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Citation: 2004TCC17 |
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Date: 20040108 |
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Docket: 2003-2484(IT)I |
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BETWEEN: |
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BRIAN P. BEECH |
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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
Beaubier, J.
[1] This appeal pursuant to the Informal Procedure was heard at Nanaimo, British Columbia, on November 28, 2003. The Appellant testified. The Respondent called Linda Beech, Brian's wife, to testify and the auditor on the file, Cynthia Pacheco.
[2] Paragraphs 4 to 12 of the Reply to the Notice of Appeal read as follows:
4. In respect of the Notices of Objection that are attached to the Notice of Appeal, he admits that:
(a) the Appellant has prepared and submitted on a timely basis income tax returns for all taxation years,
(b) the Appellant's major source of income is from services that he provides as a faller, and he does report the applicable T4 as employment income on his personal income tax returns,
(c) the Appellant is married to Linda Beech ("Linda") who has only rental income,
(d) the Appellant operates a business known as Brian Beech Contracting (the "Business"),
(e) the Appellant does, with the assistance of a bookkeeper, prepare a statement of revenue and expenditures for each taxation year,
(f) the Business is operated from the matrimonial home located at 1670 Jenkins Crescent in the municipality of Nanoose Bay,
(g) the Appellant was advised by Cynthia Pacheco of CCRA that she would be attending to the place of business on September 9, 2002 to conduct an audit of the books and records,
(h) the auditor did on October 11, 2002 advise the Appellant that she was proposing certain adjustments to the income reported by the Business, including a proposal to disallow wages paid to Linda, and
(i) the CCRA did issue Notices of Reassessment for the taxation years 1999, 2000 and 2001 per the auditor's letter dated December 20, 2002.
5. He denies all the other allegations of fact contained in the Notice of Appeal and the attachments.
6. In filing his Returns of Income for the 1999, 2000 and 2001 taxation years, the Appellant claimed expenses of $12,000.00, $10,000.00 and $8,000.00, respectively, (the "Amounts") in respect of wages paid to Linda.
7. The Minister of National Revenue (the "Minister") initially assessed the Appellant for the 1999, 2000 and 2001 taxation years on May 26, 2000, June 1, 2001 and April 29, 2002, respectively, allowing the Amounts.
8. On January 13, 2003, the Minister reassessed the Appellant for the 1999, 2000 and 2001 taxation years, disallowing the Amounts. The total of all amounts claimed, allowed and disallowed for the 1999, 2000 and 2001 taxation years are set out in Schedules A, B and C, respectively, attached to this Reply.
9. The Appellant filed Notices of Objection for the 1999, 2000 and 2001 taxation years and by way of a Notice dated June 13, 2003, the Minister confirmed the reassessments dated January 13, 2003 for the 1999, 2000 and 2001 taxation years.
10. In so confirming for the 1999, 2000 and 2001 taxation years, the Minister relied on the following assumptions of fact:
a) the Appellant is a falling safety supervisor and has been employed in the logging industry for the past 37 years;
b) at all relevant times, the Appellant was a full-time employee of Bendickson Contractors Ltd ("Bendickson");
c) the Appellant's employment income from Bendickson in the 1999, 2000 and 2001 taxation years was $89,124.00, $85,823.20 and $90,010.90, respectively;
d) in the years under appeal, the Appellant also operated the Business;
e) the Business, which the Appellant started in 1982, consisted of renting chainsaws, axes and other logging equipment to other employees of Bendickson;
f) the Appellant would transport the equipment to the logging site and would take it back home with him at the end of each job or to be repaired if necessary;
g) the Appellant also kept a step van at the logging site for any on-site repairs;
h) Bendickson would collect the rental amounts from its employees and then remit the amounts to the Appellant less amounts for any fuel that had been consumed;
i) the Appellant's neighbour provided bookkeeping services to the Appellant such as recording information into a manual ledger on a monthly basis, making year end adjusting entries and preparing financial statements and filing tax returns, including GST returns;
j) no remuneration was paid to the neighbour for the bookkeeping services she provided;
k) the Appellant reported the following amounts as income from the Business in the 1999, 2000 and 2001 taxation years:
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Year |
Gross Business Income |
Net Business Income
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1999 |
49,638.00 |
498.00
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2000 |
42,661.00 |
689.00
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2001 |
34,804.00 |
259.00 |
l) the Amounts were claimed as expenses in calculating the net business income for each year;
m) it would not have been reasonable in the circumstances for Linda to have received significantly more income from the Business than the Appellant, who was the proprietor;
n) no payroll deductions were made by the Appellant on Linda's behalf and no T4 slip was prepared by the Appellant in respect of Linda;
o) no amounts were ever paid to Linda by the Appellant; and
p) Linda did not provide any services to the Business.
B. ISSUES TO BE DECIDED
11. The issue is whether the Appellant is entitled to deduct the Amounts in the 1999, 2000 and 2001 taxation years.
C. STATUTORY PROVISIONS RELIED ON
12. He relies on paragraphs 18(1)(a) and 18(1)(h), section 67 and subsection 248(1) of the Income Tax Act (the "Act"), as amended for the 1999, 2000 and 2001 taxation years.
[3] Assumptions 10 (a), (b), (c), (d), (f), (g), (i), (j), (k), (l) and (n) were not refuted by the evidence.
[4] With respect to the remaining assumptions:
(e) and (h)
The Business rented to Bendickson which paid the rental amounts.
(m)
There are many small businesses in Canada from which an employee received significantly more income than the proprietor. This "assumption" is, in itself, a fallacy.
(o)
The Appellant alleges that the following amounts were paid to Linda from the Business. They are recorded as follows in the Business records copied in the last 3 pages of Exhibit A-5 (undated in the photocopies):
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P1 |
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Transfer |
$2,000.00
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P2 |
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Transfer |
4,000.00
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P3 |
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Sears |
3,091.67
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TH Furnishing (?) |
2,000.00
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United Carpet |
1,530.65
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TH Furnishing (?) |
819.20
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TH Furnishing (?) |
500.00 |
The (?) are inserted because the writing is unclear. The transfers were to Brian and Linda's joint bank account. From the context of Brian's testimony, the payments on page 3 were to have been to renovate and refurbish the household kitchen.
(p)
Linda did provide services to the Business. The evidence is that she did not do the Business books, the neighbour did them. Linda did sort the bills, clean the office premises, get parts and supplies for the Business, answer the phone and ship parts to Brian when he was in the woods with the Business equipment for about 20 days per month at remote, fly-in locations on the British Columbia coast during the logging seasons.
[5] It is accepted law in income tax cases that where a business owned by a husband employs a wife, everything must be done in the same way that any ordinary business does respecting its employees. The employee must work scheduled hours even if part time. Records of time served must be kept. Pay should be made by cheque. Pay should be in regular pay periods and be deposited in the employee's individual account so that tracing is clear. Withholdings must be made and remitted and the timely filings must be made to the appropriate authorities respecting the employee.
[6] None of this was done in this case.
[7] Even the two "transfers" of $2,000 and $4,000 were (1) "transfers" and (2) made to a joint bank account. The kitchen was a household kitchen, not Linda's own separate kitchen and those payments are not an ordinary employer-employee transaction.
[8] Because Linda did in fact render services to the Business and the Court finds there was a transfer of funds to the joint account. The Court finds that one-half of those funds were paid to Linda, namely, $1,000 and $2,000. However, they were not paid to her as an employee. Rather they were paid to her for services rendered as a contractor.
[9] The appeal is allowed and this matter is remitted to the Minister for reconsideration and reassessment for the appropriate years respecting those two payments, the dates of which are not on the Exhibit and were not given in testimony. For the remaining year or years, the appeals are dismissed.
Signed at Saskatoon, Saskatchewan this 8th day of January, 2004.
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"D.W. Beaubier" |
Beaubier, J.
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CITATION: |
2004TCC17 |
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COURT FILE NO.: |
2003-2484(IT)I |
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STYLE OF CAUSE: |
Brian P. Beech v. The Queen |
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PLACE OF HEARING: |
Nanaimo, British Columbia |
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DATE OF HEARING: |
November 28, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice Beaubier |
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DATE OF JUDGMENT: |
January 8, 2004 |
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APPEARANCES: |
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Agent for the Appellant: |
Ed R. Heese |
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Counsel for the Respondent: |
Shawna Cruz |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Ed. R. Heese |
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Firm: |
E R Heese Accounting & Tax Services |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |