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Citation: 2003TCC677 |
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Date: 20030924 |
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Docket: 2003-807(IT)I |
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BETWEEN: |
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FRANK QUAIDOO, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
Agent for the Appellant: Charles Rubayiza
Counsel for the Respondent: Galina M. Bining
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REASONS FOR JUDGMENT
(Delivered orally from the Bench at
Edmonton, Alberta, on August 22, 2003)
Miller J.
[1] Mr. Quaidoo appeals by way of informal procedure the Minister's assessment of his 1999 taxation year, in which the Minister denied Mr. Quaidoo's losses arising from business in that year. Mr. Quaidoo claims he incurred 50 per cent of a loss of $27,291.18 from his export business. The Respondent claims Mr. Quaidoo was not in business in 1999. Alternatively, if he was, he has not proven expenses in excess of receipts or his expenses were unreasonable in the circumstances.
[2] In 1999, Mr. Quaidoo completed the final two months of a mechanic's course. He determined early in the year to start an auto repair business, which he would conduct in his spare time. He sought the advice of an accountant, Mr. Rubayiza, after which he registered the trade name of Tri-Quaid Services. Shortly after this, in discussions with his brother, he hatched the idea of exporting car parts, accessories, equipment, bikes and similar goods to Ghana. His brother had recently spent some considerable time in Africa. His parents were from Ghana. He saw an opportunity to supplement his income. Initially he did not have sufficient funds to undertake such an enterprise, but he found a partner, some business or organization called Parthonics. Mr. Quaidoo did not elaborate on this contact other than to indicate he received $5,000 from his "silent partner" (an expression that Mr. Quaidoo used).
[3] His testimony was confusing as to exactly who carried on the export business. As he stated, Parthonics and he were to share income and losses, yet it was his wife who filed as a partner in the export business. He indicated he paid back the $5,000, but there is no evidence of a receipt or repayment of such funds. Mr. Quaidoo acknowledged that he looked on this venture into the export market as a trial run. If he could make money he would pursue it. That was the extent of his plan. He did not make money.
[4] Mr. Quaidoo claims that some time between April and September he acquired a variety of items in the form of engines, bikes, carburetors, vehicles and similar type machine goods. He submitted his own handwritten listing of these goods on four forms that looked like bills, that were dated June 26, two dated June 27 and one dated June 28, 1999. He said he acquired the goods at garage sales and auctions. He was no more specific than that. No receipts were tendered, no names or addresses or any other corroboration of these acquisitions.
[5] He arranged to have the goods shipped to Ghana. He traveled to Ghana to attend to selling the goods. He submitted three documents, all titled "Invoices", which served as receipts from three different organizations in Takarodi, Ghana. The first, from M.T.O.A. Car Dealers Association, which showed the purchase of one Nissan King cab, one Toyota 4 Runner, tires and auto parts for $7,700. The second invoice from Mister Yesterday Technicals showed the purchases of transformers, speakers, fridge, tools and like equipment for $318; and the third from 124 Enterprise, which showed the purchase of 37 bikes for $310. All three invoices, which were tendered as receipts, look similar. Mr. Quaidoo testified the bikes were sold by word of mouth through someone he met at the Port in Ghana. The other two purchases appear to have been contacts of Mr. Quaidoo's brother, though his evidence was not completely clear on that point.
[6] This was Mr. Quaidoo's second visit to Ghana, as the year previously he had traveled there with his parents and his new wife to introduce her to his family in Africa. When he traveled back to Ghana in 1999 for three weeks, he stayed at an apartment owned by his parents, though they normally reside in Canada.
[7] Mr. Quaidoo filed his 1999 return reporting income of $12,725, which closely matches the sales to the three Ghana organizations if the dollars are considered U.S. dollars, which Mr. Quaidoo testified they were. This left virtually no income being recorded from his auto repair business. Mr. Quaidoo also claimed the following expenses:
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Supplies |
$17,525 |
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Shipping |
$ 8,516 |
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Office & General |
$ 3,316 |
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Telephone |
$ 3,004 |
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Rent |
$ 2,164 |
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Travel |
$ 2,143 |
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Auto Expenses |
$ 1,418 |
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Storage |
$ 1,156 |
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Insurance |
$ 408 |
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Home use |
$ 362 |
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Total |
$40,016 |
This resulted in a loss claimed by Mr. Quaidoo of $27,291, of which he claimed 50 per cent.
[8] The Respondent conceded the shipping expense, the travel expense and the storage customs expense, as well as $37.99 of office and general expense for a total of $11,853, only if I were to decide that Mr. Quaidoo had a business.
[9] Mr. Quaidoo's agent argued that Mr. Quaidoo had proven his business and the income and expenses associated with it. The Respondent maintained that there was a personal element in Mr. Quaidoo's venture, being his family connection in Ghana, which, based on the Stewart,[1] Walls[2] and Moldowan[3] cases, required an analysis of the following factors to determine if Mr. Quaidoo was indeed in business.
[10] First, the profit or loss in the past; as this was a new venture there was none. Second, Mr. Quaidoo's training in the export business; he had none. Third, his intended course of action; which was in effect to have a trial run. Fourth, the capability to show profit; the Crown suggested there was no such capability. Fifth, the infamous reasonable expectation of profit test; objectively there was no reasonable expectation of profit. Certainly, the Appellant had been unable to prove any. Sixth, the nature of the expenses; not all the expenses appear to relate to an export business.
[11] The Respondent thus concluded there was not a business. At best there may have been some pre-business steps, but there was insufficient diligence to prove the business commenced with this trial run. Alternatively, the Respondent argued, if there was a business in 1999 the Appellant has been unable to prove his expenses, and based on the Federal Court of Appeal in Njenga,[4] there was an onus on the Appellant to do so. He may have proven shipping, travel and storage costs, but he had not proven supplies, telephone, or automobile expenses. Further, home expenses were precluded by the application of subsection 18(12) of the Act, limiting such to income from the business. That was the Respondent's position.
[12] Turning to the first issue of whether Mr. Quaidoo was in business. I do not find that simply because a brother has lived in a possible market place and that parents have a property there, that this is the type of personal element that justifies finding Mr. Quaidoo was in a personal endeavour as opposed to the pursuit of profit. He simply stayed at a place owned by his parents while in Ghana, and relied upon some of his brother's contacts. There was no evidence that goods were sold or distributed to family or friends, or that the activity itself had a personal element. I find there was no personal element.
[13] What then was Mr. Quaidoo engaged in? Did he have a source of income? I do not accept the Respondent's suggestion that this trial run was a pre-business step. It was simply too involved a commercial activity to be considered such. The act alone of acquiring a container and shipping goods at a cost of $8,000 goes beyond mere pre-business inquiries. Yet Mr. Quaidoo showed none of the more formal trappings of a business. He had no business books, no business records, kept no logs, no addresses of contacts, no information from where he acquired the goods. He said he had a plan, but there was nothing in writing, no banking information. Indeed, virtually no documentation at all, apart from the three receipts, oddly disguised as invoices.
[14] At best, Mr. Quaidoo engaged in an adventure, an adventure in the nature of trade. This expression is perhaps well suited to what Mr. Quaidoo did. He ignored the formalities of actually carrying on a business and all that entailed, and simply rushed into an adventure, an adventure in the nature of trade. For tax purposes, however, that is a business.
[15] What then were his revenues and expenses from the adventure? Although the three documents verifying Mr. Quaidoo's income from his adventure do not meet the normal expectation of a receipt based on North American standards, I find that they are adequate, as I do not fully appreciate what is common commercial practice in Ghana. They do describe the equipment, they are dated at the time Mr. Quaidoo was in Ghana, they do show amounts, and in two cases they are in fact signed, though the signatory was not identified by Mr. Quaidoo. I accept that Mr. Quaidoo received the income reported by the three documents, amounting to approximately $12,500 Canadian.
[16] With respect to the expenses, the Respondent and Appellant are agreed on the following: the shipping of $8,516, the travel of $2,143, the storage of $1,156, and office expenses of $37.99. I accept the Respondent's argument that home-related expenses are precluded by the operation of subsection 18(12) of the Act.
[17] With respect to the remaining expenses of telephone, auto and supplies, supplies being the major expense, the Appellant has presented no evidence whatsoever in support of these amounts, other than his oral testimony. As I have already indicated, there are no journals, no ledgers, no suppliers' names, no banking records, no financial statements, no cancelled cheques, nothing has been submitted in support.
[18] Section 230 of the Act requires a taxpayer to keep books and records. How else in a self-assessment system is the government to assess properly and not arbitrarily? Mr. Quaidoo has the onus of proving the Minister's assumptions and consequently his assessment is wrong. He is the only one in a position to do so. There may be exceptional situations where the only proof is verbal and a highly credible taxpayer may satisfy Canada Customs and Revenue Agency or this Court as to the proper expenditures. The Federal Court of Appeal put it this way in Njenga[5] at paragraphs 3 and 4:
The income tax system is based on self monitoring. As a public policy matter the burden of proof of deductions and claims properly rests with the taxpayer. The Tax Court Judge held that persons such as the Appellant must maintain and have available detailed information and documentation in support of the claims they make. We agree with that finding. Ms. Njenga as the taxpayer is responsible for documenting her own personal affairs in a reasonable manner. Self-written receipts and assertion without proof are not sufficient.
The problem of insufficient documentation is further compounded by the fact that the trial judge, who is the assessor of credibility, found the applicant to be lacking in this regard.
[19] While I accept Mr. Quaidoo's position that he entered upon a commercial venture, his lack of record keeping, the oddity of invoices as receipts, his vagueness as to exactly what goods were acquired and how, his vagueness as to the nature of the business as a proprietorship or partnership, and if the latter with whom, leaves me unable to rely solely on his oral testimony as to his expenditures. If a taxpayer is going to incur significant expenses with a hope of earning a profit, he must be diligent in accounting for those expenditures. He cannot expect the government to guess. The system would fall apart.
[20] This has unfortunately been an expensive lesson for Mr. Quaidoo, but he has simply been unable to prove that his expenses exceeded his income. Without that proof his appeal must be dismissed.
Signed at Ottawa, Canada, this 24th day of September, 2003.
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"Campbell J. Miller" |
Miller J.
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CITATION: |
2003TCC677 |
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COURT FILE NO.: |
2003-807(IT)I |
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STYLE OF CAUSE: |
Frank Quaidoo and Her Majesty the Queen |
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PLACE OF HEARING |
Edmonton, Alberta |
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DATE OF HEARING |
August 21, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice Campbell J. Miller |
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DATE OF JUDGMENT |
September 8, 2003 |
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APPEARANCES: |
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Agent for the Appellant: |
Charles Rubayiza |
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Counsel for the Respondent: |
Galina M. Bining |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
N/A |
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Firm: |
N/A |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |