1999-3014(IT)I
BETWEEN:
ERNA JOSEFINE RAMSAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on May 8, 2000, at Toronto, Ontario, by
the Honourable Judge A.A. Sarchuk
Appearances
Counsel for the Appellant: Marvin L. Ellison
Counsel for the Respondent: Michael Ezri
JUDGMENT
The appeal from the assessment of tax made under the Income Tax Act for the 1995 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that in computing income, the Appellant is entitled to deduct automobile and other business expenses in the amount of $1,500 and is entitled to a credit for contributions to the Canada Pension Plan in the amount of $348.
Signed at Ottawa, Canada, this 15th day of September, 2000.
|
"A.A. Sarchuk" |
J.T.C.C.
Date: 20000915
Docket: 1999-3014(IT)I
BETWEEN:
ERNA JOSEFINE RAMSAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sarchuk J.T.C.C.
[1] This is an appeal by Erna Josefine Ramsay from an assessment of tax with respect to her 1995 taxation year. In filing her 1995 T1 return, the Appellant reported employment income of $16,295. Canada Pension Plan and Unemployment Insurance contributions of $348.17 and $488.86, respectively, as well as tax deductions of $5,416.85 were claimed as credits. In filing this return, the Appellant also reported an amount of $5,031 as gross business income, business expenses of $7,972 and a net business loss of $2,941.
[2] In computing income for the Appellant's 1995 taxation year, the Minister deleted the amount of $16,295 reported by the Appellant as employment income and disallowed tax credits with respect to the CPP and UI contributions. The Minister then added the amounts of $16,295 and $5,031 as "other income" for 1995. Furthermore, in calculating her balance owing for the 1995 taxation year, the Minister did not recognize the amount of $5,416.85 as income tax she claimed had been withheld by Economy Drain Services (Economy).
[3] In so assessing, the Minister acted on the following basis:
(a) the business expenses of $7,972 claimed by the Appellant were disallowed because there was no evidence to establish that they had in fact been incurred.
(b) the Appellant's claim for a credit in respect of CPP premiums, UI contributions and income tax withheld was disallowed because the amounts that had allegedly been withheld had never been reported or remitted by Economy and the Appellant had not substantiated that these amounts had in fact been deducted by Economy.
[4] The Respondent also took the position that to the extent the Appellant is contesting the Minister's refusal to recognize and credit her with the amounts withheld on account of income tax, the Appellant is not appealing an assessment of tax and in consequence, the Tax Court of Canada does not have jurisdiction to determine this portion of the appeal. I propose to deal with this issue first.
[5] Counsel for the Respondent argues that neither the failing to deduct or withhold or failing to fully remit an amount withheld forms part of the assessment process. Thus, even if the Appellant were able to establish that certain amounts were withheld but not remitted, this Court has no jurisdiction because what is being raised by the Appellant is merely a collection issue. This position is premised on the proposition that an individual's income tax liability calculation is not affected by the amount paid as or on account of tax and, as contrasted to the various tax credits available pursuant to the Act, the amount withheld is not a "credit" for the purpose of calculating income tax liability. Accordingly, the amount withheld does not form a constituent element of the assessment.
[6] In Ashby v. The Queen,[1] the same issue was raised in respect of which I stated:
This Court has original jurisdiction to hear and determine appeals in matters arising under the Act (and other statutes). I am satisfied that the matter before me is an appeal from an assessment of tax within the meaning of the provisions of subsection 171(1) of the Act. I am not inclined to follow the decision in Brooks, supra,[2] for two reasons. First, the prayer for relief in Brooks' Notice of Appeal discloses that he was seeking a declaratory order from this Court. Clearly such relief is not contemplated by subsection 171(1) of the Act. Second, and this point was not argued in Brooks, section 118.7 of the Act provides that for the purpose of computing the tax payable under Part I of the Act by an individual for a taxation year there may be deducted an amount in respect of an employee's premium for the year under the Unemployment Insurance Act, 1971 and the employee's contribution under the Canada Pension Plan. These are statutory deductions permitted to a taxpayer which this appellant says were made but have been denied to him. There is no basis upon which the respondent can reasonably argue that this Court is not entitled to determine the question whether these deductions had in fact been made and if so, to direct the Minister to reassess accordingly. A taxpayer is entitled to the benefit of each statutory exemption and deduction in the Act applicable to him. I see no difference between a taxpayer's entitlement to deduct the premiums and contributions pursuant to section 118.7 of the Act and a taxpayer's entitlement to deduct appropriate expenses pursuant to section 18 of the Act. Disallowance of a deduction by the Minister founded on an incorrect assumption of facts is a reversible error. Furthermore, while it might be argued that income tax deducted at source is treated differently in the Act than UI premiums and CPP contributions, it seems to me inappropriate, if I were to find that First Choice made the required deductions from the appellant's wages, to grant relief in respect of CPP and UI and to deny relief with respect to a deduction of tax at source. In my view the calculation of income tax payable is an integral part of an assessment by the Minister. If the Minister's calculation is wrong the appellant is entitled to relief. To reject his appeal on the basis of "lack of jurisdiction" in these circumstances is not warranted.
[7] This issue was also dealt with by McArthur T.C.J. in Manke v. The Queen[3] where he stated:
[15] The jurisdictional issue raised by the Respondent raises two questions to be determined by the Court. The first is whether the Appellant has appealed an assessment of tax. If he has, then the appeal is properly before the Court and no question arises as to the jurisdiction of this Court to hear the appeal. There is no doubt that the Appellant has followed the proper procedure under the Act in appealing assessments of tax to this Court. The second question is whether the Appellant is seeking declaratory relief from this Court, or whether he is seeking to have an assessment vacated, varied, or sent back for reconsideration. If it is the former, then it is clear that the Court does not have the statutory power to grant the Appellant the relief he has requested.
[16] In Aallcann Wood Suppliers Inc. v. The Queen, 94 DTC 1475 (T.C.C.), Bowman, J.T.C.C. said the following at page 1476:
In challenging the assessment for a year in which tax is payable on the basis that the Minister has incorrectly ascertained the amount of a loss for a prior or subsequent year that is available for deduction under section 111 in the computation of the taxpayer's taxable income for the year under appeal, the taxpayer is requesting the Court to do precisely what the appeal procedures of the Income Tax Act contemplate: to determine the correctness of an assessment of tax by reviewing the correctness of one or more of the constituent elements thereof, in this case the size of a loss available from another year.
[17] The same logic should apply here.[4] The ultimate question before the Court is whether the Minister's assessment of tax is correct. One of the constituent elements of the assessment is the amount of credits to which the taxpayer is entitled. The Appellant has appealed the assessment of tax to this Court on the basis that the Minister has not properly taken into account the credits to which he was entitled. The Court is entitled to make a determination on this point so as to determine whether the Minister's assessment of tax was correct. The Court is not making a declaratory order that the Minister shall grant the Appellant a tax credit, but rather the Court is referring the matter back to the Respondent to reassess the Appellant in accordance with the reasons, as is provided for under section 169 of the Act.
[8] For the foregoing reasons, I am unable to accede to the Respondent's position that this Court has no jurisdiction to grant the relief requested by the Appellant.
Source Deduction Issue
Evidence Adduced
[9] In or about 1990, the Appellant married Edward J. Ramsay (Ramsay). At all relevant times, he was the owner of E.J. Ramsay Contractors Ltd. and Economy. The latter carried on the business of plumbing, rental of portable toilets and the haulage of industrial waste. In 1994, the business office of Economy was located in their residence in Millbrook, Ontario. At some point of time that year, the Appellant commenced employment with Economy attending to general clerical duties. She stated that initially she received an hourly wage of "$10 to $12 in the start" but this was subsequently increased to $1,300 per month but is unsure as to when that occurred. In support, she produced the following documents:
(a) A Record of Employment for the period May 1, 1995 to July 26, 1995 in which insurable earnings of $1,307.28 for 15 weeks and $608.40 for the final week are reported;[5]
(b) A T4 statement for taxation year 1995 indicating employment income of $16,295.40, CPP and UI premium deductions of $394.14 and $488.89 and income tax deductions of $5,416.85;[6] and
(c) A Record of Employment with respect to the period October 15, 1994 to January 31, 1995 which indicates insurable earnings of $921.73 for each of 20 weeks for a total of $18,434.[7]
It is not disputed that during the period of time shown in the Record of Employment for the 1995 year, the Appellant was living separate and apart from Ramsay, having separated at some point of time towards the end of 1994.
Conclusion
Source Deductions
[10] The Appellant's position is that the evidence adduced, both oral and documentary, clearly establishes that the requisite source deductions had in fact been made by Economy in the amounts set out in the T4 statement for 1995 (Exhibit A-2). There are two aspects to this portion of the appeal. First, it must be determined whether any deductions were actually made and second, if they were, have the amounts alleged to have been deducted been established in whole or in part.
[11] With respect to the deduction issue, the Appellant's testimony and that of Ramsay was at best unsatisfactory and, particularly in the case of Ramsay, not credible. The Appellant said that the Economy office was located in their residence. The duties she described appear to have been similar to those of any office clerk and included items such as answering the telephone, booking portable toilets for rent, typing bills, checking mail, filing and preparing lists for other employees. Notwithstanding the fact she alleges to have spent a considerable amount of time in the Economy office, she had no idea who maintained the payroll records and was not aware whether the deductions had been made but only assumed that they had been. Thus, her claim rests on Ramsay's testimony that he withheld the amounts from her salary and on the Records of Employment and the 1995 T4 Supplementary.[8]
[12] Ramsay testified that he did the calculations of the appropriate deductions from his employees' wages including the Appellant. He said it was his practice to pay all of them in cash which was placed in pay envelopes with the appropriate deductions endorsed thereon. He conceded that none of the amounts he alleges were deducted were remitted in 1994 and 1995. The payroll records, which he says were kept at the residence/office, are no longer available because he had "a water backup in the basement and a lot of stuff was damaged". He further says that at some later point of time, he took "the rest of the stuff so nobody could see and burned it" and that this was done to prevent them from falling into the hands of his creditors which, from subsequent testimony appears to have included Revenue Canada.
[13] In addition to the fact that no business records exist, the testimony of the Appellant and that of Ramsay with respect to the manner in which the hours of work were recorded at Economy was at odds. The Appellant says she kept track of her hours on a timesheet by noting when she began and when she concluded working. This sheet was left in the office where some other person, unnamed, transferred the entries into a time book. Ramsay testified that all employees including the Appellant, personally entered their times into the record book. No such book was produced. Furthermore, her claim that she worked from 8:00 a.m. to 7:00 p.m., seven days per week is not supported by any other material fact and in addition, is inconsistent with her application for unemployment insurance benefits[9] in which she stated that during the period from October 15, 1993 to January 31, 1995, she normally worked 44 hours per week, six days a week and earned $921 per week.
[14] The Appellant's reliance on the Records of Employment and the 1995 T4 (Exhibit A-2) is also questionable and must be considered in light of other documents produced by counsel for the Respondent. These included two other T4 slips for the 1995 taxation year (Exhibit R-1, tabs 12 and 13). Tab 12 appears to be a photocopy of Exhibit A-2, each has the same content and bears the same serial number, however, tab 12 is a T4-1993 supplementary form while in Exhibit A-2 the year has been altered to read T4-1995. Tab 13 is a T4-1995 but bears a different serial number. The Appellant was unable to explain the differences, did not know by whom or when these documents were prepared and said that she had not sent tab 13 to Revenue Canada although it was enclosed with a letter signed by her.
[15] Three other T4 slips relating to the 1994 taxation year (Exhibits R-1, tabs 9, 10 and 11) were produced by counsel for the Respondent. The first two indicate employment income of $37,662 and income tax deducted of $17,980. In each, the original SIN had been altered to that of the Appellant. For its part, the third T4 slip shows employment income of $47,929 and income tax deducted of $13,561. In this document, the original SIN has also been deleted and the Appellant's SIN was superimposed. The Appellant's evidence with respect to these documents is not believable. She says she did not send the T4 at tab 9 to Revenue Canada and says she had no dealings with H & R Block Canada located in Oshawa although the cover letter specifically relates to Erna Ramsay and refers to her file number.[10] Furthermore, the Appellant initially testified that she did not remember whether she forwarded either of the other two T4s but later testified that one of them was remitted following a discussion with someone at Revenue Canada. She was unable to explain why the amounts of tax shown on tabs 10 and 11 as having been withheld were substantially different nor was she able to explain why the income reported in tabs 9 and 10 was $37,662 while in tab 11, it was $47,929.
[16] Ramsay's testimony not only failed to explain the inconsistencies in all of the foregoing documents but also added to the confusion. With respect to the T4 slips, he said that he had not created tab 9; that tab 10 could have been prepared by him and suggested that part-time help might have been responsible for the creation of tab 11. He also denied that he had prepared Exhibit A-2, the T4 for taxation year 1995, had no idea who might have done so, and did not know whether the amount of tax shown thereon was the amount deducted.
[17] On the evidence before the Court, it is not possible to conclude that any amounts were deducted from the Appellant's wages as required by the provisions of the Act. Aside from the fact that no payroll records are available, the evidence of Ramsay as to his business practices, cash payments to unnamed employees and more specifically, his contradictory and confusing testimony regarding his arrangement with the Appellant gives rise to serious concern. A T4 summary would normally report and reconcile the remittances to the collectors. Ramsay admitted these were not being kept. The T4 supplementary tax return in the normal case provides some proof that the appropriate income tax for any given period had been deducted and retained for remission to the Minister. However, given the nature of the documents presented in this appeal and the testimony of the Appellant and Ramsay it is not possible to rely on them for such purpose. On the evidence before me, I can only conclude that the Appellant has failed to establish on a balance of probabilities that the requisite source deductions were withheld by the employer, Economy. Had I concluded otherwise, the evidence adduced by the Appellant also falls short of establishing what amounts if any were in fact deducted.
Business Expense Issue
Appellant's testimony
[18] Following the termination of her employment with Economy in July 1995, the Appellant was self-employed offering her services as a cleaner to J & A Building Services Ltd. (J & A). The services included the cleaning of a library in Oshawa and, to the best of her recollection several other buildings. At all times, she supplied her own equipment for the purpose of vacuuming, dusting, cleaning washrooms, etc. and used her own vehicle to transport that equipment. She reported gross business income of $5,031.09 and claimed business expenses of $7,972 in respect of that employment for the period September 1, 1995 to the end of that year.
[19] The Appellant testified that she leased a GM Tracker in December 1994, the cost of which was $230 or $250 per month. In her 1995 return, she claimed vehicle expenses of $6,111 which she said reflected the total amount of lease costs in that year. When asked to explain why the whole of the amount was deducted the response was that she did not "understand what the accountants are doing here". Although payments on the lease were made by way of automatic debit from her bank account, she said that copies of her passbook or bank statements were unavailable. To establish the balance of vehicle expenses claimed the Appellant produced receipts for gas and oil for that four-month period totalling $550.26. However, she concedes that these reflect all of her expenses and not just that portion incurred with respect to her employment with J & A. Car insurance and license costs in the amount of $300 and $90, respectively, were also claimed but again these appear to reflect the annual premium and license fee.
[20] It is the responsibility of an individual claiming business expenses to maintain records adequate enough to provide support for the amounts sought to be deducted. The documents submitted by the Appellant provides some support for her position with respect to the expenses incurred but clearly do not establish her entitlement to the totality of the costs. In the course of his submissions, counsel for the Respondent proposed that $500 for leasing costs and $500 for other expenses for that period would be appropriate. There is some merit in this proposal and it met with qualified approval by counsel for the Appellant. I am satisfied that the evidence, such as it was, supports the Appellant's claim for automobile and other business expenses but in my view, the amount of $1,500 is more appropriate.
[21] For the foregoing reasons I have concluded that the Minister was also correct in disallowing the Appellant's claim for a credit in respect of UI premiums. As well, there is merit in the Respondent's position that the Appellant was not eligible for a credit in respect of UI premiums because that credit would only be available in the event there was an amount payable by her as an employee's premium. In this particular case, the Minister took the position that there was no amount payable by her because there was no insurable employment. That decision was appealed and on September 21, 1995, the Minister of National Revenue issued a determination to the effect that she was engaged in excepted employment. The Appellant was entitled to appeal that determination to the Tax Court of Canada but did not avail herself of that right.
[22] With respect to the CPP premiums, the Respondent's position is, inter alia, that in light of her self-employed earnings in that taxation year, the Appellant be allowed a credit to the extent of $348.
[23] The appeal is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to deduct automobile and other business expenses in the amount of $1,500 and is entitled to a credit for contributions to the Canada Pension Plan in the amount of $348.
Signed at Ottawa, Canada, this 15th day of September, 2000.
|
"A.A. Sarchuk" |
J.T.C.C.
COURT FILE NO.: 1999-3014(IT)I
STYLE OF CAUSE: Erna Josefine Ramsay and
Her Majesty the Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: May 8, 2000
REASONS FOR JUDGMENT BY: The Honourable Judge A.A. Sarchuk
DATE OF JUDGMENT: September 15, 2000
APPEARANCES:
Counsel for the Appellant: Marvin L. Ellison
Counsel for the Respondent: Michael Ezri
COUNSEL OF RECORD:
For the Appellant:
Name: Marvin L. Ellison
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
[1] [1996] 1 C.T.C. 2464 (T.C.C.).
[2] 94-1726(IT)G, T.C.C. October 3,1994, unreported.
[3] 98 DTC 1969.
[4] The reasons for judgment in this decision were amended on September 8, 2000 by deleting the word "not" from the first sentence of paragraph 17.
[5] Exhibit A-1.
[6] Exhibit A-2.
[7] Exhibit A-5.
[8] Exhibit A-2.
[9] Exhibit R-1, tab 15.
[10] The Appellant does concede that she utilized the services of H & R Block to prepare her returns.