Anderson v. R. - TCC: Taxpayer allowed $23,418 in additional business expenses
http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/143952/index.do
Anderson v. The Queen (April 29, 2016 – 2016 TCC 106, Smith J.).
Précis: Mr. Anderson operated a part-time business selling coffee products. He claimed business expenses of $74,917 in 2011 of which the Minister disallowed $31,854. He also claimed US $15,000 as a fee paid to an American consultant. The Tax Court allowed Mr. Anderson an additional $20,418 in travel expenses and an additional $3,000 in meals and entertainment expense. There was no award of costs as this was an informal procedure appeal.
Decision: The Court allowed Mr. Anderson the disputed travel expenses:
[48] The Minister disallowed $20,418. Her position was not that receipts had not been provided to substantiate the amount claimed, but that they had difficulty identifying who had accompanied him, their relationship with the Appellant and the purpose of the trip. A trip to Orlando raised concerns that it was a personal expense. Apart from the receipts, there were no business records.
[49] It is important to note that a list of the destinations and individuals targeted was later provided to the CRA Auditor. One trip was to the head office of Organo Gold in Richmond BC while another was to the US headquarters situated in Las Vegas, Nevada. Several other trips were made to other US destinations to meet potential prospects.
[50] The Appellant explained that the trip to Orlando was to attend a sales conference and that there was no personal component. I accept his testimony on this point.
[51] On the basis of the Appellant’s testimony, the nature of his enterprise and the authorities cited above, I am not prepared to second guess his decision to incur those expenses. There is an obvious connection to the source of income, and while the amount is substantial, I am unable to conclude that it was unreasonable in the circumstances for the purposes of section 67 of the Act.
[52] As a result, I would allow the travel expenses as claimed.
It also allowed an additional $3,000 for travel expenses:
[39] The Appellant claimed meals and entertainment expenses of $7,717 (50% of a total of $15,434). As indicated above, the Minister relied on paragraph 67.1(1)(b) of the Act to allow only $2,000 (50% of $4,000):
67.1 (1) – Expenses for food, etc. - Subject to subsection (1.1), for the purposes of this Act, other than sections 62, 63, 118.01 and 118.2, an amount paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment is deemed to be 50 per cent of the lesser of
(a) the amount actually paid or payable in respect thereof, and
(b) an amount in respect thereof that would be reasonable in the circumstances.
[40] The Minister’s position was not that receipts had not been provided but that they were delivered in bulk without any notation as to who accompanied the taxpayer or the purpose of the meal. According to the auditor, some of the receipts were illegible. Some were for meals taken by one person late at night. Some of the expenses seemed to be a personal nature. A mileage log or register was not provided.
…
[45] On balance, I find that a certain portion of the subject expenses were incurred for the purpose of earning income from a business and conclude that the sum of $5,000 (50% of $10,000) would be “reasonable in the circumstances”.
[46] I reach this conclusion noting that, while a mileage log or register was not kept, the Appellant has at least provided receipts and the name of some of the individuals who travelled with him abroad to the destinations provided. Moreover, I do so noting that the statutory provision in question already reduces the total claim for meals and entertainment expenses by 50% to reflect personal consumption.
The Court was not however persuaded by the US $15,000 fee paid to a consultant:
[58] During the audit stage, the Appellant produced an additional invoice for $15,000 US dollars paid to a certain Jesus Soriano Consulting. He explained that Mr. Soriano was a celebrity figure in the multi-level marketing world, that he had achieved gross sales of “over $50 million with 10,000 sub-agents” (according to his Notice of Appeal) and that he wanted to recruit him as one of his sub-agents. He paid his travel expenses to the head office of Organo Gold in Richmond, BC to introduce him to the business organization and later met him in Chicago, Illinois.
[59] The Appellant explained that the monies paid to Mr. Soriano were intended to entice him into joining his sales team and as an advance on his future commissions. He disputed the Minister’s position that it was a loan or that it was unreasonable.
…
[62] However, the Minister has taken the position that the amount was unreasonable in relation to the source of income relying on section 67. Despite the Appellant’s explanation as to why the expense was incurred, I agree with the Minister’s assessment and, relying on the authorities, I find that “no reasonable business man would have contracted to pay that amount” (Gabco, supra), certainly not without a more detailed business agreement. There was no evidence of such an agreement.
[63] I will also add that there were a number of other concerns including possible duplication for consulting services in that the Appellant had already claimed and been granted $16,316 for consulting services. The absence of books and records means that the Court is unable to make a proper assessment.
Thus the appeal was allowed but only in respect of travel expenses and part of the meal and entertainment expenses claimed. There was no order as to costs since this was an informal procedure appeal.
Comment: Note that there is a typographical error in the judgment on the Tax Court web site. The total expenses allowed should read $66,481 not $64,142.