http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/144083/index.do
Cocos v. The Queen (May 5, 2016 – 2016 TCC 107, Lafleur J.).
Précis: Ms. Cocos operated an industrial chemical supply business of 9119-5594 Québec inc. (“Valsol”) from her home. CRA denied essentially all of the expenses claimed by Valsol in its 2006, 2007, 2008 and 2009 taxation years and treated the amounts as benefits to Ms. Cocos. CRA also imposed gross negligence penalties. Ms. Cocos appealed to the Tax Court. The Court allowed a limited amount of the deductions at issue but sustained the imposition of gross negligence penalties. There was no order as to costs since this was an informal procedure appeal.
Decision: CRA denied the deduction of certain payments by Valsol in connection with the business operated from Ms. Cocos’ home and treated them as benefits to her:
o. Valsol claimed the following expenses, which were disallowed following an audit of Valsol and confirmed on objection:
|
Vehicle expenses
|
$3,428
|
$5,443
|
$7,290
|
$9,354
|
|
Telephone and communications
|
$2,100
|
$2,125
|
$1,974
|
$2,837
|
|
Office expenses
|
$2,925
|
$2,381
|
$515
|
$1,832
|
|
Utilities
|
$1,059
|
$1,149
|
$1,131
|
$1,315
|
|
Business taxes, licenses and memberships
|
$1,709
|
$6,792
|
$5,499
|
$3,435
|
|
Repairs and maintenance
|
$1,579
|
$1,090
|
$401
|
$993
|
|
Rental expenses
|
$3,240
|
−
|
−
|
−
|
|
Travel expenses
|
−
|
$2,706
|
−
|
−
|
p. All of the amounts listed above, and which were disallowed to Valsol represent personal expenses of the Appellant which were paid for by Valsol;
The Tax Court reviewed the disputed expenses and concluded that CRA was wrong to deny any deductions for operating the corporation’s business. It held that a 35% allocation of home-use and communication expenses was reasonable and therefore allowed a limited amount of additional deductions (thereby reducing the income inclusion for Ms. Cocos):
[31] For all these reasons, the appeal is allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessments on the basis that the following expenses are deductible by 9119‑5594 Québec Inc. and shall be excluded from the appellant’s income:
|
Utilities
|
$370,65
|
$402.15
|
$395.85
|
$460.25
|
|
Business taxes, licenses and memberships
|
$598.15
|
$5,627.20
|
$1,924.65
|
$1,202.25
|
|
Telephone and communications
|
$735.00
|
$743.75
|
$690.90
|
$992.95
|
|
Vehicle expenses
|
−
|
$1,121.00
|
$1,252.00
|
$614.72
|
However the Court sustained the imposition of gross negligence penalties on the balance of the disputed deductions:
[29] The benefits received by the appellant from Valsol are substantial when compared to her declared income and the appellant deliberately omitted to include these benefits in her reported income. I can properly infer from the way books and records of Valsol were kept that the appellant knew or ought to have known that misrepresentations attributable to gross negligence were made in her tax returns with respect to the amounts disallowed by the Minister. Based on the tax returns filed by Valsol for the 2006, 2007, 2008 and 2009 taxation years, there was no entry in its balance sheet for amounts due to the shareholder.
[30] Therefore, the Minister has met the burden of establishing that subparagraph 152(4)(a)(i) and subsection 163(2) of the Act should apply, to justify the gross negligence penalties and the assessment of the appellant beyond the normal reassessment period.
As a result the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.