Blott v. R. – TCC: Salary paid to spouse not deductible

Blott v. R. – TCC:  Salary paid to spouse not deductible

Blott v. The Queen (January 2, 2018 – 2018 TCC 1, C. Miller J.).

Précis:    The taxpayer was a market dealer with Walton Capital Management Inc.  During each of the 2012 and 2013 taxation years he claimed a deduction of $12,000 for a salary paid to his spouse.  CRA denied the deduction and the taxpayer appealed to the Tax Court.  The Tax Court dismissed his appeal on the basis that there was insufficient evidence to substantiate that the payments to his spouse were deductible expenses.  There was no order as to costs since this was an informal procedure appeal.

Decision:   This was a case marked by very bad documentation of the claimed expense.  In the first place the evidence of actual payment was slim:

[11]         Turning to the first issue, I note that both provisions require an amount be expended or paid, under paragraph 8(1)(f) of the Act for the purpose of earning income and under subparagraph 8(1)(i)(ii) of the Act for salary for an assistant. So, was $12,000 paid or expended by Mr. Blott? There are no cheques to Ms. Thériault. Mr. Blott’s income went into the joint account and Ms. Thériault could simply access it. Is there any amount paid to Ms. Thériault in such circumstances? I conclude there is not. Granted, Ms. Thériault, as a joint holder of the account, could withdraw whatever she wanted, well in excess of $12,000 a year for that matter. Indeed, either she or Mr. Blott could withdraw everything from the account. In these circumstances, I do not see how anything has been paid or expended to Ms. Thériault. She has received nothing more than what she already had. Mr. Blott referred me to the case of Aprile v HMTQ in which an employment expense deduction was allowed on the basis that “payment” could be made in kind (snowmobiles and motorcycles). This is not the situation before me. It was not suggested anything was paid in kind; indeed, nothing was paid at all. All that happened was that Mr. Blott, at year end, in filing his return, claimed $12,000 as a salary expense in his earning of employment income. It is not lost on me that the “payment” was buried under “office equipment” in the reporting of his income. While I do not blame Mr. Blott for that, as the return was prepared by his accountant, it raises the spectre of some concern regarding this alleged expense.

[Footnote omitted]

In addition, the evidence of actual duties of employment was also meagre:

[14]         Further, even if I found an amount was paid, it must have been paid for salary or for the purpose of producing income. The former requires a finding of an employer/employee relationship. Again, Mr. Blott has not satisfied me on this score. Ms. Thériault did not testify to elaborate on any of the duties Mr. Blott described. There were no set hours, but she worked, according to Mr. Blott, on an as needed basis. He could provide no evidence of her efforts other than the general observation he would not have earned so much without her help. This is simply too vague to support a working employment relationship. No, I conclude no amount was paid as salary for an assistant.

While the Court was not unsympathetic to Mr. Blott’s position it found its hands were tied:

[19]         Mr. Blott was a straightforward witness. He has paid significant amounts in taxes to the government. The amount he sought to deduct was minimal in comparison to his earnings. It is not difficult to appreciate his concern with the government’s denial and now my dismissal of his Appeals. He did not act unreasonably, but he just did not provide sufficient evidence either of an implicit or explicit employment requirement to hire an assistant, of a positively completed T2200, of a real payment of salary or of evidence of work done for that salary. Failing all that, I must dismiss his Appeals.

Accordingly the appeal was dismissed.  There was no order as to costs since this was an informal procedure appeal.