Date: 20011009
Docket: 1999-2875-IT-I
BETWEEN:
GARY D. KNIGHT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Lamarre, J.T.C.C.
[1] The appellant was assessed for his 1993 and 1994 taxation years pursuant to subsection 152(7) of the Income Tax Act ("Act"). The summary of business income as assessed is found in schedules A, B, C and D to the Amended Reply to the Notice of Appeal.
[2] The evidence disclosed that the appellant has been delinquent in the past in filing his income tax returns. In fact, it appears that no returns were filed before 1993 and after 1994 and that the tax returns for those two years were only filed after repeated requests by Revenue Canada, as it then was.
[3] It is not disputed that the appellant worked on a contract basis for the Senate of Canada as a researcher for Senator Stanley Haidasz in the years at issue (see Exhibits R-5, R-6 and R-7). At the outset, counsel for the respondent stated that the gross income assessed for 1994 should be reduced by the amount of $20,419 that was included under the item "T-4A - The Foundation for Educational Exchange Between Canada & the U.S.". The appellant does not challenge the balance of the amount of gross income assessed, with the exception of an amount of $840 for 1993 that he claims was included in his income for 1994. The respondent no longer disputes that point.
[4] With respect to the expenses claimed, I am prepared to allow only the following:
(a) The legal expenses which are substantiated by a receipt. I will give the appellant the benefit of the doubt and accept these expenses as having been incurred for his research work for Senator Haidasz.
(b) The salary expenses for his wife, Sheila Dawson ($840 in 1993 and $834 in 1994) since she testified that she worked for the appellant in computerizing his research data and she has shown that that income was declared in her own tax returns (see Ms. Dawson's tax returns which were produced after the hearing at my request, copies of which were sent to counsel for the respondent). I will also accept as a deductible expense the salary paid to Paul Lauzon (Exhibit A-9) because there is a receipt signed by him. Although he was not present at the hearing - and his presence obviously would have been preferable -- I will nevertheless accept the receipt as constituting sufficient evidence given that the appellant had summoned him as a witness on the date this hearing was first scheduled to be heard and given that the hearing was for some reason adjourned at the request of this Court even though all parties were ready to proceed.
[5] All the other expenses claimed by the appellant will be disallowed. Indeed, it has not been shown that they were incurred for the purpose of earning income from the appellant's research activities for the Senate of Canada or from any other business.
[6] First, I consider the meal and entertainment, automobile, office and advertising expenses to be personal and not reasonable in the circumstances within the meaning of paragraph 18(1)(h) and section 67 of the Act. At the Senate, the appellant had access to an office with all the necessary equipment and I consider all the office expenses claimed unreasonable in the circumstances. The meal expenses claimed were mainly for when the appellant ate at the Senate alone or with pals or with his wife. In my opinion, these meal expenses are personal. The automobile was used principally to go from home to his work at the Senate; expenses for trips outside Ottawa were normally reimbursed by the Senate of Canada upon provision of receipts, if those expenses were considered reasonable (according to the testimony of Senator Haidasz's secretary, Ms. Kathleen O'Mara). Furthermore, the appellant did not keep a logbook of his business trips, if any, that were not reimbursed by the Senate. As for the terminal loss in the amount of $4,112 claimed for the 1993 taxation year for the 1981 Dodge van, I find this claim completely unreasonable. The evidence disclosed that it was through pure negligence on the part of the appellant that the old rusted van was towed, impounded and finally destroyed by the City of Ottawa, after the appellant had literally abandoned it. Furthermore, the appellant has in no way proven that the depreciated value of that old rusted van amounted to $4,112, which, in my view, is clearly exaggerated.
[7] Second, the appellant has not shown that he met the requirements of subsection 18(12) of the Act as regards the deduction for workspace in the home. More particularly, the evidence did not disclose that the appellant's home (a one-bedroom apartment) was his principal place of business, nor that it was used exclusively for the purpose of earning income from a business, nor that he met clients there on a regular basis. In fact, the appellant admitted that he performed his work for the most part at the Senate (see Exhibit R-1, page 1, paragraph 2) and that he rarely, if ever, met people in his home.
[8] Third, with respect to expenses claimed in respect of amounts paid to an entity called "A Single Voice", the evidence disclosed that the appellant's brother might have operated a business under the name "A Single Voice" in the United Kingdom. However, the appellant has not shown that he himself was operating that business with his brother. The contract filed (Exhibit A-3) shows that the appellant was hired as agent and promoter in the Americas with respect to the musical arts of "A Single Voice". In this contract, the appellant agreed to advance monies to his brother, David Knight, for the purpose of, inter alia, supporting the development of production technique and covering costs incurred in making the products. Those are the expenses claimed by the appellant.
[9] In the event of sales in the Americas, the appellant was to receive 25 per cent of the profits. Regardless of that fact, the appellant had to prove, first of all, that he was operating a business and, if so, that the expenses were incurred to earn income therefrom. The appellant said that he was trying to promote the business. It was registered in Canada in 1995 (Exhibit A-1) in the name of his brother. Nothing was in the appellant's name. The documents filed by the appellant show that David Knight was thankful to the appellant for his support but do not show that the appellant was also running the business.
[10] The appellant would have earned 25 per cent of the profits made here if there had been any sales. However, he specifically mentioned that, for reasons of his own, he did not attempt to put on sale in Canada any CD produced by "A Single Voice". It is, therefore, difficult for him to argue that he was operating a business here. There is no evidence to show that the monies advanced by the appellant to his brother in the United Kingdom were expenses incurred for a business operated by the appellant himself or in which he was a partner. Furthermore, "A Single Voice" was only registered in Canada in 1995, which is the year following the years at issue. Consequently, none of the expenses relating to "A Single Voice" are deductible (including telephone calls to the United Kingdom).
Signed at Ottawa, Canada, this 9th day of October 2001.
"Lucie Lamarre"
J.T.C.C.
COURT FILE NO.: 1999-2875(IT)I
STYLE OF CAUSE: Gary D. Knight v. The Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: September 26, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge Lucie Lamarre
DATE OF JUDGMENT: October 9, 2001
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Pascal Tétrault
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada