The Appellant must show that these expenses were "incurred by the taxpayer for the purpose of gaining or producing income from the business or property" under paragraph 18(1)(a) of the Income Tax Act (the "Act").
[7] It is open to the Appellant to provide the actual vouchers or receipts through the Court process or to prove the expenses by other acceptable evidence. The proof could be as simple as precise detailed oral evidence that clearly addresses each disallowed amount and substantiates the claim. For this to occur, the Appellant would have to provide specific detailed credible evidence. When the oral evidence falls to generalizations, unproved assertions or arguments, this presentation does not amount to other acceptable evidence.
[8] The Minister is disallowing $36,251.85 of the Appellant's claimed expenses. The great majority of this amount, $32,125.85 is being disallowed due to lack of vouchers or proper documentation.
[9] The Minister submits that the disallowed expenses were not incurred for the purpose of gaining or producing income from a business or property within the meaning of paragraph 18(1)(a) of the Act but were personal or living expenses of the Appellant within the meaning of paragraph 18(1)(h) of the Act.
[10] The evidence of Mr. Susteras at the hearing was that because of a flood that destroyed certain documents, including vouchers and records, because of health reasons, seizures and hospitalization, because he finds bookkeeping tedious and therefore relied on others to maintain his books and because of a business lock out, the Appellant did not have complete records and documents.
[11] Specifically, no bank statements, cancelled cheques or receipts for disallowed amounts were made available to support the disputed claims.
[12] No documentary evidence was tendered to support the relationship between monies borrowed by way of mortgage on the Appellant's personal residence and the purchase of a truck. Cheques purportedly paid out to a driver of the truck were payable to another individual.
[13] On the issue of repairs, the figure that was presented to Revenue Canada by the Appellant was a total of $7,314.04 (Exhibit R-1, tab A). This amount was allowed by Revenue Canada. Later, the Appellant presented to Revenue Canada a claim for repairs of $15,854.03 (Exhibit R-1, tab B). At trial, the Appellant presented to the Court a repair claim for $30,631.00. On cross-examination the Appellant was unable to clarify those expenses.
[14] Throughout the hearing the Appellant or his agent asserted they could prove the expenses by way of vouchers or cheques. On cross-examination, the question of the insurance claim was explored as the Appellant's insurance expense claim was $5,317.00. The documentation produced at trial substantiated only $3,387.00 of the amount claimed. The amount substantiated was allowed by Revenue Canada.
[15] The essence of the Appellant's evidence was that he operated a business and he spent money. Therefore all moneys spent must be and were related to the business expenditure. Notwithstanding this submission, his disallowed claims could not be substantiated by confirmed or correlated acceptable evidence.
[16] It should be noted that this case was adjourned during the trial process for two months so that the Appellant could have another opportunity to correlate, check and organize his records so that the Court would be provided clearly with evidence to show what was allowed as well as what was disallowed and provide the Court with acceptable evidence to support the amounts claimed.
[17] On the second continued hearing, no substantive further evidence was presented.
[18] The Appellant's approach to document or record deficiencies was his assertion that the amounts claimed were reasonable given the type of business he was operating. While this submission has a certain sense it does not displace the onus placed on the Appellant to specifically substantiate the business expense claims when they are disputed and put in issue.
[19] The Appellant's explanations for record deficiencies (flood, illness, business lockout and the tediousness of record keeping) do not expunge the requirement in the absence of other acceptable evidence to keep clear records and substantiate claims. The Appellant's assertions, in the absence of better records, that his claims are reasonable can not be the basis for a Court decision to allow the appeal.
DECISION
[20] The appeal is dismissed.
Signed at Ottawa, Canada, this 24th day of September 1998.
|
"D. Hamlyn" |
J.T.C.C.
COURT FILE NO.: 97-1671(IT)I
STYLE OF CAUSE: Between Rubin Susteras and
Her Majesty The Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: June 5 and September 2, 1998
REASONS FOR JUDGMENT BY: The Honourable D. Hamlyn
DATE OF JUDGMENT: September 24, 1998
APPEARANCES:
Agent for the Appellant: E.C. DeFreitas
Counsel for the Respondent: Eleanor Thorn
COUNSEL OF RECORD:
For the Appellant:
Name: --
Firm: --
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada