Sher v. The Queen, 80 DTC 6095, [1980] CTC 168 (FCTD)

Grant, DJ:—This is an appeal from the decision of the Tax Review Board dated April 21, 1978, whereby the plaintiff’s appeals from the reassessment of his income tax returns by the Minister of National Revenue for the years 1971 and 1972 were disallowed. By agreement between the parties the evidence before this Court consisted of that given by the appellant before the Board and the exhibits filed. I agree with the decision of the Board but wish to add further reasons as to why the reassessments by the Minister should be confirmed.

In addition to the fact that the plaintiff was unable to produce vouchers for any of the disbursements disallowed by the Minister, he acknowledged that he had never kept any account thereof and so could not give par ticulars thereof. He described them as belonging to organizations, lunches, tabs, tickets, theatres, cab fares, fishing trips. At page 37 line 1 he said the amounts were just an estimate. At page 12 line 28 he explained that “since 1971 and 72 his accountant had straightened him out on a few things’’ by saying that “charge everything, have credit cards”.

The assumption that I make from such testimony is that he had no intention at the time of such alleged payments, of charging them as expenses incurred in earning his income and that whatever such disbursements were, they were not outlays or expenses incurred for such purpose.

The appellant was described as a freelance stock salesman and also as a sales representative and customers man. At page 43 he told the Board he was both a security salesman and a stock broker. He described the difference between a stock broker and a security salesman by stating that the former “owns a Seat, has more capital” and further on “I would think that the president (of Grant Johnston) and the top people that had stock would consider themselves a stock broker”.

While associated with the brokerage firm of Grant Johnston he was obliged to put all sales or purchasers for his clients through this firm. I understand a freelance salesman to be one who is under no such obligation to any stock brokerage firm. Mr Sher’s association with such brokerage firm, particularly after he purchased the $40,500 of stock in the company involved much more than bringing the business of his clients to the firm. Extracts of his evidence in regard to his duties there indicate, at page 10 line 20 “I was responsible to all the salesmen, they looked up to me if they ever wanted anything done specially”. Page 43 line 8—“I occupied those dual roles (stock salesman and a stock broker). I did a lot of the administrative work in the office”.

He stayed at the office until 6 or 7, if he had to because of the responsibility. He had to check the records to make sure everything went out right. At page 44 line 17 he had to make sure the accounts were in good shape under margin accounts. He attended the board meetings in Montreal. He was a signing officer of the company at page 16 line 16 “He was sort of looking after the Toronto office, when the head office was in Montreal”. He was Supplied with a desk, a secretary and use of telephone facilities and long distance calls. He was paid by the Grant Johnston brokerage firm on the basis of 40% of the commissions that such company realized from his clients.

I am convinced from such testimony that he occupied a much greater position with the company than that of a free lance salesman. His description of his position with and responsibilities to the company indicate that his investment of $40,500 stock therein amounted to a purchase of a share in such business. It is true, as he says, that such venture promised him more earnings and a greater insight into the business but it made him also a shareholder in the company. While he did not realize any dividends on the stock he was entitled thereto if any were earned and declared.

His investment amounted to a payment on account of capital which became a capital loss when he sold the shares for one dollar. Paragraph 18(1)(b) of the Act prevents it being treated as a deduction from income.

The appeals therefore in respect of both the year 1971 and 1972 should be dismissed with costs payable by the appellant plaintiff to the defendant respondent.