Rogers v. R. – TCC: Taxpayer allowed limited expenses from car business – no unreported income

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Rogers v. The Queen (March 28, 2014 – 2014 TCC 101) was a decision involving alleged unreported business income in the amount of $3,200 in 2009 and disallowed expenses of a business of buying, repairing and selling motor vehicles. The Minister disallowed amounts paid by the taxpayer as salaries to her two sons as well as meal expenses for the sons.

[5] The appellant had claimed salary expenses for her two sons in the amounts of $5,500 in 2008 and $5,232 in 2009. The Minister allowed the amount of $1,200 as an expense in 2008, and disallowed the remaining amounts.

[6] The salary and disallowed meals expenses were disallowed on the basis they were not made for the purpose of gaining or producing income from a business under paragraph 18(1)(a), and were personal or living expenses of the appellant pursuant to paragraph 18(1)(h) of the Income Tax Act (the “Act”). The Meals expense of $292 was disallowed under section 67.1 of the Act.

The court concluded that the amount of $3,206 was deductible in 2008 representing the value of used automobiles given the sons in payment for their work in the business. The salary expense claimed in 2009 was disallowed as it was not documented (unlike the 2008 amounts). The court also found that the Minister was correct in only allowing 50% of the meal expenses claimed.

The court accepted the evidence of the taxpayer’s husband that the amount of $3,200 received in 2009 was proceeds of the sale of a vehicle owned by him, not unreported income of his wife’s business:

[37] I accept that the payment of $3,200 in 2009 belonged to Mr. Rogers, not the appellant.

[38] He testified that in July 2006 he had finished physiotherapy for an injury to his shoulder. He had purchased a 1978 Chevy truck (the “truck”) which cost him $3,700 including repairs. He was hired as courier but could not use the truck because the Workers Compensation Board would not allow him to do so.

In 2006, he transferred the truck and a 1991 Thunderbird (the “Thunderbird”) to the business and was given a promissory note by the business because it had no money. At some point those vehicles were transferred back to Mr. Rogers. This was corroborated by documentation, including a bill of sale and promissory note, tendered in evidence. In 2008 and 2009 he owned and operated both vehicles. He stated that the payment of $3,200 in 2009, relating to those vehicles, belonged to him, not the business. I find that the source of the $3,200 was with respect to the sale of the truck and the Thunderbird. I conclude that this was not unreported income of the appellant in 2009.

Accordingly the appeals for 2008 and 2009 were allowed in part.