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Docket: 2000-1285(IT)G |
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BETWEEN: |
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WAYNE LENHARDT, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
_______________________________________________________________
Appeals heard on November 26, 2003, at Calgary, Alberta
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By: The Honourable Justice E.A Bowie |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
John O'Callaghan |
_______________________________________________________________
JUDGMENT
The appeals from assessments made under the Income Tax Act for the 1995 and 1996 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the following basis:
1. The Appellant did not fail to report income from disbursements in the amounts of $10,819 and $23,871 in his 1995 and 1996 taxation years; therefore, in computing the Appellant's income for the 1995 and 1996 taxation years, the Minister will delete the amounts of $10,819 and $23,871, respectively.
2. In computing income for the 1995 and 1996 taxation years, the Appellant is entitled to deduct expenses in the following amounts:
|
|
1995
|
1996 |
|
Salary expenses |
$26,311 |
$34,700 |
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Auto expenses |
3,866 |
3,866 |
3. In computing income for the 1995 and 1996 taxation years, the Appellant is entitled to deduct additional insurance expenses in the amount of $880 in each taxation year.
4. In computing professional income for the 1995 taxation year, the Appellant is entitled to deduct a bad debt expense in the amount of $5,109. The Appellant is not entitled to deduct any amount in his 1996 taxation year respecting bad debt expenses.
5. The Appellant is not liable for gross negligence penalties in the amount of $1,027.30 and $1,601.10 for the Appellant's 1995 and 1996 taxation years, pursuant to subsection 163(2) of the Act.
A summary of the above is contained in the attached Schedule "A".
Each party shall bear their own costs.
Signed at Ottawa, Canada, this 6th day of April, 2004.
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"E.A Bowie" |
Bowie J.
SCHEDULE "A"
|
Issue |
Amount in Issue |
Amount Allowed |
Amount Dismissed |
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Unreported Income |
|
|
|
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1995 |
$10,819 |
$10,819 |
Nil |
|
1996 |
$23,871 |
$23,871 |
Nil |
|
|
|
|
|
|
Salary Expenses |
|
|
|
|
1995 |
$26,311 |
$26,311 |
Nil |
|
1996 |
$34,700 |
$34,700 |
Nil |
|
|
|
|
|
|
Auto Expense |
|
|
|
|
1995 |
$3,866 |
$3,866 |
Nil |
|
1996 |
$12,428 |
$3,866 |
$8,562 |
|
|
|
|
|
|
Insurance Expense |
|
|
|
|
1995 |
$4,274 |
*$880 |
$3,394 |
|
1996 |
$3,874 |
*$880 |
$2,994 |
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|
|
|
|
|
Bad Debt Expense |
|
|
|
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1995 |
$20,362 |
$5,109 |
$15,253 |
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1996 |
$21,246 |
Nil |
21,246 |
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|
|
|
|
|
Gross Negligence Penalties |
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|
|
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1995 |
$1,027 |
$1,207 |
Nil |
|
1996 |
$1,601 |
$1,601 |
Nil |
· Amounts rounded up from $879.72.
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Docket: 2000-2132(GST)I |
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BETWEEN: |
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WAYNE LENHARDT, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
_______________________________________________________________
Appeal heard on November 26, 2003, at Calgary, Alberta
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By: The Honourable Justice E.A Bowie |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
John O'Callaghan |
_______________________________________________________________
JUDGMENT
The appeal from the assessment made under the Excise Tax Act notice of which is dated June 17, 1998, and bears number 10CT9800120 for the period October 1, 1994 to September 30, 1996 is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the following basis:
1. To delete the Goods and Services Tax (GST) with respect to the reported disbursements for the reporting periods of October 1, 1994 to September 30, 1996 in the following amounts:
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31-Dec-94 |
31-Mar-95 |
30-Jun-95 |
30-Sep-95 |
Total |
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$189.33 |
$189.33 |
$189.33 |
$189.33 |
$757.32 |
|
31-Dec-95 |
31-Mar-96 |
30-Jun-96 |
30-Sep-96 |
Total |
|
$417.74 |
$417.74 |
$417.74 |
$417.74 |
$1,670.96 |
2. To delete the GST for bad debt adjustments for the reporting periods ending between October 1, 1994 and September 30, 1995 in the following amounts:
|
31-Dec-94 |
31-Mar-95 |
30-Jun-95 |
30-Sep-95 |
Total |
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$89.41 |
$89.41 |
$89.41 |
$89.41 |
$357.63 |
3. To allow additional input tax credits for travel expenses for the reporting periods of October 1, 1994 to September 30, 1996 as follows:
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31-Dec-94 |
31-Mar-95 |
30-Jun-95 |
30-Sep-95 |
Total |
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$67.75 |
$67.75 |
$67.75 |
$67.75 |
$271.00 |
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31-Dec-95 |
31-Mar-96 |
30-Jun-96 |
30-Sep-96 |
Total |
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$67.75 |
$67.75 |
$67.75 |
$67.75 |
$271.00 |
4. To delete the amount assessed under section 299 of the Act (Risk Loss Evaluation) in the amount of $2,932.28 for the period October 1, 1994 to September 30, 1995 and in the amount of $1,417.32 for the period October 1, 1995 to September 30, 1996.
A summary of the above is contained in the attached Schedule "A".
Each party shall bear their own costs.
Signed at Ottawa, Canada, this 6th day of April, 2004.
|
"E.A Bowie" |
Bowie J.
SCHEDULE "A"
|
Issue
|
Amount in Issue |
Amount Allowed |
Amount Dismissed |
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GST Added |
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|
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|
|
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On Disbursements (Unreported Income) |
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|
|
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Oct 1/94 to Sept 30/95 |
$757.32 |
$757.32 |
Nil |
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Oct 1/95 to Sept 30/96 |
$1,670.96 |
$1,670.96 |
Nil |
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|
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|
Bad Debt Adjustment |
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|
|
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Oct 1/94 to Sept 30/95 |
$1,425.36 |
$357.63 |
$1,067.73 |
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Oct 1/95 to Sept 30/96 |
$1,487.24 |
Nil |
$1,487.24 |
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ITCs Denied |
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|
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|
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Travel Expenses (Auto Expense) |
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|
|
Oct 1/94 to Sept 30/95 |
$270.64 |
$271.00 |
Nil |
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Oct 1/95 to Sept 30/96 |
$869.96 |
$271.00 |
$598.96 |
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S. 299 of the ETA Risk Loss Evaluation |
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Oct 1/94 to Sept 30/95 |
$2,932.28 |
$2,932.28 |
Nil |
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Oct 1/95 to Sept 30/96 |
$1,417.32 |
$1,417.32 |
Nil |
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Citation:2004TCC281 |
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Date: 20040406 |
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Docket: 2000-1285(IT)G 2000-2132(GST)I |
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BETWEEN: |
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WAYNE LENHARDT, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT AS TO COSTS
Bowie J.
[1] These appeals have a long and undistinguished history. The Appellant's two general procedure appeals from income tax assessments for the 1995 and 1996 taxation years and his informal procedure appeal from an assessment for goods and services tax (GST) under Part IX of the Excise Tax Act (ETA) for the period between October 1, 1994 and September 30, 1996 were launched on March 7, 2000 and February 25, 2000, respectively. In general terms, they are concerned simply with the revenues and expenses of the Appellant's law practice. By the time they came on for hearing before me in Calgary in November 2003, the parties had resolved most of the issues as the result of a pre-hearing conference. At the beginning of the hearing, both parties agreed that the three appeals should proceed on common evidence, and that the issues in the GST appeals were sufficiently parallel to those in the income tax appeals that resolution of the latter would effectively resolve the former. At the conclusion of the hearing, I gave reasons for my disposition of the two issues that remained to be tried. Counsel for the Respondent then submitted a substantial written brief in support of a submission that his client is entitled to costs on a solicitor-client basis. I have since received an equally bulky brief on that issue from the Appellant, and a further brief (said to supercede the original one) from counsel for the Respondent. The Appellant, while not specifically using the expression solicitor-client costs, asks for an award of costs in his favour in the amount of $50,000, or alternatively,
... costs equivalent to the taxes and interest and any penalties for late payment for the tax owing on the extra taxable amounts for the years 1995 and 1996 (whatever those end up being, once the department computer comes up with a number) for both actions, might be an appropriate award.
[2] The income tax appeals were not complex. There were six areas of contention between the Appellant and the Respondent for each of the two years under appeal. I shall summarize them. The Minister assessed the Appellant for unreported income of $10,819 in 1995 and $23,871 in 1996, and he disallowed salary expenses claimed of $26,311 in 1995 and $34,700 in 1996. The disallowed salary was the amounts that the Appellant claimed to have paid to his wife, who worked in his office. Other expenses that the Appellant claimed and the Minister disallowed were:
|
Expense |
1995 |
1996 |
Automobile |
$3,866 |
$12,428 |
|
Insurance |
$4,274 |
$3,874 |
|
Bad debt |
$20,362 |
$21,246 |
The Minister also assessed penalties of $1,027 and $1,601 under subsection 163(2) of the Income Tax Act (the Act).
[3] The Appellant was assessed for GST owing on the basis of $2,428 relating to the allegedly unreported income, $2,912 relating to the adjustment made to the bad debt expense, and $5,490 for excessive claims for input tax credits (ITCs), to which were added penalties of $3,262 and interest. The Appellant's total jeopardy, therefore, under the three assessments amounted to the income tax exigible on some $162,500 of income over two years, GST of about $10,800, penalties of $4,489, and an undeterminable amount of interest on those amounts.
[4] A pre-hearing conference was held by telephone in April 2003, following which Rip J. ordered the parties to file Minutes of Settlement on or before May 16, 2003, evidencing the agreements that they had reached and defining the issues remaining to be tried. Two documents styled Minutes of Settlement were filed as a result of this Order, and they disposed of much of the three assessments in the Appellant's favour. I shall summarize the concessions made:
Income Tax Appeals:
Unreported income: The Respondent conceded this issue for both years.
Salary expense: The Respondent conceded all but $5,000 in each year.
Automobile expense: The Respondent conceded $2,400 in each year, leaving in dispute $1,466 for 1995 and $10,028 for 1966.
Insurance expense: No amount was conceded.
Bad debt expense: The Respondent conceded $5,109 for 1995. A total of $36,500 remained in dispute.
Penalties: The Respondent conceded the penalties for both years, a total of $2,628.
GST Appeals:
The Respondent conceded GST of $2,786 and ITCs of $4,686, a total of $7,472.
[5] At this point, there remained in dispute the tax on $66,142 over the two years, and GST of $3,360. It is something of a misnomer to describe the documents filed as Minutes of Settlement, as the Appellant had conceded nothing at this stage and several issues remained unsettled. The matter came on before me for trial in November 2003, on the basis that all the amounts that the Respondent had not conceded remained in issue. Following a short recess after the cases were called, the parties returned to Court to advise me that they had reached agreement with respect to the remaining amounts of salary expense claimed and disallowed, and with respect to the automobile expenses. The Respondent now conceded the full claim for salary expenses, and the parties were agreed that the automobile expenses for each year should be allowed in the amount of $3,866, which was the amount claimed for 1995. This represented a further concession by the Respondent of about $11,467, and by the Appellant of about $6,162.
[6] I then heard evidence and argument with respect to the two remaining issues, the claims to deduct premiums paid to secure group insurance coverage for the Appellant and his wife through the Canadian Bar Association, and to deduct bad debt expense. Success on the first of these issues was more or less evenly divided, for reasons that I gave orally at the conclusion of the hearing. The Respondent was entirely successful on the second, for the simple reason that the Appellant had no records that could substantiate this claim. I should add, however, that, although the Appellant's record keeping was less than exemplary, this was due at least to some extent to the fact that during the period of the audit, his accountant had been diagnosed with what proved to be a terminal disease. His practice was taken over by another accountant, but his search of the records failed to uncover any documentary evidence that would permit the Appellant to establish that the debts were written off in circumstances that satisfy the requirements of subparagraph 20(1)(p)(i) of the Act.
[7] Both parties now ask for costs on a solicitor-client basis, each citing the alleged misconduct of the other. Mr. Lenhardt's allegations of misconduct are not aimed at Mr. O'Callaghan, but at the Canada Customs and Revenue Agency's assessor and the appeals officer, who he says acted improperly in assessing him, and in confirming the assessments, in the face of what he describes as obvious inconsistencies between the facts and the assessments. For his part, Mr. O'Callaghan says that the Appellant acted unreasonably in a number of ways. First, he did not maintain adequate books and records from which his net income could be ascertained, despite the fact that this Court had criticized him on an earlier occasion for the deplorable state of his records. Second, he was unresponsive on a number of occasions to letters and telephone calls from Mr. O'Callaghan. Third, he agreed orally to terms of settlement two days before the hearing, but resiled from the agreement the next day before executing Minutes of Settlement.
[8] Although both parties filed exhaustive briefs on the subject of costs, replete with extracts from the correspondence passing between them, there are no affidavits or other sworn evidence before me bearing on the respective allegations of unreasonable conduct. I do have the Court's earlier judgment suggesting that the case then before the Court should have been settled, and blaming Mr. Lenhardt and his then accountant for the fact that it was not. In these circumstances, I do not intend to make any finding as to degrees of fault in these appeals. I have little doubt that there was a regrettable lack of communication and cooperation between Mr. Lenhardt and the Agency officials responsible for his file. There also was a period between May and November 2003 when Mr. Lenhardt apparently was less than prompt in responding to Mr. O'Callaghan's letters and telephone calls. Without proper evidence I am not in a position to say that fault lay entirely on one side or the other. I do not accept Mr. O'Callaghan's argument that Mr. Lenhardt should be punished in costs because his failure to respond promptly to letters and telephone calls is a breach of the Code of Professional Conduct of the Law Society of Alberta. In these proceedings Mr. Lenhardt was simply an unrepresented Appellant. Perhaps he was impolite, but bad manners alone will not attract an order for solicitor-client costs. Nor am I impressed by the submission that Mr. Lenhardt improperly used this Court as leverage against a potential defendant in an action for negligence.[1] It is simply conjecture, not supported by any evidence. It does appear from one letter that the Appellant had discussions with the insurers of his accountant, but the nature of those discussions is not known.
[9] Mr. O'Callaghan also relied on his letter of November 24 to Mr. Lenhardt setting out the terms of their oral agreement as being a written offer to settle that should entitle the Respondent to costs. This letter can only be interpreted as offering an amount greater than the Appellant's success at trial by ignoring the salary issue that was settled during the trial in the Appellant's favour. I do not consider that to be realistic, given that the Crown conceded the balance of the salary before any evidence was led. Moreover, to the extent that it can be characterized as an offer to settle, it came much too late to be given significant weight.
[10] The Supreme Court of Canada said in Young v. Young:[2]
Solicitor-client costs are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties.
...
The basic principle on which costs are awarded is as compensation for the successful party, not in order to punish a barrister.
(emphasis in the original)
Nothing in this case fits the test for awarding solicitor-client costs. Nor is there a degree of success on either side that cries out for compensation. Mr. O'Callaghan claims victory at trial on the basis that the amount of the bad debt expense claim considerably exceeds the amount of the Appellant's success on the insurance issue. This ignores the fact that $10,000 of salary expense was only conceded by the Crown after the trial had begun. It also ignores the very considerable concessions that were made by the Crown in May 2003 after the pre-hearing conference. Almost all of the time and expense of these appeals had been expended by then. The proceedings on November 26 occupied less time than the examination for discovery of the Crown officer. Over the three and one-half years that the matter languished before the Court, the Appellant succeeded in having the assessments reduced by roughly two thirds. Looking globally at the three assessments and at the resulting judgment, and keeping in mind that the Appellant does not appear to have improved his record-keeping a great deal between the first judgment in November 1993 and the years in issue here, I can see no reason to compensate either party. The parties shall each bear their own costs.
Signed at Ottawa, Canada, this 6th day of April, 2003.
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"E.A. Bowie" |
Bowie J.
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CITATION: |
2004TCC281 |
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COURT FILE NO.: |
2000-1285(IT)G and 2000-2132(GST)G |
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STYLE OF CAUSE: |
Wayne Lenhardt and Her Majesty the Queen |
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PLACE OF HEARING: |
Calgary, Alberta |
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DATE OF HEARING: |
November 26, 2003 |
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REASONS FOR JUDGMENT AS TO COSTS BY: |
The Honourable Justice E.A. Bowie |
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DATE OF JUDGMENTS: |
April 6, 2004 |
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APPEARANCES: |
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Counsel for the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
John O'Callaghan |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
N/a |
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Firm: |
N/a |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |