Date: 20020904
Docket: 2000-3557-IT-G
BETWEEN:
WESLEY CHAMBERLIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Beaubier, J.T.C.C.
[1] This appeal pursuant to the General Procedure was heard at Regina, Saskatchewan on August 26, 2002. At the outset counsel for the parties agreed that judgment should issue in favour of the Appellant and that this matter is referred to the Minister of National Revenue for reconsideration and reassessment to allow the Appellant to deduct the following amounts as additional business expenses for the years hereafter described:
|
1995 |
$23,984.59 |
|
1996 |
$ 9,626.00 |
|
1997 |
$49,470.49 |
That is so adjudged.
[2] In addition, at the conclusion of evidence, the Appellant moved that his Notice of Appeal be amended respecting his 1997 taxation year to allow him to claim the following amounts as losses for 1997:
1. Misappropriated by Iona Chamberlin, $137,968.85
2. Double-entered by the Appellant's chartered accountant, $10,664.84
The amending motion was granted.
[3] The double-entry by the chartered accountant was established in evidence by Darren Schaan, C.A.; and that error is referred to the Minister of National Revenue for reconsideration and reassessment accordingly respecting the $10,664.84 which was reported twice.
[4] The hearing respecting the Appellant's claim for a loss in 1997 of $137,968.85 proceeded. The Appellant called Jacqueline Ferraton, the lawyer for Iona Chamberlin respecting her divorce from the Appellant; Darren Schaan, C.A., the Appellant's chartered accountant; and the Appellant.
[5] At all material times the Appellant was a farmer in the district of Raymore, Saskatchewan. In 1974 he started Chamberlin Transport, a trucking firm. It always remained his sole proprietorship and he registered "Chamberlin Transport" ("CT") as a trade name. CT expanded to become a long distance heavy hauler with seven drivers and various semi-trailers and tractors. It was operating at that level in 1997.
[6] In 1983 the Appellant, who was born in 1943, met Iona. They married in 1985. They lived in a house in Raymore out of which the farm and CT were operated. In 1988 Iona became CT's office manager, did its accounting, did its bank deposits and by 1997 she also had cheque signing authority and paid its bills and did its collections. Wesley operated the physical aspects of CT's trucking business. Iona was paid $500 per week by CT, which she simply withdrew from its cash or its bank account.
[7] Iona filed for divorce from Wesley three times:
January, 1996;
August, 1997; and
October 22, 1997.
She proceeded with the last one.
[8] Wesley had two bank accounts. The main one, respecting which Iona also had signing authority, was at the Bank of Montreal in Wynyard, Saskatchewan. It received the great majority of CT and farm account deposits. It also had a line of credit for $200,000. Wesley's smaller account (out of which the household was operated) was at the Credit Union in Raymore.
[9] On October 27, 1997 Wesley and one of his sons opened a new bank account into which Wesley deposited some of his farm grain cheques. This account was preparatory to Wesley and his sons beginning a Case Implements farm equipment dealership "West Central Sales Incorporated".
[10] In December, 1997 Iona was in Moose Jaw. Wesley changed the locks on the house in Raymore and notified Iona of this. Within 2.5 hours Iona was back in the house. On January 1, 1998 Iona obtained a court order which jailed Wesley and took possession of the house. Without Wesley's authority she notified CT's debtors that they were to pay CT's accounts to Iona's lawyer, Jacqueline Ferraton in Wynyard. Iona deposited over $38,000 of CT cheques into the Ferraton trust account on December 30, 1997 (Exhibit A-1) and deposits of CT cheques to the Ferraton trust account continued until March 16, 1998, inclusive, for a total of $164,010.89.
[11] Although Exhibit A-1 does not balance respecting these figures, Ms. Ferraton testified that Iona received the net sum of $122,968.85 from her trust account and the only source of these funds which is in evidence is the CT monies. In addition Iona withdrew from CT's operating loan the sum of $15,000, without Wesley's authority, on December 17, 1997 and deposited the $15,000 to her own account.
[12] Wesley testified that all of the funds placed in the Ferraton trust account came from 1997 invoices because after Iona's actions respecting the receivables, CT's hauling business was effectively destroyed. However the evidence is that the collections of CT's accounts receivable by Iona continued until March 16, 1998. Thus CT remained in business at least until March 16, 1998.
[13] Wesley testifed that, while CT showed profits, that money always seemed to go back into CT's business for equipment or other purposes. Thus, all of CT's income was used for the business. Moreover Exhibit A-1, prepared by Ms. Ferraton from her law firm's records, confirms her testimony that some of the CT funds she received in her trust account were used to pay wages, the Receiver General, and other CT business accounts.
[14] The CT cheques which Iona deposited in Ms. Ferraton's trust account were CT's funds used for the purpose of carrying on its business. The last cheques paid from that account for CT wages and for CT's deductions to the Receiver General were issued on March 12, 1998 (Exhibit A-1).
[15] Thus Iona took the cheques totalling $164,010.89 while she was dealing with them as part of CT's business activities and not by the exercise of overriding power or control outside those activities altogether. The nature of her activities in CT's business affairs gave her the access to do this in the course of her employment and while collecting CT's receivables in the course of its profit-making business which continued into March of 1998.
[16] Moreover, the $15,000 was withdrawn by Iona from CT's line of credit on December 17, 1997. That was a business line of credit and the $15,000 exhausted CT's entire $200,000 line of credit. The only basis upon which Iona could draw that down was in the course of CT's business which was ongoing at that time. Thus Iona wrongfully withdrew it for the ostensible purpose of enabling CT to gain or produce income and then deposited it to her own personal account.
[17] In the foregoing circumstances, the Appellant is entitled to an expense deduction for the total sum of $137,968.85 misappropriated and converted by Iona Chamberlin since it was an expense incurred for the purpose of producing income from Chamberlin Transport and those funds thereby reduced the profit reportable by the Appellant.
[18] The appeals are allowed and these matters are referred to the Minister of National Revenue for reconsideration and reassessment pursuant to these Reasons. The Appellant is awarded party and party costs. However the Appellant is only awarded costs at the hearing for one counsel.
Signed at Saskatoon, Saskatchewan, this 4th day of September, 2002.
|
"D. W. Beaubier" |
J.T.C.C.COURT FILE NO.: 2000-3557(IT)G
STYLE OF CAUSE: Wesley Chamberlin v. The Queen
PLACE OF HEARING: Regina, Saskatchewan
DATE OF HEARING: August 26, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge D. W. Beaubier
DATE OF JUDGMENT: September 4, 2002
APPEARANCES:
Counsel for the Appellant: E. F. Anthony Merchant and J. D. Roberts
Counsel for the Respondent: Angela Evans
COUNSEL OF RECORD:
For the Appellant:
Name: E. F. Anthony Merchant
Firm: Merchant Law Group
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-3557(IT)G
BETWEEN:
WESLEY CHAMBERLIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on August 26, 2002 at Regina, Saskatchewan, by
the Honourable Judge D. W. Beaubier
Appearances
Counsel for the Appellant: E. F. Anthony Merchant
and J. D. Roberts
Counsel for the Respondent: Angela Evans
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1995, 1996 and 1997 taxation years are allowed and the matters are referred to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Saskatoon, Saskatchewan, this 4th day of September, 2002.
|
"D. W. Beaubier" |
J.T.C.C.