Date: 20021112
Docket: 2002-1509-IT-I
BETWEEN:
GIOVANNI CHIRIATTI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
___________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: A'Amer Ather
____________________________________________________________________
Reasons for Judgment
(Delivered orally from the Bench at Toronto, Ontario,
on Monday, October 7, 2002 and revised as to style and syntax at
Ottawa, Canada on November 12, 2002)
Margeson, J.T.C.C.
[1] The matter before the Court at this time is that of Giovanni Chiriatti v. Her Majesty the Queen. The sole question before the Court is whether or not the Appellant is entitled to deduct expenses for the 1998 and 1999 taxation years in addition to those amounts which were allowed by the Minister of National Revenue ("Minister") as set out in the Reply to the Notice of Appeal ("Reply") and in Schedule "A", Auditor's Report, which is attached to the Reply.
[2] The Appellant says that he was involved in a business which we can call a distribution business, during the years in question, having to do with hair care products. In general he did everything that he could to try to make it a business and to generate revenue. He did what he thought he had to do. He visited salons; he obtained advertisements; he bought some equipment; he gave equipment to salons; he talked to people; he visited possible clients in the United States and in Europe, to try to promote his business. He used a motor vehicle in support of his business. As the claim for expenses indicates, he had advertising expenses, automobile expenses, office expenses, "supplies", as he called them, accounting expenses, travel expenses, telephone expenses in each of the years 1998 and 1999. These are the types of expenses one would expect that someone would have to incur if they were involved in a business as he was.
[3] There is no doubt that the individual in the years in question was involved in a business. As a matter of fact, the Minister did allow some expenses of operating a business in the years in question. The only issue is whether he allowed him enough. The Appellant said he did not. The Minister said he did; that any expenses which were disallowed were not proven to be expended, they were unreasonable under the circumstances or they were not directed towards the earning of income from the business.
[4] With respect to the last argument, the Court is more than satisfied that all of the expenses that were claimed were directed towards the earning of income. There is no doubt in the world about that. It would be rather foolish for him to be spending money on advertisement for hair products, care products, for brochures and buying equipment that he could loan to hair salons to try to obtain their business, for any other reason except for business. They were definitely business-related expenses.
[5] One problem that is inherent in this type of claim is the fact that he did not keep sufficient receipts, he did not keep a proper breakdown of his automobile expenses, he did not keep a diary or a log. The very essence of the complaints that the Minister makes about business expense claims are that they are not properly categorized and that receipts are not properly maintained. The Appellant here is certainly guilty, as is his accountant, of some laxity in providing sufficient receipts for the Minister. The Court cannot question the Minister's actions in considering, as he did, that some of these expenses were not proper.
[6] In any event, this Court has to decide whether or not the Minister was completely right in what he was doing and whether any additional expenses should be allowed to the Appellant.
[7] At the outset the Court states that it was impressed with the Appellant's testimony. It is satisfied that the Appellant was operating a business and that he was doing his best to obtain income from the business. He was an honest person and the Court places great credibility on his evidence. It is true that some of the items that he claimed were not corroborated completely by receipts or by bank statements. In some cases they were invoices only but the Appellant has testified with respect to those invoices. His evidence was given straightforwardly and can be relied upon.
[8] For the year 1998, the Appellant claimed advertising expenses in the amount of $5,375, and his evidence was that he spent that in 1998 to create a brochure. He produced evidence as to what the brochure looked like. It was called "Olajos". It is not for the Court to say how much these items cost or should cost. It does seem like a relatively large amount for that kind of a brochure, but it is glossy, it is well put together and it is quite detailed. When one considers the amount of work that one would have to put into it, the ground work that would have to go into it, the number of pamphlets that might have to be produced, it does not seem to be unreasonable that that amount of money would have been required to produce that brochure.
[9] Counsel for the Respondent said that there is a real issue about that because the Appellant's evidence was not consistent. The Appellant gave evidence that he produced 200 or 300 of them in the year in question although the invoice itself does indicate that there were considerably more produced than that. This would, at first blush, appear to be inconsistent. But the Appellant's explanation for that was that he made a mistake, he was just generalizing, he gave a rough idea as to the number printed, but when he looked at the invoice he realized that this was not correct and that the expenditure was in fact $5,375.
[10] The Court is satisfied that this is the type of expense that would have been expended by a person in this kind of business. Taking the invoice itself into account, as well as the evidence of the Appellant, the Court is satisfied that this item should be allowed. The Court sees no possible way that there was any personal benefit from the use of this advertisement. The Appellant is entitled to claim the $5,375 as an expense.
[11] The Court considers the automobile expense of $2,160. This does not really represent repairs only. As the Appellant indicated at first and it was obvious from his testimony that the claim of $2,160 was not repairs, but a percentage that he was claiming of the total expenses for the automobile, which included gas and oil. The two invoices that he presented totalled $2,320.30. These were just for repairs and there were no other invoices which were presented to support the Appellant's claim for 55 per cent of the total amounts expended or what they were expended for.
[12] Furthermore, there is a problem with respect to the percentage that he claimed. Counsel for the Respondent's position is well taken when he says there was really no basis for the presentation of the claim of 55 per cent. That was just a figure that was the percentage that was created by his accountant and himself after discussions. There was no log, there was no record of the motor vehicle and one cannot determine what the $2,160 was expended on. The only thing we are certain of was that he spent $2,320.30 on repairs.
[13] The Court is satisfied that the Appellant should be allowed to deduct something for this automobile. He obviously needed an automobile to carry on this business. It would be unfair for him not to be able to claim something. His receipts and documentation are a bit weak. The 55 per cent that he has claimed by talking to his accountant is too high. The Court is satisfied that he is only entitled to a portion of the total invoiced amount of $2,320.30. The Court is satisfied that that should not be 55 per cent, but rather 30 per cent. The Court will allow 30 per cent of the amount of $2,320.30, which can be deducted by the Appellant in the year in question.
[14] With respect to the office supplies, that is, $180, he had no receipts whatever for those. The Court is unable to say what they were for. The Court will disallow that claim of $180.
[15] With respect to the $840, the Appellant has presented an invoice with respect to that $840, and the Minister has shown that it was vouchered. The Court is satisfied that the Appellant should be entitled to deduct that amount and he will be able to do so.
[16] With respect to travel expenses claimed in the amount of $1,360 in the year 1998, the Appellant said that he actually spent $1,645.60. He went to Florence to meet people with respect to advancing the business. He expected to create income from which he could claim 25 per cent in the event that he were successful. He was not successful and this venture did not produce any income, but the Court is satisfied that it was not unreasonable for him to travel there in an attempt to produce income. On the basis of his evidence, the Court is satisfied that when he went to Florence, he did not meet with his personal friends, he did not meet with relatives. He said that his relatives lived in a different portion of the country, so he did not spend any time with them. The Court is satisfied that this was basically a business trip, and that he should be allowed to claim something for that trip.
[17] Exhibit A-4 was an invoice for $1,645.60. The Minister disallowed the $1,360 claimed. The Court is satisfied that it was unreasonable for the Minister not to allow this claim. The Court is satisfied that he did expend that amount of money. It was business-related and was meant to produce income, so he should be allowed to claim $1,360.
[18] There was a claim of $1,280 for the telephone. Counsel for the Respondent said that these bills were not specifically broken down as to specific telephone numbers that were called and when they were called. The Court is satisfied, in essence, with the evidence of the Appellant referable to these telephone calls and in relation to the telephone numbers to his business. The Court is satisfied in the end result that the documents that he supplied, together with his own evidence, are sufficient to establish the claim of $1,280. These expenses will be allowed.
[19] With respect to the capital cost allowance, the Court is satisfied that there is no evidence with respect to that. The Appellant did not know what it was for. The Court will not allow it.
[20] With respect to the 1999 taxation year, the Appellant claimed $1,825 for purchases which were allowed. That is not in dispute.
[21] The item in dispute is advertising in the amount of $4,888 as invoiced. The Appellant produced an invoice as Exhibit A-6. Counsel for the Respondent took some issue with that, but at the end of day, the Court is satisfied that that type of an advertisement was the type of advertisement that one would expect the Appellant to be using in his business. It was not unreasonable. The Court is satisfied on the basis of the invoice and the Appellant's own testimony that that amount was expended, and so the Court will allow that amount to be deducted.
[22] The automobile expenses claimed were $1,850. The Appellant producedinvoices at Exhibit A-7. The Minister disallowed the whole amount of $1,850 that was claimed. The Court is satisfied that the proper amount that the Appellant should be entitled to claim in the year is 30 per cent of the total amount established of $2,101.63. The Court will allow him 30 per cent of $2,101.63.
[23] With respect to office supplies, $275, there were no receipts whatsoever for the office supplies, so those will not be allowed. Supplies in the amount of $788 were allegedly expended for an instrument which he said he supplied to salons. He had no receipt for that so the Court is unable to accede to his request for that. This will not be allowed.
[26] There was an amount claimed of $214 for accounting expenses. There is no doubt in the Court's mind that that is a reasonable amount. The Court is satisfied that he expended that amount. It is consistent with the income tax return. It is consistent with the charges in the previous year which the Minister allowed.
[27] With respect to travel expenses of $1,585, there were no invoices for this amount. This was a global amount. It is obvious that the Appellant went to New York and he met with somebody there, but the amounts that he gave for the travel and for the accommodation for the meals and so on were only guesstimates and they are not sufficient for these proceedings. The amount of $1,585 is not allowed.
[28] The Court is satisfied that there is sufficient evidence to support a claim for $975 for the telephone.
[29] Capital cost allowances are disallowed as there was no evidence to support the claim.
[30] The appeal is allowed with respect to the assessments for the 1998 and 1999 taxation years, without costs and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment based upon the Court's finding that the Appellant will be allowed the further deductions that are indicated earlier in this decision. The Appellant is entitled to no further relief.
Signed at Ottawa, Canada, this 12th day of November 2002.
|
"T.E. Margeson" |
J.T.C.C.COURT FILE NO.: 2002-1509(IT)I
STYLE OF CAUSE: Giovannin Chiriatti and
Her Majesty the Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: October 7, 2002
REASONS FOR JUDGMENT BY: The Honourable T.E. Margeson
DATE OF JUDGMENT: November 12, 2002
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: A'Amer Ather
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada