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Docket: 2002-1672(IT)I |
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BETWEEN: |
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JEAN MARC SIMARD, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent.
[OFFICIAL ENGLISH TRANSLATION] |
_______________________________________________________________
Appeal heard on January 24, 2003, at Sherbrooke, Quebec
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Before: The Honourable Judge Alain Tardif |
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Appearances |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Claude Lamoureux |
_______________________________________________________________
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1993, 1994, 1995, 1996, 1997, 1998 and 1999 taxation years is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 4th day of April 2003.
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"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 27th day of May 2004.
Sophie Debbané, Revisor
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Citation: 2003TCC200 |
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Date: 20030404 |
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Docket: 2002-1672(IT)I |
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BETWEEN:
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JEAN MARC SIMARD,
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Appellant, |
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and |
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HER MAJESTY THE QUEEN,
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal under the Income Tax Act (the "Act") concerning the 1993, 1994, 1995, 1996, 1997, 1998 and 1999 taxation years.
[2] The question at issue is to determine whether the Minister of National Revenue (the "Minister") has correctly adjusted the appellant's expenses.
[3] To make and confirm the notices of reassessment regarding the 1993, 1994, 1995, 1996, 1997, 1998 and 1999 taxation years, the Minister made the following assumptions, inter alia:
[TRANSLATION]
(a) During the years at issue, the appellant acted as a consultant and operated a bed and breakfast under the name of "L'Imprévu";
(b) In filing his income tax returns for the years at issue, the appellant reported the following net income and net losses for each of his activities:
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Years |
1993 |
1994 |
1995 |
1996 |
1997 |
1998 |
1999 |
Total |
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Consultant |
($6,201) |
$7,920 |
$6,735 |
$5,305 |
$11,365 |
$4,817 |
$0 |
$29,941 |
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L'Imprévu |
($13,297) |
($8,942) |
($5,620) |
($2,538) |
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($30,397) |
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Total |
($19,498) |
($1,022) |
$1,115 |
$2,767 |
$11,365 |
$4,817 |
$0 |
($456) |
(c) Following an audit of the expenses claimed by the appellant, the Minister of National Revenue ("the Minister") adjusted the net income and net losses for the two activities by issuing reassessments dated June 12, 2001:
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Years |
1993 |
1994 |
1995 |
1996 |
1997 |
1998 |
1999 |
Total |
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Consultant |
($4,291) |
$12,170 |
$8,735 |
$7,613 |
$15,677 |
$9,087 |
$3,840 |
$52,921 |
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L'Imprévu |
($11,594) |
($3,294) |
$436 |
$3,898 |
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($10,554) |
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Subtotal |
($15,795) |
$8,876 |
$9,171 |
$11,511 |
$15,677 |
$9,087 |
$3,840 |
$42,367 |
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Adjustment 18(12) |
($4,349) |
($3,292) |
$436 |
$3,898 |
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($3,307) |
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Total |
($11,446) |
$12,168 |
$8,735 |
$7,613 |
$15,677 |
$9,087 |
$3,840 |
$45,674 |
(d) The adjustment made pursuant to subsection 18(12) of the Income Tax Act for the 1993 and 1994 taxation years in respect of the expenses relating to the residence consists of interest, property taxes and electricity and heating costs;
(e) In confirming the income, on December 7, 2001, and January 9, 2002, the Minister requested a list of the bed and breakfast's customers in the 1997, 1998 and 1999 taxation years and a list of the earnings from the appellant's consulting business for the 1998 taxation year: as yet no information has been provided to the Minister;
(f) Details of the expenses claimed and the expenses disallowed by the Minister are attached to this Reply as Schedule A;
(g) In relation to his consulting business, the appellant claimed, inter alia, accommodation expenses of $2,000 per year for each of the years at issue;
(h) During the years at issue, the appellant lived at his principal residence situated in the locality of Eaton in the Eastern Townships;
(i) During the week, he regularly stayed with Mr. and Mrs. Mathar, shareholders of the business "Les Ravalements Spécialisés" and the appellant's personal friends;
(j) The appellant paid no rent to Mr. and Mrs. Mathar;
(k) The appellant incurred no rental expenses for each of the years at issue;
(l) The Minister disallowed the appellant the rental expense of $2,000 per year for each of the years at issue;
(m) For the 1997, 1998 and 1999 taxation years, the appellant also claimed the amounts of $2,312, $2,270 and $1,840, respectively, as home office expenses for his Eaton residence;
(n) The appellant did not have a space reserved for working at home and did not receive clients there;
(o) The home office expenses were disallowed by the Minister for the 1997, 1998 and 1999 taxation years;
(p) With reference to the expenses in connection with the bed and breakfast, "L'Imprévu", the appellant claimed interest expenses of $3,840, $4,160, $4,640 and $4,200 for the 1993, 1994, 1995 and 1996 taxation years respectively;
(q) The loan on which the appellant paid interest amounted to $58,500 when the bed and breakfast commenced operations;
(r) From the amount of $58,500, only $22,900 was applied to the mortgage on the residence; the rest was used to repay a line of credit and another loan of the appellant;
(s) The Minister recognized as part of the allowable interest expenses only the interest payable on the portion of the loan used to finance the property less the portion used for personal purposes;
(t) For the 1994 taxation year, the appellant claimed a total of $8,400 as expenses relating to the use of a motor vehicle for the two businesses;
(u) For the 1994 taxation year, an amount of $4,000 in relation to the use of a motor vehicle was allowed by the Minister on the basis of the supporting documents provided by the appellant;
(v) The Minister reduced some of the other expenses claimed by the appellant on the basis of the percentage of personal use of the residence.
[4] The appellant had the burden of proof with respect to each element and he essentially provided general explanations intermingled with irrelevancies. On several occasions, he submitted that he had no supporting material and added that his claims with regard to the expenses claimed were more than reasonable. These were amounts that he had established on an arbitrary basis, with no documentary basis.
[5] The appellant appealed by means of a letter dated May 2, 2002, which states:
[translation]
Montréal, May 2, 2002
...
Subject: Objection for the 1993 to 1999 taxation years
Choice of procedure: Informal
Facts: Registration of a corporation registered under the Quebec Companies Act in 1993 to operate a bed and breakfast under the name of "L'Imprévu", in which Jean Marc Simard is the sole member.
Facts: Investment of an amount of approximately $15,000 for renovations to the building to bring it up to code and for purchasing the equipment required to operate the bed and breakfast.
Facts: Since initial earnings were insufficient, I also acted as a project management consultant in the Montréal area.
The reasons I am lodging this appeal are the following:
I incurred these expenses in order to make a profit so I could earn my living, and the expenses were not personal or living expenses as Revenue Canada claims.
Jean Marc Simard
...
[6] The Notice of Appeal suggested that the appellant could explain and justify the expenses claimed. The evidence submitted by the appellant established nothing of the kind.
[7] The appellant had two income sources. One came from his work as a consultant and the other from the operation of a bed and breakfast under the business name of "L'Imprévu".
[8] In the context of these two activities, the appellant claimed some expenses for the years at issue that were either disallowed or revised downward. The following expense items are involved:
1993
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Activity: Consultant |
Expenses claimed |
Expenses allowed |
Difference |
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Accommodation expenses |
$2,000 |
$0 |
$2,000 |
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Activity: "L'Imprévu" |
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Insurance |
$1,366 |
$1,281 |
$85 |
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Interest expense |
$3,840 |
$1,409 |
$2,431 |
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Property taxes |
$576 |
$540 |
$36 |
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Telephone and utilities |
$490 |
$333 |
$157 |
1994
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Activity: Consultant |
Expenses claimed |
Expenses allowed |
Difference |
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Accommodation expenses |
$2,000 |
$0 |
$2,000 |
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Autombile expenses |
$5,250 |
$3,000 |
$2,250 |
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Activity: "L'Imprévu" |
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Insurance |
$1,200 |
$1,156 |
$44 |
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Interest expense |
$4,160 |
$1,331 |
$2,829 |
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Maintenance and repairs |
$920 |
$690 |
$230 |
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Automobile expenses |
$3,150 |
$1,000 |
$2,150 |
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Property taxes |
$713 |
$655 |
$58 |
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Electricity and heating |
$2,400 |
$2,063 |
$337 |
1995
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Activity: Consultant |
Expenses claimed |
Expenses allowed |
Difference |
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Accommodation expenses |
$2,000 |
$0 |
$2,000 |
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Activity: "L'Imprévu" |
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Interest expense |
$4,640 |
$503 |
$4,137 |
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Property taxes |
$472 |
$192 |
$280 |
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Telephone and utilities |
$2,540 |
$901 |
$1,639 |
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Fuel |
$850 |
$0 |
$850 |
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Maintenance and repairs |
$1,380 |
$0 |
$1,380 |
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Insurance |
$700 |
$0 |
$700 |
1996
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Activity: Consultant |
Expenses claimed |
Expenses allowed |
Difference |
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Accommodation expenses |
$2,000 |
$0 |
$2,000 |
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Telephone |
$450 |
$142 |
$308 |
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Activity: "L'Imprévu" |
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Insurance |
$1,200 |
$769 |
$431 |
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Interest expense |
$4,200 |
$340 |
$3,860 |
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Property taxes |
$472 |
$192 |
$280 |
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Telephone and utilities |
$2,536 |
$671 |
$1,865 |
1997
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Activity: Consultant |
Expenses claimed |
Expenses allowed |
Difference |
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Accommodation expenses |
$2,000 |
$0 |
$2,000 |
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Home office expenses |
$2,312 |
$0 |
$2,312 |
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Heating |
$2,900 $1,500 $2,370 $4,200 $590 |
$0 $0 $0 $0 $0 |
$2,900 $1,500 $2,370 $4,200 $590 |
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Activity: "L'Imprévu" |
Operation discontinued |
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1998
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Activity: Consultant |
Expenses claimed |
Expenses allowed |
Difference |
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Accommodation expenses |
$2,000 |
$0 |
$2,000 |
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Home office expenses |
$2,270 |
$0 |
$2,270 |
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Heating and electricity |
$2,885 |
$0 |
$2,885 |
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Insurance |
$1,575 |
$0 |
$1,575 |
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Maintenance |
$2,488 |
$0 |
$2,488 |
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Mortgage interest |
$3,780 |
$0 |
$3,780 |
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Property taxes |
$620 |
$0 |
$620 |
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Activity: "L'Imprévu" |
Operation discontinued |
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1999
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Activity: Consultant |
Expenses claimed |
Expenses allowed |
Difference |
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Accommodation expenses |
$2,000 |
$0 |
$2,000 |
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Home office expenses |
$1,840 |
$0 |
$1,840 |
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Heating and electricity |
$2,885 |
$0 |
$2,885 |
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Insurance |
$1,575 |
$0 |
$1,575 |
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Maintenance |
$2,448 |
$0 |
$2,448 |
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Mortgage interest |
$3,500 |
$0 |
$3,500 |
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Property taxes |
$640 |
$0 |
$640 |
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Activity "L'Imprévu" |
Operation discontinued |
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[9] It appears from these tables that, after the bed and breakfast operation ceased, the appellant simply went on claiming substantially the same expenses but now charged them against his only income source, that is, what he earned as a consultant.
[10] How is this transfer of expenses to be explained or justified? The appellant did not do so with the exception of his claim that he had prepared a space in his home to serve as an office. According to the appellant, it was an office he used during the winter season when he was not working away from home.
[11] The work that was done there consisted of preparing for the next season. The explanations provided were vague and imprecise and certainly did not suffice to justify the expenses claimed, which were essentially personal expenses.
[12] In order to claim and justify expenses for an office in one's personal residence, it is not enough to assert that such an office was set up; it is essential to prove that the office was required and was used in the context of professional activities.
[13] In the case at bar, the appellant indicated that his work as a consultant was done during the summer season in the Montréal area. He did not establish that his business required an office in the winter season.
[14] This could have been proven by business cards, a business telephone line or evidence of advertising expenses indicating the availability of the office for receiving prospective clients.
[15] He could also have justified the presence of such an office through a declaration of business name attesting that his residence was used as a place of business. The appellant cast further discredit on the relevance of such an office by charging the expenses claimed for that item to his consulting activities after the bed and breakfast operation had ceased to operate.
[16] His only evidence to justify the expense claimed was that he took a room in his residence and set up an office there with various equipment.
[17] As for the $58,000 loan to organize the bed and breakfast, a loan secured by a mortgage, this was not an exorbitant amount according to the appellant and therefore claiming a deduction for the interest was reasonable and justified. He stated that he did not understand why the respondent did not accept his claims since the amount was not exorbitant.
[18] During the summer season, the appellant worked in the Montréal area; he lived there and returned home on weekends.
[19] With regard to the accommodation and automobile expenses, they were essentially personal expenses; therefore, he could not claim the expenses associated with his personal accommodations and related travelling expenses.
[20] It might have been different if the evidence had established that his home base was in the Eastern Townships and that his travel was to various destinations in the province where he would spend a few days; in that case he could have claimed travel-related expenses, for example, for his automobile, meals and hotel by submitting supporting documents.
[21] In fact, things were quite different; when the summer season arrived, he moved to Montréal and worked from there. Accordingly, his travel to and from Montréal was a personal expense. Furthermore, the respondent accepted part of the expenses claimed for use of his automobile, although they were not substantiated.
[22] In support of his appeal, the appellant provided general explanations but never managed to provide even the most minimal clarifications that could give his claims some consistency. He had no notes, no accounting records, no logs and no documents.
[23] He acknowledged that he did not have any supporting material. He submitted in evidence two repair bills for his automobile in support of the expense claimed for it. The personal use of a motor vehicle requires outlays for maintenance and repairs, which is why the bills made available were of no interest.
[24] To justify the automobile expenses, the appellant said that he had calculated the kilometres driven in a given period; on the basis of the result obtained, he contended that he had had to drive an equivalent number of kilometres during the periods at issue; this was the basis of the expense claimed on this point.
[25] He also maintained that, generally speaking, those who use their automobiles in the performance of their professional duties received roughly 30 ¢ a kilometre, therefore concluding that claiming $8,400 was not unreasonable. In fact, a substantial portion of the kilometres driven was essentially for personal purposes. I refer in particular to the kilometres driven between his residence in the Eastern Townships and his place of work in Montréal. Moreover, the appellant had no log showing the use he made of his vehicle for business purposes.
[26] Our tax system provides that taxpayers must self-assess in accordance with the provisions of the Act. The exercise is not based on reasonableness, memory, common sense or intuition; it involves making specific calculations based on the various numerical data recorded and substantiated by the appropriate supporting material.
[27] In the case at bar, the appellant described himself as a businessman having operated various businesses; therefore, he should have been able to submit plausible evidence substantiated by a modicum of supporting material so that he could establish that his claims were well founded.
[28] The appellant had the burden of proof and had to establish on a preponderance of evidence that the assessments had not been made correctly. The appellant did not discharge this burden of proof. The appeal must accordingly be dismissed.
Signed at Ottawa, Canada, this 4th day of April 2003.
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"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 27th day of May 2004.
Sophie Debbané, Revisor