Date: 20010523
Docket: 2001-60-IT-I
BETWEEN:
WILLIAM S. LUKASEWYCH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1] This is an appeal from an assessment for 1997 made under the Income Tax Act.
[2] The appellant did not file a return of income for 1997 and the Minister made what is called an "arbitrary" assessment under subsection 152(7) based on a T4 slip for that year issued to the appellant by Roevin Technical People Ltd., a placement agency. Ultimately the appellant did file a return for 1997 and it was received on May 11, 2000 although the date shown on the return signed by the appellant was June 15, 1998.
[3] The original assessment was based on the premise that the $48,365 was employment income. The return was based on the view that the appellant was self-employed, i.e. an independent contractor.
[4] The appellant filed a notice of objection and the Minister reassessed to delete the $48,365 employment income and to add net business income of $45,702.74. No deductions were allowed.
[5] The return shows gross income of $44,639.86, expenses of $36,748.21, for a net income of $7,891.65.
[6] The appellant claimed that this was income from a business carried on by him and his brother John as Frontier Technical Services in which he had a 75% partnership interest and his brother a 25% interest. In his return the appellant split the net income of $7,891.65 between himself and his brother. From the $5,918.74 calculated he deducted $3,226.10 as home office expenses to arrive at income of $2,692.64. He seems to have attributed no part of the home office expenses to his brother.
[7] The expenses making up the claim of $36,748.21 are as follows.
Business tax, fees, licences, dues,
memberships, and subscriptions $ 1,165.94
Interest 1,647.72
Meals and entertainment 210.76
Motor vehicle expenses 6,148.30
Office expenses 5,824.01
Travel 9,624.09
Telephone and utilities 800.81
Convention expenses 8,687.37
Subtotal 34,109.00
Capital cost allowance 2,639.21
Total business expenses $36,748.21
[8] Exhibit A-1 is a letter of October 3, 1990 from the placement agency Roevin Technical People Ltd. to Frontier Technical Services c/o the appellant Mr. William Lukasewych. It reads:
Dear Mr. Lukasewych,
Roevin Technical People Ltd. (the "Company") hereby agrees to contract with you and your employees and agents, if any, (the "Contractor") regarding services which you shall provide to our Client, subject to the terms and conditions stated herein.
Your confirmation of this Agreement shall be deemed to have occurred when you accept work from the Client listed below (the "Client").
CLIENT : Petro-Canada Products Limited.
ADDRESS : Oakville Plant,
P.O. Box 520,
Oakville,
Ontario, L6J-5B5
POSITION : AutoCad Draftsman.
PERSON TO WHOM THE CONTRACTOR SHALL REPORT:
Milan Vucak.
DATE OF EMPLOYMENT : October 02, 1990.
FEES (a) Rate : $25.00 Per Hour.
(b) Overtime : $37.50 Per Hour after 44 hours
per week.[1]
TERMINATION
Minimum period of notice of termination of the contract is five (5) days.
Sincerely
(signed)
Raymond P. Hoare
ROEVIN TECHNICAL PEOPLE LTD.
[9] Attached to the letter is a document entitled terms and conditions.
[10] Even if one were to accept that this somewhat unusual arrangement resulted in Frontier Technical Services being the contracting party that supplied the services of a draftsman to Petro-Canada the simple fact of the matter is that realistically all the appellant did in 1997 was to work as a draftsman at the offices of Petro-Canada. That was the only source of income for the appellant.
[11] Paragraph 4(1)(a) of the Income Tax Act reads
(1) For the purposes of this Act,
(a) a taxpayer's income or loss for a taxation year from an office, employment, business, property or other source, or from sources in a particular place, is the taxpayer's income or loss, as the case may be, computed in accordance with this Act on the assumption that the taxpayer had during the taxation year no income or loss except from that source or no income or loss except from those sources, as the case may be, and was allowed no deductions in computing the taxpayer's income for the taxation year except such deductions as may reasonably be regarded as wholly applicable to that source or to those sources, as the case may be, and except such part of any other deductions as may reasonably be regarded as applicable thereto.
[12] The appellant did not testify. His brother John did. None of the expenses claimed were proved by any documentation such as vouchers, receipts or journal entries. Such documentation as the appellant had was shown to the auditor, Ms. Carson, and returned to the appellant.
[13] Even if one were to assume that the amounts claimed were in fact spent, there is nothing to show that they had anything to do with the only source of income that existed in the year, the work as a draftsman at Petro-Canada. It is wholly unrealistic and unreasonable to attempt to attribute, for example, $6,148.30 motor vehicle expenses, or $9,624.09 travel expenses, or convention expenses of $8,687.37, or office expenses of $5,824.01, or home office expenses of $3,226.10 to the work at Petro-Canada. The evidence simply does not establish the test of "wholly or reasonably applicable" in paragraph 4(1)(a).
[14] There was some passing allusion to another enterprise in which the appellant and his brother participated, FTS Graphics. If the expenses claimed had something to do with that "partnership", if that is what it is, this was not established. They certainly had nothing to do with the appellant's work at Petro-Canada.
[15] The appeal is dismissed.
Signed at Ottawa, Canada, this 23rd day of May 2001.
"D.G.H. Bowman"
A.C.J.
[1] The "$37.50" was struck out and "same" was written in and the words "if over 8 hrs/day" were added.