Tax Court of Canada Judgments

Docket: 2002-4406(IT)I

BETWEEN:

ROGER KENNETH BLOUSE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard on April 26, 2004 at Kitchener, Ontario.

Before: The Honourable Justice Gerald J. Rip
Appearances:
Counsel for the Appellant:	Adolf Gubler
Counsel for the Respondent:	Tracey McCann

____________________________________________________________________

JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 1999 taxation year is dismissed.

Signed at Ottawa, Canada, this 30^th day of June, 2004.

"Gerald J. Rip"

Rip, J.

Citation: 2004TCC483

Date: 20040630

Docket: 2002-4406(IT)I

BETWEEN:

ROGER KENNETH BLOUSE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Rip, J.

[1]      Roger Kenneth Blouse appeals his 1999 income tax assessment on the basis that an amount of $47,067 ought not to have been included in his income by the Minister of National Revenue. He claims the $47,067 represented "legitimate reimbursements" for expenses incurred by him on behalf of I.C.I. Steel-Tech Inc. ("ICI"), a corporation of which he was a shareholder and officer.

[2]      ICI installs industrial and commercial steel siding on buildings throughout Ontario. Mr. Blouse owns 47 per cent of the issued shares of ICI, Mr. John Jetter owns 52 per cent of the shares of ICI and Mrs. Jetter owns one per cent. Mr. Blouse organizes jobs for ICI and is the company's liaison with employees and contractors. Mr. Jetter runs the office, attending to job estimates, payroll, bookkeeping, banking and other administrative functions. Mr. Jetter "handles the money".

[3]      Mr. Blouse explained that he frequently purchased supplies with cash from "non-regular suppliers" such as Canadian Tire and Home Depot and is reimbursed by ICI. He also incurred expenses by purchasing meals and "drinks" with cash for employees and customers and is reimbursed by ICI. He testified he would submit receipts to Mr. Jetter and ICI would issue a cheque. Mr. Blouse's position at trial was that the $47,067 represented cheques issued to reimburse him for these types of expenses. He stated that he did not know what happened to the bulk of the receipts he submitted to ICI but did produce a folder containing copies of receipts totalling $11,187.29.

[4]      The bulk of the receipts filed by Mr. Blouse are receipts from restaurants. There are also receipts from suppliers such as Beaver Lumber, Canadian Tire, Home Depot and service stations as well as from municipalities and Canada Post. These receipts total approximately $2,300; the balance was from the Beer Store, wine stores and various restaurants. Unfortunately Mr. Blouse could not "remember back to 1999" and could not identify any particular expense. Also, he acknowledged that he has never seen ICI's cancelled cheques for the reimbursed amounts; he stated that the cheques may have been "made out to cash", although they were "likely" made out in his name.

[5]      Mr. Blouse has one child who was 12 years of age in 1999. Sometimes, he said, he would meet "people with kids" in a restaurant and suggested that could be the reason for receipts that referred to children's meals at McDonalds and other restaurants. Also, he suggested, a person, such as himself, may not be that hungry and would order a children's meal. There were also receipts for meals for one person. Mr. Blouse did concede that about 15 per cent of the meal receipts were for personal consumption. As far as liquor purchases are concerned, Mr. Blouse stated that he may have purchased beer for a meeting of employees dealing with safety at work and, also, for contractors and subcontractors.

[6]      In his notice of appeal Mr. Blouse, through his agent, Ray Imbeau, suggested that the "Minister's definition of the $47,067 as income from an office or employment ... be considered as dividends from 1136302 Ontario Inc." (I do not know what the relevance of this latter corporation is to ICI or to Mr. Blouse, although I would gather that 1136302 Ontario Inc. was the erstwhile corporate name of ICI.) In an earlier letter of February 28, 2002 to Ms. Linda Compton, an appeals officer with the Canada Customs and Revenue Agency ("CCRA") at the time, Mr. Imbeau asked that $37,114 of the amount in issue[1] be "re-determined" as dividends paid to Mr. Blouse and that the "remaining $10,000 (less the reimbursed amount of $7,418.18 which is really reimbursement to Roger Blouse for cash expenses he paid on behalf of the company during the 1999 year ...) equalling an additional $2,581.82 to be determined as additional subcontract fees taxable to Roger Blouse". Apparently Mr. Blouse reported his income from ICI as business income, on the basis that he was an independent contractor and not an employee of ICI. Mr. Blouse reported $20,000 as his gross business income in 1999. His reported net income, after provision for automobile, accounting and interest expenses, was $8,450. The Crown treated Mr. Blouse as an employee. There was no evidence produced by Mr. Blouse to combat the fisc's view. Among other things, Mr. Blouse was an officer of ICI, had authority to hire and fire employees and carried out his work as part of the business of ICI.

[7]      Ms. Compton testified that during the course of dealing with Mr. Imbeau, the latter failed to submit any documentation to establish that Mr. Blouse received reimbursements from ICI. Ms. Compton stated that since the CCRA did not consider Mr. Blouse an independent contractor, the Agency was of the view that he did not qualify to deduct any expenses from his income pursuant to section 8 of the Income Tax Act ("Act").

[8]      In any event ICI subsequently filed an amended T4 form for 1999 showing no remuneration paid to Mr. Blouse, a T5 form for 1999 that it paid an actual amount of a dividend of $47,114 and a T5 form that a dividend was paid to Mr. Blouse in the actual amount of $47,114. However, the financial statements attached to the corporate tax return of ICI for its 1999 taxation year do not reflect any dividends paid to shareholders in 1999. ICI's statement of earnings for the 11 months ending December 31, 1999 report advertising and promotion expenses of $2,384 and meals and entertainment expenses of $2,559. The corporate tax return was filed on January 30, 2001, according to Ms. Compton, and preceded the filings of the amended T4 and T5 forms.

[9]      An amended T4 form for ICI for 1999 was prepared by the CCRA in the year 2000 to deny Mr. Blouse's status of independent contractor. An amount of $47,067 was added to Mr. Blouse's employment income.

[10]     Mr. Jetter testified he "went through the bills" submitted to him by Mr. Blouse for reimbursement. Mr. Blouse would submit the receipts weekly and Mr. Jetter would issue a cheque "paid to cash". He explained ICI did not have any credit cards in 1999 and he did not find it uncommon for Mr. Blouse to have incurred $47,000 in expenses for ICI in 1999. Mr. Jetter declared that sometimes Mr. Blouse would buy beer for a crane operator to "repay favours".

[11]     As far as meals were concerned, he suggested that he had no problem with Mr. Blouse taking out a contractor and his family for a meal.

[12]     The bulk of the receipts presented for reimbursement and invoices "disappeared" during office renovations; the receipts were kept in a bag in the office, Mr. Jetter declared. He did not know where the other receipts were or which receipts were taken into account in preparing ICI's tax return. All he could find were "odds and ends" which were produced at trial.

[13]     Mr. Jetter believed an entry "cash expense repaid" was put in the books of the corporation as cheques were issued for the receipts, but he was not certain. In any event no such books were produced at trial.

[14]     Mr. Jetter could not recall if ICI reimbursed Mr. Blouse for expenses incurred on behalf of the corporation in years other than 1999. In his view, "any employee would be reimbursed", as would he, for expenses incurred on behalf of ICI.

[15]     Mr. Jetter also could not recall if Mr. Blouse was an employee or independent contractor in 1999. Mr. Blouse was paid by cheque for the hours he worked. Mr. Jetter estimated Mr. Blouse's pay in 1999 for hours worked for ICI at approximately $39,000.

[16]     During cross-examination, Mr. Jetter was queried on information reported in ICI's 1999 tax return. He stated that perhaps the meals and entertainment expenses were $2,500 for a particular party put on by ICI and did not reflect meals and entertainment for the eleven months ending on December 31, 1999.

[17]     Again, Mr. Jetter could not recall if any dividend of $47,000 was paid in 1999 to Mr. Blouse.

[18]     Upon completion of the evidence, appellant's counsel was permitted to file an amended notice of appeal; the original notice was filed by Mr. Imbeau. The respondent was entitled, of course, to file an amended reply to the notice of appeal and did so. Counsel subsequently submitted their arguments in writing.

[19]     While it may well be that from time to time Mr. Blouse may have purchased supplies for cash on behalf of ICI or paid for ICI's customers' meals with cash, there is no clear disinterested evidence that it is so and I am not satisfied that these cash purchases, if they were made, approached anywhere near $47,000 in 1999. The claimed purchases and meals and entertainment expenses are nowhere reflected in ICI's financial statements for 1999. The testimonies of both Mr. Blouse and Mr. Jetter are wanting.

[20]     Mr. Imbeau, the person who prepared ICI's financial statements and made representations to CCRA on behalf of Mr. Blouse, was in court throughout the trial. However, he was not called as a witness. I infer that his evidence would not have been favourable to the appellant.

[21]     Appellant's counsel submitted that in determining the issue of credibility and the manner of testifying, I consider the level of education of Mr. Blouse and whether or not he is a sophisticated person with special skills or experience. Mr. Blouse has a grade nine education, did not learn a trade and has no special education or training. I find this submission nonsense. My experience on the bench has confirmed that one's credibility has nothing to do with one's level of education or training. Credible and honest witnesses are found in all education levels, as are non-credible and dishonest witnesses.

[22]     In the case at bar neither Mr. Blouse nor Mr. Jetter answered candidly to questions, the answers to which would prejudice the appellant's appeal. They could not remember or feigned ignorance. Mr. Blouse could not recall whom he treated to meals or the relationship of any entertained party to ICI's business. ICI's tax returns are silent with respect to the quantum of these expenses claimed by Mr. Blouse for meals and entertainment and for which he says he was reimbursed. I do not believe Mr. Blouse when he says he ate children's meals at some fast food restaurants while purporting to eat with an ICI business contact.

[23]     Also there is a dispute between Mr. Jetter and Mr. Blouse. The appellant reported gross business income from ICI of $20,000; Mr. Jetter believed Mr. Blouse was paid $39,000 by ICI.

[24]     For these reasons, the appeal is dismissed.

          Signed at Ottawa, Canada, this 30^th day of June, 2004.

"Gerald J. Rip"

Rip. J.

CITATION:

2004TCC483

COURT FILE NO.:

2002-4406(IT)I

STYLE OF CAUSE:

Roger Kenneth Blouse v. The Queen

PLACE OF HEARING:

Kitchener, Ontario

DATE OF HEARING:

April 26, 2004

REASONS FOR JUDGMENT BY:

The Honourable Justice Gerald J. Rip

DATE OF JUDGMENT:

June 30, 2004

APPEARANCES:

Counsel for the Appellant:

Adolf Gubler

Counsel for the Respondent:

Tracey McCann

COUNSEL OF RECORD:

For the Appellant:

Name:

Adolf Gubler

Firm:

Walters, Gubler

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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