Date: 20021107
Docket: 2002-1024-IT-I,
2002-1037-IT-I
BETWEEN:
KEVIN P. BOYLE,
ELI L. FLUTER,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Bowie J.
[1] Mr. Boyle and Mr. Fluter appeal from reassessments for income tax for their taxation years 1997 and 1998. Each of them was reassessed under section 15 of the Income Tax Act (the Act) to include in his income amounts which the Minister of National Revenue considered to be shareholder benefits conferred on them by Roberts Properties Inc. (Roberts). These amounts, the Minister says, were personal expenses of the Appellants which they expended and then recovered from the company under the guise of business expenses that they had paid. The facts, while not exactly identical, are essentially the same in each case, and so both Appellants and counsel for the Respondent agreed that they should be heard together on common evidence.
[2] The amounts added to the Appellants' incomes are:
1997 1998
Mr. Boyle $3,558.70 $855.50
Mr. Fluter $3,888.93 $984.51
The form which these alleged benefits took consists, according to the assumptions pleaded by the Respondent, of two items. One is meals eaten by the Appellants at lunch time, paid for by them in cash, and then reimbursed by the company. The other is amounts paid to them by the company to reimburse them for business use of their personally owned vehicles in respect of local business travel, which I take to mean travel by automobile in and near the City of Regina, where Roberts carries on the business of real estate development and management. In each case, and for each year, the amounts that the Minister has treated as shareholder benefits consist of all the meals for which the Appellants paid by cash and were reimbursed, and one-half of the local business travel which they claimed from the company on a monthly basis, and for which they were reimbursed. The amounts are:
|
Mr. Boyle |
1997 |
1998 |
|
|
|
|
|
Cash Meals ½ Local Travel
Total |
1,729.76 1,828.94
3,558.70 |
481.31 374.19
855.50 |
|
Mr. Fluter
Cash Meals ½ Local Travel
Total |
1,906.87 1,982.06
3,888.93 |
490.65 493.86
984.51 |
[3] The Minister's assumptions of fact on which the assessments are based occupy seven pages in each Reply. They are substantially identical, except for the specific amounts making up the benefits assessed, which of course vary somewhat. Many of the 44 specific assumptions are of little real significance. However, as the Minister called no evidence, I think it is important to set out in full the significant assumptions pleaded. I shall omit those that I consider superfluous. Those that follow are from the Reply in the appeals of Mr. Boyle, but I have included in subparagraphs 12(p), (q), (bb) and (cc) the amounts claimed as set out in the Replies for each of the Appellants:
12. In so assessing the Appellant, the Minister made the following assumptions of fact:
...
(b) at all relevant times the Appellant was a shareholder of the Corporation;
(c) at all relevant times Eli Fluter was a shareholder of the Corporation;
...
(h) at all material times the Appellant submitted "monthly" expense claims to the Corporation (referred to as the "monthly" expense claims);
(i) the Appellant is a member of the YMCA;
(j) at all material times the Appellant regularly worked out at the YMCA during his lunch break;
(k) the purpose of the visits to the YMCA was for the Appellant's physical fitness;
Meals Expense
(l) between April 1, 1996 and March 31, 1998, the Corporation paid and recorded it its books and records "Advertising and Promotion Expenses" totalling at least $45,506 calculated as follows:
April 1, 1996 to March 31, 1997 29,516
April 1, 1997 to March 31, 1998 15,990
Total 45,506
(m) at all material times the Appellant had a Corporate credit card and charged a number of meals to that card;
(n) the amounts the Corporation paid and recorded in its books and records as "Advertising and Promotion Expense" included the amounts the Appellant had charged on the Corporation's credit card for business meals;
(o) the amounts the Corporation paid and recorded in its books and records as "Advertising and Promotion Expense" also included the amounts the Appellant had claimed on his "monthly" expense claims as cash paid for meals;
(p) the following amounts were claimed on the Appellant's "monthly" expense claims for the 1997 taxation year as cash paid for meals:
|
Kevin P. Boyle |
Eli L. Fluter
|
||
|
Date |
Amount |
Date |
Amount
|
|
February 3, 1997 |
140.19 |
January 2, 1997 |
149.53 |
|
March 3, 1997 |
144.86 |
January 2, 1997 |
163.55 |
|
April 4, 1997 |
145.65 |
February 3, 1997 |
163.55 |
|
May 6, 1997 |
140.19 |
March 3, 1997 |
154.21 |
|
June 2, 1997 |
168.22 |
April 4, 1997 |
164.44 |
|
July 30, 1997 |
182.24 |
May 6, 1997 |
137.38 |
|
July 8, 1997 |
184.11 |
June 2, 1997 |
154.21 |
|
September 6, 1997 |
144.86 |
July 2, 1997 |
163.55 |
|
October 2, 1997 |
163.55 |
July 31, 1997 |
172.90 |
|
November 3, 1997 |
158.88 |
September 2, 1997 |
141.50 |
|
December 2, 1997 |
157.01 |
October 2, 1997 November 3, 1997 December 2, 1997 |
141.12 63.55 137.38
|
|
Total |
1,729.76 |
Total |
1,906.87 |
(q) the following amounts were claimed on the Appellant's "monthly" expense claims for January 1, 1998 to March 31, 1998, as cash paid for meals:
|
Kevin P. Boyle |
Eli L. Fluter
|
||
|
Date |
Amount |
Date |
Amount |
|
|
|
|
|
|
January 6, 1998 |
163.55 |
January 6, 1998 |
163.55 |
|
January 28, 1998 |
177.57 |
January 28, 1998 |
163.55 |
|
February 28, 1998 |
140.19 |
March 3, 1998 |
163.55
|
|
Total |
481.31 |
Total |
490.65 |
(r) the Appellant did not provide vouchers or receipts to the Corporation to support the amounts he claimed on his "monthly" expense claims for January 1, 1997 to March 31, 1998, as cash paid for meals, nor did he identify who, if anyone, was entertained;
(s) the Appellant estimated the amounts he claimed on the "monthly" expense claims for January 1, 1997 to March 31, 1998, as cash paid for meals, as he did not obtain and/or retain receipts for the amounts paid;
(t) the majority of amounts the Appellant claimed on the "monthly" expense claims for January 1, 1997 to March 31, 1998, as cash paid for meals related to expenses the Appellant incurred at the YMCA;
(u) the amounts totalling $1,729.76 (Fluter - $1,906.87) that the Appellant claimed as cash paid for meals on his "monthly" expense claims for the 1997 taxation year, and which were paid by the Corporation, were personal and living expenses of the Appellant;
(v) the amounts totalling $481.31 (Fluter - $490.65) that the Appellant claimed as cash paid for meals on his "monthly" expense claims for January 1, 1998 to March 31, 1998 and which were paid by the Corporation, were personal and living expenses of the Appellant;
Automobiles Expenses and Parking
(w) between April 1, 1996 and March 31, 1998, the Corporation paid and recorded in its books and records "Travel Expenses" totalling at least $40,648, calculated as follows:
April 1, 1996 to March 31, 1997 20,535
April 1, 1997 to March 31, 1998 20,113
Total 40,648
(x) the Appellant used his personal vehicle for his personal use and enjoyment and in the course of the Corporation's business;
(y) the Appellant did not keep a record of the business and personal use of his vehicle;
(z) on his "monthly" expenses claims for January 1, 1997 to March 31, 1998 the Appellant claimed amounts:
(i) for travel to and parking at distant locations; and
(ii) for local travel and parking
(aa) on the "monthly" expense claims for the 1997 taxation year the Appellant claimed $3,657.88 (Fluter - $3,964.22), which was calculated as follows, for local travel and parking:
Mr. Boyle
|
Date
|
Kilometres driven |
Estimated operating costs |
Estimated parking
|
Total |
|
Feb. 3, 1997 |
900 |
294.39 |
44.86 |
339.25 |
|
March 3, 1997 |
925 |
302.57 |
28.04 |
330.61 |
|
April 4, 1997 |
945 |
309.11 |
42.06 |
351.17 |
|
May 6, 1997 |
985 |
322.20 |
37.38 |
359.58 |
|
June 2, 1997 |
1,020 |
333.64 |
37.38 |
371.02 |
|
July 30, 1997 |
1,015 |
275.09 |
37.37 |
312.46 |
|
July 8, 1997 |
1,100 |
298.13 |
37.38 |
335.51 |
|
Sept. 6, 1997 |
950 |
257.48 |
57.94 |
315.42 |
|
Oct. 2, 1997 |
1,015 |
275.09 |
54.20 |
329.29 |
|
Nov. 3, 1997 |
1,060 |
287.29 |
50.47 |
337.76 |
|
Dec. 2, 1997 |
890 |
241.21 |
34.58 |
275.79
|
|
Total* |
10,805 |
3,196.20 |
461.66 |
3,657.86 |
*difference due to rounding
Mr. Fluter
|
Date
|
Kilometres driven |
Estimated operating costs |
Estimated parking
|
Total |
|
Jan. 2, 1997 |
900 |
277.57 |
42.06 |
319.63 |
|
Jan. 2, 1997 |
890 |
274.49 |
32.71 |
307.20 |
|
Feb. 3, 1997 |
950 |
310.75 |
34.58 |
345.33 |
|
Mar. 3, 1997 |
800 |
261.68 |
31.78 |
293.46 |
|
April 4, 1997 |
775 |
253.50 |
34.58 |
288.08 |
|
May 6, 1997 |
915 |
299.30 |
42.06 |
341.36 |
|
June 2, 1997 |
975 |
318.93 |
32.71 |
351.64 |
|
July 2, 1997 |
750 |
203.27 |
33.64 |
236.91 |
|
July 31, 1997 |
890 |
241.21 |
43.93 |
285.14 |
|
Sept. 2, 1997 |
975 |
264.25 |
51.40 |
315.65 |
|
Oct. 2, 1997 |
935 |
253.41 |
44.86 |
298.27 |
|
Nov. 3, 1997 |
850 |
230.37 |
42.06 |
272.43 |
|
Dec. 2, 1997 |
975 |
264.25 |
44.86 |
309.11 |
|
|
|
|
|
|
|
Total* |
11,580 |
3,452.98 |
511.23 |
3,964.21 |
*difference due to rounding
(bb) on the "monthly" expense claims for January 1, 1998 to March 31, 1998, the Appellant claimed $748.37 (Fluter - $987.71), which was calculated as follows, for local travel and parking:
Mr. Boyle
|
Date |
Kilometres driven |
Estimated operating costs |
Estimated parking
|
Total |
|
Jan. 6, 1998 |
530 |
143.64 |
0.00 |
143.64 |
|
Jan. 28, 1998 |
725 |
237.15 |
35.57 |
272.72 |
|
Feb. 28, 1998 |
915 |
299.30 |
32.71 |
332.01 |
|
|
|
|
|
|
|
Total |
2,170 |
680.09 |
68.28 |
748.37 |
Mr. Fluter
|
Date |
Kilometres driven |
Estimated operating costs |
Estimated parking
|
Total |
|
Jan. 6, 1998 |
925 |
250.70 |
49.53 |
300.23 |
|
Jan. 28, 1998 |
975 |
318.93 |
41.12 |
360.05 |
|
Mar. 3, 1998 |
925 |
302.57 |
24.86 |
327.43 |
|
|
|
|
|
|
|
Total |
2,825 |
872.20 |
115.51 |
987.71 |
(cc) the Appellant did not provide vouchers or receipts to the Corporation to support the amounts he claimed on his "monthly" expense claims for January 1, 1997 to March 31, 1998, for local travel and parking;
(dd) the Appellant estimated the amount that he claimed for parking on his "monthly" expense claims for January 1, 1997 to March 31, 1998;
(ee) the Appellant estimated the number of kilometres he claimed as local business travel on his "monthly" expense claims for January 1, 1997 to March 31, 1998;
(ff) the Appellant estimated the amount that he claimed for operating costs of his vehicle on his "monthly" expense claims for January 1, 1997 to March 31, 1998 by multiplying the estimated kilometres by a specified rate per kilometre;
...
(ll) the amounts claimed for local travel and parking on the "monthly" expense claims for January 1, 1997 to March 31, 1998, included travel from the Appellant's home to the Corporation's place of business and travel from the Corporation's place of business to the Appellant's home;
(mm) the amounts claimed by the Appellant for local travel and parking on the "monthly" expenses for January 1, 1997 to March 31, 1998, included parking at the YMCA while the Appellant was at the facility exercising and eating lunch;
...
(pp) at least 50% of the amount claimed and paid for operating costs and parking were the personal and living expenses of the Appellant;
(qq) at least $1,828.94 (Fluter - $1,982.06) of the amounts the Appellant claimed for local travel and parking on his "monthly" expense claims for the 1997 taxation year, and which were paid by the Corporation, were personal or living expenses of the Appellant or a person related to him; and
(rr) at least $374.19 (Fluter - $493.86) of the amounts the Appellant claimed for local travel and parking on his "monthly" expense claims for January 1, 1998 to March 31, 1998 and which were paid by the Corporation, were personal or living expenses of the Appellant or a person related to him.
[4] Mr. Fluter was the only witness. He testified that the Appellants are, as he put it, equal partners in their business. They both enjoy and are committed to a healthy lifestyle, and as part of this they belong to the YMCA, and they go there practically every weekday at noon. They work out and jog, then they eat lunch at the YMCA cafeteria. Those lunches costs about $6 to $10, and no receipts are available. The cash register, he said, did not even produce a tape. Although it is only two or three blocks from their office to the YMCA, they go there by car, and for each trip they have to put $1 or $2 in a parking meter. They both also use their private automobiles to visit the many real estate projects that they are developing in the Regina area, and, less frequently, their rental properties. Mr. Fluter has three vehicles, one of which he says is used almost entirely for business, which I understood to include commuting from home to office. He said that he did not include his commuting mileage in that which he submitted to the company for reimbursement, however.
[5] Mr. Fluter also testified that he and Mr. Boyle did not maintain logs of their local mileage for which they claimed reimbursement. His rather curious explanation was that they had maintained such logs in the past, and their claims of business mileage had been accepted by the Minister without question, and so they discontinued keeping the logs. The logic of this escapes me. In any event, the Appellants were not able to establish the mileage driven for business, otherwise than by their estimates made on a monthly basis and submitted for reimbursement. As they each own 50% of the shares of Roberts, it is reasonable to assume that their claims were accepted and paid without question.
[6] The Appellants' claims to be reimbursed for the meals that they ate at the YMCA, and the associated mileage and parking costs, is based upon their assertion that they conducted a significant amount of business during their lunch time sojourns there. Mr. Fluter stated in his evidence that they had frequent business meetings there, sometimes at the lunch counter, and sometimes while exercising or jogging. He explained that Regina has a small business community in which everyone knows everyone else and their business, so that the formalities of appointments and privacy can easily be dispensed with. In this context, they apparently viewed their visits to the YMCA to be business activities, and the amounts they paid for their lunches, and any lunches they bought for others, to be legitimate business expenses of their company. Both Appellants asserted during the hearing that, although the amounts of tax in issue are small, they felt strongly that they should, as a matter of principle, contest the assessments, because they consider them to be unwarranted and unfair. I agree with their view that the principle involved is an important one, and that these assessments must be reviewed strictly according to the law and the facts, even though they may consider the amounts involved to be picayune, at least in the context of their declared six digit incomes, or the corporation's total annual expenses for meals, entertainment and travel.
[7] I have no doubt that the dominant purpose of the Appellants' visits to the YMCA was recreation and not business. No doubt they had casual conversations from time to time regarding matters related to their business. They may even, as Mr. Fluter testified, have arranged some encounters there in advance. However, I do not believe that there was a predominant, or even significant, business purpose to these visits; Mr. Fluter's evidence as to that is simply not credible. I find that the Appellants monthly claims to be reimbursed were simply their way of taking a small but steady income, in the form of the payment of minor personal expenses, without the burden of taxation.
[8] I turn now to the amounts that the Appellants received from the company for their local vehicle use, which includes driving the three blocks to the YMCA and feeding the parking meters there. The Appellants were wise to keep the logs of mileage that they once did. They were unwise to discontinue that practice. The Respondent did not contest the Appellants' right to be reimbursed for their legitimate business mileage without attracting tax under section 15 of the Act. However, without any logs the Appellants simply could not establish with any reasonable degree of certainty what the extent of that mileage in fact was. Certainly Mr. Fluter's oral evidence fell far short of doing so. The Minister reassessed the Appellants on the assumption that 50% of the mileage for which they were paid was legitimate business mileage. The evidence does not persuade me otherwise.
[9] The appeals are dismissed.
Signed at Ottawa, Canada, this 7th day of November, 2002.
|
"E.A. Bowie" |
J.T.C.C.
COURT FILE NO.: 2002-1024(IT)I and 2002-1037(IT)I
STYLE OF CAUSE: Kevin P. Boyle and Eli L. Fluter and
Her Majesty the Queen
PLACE OF HEARING: Regina, Saskatchewan
DATE OF HEARING: October 24, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge E.A. Bowie
DATE OF JUDGMENT: November 7, 2002
APPEARANCES:
For the Appellants: The Appellant themselves
Counsel for the Respondent: Anne Jinnouchi
COUNSEL OF RECORD:
For the Appellant:
Name: --
Firm: --
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-1024(IT)I
BETWEEN:
KEVIN P. BOYLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Eli L. Fluter (2002-1037(IT)I), on October 24, 2002, at Regina, Saskatchewan, by
the Honourable Judge E.A. Bowie
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Anne Jinnouchi
JUDGMENT
The appeals from the assessments of tax made under the Income Tax Act for the 1997 and 1998 taxation years are dismissed.
Signed at Ottawa, Canada, this 7th day of November, 2002.
|
"E.A. Bowie" |
J.T.C.C.
2002-1037(IT)I
BETWEEN:
ELI L. FLUTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Kevin P. Boyle (2002-1024(IT)I), on October 24, 2002, at Regina, Saskatchewan, by
the Honourable Judge E.A. Bowie
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Anne Jinnouchi
JUDGMENT
The appeals from the assessments of tax made under the Income Tax Act for the 1997 and 1998 taxation years are dismissed.
Signed at Ottawa, Canada, this 7th day of November, 2002.
|
"E.A. Bowie" |
J.T.C.C.