http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/143286/index.do
Kandasamy v. The Queen (April 1, 2016 – 2016 TCC 78, Woods J.).
Précis: The taxpayer operated a cleaning business as a sole practitioner from 2009 to 2011. CRA denied most of the expenses claimed from the business in 2010 and 2011 and Mr. Kandasamy appealed to the Tax Court. The Court found that Mr. Kandasamy had failed to meet the onus on him to rebut the assumptions pleaded by the Crown. However in the case of expenses which CRA had treated as capital items and allowed capital cost allowance the Court found that the issue was not clearly pleaded by the Crown. As a result Mr. Kandasamy was entitled to deductions of $5,000 in 2010 and $2,400 in 2011 which CRA had treated as capital items. There was no order as to costs.
Decision: The facts were not complex:
[4] Mr. Kandasamy operated a cleaning business in the Toronto area from 2009 to 2011. He testified that he had plans to expand but the business never became profitable and it was discontinued near the end of 2011.
[5] The business charged cleaning fees of approximately $60 for a “basic clean” and up to $300 for a “deep clean.” Mr. Kandasamy did the work himself, and mainly on weekends.
[6] In the reassessments at issue, the Minister:
- accepted the gross revenues as reported by Mr. Kandasamy - $3,458 in 2010 and $7,251 in 2011; and
- reduced deductions claimed for business expenses - in 2010 from $32,792 to $7,723, and in 2011 from $32,552 to $7,740.
[7] At the hearing, Mr. Kandasamy provided receipts to support part of the deductions claimed. He explained that he did not have all of them because the other receipts were with an ex-girlfriend who had done the bookkeeping for the business.
On the whole the Court found that Mr. Kandasamy had not discharged the onus of demolishing the assumptions pleaded by the Crown:
[14] In an appeal of an income tax assessment in this Court, the taxpayer has the initial burden of proof to overcome the assumptions pled by the Minister. The burden is to make a prima facie case. The assumptions in this case can be found at paragraph 9 of the Minister’s Reply to the Notice of Appeal.
[15] Overall, I find that the evidence in support of the appeal is very weak and that the burden of proof has not been satisfied.
However the Court found that in the case of expenditures treated by CRA as being on capital account the Crown’s pleading was insufficient:
[17] The matter relates to purchases of equipment, totalling $5,000 in 2010 and $2,400 in 2011 (Ex. R-3). The Minister treated the purchases as on capital account and allowed capital cost allowance instead of a full deduction.
[18] The problem that the Crown has is that this issue was not clearly raised in the Reply. There are no assumptions with respect to the capital issue, and the term “capital” does not appear in the Reply. The only reference to this issue is to a paragraph number in the Income Tax Act, paragraph 18(1)(b).
[19] A reference to a section number in the Income Tax Act is not sufficient notice to Mr. Kandasamy that the Crown intends to raise this as an issue. Accordingly, adjustments should be made to the reassessments to reverse the capital treatment.
Thus the appeal was allowed only to the extent of the capital items of $5,000 in 2010 and $2,400 in 2011. There was no order as to costs.