Ann Caroline Morency v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 2458

Watson, D.J.T.C.C.:— This appeal was heard at Quebec City, Quebec, on February 11, 1993, under the informal procedure. It is an appeal from an assessment dated May 27, 1992 for the 1988 taxation year.

In assessing the appellant for the 1988 taxation year, the Minister of National Revenue (the "Minister") disallowed a deduction taken by the appellant for certain expenses totalling $7,499. The expenses disallowed were as follows:

In making this reassessment, the Minister assumed the following facts, inter alia:

(a) the expenses incurred by the appellant in excess of the amount allowed by the Minister were not incurred for the purpose of gaining or producing income from a business or property, but rather were the appellant’s personal or living expenses;

(b) the appellant operated a brokerage business in Lévis;

(c) the appellant did not file any documentation in support of the expenses claimed. She claimed that everything had been destroyed when there was a flood in her business premises, on or about October 21, 1988;

(d) the appellant then brought legal proceedings against the parties responsible for the damage. She claimed a total of $16,452.52 as damages for the following losses:

(i) Teaching equipment and material which had been made unusable:

	$	733.00
(ii) Destroyed investment course materials and conference
documents:	$14,731.52
(iii) Secretarial work:	$	988.00

(e) the appellant stated that as a result of these proceedings she received $11,000 in damages, including $2,000 paid to her lawyer;

(f) the appellant did not refer to any loss of or damage to her computer in these legal proceedings. In fact, the appellant has never provided evidence that she owned a computer. If the equipment in fact existed and belonged to the appellant, then it was capital property and the cost could not be claimed as an expense;

(g) the appellant made no effort to obtain copies or duplicates of the supporting documents which were destroyed. The appellant claimed expenses for training courses, travelling and advertising expenses and entertainment expenses, and did not present any evidence or certification by third parties that such expenses were in fact incurred;

[Translation.]

At the hearing, the appellant admitted paragraphs (b) to (d) and denied paragraphs (a) and (e) to (g).

The issue is whether the expenses incurred by the appellant were personal or related to her business.

The appellant opened her brokerage business in the Quebec City area in August 1988. On October 21, 1988, there was a flooding in the basement office resulting in the destruction of all the pertinent receipts and documentation for the claimed expenses that were disallowed. When the appellant was unable to provide the missing receipts or replacements, all of the expenses were disallowed. On further review, Revenue Canada officials considered that it would be unfair to disallow all the expenses and arbitrarily allowed approximately half of the amounts claimed.

The evidence revealed that after the flood the appellant was unable to replace the lost receipts. At the hearing, the appellant produced various exhibits.

As evidence in support of the claimed expenses $1,575 for a “training course”, the appellant produced as Exhibit A-1 a letter from her brother, François Morency, dated January 22, 1993 which reads as follows:

Dear Ann,

At your request, and for confirmation to the tax authorities, this is to confirm that in 1988 I was the secretary of the Canadian Association of Financial Planners and that Ann Morency and two of her colleagues participated in the following activities of the association:

Three people:	Financial planning course at
	$435 per person	$1,305
Two sets of eight tickets for business
luncheons at $110 per set		220
Total:		$1,525
I hope that this will be to your satisfaction.

Yours truly. . . .

[Translation.]

In the other exhibits, the appellant produced receipts for expenses for the years 1989 to 1991. The appellant received $8,000 as settlement of her claim for losses in the flood, including approximately $2,000 as legal fees.

The appellant in these kinds of appeals has the onus of establishing on a balance of probabilities that the Minister of National Revenue's assessment is ill founded in fact and in law; she was obliged to provide convincing evidence or supporting documents to justify the expenses claimed.

In the case of No. 220 v. M.N.R. (1955), 12 Tax A.B.C. 103, 55 D.T.C. 49, at page 109 (D.T.C. 52), the presiding member of the Income Tax Appeal Board said the following:

The onus of establishing the alleged incorrectness of an assessment lies on the appellant concerned. Considering the rather large amounts claimed as expenses in this appeal the appellant should have expected that he would be called upon to prove them with reasonable particularity and certainty. There has been no such proof or satisfactory evidence presented in this appeal.

In Pearson v. M.N.R. (1954), 9 Tax A.B.C. 353, 54 D.T.C. 12, at page 354 (D.T.C. 13), the Board stated:

After carefully considering the matter I have concluded that the appellant fared very well at the Minister's hands in having expenses in the amount of $2,347.08 allowed before appealing to the Board. I am quite unable to agree that he is entitled to further relief at the Board's direction. The absence of adequate receipts and vouchers in support of the appellant's claim must, I think, be viewed to the appellant’s disadvantage, the onus of proof resting with him. See Murray v. M.N.R., [1950] Ex. C.R. 110; [1950] C.T.C. 7. It is true that the appellant's sworn evidence, which impressed me, might be accepted as sufficient proof, but the Board should be furnished with the best evidence obtainable and ordinarily that consists of receipts and vouchers.

In the case of Baillargeon v. M.N.R., [1990] 2 C.T.C. 2472, 90 D.T.C. 1943 (T.C.C.), at page 2475 (D.T.C. 1945), Judge Lamarre Proulx of this Court stated as follows:

If the proportion of expenses claimed without vouchers was small, I could perhaps overlook the failure to produce some vouchers, on the assumption that they had been lost or that the taxpayer had occasionally forgotten to ask for receipts. But here the proportion is too large. Furthermore, the appellant's agent has not supplied any evidence with regard to the expenses claimed with vouchers that were rejected as inadequate. Section 230 of the Act requires that the taxpayer keep books of account so that the respondent may establish clearly the amount of tax payable. The taxpayer has not done so. Since he has not supplied the respondent with such reasonably required documents, the taxpayer is not entitled to claim the deductions. In this regard, see Holotnak v. M.N.R., [1987] 2 C.T.C. 217, 87 D.T.C. 5443 (F.C.T.D.), at pages 221-23 (D.T.C. 5446-47), upheld by the Federal Court of Appeal, [1990] 1 C.T.C. 13, 89 D.T.C. 5527.

Based on the inadequacy of evidence relating to the expenses in dispute, the Minister of National Revenue was correct in disallowing the expenses in dispute. In my view, the Minister of National Revenue was quite generous in respect to the expenses allowed.

The appeal is dismissed.

Appeal dismissed.