Bart Mindszenthy v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 2648

Bowman, T.C.C.J. (orally):—I shall render my judgment in this matter. This appeal from an assessment for the appellant's 1988 taxation year has to do with the inclusion in his income as a benefit under subsection 6(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") the cost of a Rolex watch given to him by the president of the corporation of which he was employed as executive vice-president.

Mr. Mindszenthy at the time of the trial was a partner in the public relations firm of Mindszenthy & Roberts. Prior to his founding that firm, he worked for the public relations company Beloff Group Inc. for the period from February, 1988 to January, 1991 as executive vice-president. The president and controlling shareholder of the company was Mr. Barry Beloff. He had come to know Mr. Beloff about a year prior to joining the company and a time when he, Mr. Mindszenthy, was in charge of public relations for C.I.L. He and Mr. Beloff became friends and Mr. Beloff persuaded him to join the Beloff Group where he was in charge of managing employees and reviewing and preparing proposals and presentations in the field of public relations.

I accept Mr. Mindszenthy's testimony that he and Mr. Beloff were good friends, at least initially, and that this good relationship existed in June of 1988 when he was given the watch that is the subject of this appeal. Subsequently the relationship deteriorated and Mr. Mindszenthy left the Beloff Group in January 1991 for a number of reasons having to do with Mr. Beloff's management style and business practices of which the appellant disapproved.

The circumstances in which the gift of the watch was made were as follows: Mr. Mindszenthy was about to go to Ottawa to make a presentation to the Department of External Affairs. For this purpose he bought as a prop an imitation Rolex watch for $40. Mr. Beloff became aware of this and at a time when Mr. Mindszenthy was visiting him in his home, Mr. Beloff presented him with a genuine gold Rolex watch, which he purchased from European Jewellery for $3929. At Mr. Beloff’s suggestion, Mr. Mindszenthy had the watch engraved with his initials and the date. As a subsequent audit of the Beloff Group disclosed, the watch had been paid for by the Beloff Group and the cost had been deducted in computing the Beloff Group's income.

Mr. Mindszenthy struck me as a credible and forthright witness and I have no hesitation in accepting his testimony that he believed that the watch was a personal gift from Mr. Beloff, that he did not know that the company had paid for it and that he was unaware that his acceptance of it might have tax consequences. This is not, however, in my view determinative of the issue.

The audit of the Beloff Group appears to have been fairly extensive and with a number of items involved. It seems to me clear that in the resolution of all of the issues there was a certain amount of give and take and, I suspect, tradeoffs were made. One of the items was the watch given to the appellant. Mr. Beloff in a letter to the auditor Mr. Joe confirmed the agreement reached between Mr. Joe and the Beloff Group's accountant, Mr. Cass, that the cost of the watch would be deducted in computing the company's income and would be included in Mr. Mindszenthy's income as a taxable benefit.

I do not place any weight on this acceptance by Mr. Beloff of the method of disposing of the issue. It was made in the context of a negotiated resolution of a number of issues, and at a time when the relations between the appellant and Mr. Beloff had started to deteriorate. More importantly, it certainly could not bind the appellant. It also appears from the notes of Mr. Joe, the auditor, that were adduced through his superior, Mr. Muir, that when Mr. Joe met with Mr. Mindszenthy and discussed with him the proposal to include the cost of the watch in his income, the appellant"concurred" in the proposed treatment. I am not prepared to place any weight on this concurrence. The "concurrence" referred to in Mr. Joe's notes was merely his interpretation of what he conceived to be his acquiescence in the proposed assessing action.

Mr. Joe was not called as a witness and could not be cross-examined on his notes. There is in the notes of even the most conscientious of assessors too much chance of misinterpretation of what a taxpayer says to justify giving them too much weight, particularly if the assessor is not called as a witness. In any event, even if Mr. Mindszenthy did concur or acquiesce in the proposed assessment, he is not bound by that acquiescence. There was no consideration given for it and no estoppel arises. The taxpayer has the statutory right of objection and appeal.

In Cohen v. The Queen, [1980] C.T.C. 318, 80 D.T.C. 6250, the Federal Court of Appeal held the Minister was not bound by an agreement entered into with the taxpayer. If the Minister is not bound by such an agreement, it follows as a matter of law that the taxpayer cannot be. The decision in Cohen is not readily reconcilable, I might add, with that of the Supreme Court of Canada in Smerchanski v. M.N.R., [1977] 2 S.C.R. 23, [1976] C.T.C. 488, 76 D.T.C. 6247.

I found it necessary to deal at some length with these matters, but in the final analysis they do not affect my decision. The question is whether the gift of the watch to Mr. Mindszenthy by the president of the Beloff Group was a gift to him in his capacity of employee of the Beloff Group, or in his capacity of a personal friend of Mr. Beloff and having nothing to do with his employment. If I had found it to be the latter, I would have agreed with Mr. Baksh's suggestion that this was really a benefit conferred on the appellant at the direction of Mr. Beloff giving rise to a taxable benefit in Mr. Beloff's hands and not in the appellant’s under subsection 56(2) of the Income Tax Act.

I do not think, however, that the evidence supports that conclusion. Mr. Mindszenthy was a senior employee of the Beloff Group. He had been with the company for five months when the gift was made and had known Mr. Beloff for a year more than that. I find it extremely difficult to accept that Mr. Beloff would have made a personal gift to him of this magnitude had he not been an employee, nor do I think he would have given him such a gift had he not been employed by his company.

Mr. Beloff was not called as a witness, but I'm reasonably certain that he would not have assisted the appellant. To do so would have been inconsistent with his own position as expressed in the settlement letter to the Department. Moreover, he and the appellant apparently are not on the best of terms. Accordingly, I can well understand why Mr. Beloff was not called.

That having been said, however, we have no evidence of the way in which the donor regarded the gift; either as a personal gift from one friend to another, or a gift from the president of the company to a valued senior employee. Where it is contended, as it is here, that a gift made to an employee by the president of a company is not given to him in his capacity of an employee but rather qua personal friend, it would require fairly cogent evidence to that effect. The intention of the donor would be an important factor and we have no evidence of that at all.

The event which seemed to trigger the gift was Mr. Mindszenthy's intention to use a cheap imitation watch as a prop in a presentation. Mr. Beloff seemed to believe that this was inappropriate, and I do not place much weight on this fact, but at least it supports the respondent's position that the gift arose out of an event that formed part of the appellant's duties as an employee.

As noted in The Queen v. Savage, [1983] 2 S.C.R. 428, [1983] C.T.C. 393, 83 D.T.C. 5409, paragraph 6(1)(a) is of extreme breadth. It speaks of benefits received or enjoyed by a taxpayer in the year "in respect of, in the course of, or by virtue of an office or employment”. It would require much stronger evidence than we have here for a taxpayer to escape the wide net that paragraph 6(1)(a) casts. I might add that I have considerable sympathy for the appellant. He accepted the gift in good faith without being aware of the tax consequences. Had he known that it carried a tax burden, he might have refused to accept it. Instead of being a clear benefit, it gave rise to a liability and, as an economic matter, it forced him to pay in taxes a great deal more than he would have paid for a watch in the first place. He was, to some degree, the victim of an unasked for and perhaps unwanted generosity by Mr. Beloff, who was quite prepared at a later date to abandon him. This consideration, however, cannot affect my decision.

I should conclude by observing that the case was presented by Mr. Baksh with consummate skill and professionalism. He brought out every possible factor in the appellant's favour. Unfortunately I am unable to assist the appellant and I must, with extreme reluctance, dismiss the appeal.

The appeal is therefore dismissed.

Appeal dismissed.