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Citation: 2004TCC644
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Date: 20040923
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Docket: 2004-1206(IT)I
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BETWEEN:
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RADEK CHRABALOWSKI,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Bowman, A.C.J.
[1] These appeals are from assessments
for the appellant's 1999, 2000 and 2001 taxation years.
[2] The notice of appeal is not
edifying. It reads as follows:
Reason for the Appeal
NUMEROUS malicious actions of the Toronto West Tax Services
Office in Mississauga over the last several years towards myself
and my wife culminated in re-assessments of my 1999, 2000 and
2001 individuals Income Tax returns. Despite providing their
auditors with ALL original receipts, cancelled cheques and
invoices they disallowed - outright - ALL of my employment
expenses undeducted from my commission earnings, based on
unconfirmed statements from my previous employer (which I left on
NON-AMICABLE terms!).
[3] This case involves essentially a
claim by the appellant to deduct employment expenses which it is
alleged were incurred by him in the course of his employment as
an investment advisor. In 1999, 2000 up to
April 30, 2001, he worked as an investment advisor for
the investment dealer Edward D. Jones & Company
("Jones") for the remainder of 2000 for BMO Nesbitt Burns.
[4] The assessment for 1999 was
initially made on April 6, 2001, on the basis of T4 slips
issued to the appellant by Jones. Subsequently the appellant
filed a return for 1999 and was reassessed on
July 17, 2003. He was allowed a deduction of $2,753.00
for 1999.
[5] In his return of income for 1999
he claimed employment expenses of $39,660.72.
Exhibit R-2 is a statement of employment expenses
(T777E). It shows total expenses of $33,390.30 plus $4,084.63 for
automobile expenses. The copy which he gave to Ms. Lo, the
appeals assessor, contains a number of handwritten notes which
were probably not on the original. At all events, it is
impossible to reconcile these figures.
[6] The reply to the notice of appeal
sets out the amounts claimed for 2000 and 2001. The amounts
claimed for 1999 are blank because they were not available until
after the appellant filed his return. The figures in the reply
are:
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1999
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2000
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2001
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Employment income
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$31,339.00*
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$74,818.00*
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$53,767.00*
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Employment expenses
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Advertising &
promotion
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$20,699.72
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$18,670.05
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Food, beverages &
entertainment
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1,992.30
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2,393.80
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Lodging
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5,867.88
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529.40
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Motor vehicle
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5,428.07
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6,452.70
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Parking
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199.25
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306.25
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Supplies
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6,746.18
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3,522.93
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Other
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7,947.15
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8,723.00
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Legal
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1,200.00
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1,200.00
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Accounting & legal
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1,317.80
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____45.64
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Total claimed expenses
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$_____-_______
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$51,398.35______
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$41,843.77____
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* Includes commission income of
$Nil
$58,445.00
$53,523.00
[7] The amounts disallowed were:
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2000
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2001
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Advertising & promotion
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$20,699.72
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$17,170.05
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Food, beverages &
entertainment
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1,992.30
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1,893.80
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Lodging
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5,867.88
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529.40
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Motor vehicle
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2,844.96
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2,837.77
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Parking
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199.25
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206.25
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Supplies
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6,746.18
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3,322.93
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Other
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7,947.15
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8,623.00
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Legal
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1,200.00
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1,200.00
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Accounting & legal
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1,317.80
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45.64
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Total disallowed expenses
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$48,815.24
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$35,828.84
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[8] It boils down to this. I am sure
that there are probably buried in the expenses claimed amounts
that should be allowed, but I cannot determine what they are
because they are mixed in with so many unproved or implausible
claims.
[9] The appellant came into court with
a large box of receipts. They were grouped in bundles with adding
machine tapes attached. Contrary to the allegations that the
revenue authorities ignored his evidence or treated him unfairly,
I find that Ms. Lo, the appeals assessor who dealt with his
objection, made a serious and conscientious attempt to reconcile
his claims with the receipts and she gave him ample opportunity
to organize the receipts in an orderly and comprehensible way.
She cited a number of instances in which she attempted to
reconcile the amounts claimed under specific headings with the
receipts, but was unable to do so.
[10] As this court has said on a number of
occasions there is no requirement that vouchers or receipts be
provided for all expenditures claimed as deductions provided that
the expenditures are proved by other credible evidence. I do not
however think the appellant has passed even the very modest
threshold of proving his case that I consider appropriate. It is
worthwhile repeating what was said in Merchant v. The
Queen, 98 DTC 1734:
[7] Where a large number of documents, such as
invoices, have to be proved it is a waste of the court's time to
put them in evidence seriatim. The approach set out in
Wigmore on Evidence (3rd Ed.) Vol IV, at
s. 1230 commends itself:
s.1230(11): . . . Where a fact could be
ascertained only by the inspection of a large number of documents
made up of very numerous detailed statements - as, the net
balance resulting from a year's vouchers of a treasurer or a
year's accounts in a bank-ledger - it is obvious that it
would often be practically out of the question to apply the
present principle by requiring the production of the entire mass
of documents and entries to be perused by the jury or read aloud
to them. The convenience of trials demands that other evidence be
allowed to be offered, in the shape of the testimony of a
competent witness who has perused the entire mass and will state
summarily the net result. Such a practice is well-established to
be proper.
[8] This passage was cited with approval by
Wakeling, J.A. in Sunnyside Nursing Home v. Builders
Contract Management Ltd. et al., (1990) 75 S.R. 1 at
p. 24 (Sask. C.A.) and by MacPherson, J. in R. v.
Fichter, Kaufmann et al., 37 S.R. 128
(Sask. Q.B.) at
p. 129. I am in respectful agreement.
Some form of the method approved by Wigmore would have been
appropriate here.
[11] I shall take a few examples to
illustrate why I have serious doubts about accepting any of the
deductions claimed.
(a)
In 1999 the appellant claimed $23,633.46, for advertising and
promotion. This is precisely the amount shown on
Exhibit A-2 as the amounts paid on the appellant's
behalf by Jones and deducted from the income shown on the T4. A
similar policy prevailed in 2000 with Jones and BMO Nesbitt Burns
in 2001 although I cannot match up the figures as precisely. I am
not satisfied that the amounts that the appellant claimed for
advertising and promotion were not paid on his behalf by Jones
and BMO Nesbitt Burns and deducted from his employment income to
arrive at the net amount shown on the T4.
(b)
Included in the appellant's income for 2000 is the amount of
$5,571.92 as an employee benefit for a trip to Hawaii for the
appellant and his wife paid for by Jones. In his T777E form he
has deducted $5,738.00 as an expense under "lodging". As I
understand the appellant's evidence this includes the $5,571.92
taxed as a business expense plus some other amounts. The
appellant's explanation of the deduction is that the trip was
business related. Even if this were established, which it is not,
a taxable benefit paid for by an employer does not become a
business expense for the employee.
(c)
In 2000 and 2001, he paid his daughter (age 8 in 2000 and 9 in
2001), $7,000 and $7,400 as casual labour. He said she stuffed
envelopes. Nothing in his contract of employment requires him to
hire an assistant and in any event paying an 8 year old child
that sort of money strikes me, to put it mildly, as
overreaching.
The appellant testified that the Canada Customs and Revenue
Agency had assessed his daughter on this amount. Perhaps it
should not have, although it would not be surprising that the
CCRA would have done so if one filed a return. At all events this
does not make the amounts deductible by the appellant.
(d)
The appellant's automobile expenses are another problem. In the
years in question he apparently owned two automobiles, a Cavalier
and a Ventura. It is not entirely clear from the T777E forms, but
the unrebutted assumption is that his claim for automobile
expenses, including capital cost allowance, was based on
80 percent business use for the Cavalier and 20 percent
for the Ventura. The assessor allowed him 50 percent for the
Cavalier and zero for the Ventura.
The appeals assessor did not change the conclusion and I can
see no reason to do so either.
I say this for several reasons:
(i)
The majority of the appellant's contacts with clients are by
telephone.
(ii)
There is no evidence to support the view that the Cavalier was
used more than 50 percent for business use or that the
Ventura was used at all.
(iii)
The appellant kept no log book and his figures for mileage driven
were simply round figure estimates.
(e)
There is a claim for legal expenses but no details were given
with respect to the nature of the legal services rendered. The
appellant stated that he needed legal advice if a dissatisfied
client sued him for advising a bad investment. There is no
evidence that anyone ever did sue him and no bill from a lawyer
detailing the legal services was put in evidence.
(f)
The other expenses were, according to Ms. Lo, for such
things as groceries, liquor, cell phone, bus rides, campground
admittance and an unidentified gift certificate and the like. The
appellant said these were all incurred for business purposes and
I daresay there may have been a business element to some of them
but there appears on the face of the expenses so much that is
evidently personal that I cannot tell what portion may be
business related.
[12] One problem faced by an appellant in a
case of this sort is that if there is a series of excessive,
implausible or unreasonable claims it casts doubt on all of the
claims. In other words, once a pattern of implausibility or
excessiveness is established the court is inclined to scrutinize
with greater care claims that, standing alone, might be
sustainable. In other words, any gaps left in the evidence are
filled in, and any doubts resolved, in a manner that is
consistent with the pattern. I discussed this point in greater
detail in Orly Automobiles Inc. v. The Queen,
[2004] G.S.T.C. 57.
135 The fact that some aspects of a
witness' testimony are not satisfactory does not mean that the
testimony is to be rejected in its entirety. In a case such as
this, where the evidence is both complex and contradictory, the
trier of fact must endeavour to reach conclusions on the evidence
as a whole. This will involve, obviously, observation of the
demeanour of the witnesses and the plausibility or implausibility
of the testimony in light of other evidence. The witness,
madame Turcotte, spoke on a number of occasions of a
"pattern". To base findings of fact on a system or a pattern of
behaviour - a general modus operandi if you will - is
something that must be done with some care. First, there must be
convincing evidence that a pattern exists. Second, the Court must
be cautious about excessive use of the pattern simply as a means
of filling in lacunae in the evidence, although it may have a
limited function in this respect. Importantly the identification
and articulation of a pattern can be used as a touchstone against
which to test findings of fact. If they are consistent with a
pattern they are more likely to be veridical; conversely, one
should be skeptical of findings of fact that are inconsistent
with an overall pattern. I am, of course, not talking about
similar fact evidence in criminal law about which there is a
great deal of jurisprudence. The use of a pattern for the
somewhat limited purposes that I have indicated above as an aid,
in civil cases, to making or testing findings of fact is, I
think, appropriate provided one does not carry it too far. In
civil cases courts have used evidence of a system or scheme as
probative of a variety of matters, as discussed in Sopinka,
Lederman & Bryant, Evidence, Second Edition, pages
592-604.
[13] I do not think it is a particularly
onerous task for a person claiming employment expenses to keep a
record and separate receipts as well as a log book of automobile
expenses. That was not done and the evidence, even on the most
relaxed and liberal view, does not permit me to find in the
appellant's favour.
[14] The appeals are dismissed.
Signed at Ottawa, Canada, this 23rd day of
September 2004.
Bowman, A.C.J.
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