Byers v. The Queen

Byers v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2003-12-19 Neutral citation 2003 TCC 914 File numbers 2001-2535(IT)G Judges and Taxing Officers David W. Beaubier Subjects Income Tax Act Decision Content Docket: 2001-2535(IT)G BETWEEN: AL BYERS, Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeal heard on November 24, 2003 at Nanaimo, British Columbia Before: The Honourable Justice D.W. Beaubier Appearances: For the Appellant: The Appellant himself Counsel for the Respondent: Eric Douglas ____________________________________________________________________ JUDGMENT The appeals from the reassessments made under the Income Tax Act for the 1996, 1997 and 1998 taxation years are allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment. The Respondent is awarded party-and-party costs in this appeal. Signed at Saskatoon, Canada, this 19th day of December 2003. "D.W. Beaubier" Beaubier, J. Citation: 2003TCC914 Date: 20031219 Docket: 2001-2535(IT)G BETWEEN: AL BYERS, Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ REASONS FOR JUDGMENT Beaubier, J. [1] This appeal pursuant to the General Procedure was heard at Nanaimo, British Columbia on November 24, 2003. The Appellant testified and called Charles Young, a teacher who had crewed on the Appellant's Yacht; Alan MacSween a Master Mariner who inspected the boat in 2000 and 2001 upon the application of the Appellant to certify it for carrying passengers for charter purposes; and Sigfried Rogge, a former Dock Master at Stone's Marina in Nanaimo where the Yacht had been docked. The Respondent did not call any witnesses. [2] Paragraphs 3 to 12 a) and 13 of the Respondent's Amended Reply dated October 5, 2001 read: 3. He admits that the Appellant operated a charter boat activity from a sail boat. 4. He admits that the Minister of National Revenue (the "Minister") denied a majority of expenses claimed by the Appellant on the basis of a ratio of days of charter trips in a year over total days in a year but denies that this method was unfair. 5. He denies all other allegations of fact set out in the Notice of Appeal and puts the Appellant to the strict proof thereof. 6. The Minister initially assessed the Appellant for the 1996, 1997 and 1998 taxation years by Notices dated 7 April 1997, 15 April 1998 and 25 March 1999. 7. In computing income for the 1996, 1997 and 1998 taxation years the Appellant deducted the amounts of $28,228.00, $36,818.00 and $37,529.00 as business expenses. 8. By Notices dated 4 May 2000, the Minister reassessed the Appellant for the 1996, 1997 and 1998 taxation years to disallow expenses in the amounts of $25,921.00, $33,470.00 and $33,270.00 and impose gross negligence penalties in respect of each of those years. 9. By Notice filed 1 August 2000, the Appellant Objected to the Minister's reassessments. 10. By Notices dated 6 April 2001, the Minister further reassessed the Appellant to allow additional expenses in the amounts of $749.00 and $558.00 over and above the amounts previously allowed in the 1997 and 1998 taxation years respectively, and to delete the gross negligence penalties in respect of the 1996, 1997 and 1998 taxation years. 11. In so reassessing the Appellant, the Minister relied on the following assumptions: a) at all material times the Appellant was engaged in full-time employment as a high school principal; b) the Appellant is a long time avid sailor; c) in 1991 the Appellant purchased a 51 foot 1981 Cooper Yachts Motorsailer named the Windshadow X for $168,000.00 (the "Yacht"); d) the Appellant purchased the Yacht primarily for personal use and refurbished the Yacht in anticipation of his retirement; e) the Appellant has resided on the Yacht full-time since its purchase and maintains no other residence; f) there are three staterooms on the Yacht, one of which is permanently assigned to the Appellant for his use; g) since the date of its purchase, the Appellant has reported business losses relating to the charter of the Yacht (the "Activity") for the years and in the amounts set out in Schedule A to this Reply; h) in the 1996, 1997 and 1998 taxation years, the Appellant reported revenue and expenses in respect of the Activity as detailed in Schedule B to this Reply; i) during the 1996, 1997 and 1998 taxation years, the Appellant carried out five to six charters each year for a total of 24 days, 37 days and 31 days respectively; j) for the 1996, 1997 and 1998 taxation years, the Appellant reported personal use of the Yacht as amounting to 19%, 19% and 6% respectively; k) revenue reported for the 1998 taxation year included $2,400 which represented the Appellant's payment to himself for personal use of the Yacht; l) the actual personal portion of expenses relating to the Yacht was not less than 93%, 90% and 91.5% in the 1996, 1997 and 1998 taxation years respectively; m) the increase of the portion of personal use, as well as the disallowance of 100% personal expenses, expenses that were unsupported and expenses that were capital in nature (the "Disallowed Expenses") reveals that the Appellant in fact made profits from the Activity in the amounts of $8,693.75, $17,903.28, and $12,696.45 in the 1996, 1997 and 1998 taxation years respectively, as detailed in Schedule C to this Reply; n) the Appellant claimed certain amounts of fuel, moorage and meal expenses during months when the Yacht was not chartered; o) some of the expenses reported as repair and maintenance were actually related to the upgrading and refurbishing of the Yacht and were not in the ordinary course of maintenance required to maintain a boat for charter; p) a marine survey completed on 25 March 1998 comments on the extensiveness and quality of upgrades to the Yacht and appraises the Yacht at a fair market value of $280,000; q) in an effort to maintain the pristine condition of his residence, the Yacht, the Appellant was selective about who he chartered it to; r) in the 1996, 1997 and 1998 taxation years, the Appellant's customers were primarily identical in each year or were associated with a bi-annual trans-Pacific Yacht race known as the Vic-Maui Race; s) the Appellant carried out limited advertising for the Activity and did not have a white pages or yellow pages telephone listing for the Activity; t) food was not included in the price of the Appellant's charters and the Appellant did not provide food to any of his customers; u) the Appellant did not prepare a business plan prior to commencing the Activity and is not planning any changes to the Activity that would reduce expenses; and v) the Disallowed Expenses were not incurred for the purpose of gaining or producing income for a business or property, but were personal or living expenses of the Appellant, were not incurred or were capital in nature. B. ISSUES TO BE DECIDED 12. The issues are: a) whether expenses in excess of the amount allowed by the Minister were incurred by the Appellant for the purpose of gaining or producing income from a business or property; and ... C. STATUTORY PROVISIONS RELIED ON 13. He relies on sections 3 and 9, subsection 248(1) and paragraphs 18(1)(a), 18(1)(b), 18(1)(h) and 18(1)(l) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (the "Act"). [3] The Respondent specifically did not plead subsection 18(12). [4] Assumptions 6 a), b), c), e), f), g), h), i), j), k), m), n), o), p), q), r), s), t) and u) were not refuted by the evidence. But the Appellant was a vice-principal, not a principal, a); and when chartered, the Appellant did not use a state room if it was used by passengers, f). [5] With respect to the remaining assumptions: 6 d) is true. The Appellant lived on the Yacht permanently from when he bought it in 1991 until he sold it in about 2001. It was his personal residence, and was purchased for that purpose. (See Exhibit R-1). 6 l) is based on the actual time in which the Yacht was chartered as a percentage of the total days in each calendar year as a ratio of total expenses. The Appellant stated that fuel during charters varied from the norm as did insurance for charters. But he did not present alternate or comparable figures. 6 m) was admitted, but has since been varied slightly by the parties in Exhibit R-4. 6 q) was not refuted, but any landlord is highly selective of his tenants if he wishes to maintain his property in good condition at reasonable cost. This is part of the reason why the Court also believes that the Appellant's advertising practises were business-like; to obtain a quality customer, selective advertising is better than broadcast advertising. 6 r) is the question in dispute. [6] In his testimony, the Appellant did not acknowledge that living on the Yacht constituted personal use for pleasure. However the Court finds that it does so. The Appellant chose to sell his home in Whistler and to use the proceeds to buy the Yacht and reside on it. His loan application to buy the Yacht stated that the purpose of the purchase was so that he could reside on it. (Exhibit R-1). The Appellant pointed out that such a loan was for a lower rate of interest and could be obtained faster than a commercial loan. The Appellant must live with the purpose that he stated in Exhibit R-1, but, more importantly, the fact is that it was his residence from the time he bought it until the time that he sold it. [7] Respondent's counsel submitted J. Paul Fingold v. The Queen, 96 DTC 1305 as the basis upon which the Respondent assessed the Appellant. The Appellant's original claims of expenses are not accepted by the Court on the basis of the assumptions as already described. The Appellant objected to the method proposed by the Respondent, but did not present any alternative figures or detailed itemized explanation of the expenses in question upon which the Court could base an alternative calculation. In these circumstances, the Court finds that the percentages assessed by the Respondent are correct, based upon Sobier, J.'s reasoning in Fingold. The percentages of personal use are: 1996: 93% 1997: 90% 1998: 91.5% Accordingly the "personal allocation" submitted by the Respondent in Exhibit R-4 is confirmed by the Court for the purposes of this matter being remitted to the Minister of National Revenue for reconsideration and reassessment exactly as set out as to form in Exhibit R-4, with the appropriate insertions based upon this finding. [8] The adjustments in the Appellant's favour are minor and relate only to the accounting changes as reviewed in examination for discovery. In these circumstances, the Respondent is awarded party-and-party costs in this appeal. [9] At the opening of the hearing the Appellant advised that his address henceforth for the purposes of this appeal is: 10920 Chemainus Road Ladysmith, British Columbia V9G 1Z4 (added by the Court) E-mail: alanbyers@shaw.ca Telephone: (250) 245-5180 That is so ordered. Signed at Saskatoon, Canada, this 19th day of December 2003. "D.W. Beaubier" Beaubier, J. CITATION: 2003TCC914 COURT FILE NO.: 2001-2535(IT)G STYLE OF CAUSE: Al Byers v. The Queen PLACE OF HEARING: Nanimo, British Columbia DATE OF HEARING: November 24, 2003 REASONS FOR JUDGMENT BY: The Honourable Justice Beaubier DATE OF REASONS FOR JUDGMENT: December 19, 2003 APPEARANCES: For the Appellant: The Appellant himself Counsel for the Respondent: Eric Douglas COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada