L.W. Holland v. Minister of National Revenue, [1989] 2 CTC 2057, 89 DTC 339

Couture, C.J.T.C.:—These appeals are in respect of the appellant's 1978 to 1982 taxation years inclusive. He acted on his own behalf.

The appellant is an investment dealer employed by Midland Doherty Ltd. (Midland) a well-known stockbroker. He worked for that company in Montreal from 1957 until 1968 when he was transferred to Toronto. After a subsequent transfer to London, England, he opened a maritime division in 1976 in Halifax and became its regional manager. During the years under review the appellant was also engaged in a number of business ventures of an investment nature including syndicates of Lloyds of England.

His gross commission earnings shown on his T4 slips from Midland for 1980 and 1981 are $242,700.96 and $290,221.15 respectively which are the only two taxation years that were in dispute at the hearing. In relation to the years 1978 to 1982 the appellant claimed a deduction for mortgage interest without stipulating any specific amount for each year. There being no evidence adduced in respect of these matters the appeals in this regard are dismissed.

In computing his income from Midland for the 1980 and 1981 taxation years, the appellant claimed expenses amounting to $10,781.59 and $6,000 respectively.

During the audit of his returns by officials of the respondent he claimed additional amounts of expenses of $6,207.71 for 1980 and $2,028.58 for 1981 on the ground that between the time he filed his returns and the audit he found additional receipts supporting these amounts.

The reply to the notice of appeal indicates that the following expenses were disallowed by the respondent in confirming the assessments:

The results of this is that to earn the substantial commission income he reported, the appellant was allowed expenses of $2,038.41 in 1980 and for 1981, while he claimed $8,028.58 the respondent disallowed $8,772 which exceeds the claimed deduction by $743.42.

Before dealing with the substantive issue relating to these appeals, I observe that the evidence adduced by the appellant could have been presented in a more orderly fashion considering that he had the burden of proving his claims. It is not the duty of the Court to screen a mass of vouchers filed in bulk, improperly sorted and presented in a manner not easily comprehended by the Court. Having said that, I add that the appellant impressed me as a businessman of integrity whose testimony in support of his claims I am quite prepared to accept.

With respect to the respondent, it was disclosed that three different officials dealt with these appeals prior to the confirmation of the assessments with the result that it was difficult for the Court to trace precisely the amounts that had been disallowed and, in some instances, the reasons for the disallowance.

As an example, the amount in the category “General” of $2,803.19 for 1980 previously referred to was part of a larger claim of $3,403. The respondent allowed $600 while the appellant produced receipts for only $570. The remainder was disallowed including a claim for $13.50 for flowers to a client even though he explained the purpose for which these moneys had been spent. The item "Sandhill" of $2,761.44, for the same taxation year was, according to the appellant, spent on a hunting trip to entertain clients. As the appellant produced receipts for only $461 the remainder of the deduction was disallowed because of missing vouchers. It having been accepted by the respondent that the appellant was on a hunting trip because a portion of the expenses were allowed, it appears to me to stand to reason that the remainder of the costs of that trip must have been incurred in some way. It should have been obvious that the costs of entertaining clients on a hunting trip must have been in excess of $471. The only question that had to be considered was whether the amount claimed by the appellant was reasonable in the circumstances since the Income Tax Act does not require that receipts be filed in support of an expense.

It strikes me as obvious that an individual who reports the amount and kind of income reported by the appellant does not earn it without expending a good deal of time and effort. He must reach clients, be in constant contact with them and undoubtedly entertain them on occasion in order to stimulate sales. That is commonly accepted in the business world and while it may not always be productive of income, it is done to earn income which is what the Act requires.

This kind of dispute should, in the absence of special circumstances, be disposed of at the notice of objection stage. This kind of litigation does not enhance the judicial process and adds nothing to the already plentiful jurisprudence on issues of this type. Also there is the matter of time and costs involved in litigation. I expect that with a little flexibility and reasonableness on the part of both parties, this appeal could have been settled.

I do not intend to analyse each and every item disallowed by the respondent, but I will deal with a few of them that require some explanation.

The first item that I regard as deserving of comment is the amount of $1,632.36 claimed for the 1980 taxation year with reference to an office in the appellant's home. I have already said that the appellant was involved in a number of business ventures of an investment nature. These were completely separate from his employment with Midland. This office was used by the appellant for his correspondence and other duties related to this phase of his business activities. I find the claim and its quantum reasonable and therefore deductible.

It was established in evidence that the amount of $2,612.13 under the reference "London" had already been allowed in the assessment as an expense related to his other business ventures and therefore it was conceded that it should be deleted from the aggregate amount claimed as a deduction.

The next item is the amount of $404.50 for the same taxation year under the reference “Halifax Club (meals)". It appeared from evidence adduced by a witness for the respondent, even though her method used to arrive at this amount left some doubt as to its accuracy, that included in the $404.50 were the cost of meals that were not incurred in connection with entertaining clients. I will therefore reduce the amount by $150.

For 1981, the amount of $1,930 under the caption “A. Moir” requires some explanation. The evidence is that an employee of Midland named Moir was transferred from the Vancouver office to the Halifax office. He moved there with his family. He was short of money and the appellant allowed him an advance of $1,000 a month on his guarantee for twelve months. In addition, unknown to Moir, he personally guaranteed a note in the amount of $3,000 that Moir had signed with the bank to assist him in buying a house. The appellant, as general manager of the maritime office, was receiving an overriding commission on all the sales completed by the sales persons including Moir. Moir left his employment and disappeared. He still owed $1,930 on his note to the bank and the appellant was called upon by the bank to pay this outstanding liability. The position of the appellant with regard to this claim is that in helping Moir to establish himself and his family in the area he would thereby secure his employment with the firm and improve his production out of which he was receiving a share of his earnings. In my view the guarantee of the note was for a legitimate business purpose and while it was voluntary it does not detract from the expense being one incurred for the purpose of earning income.

The appeals for 1978, 1979 and 1982 are dismissed. The appeal for the 1980 taxation year is allowed and the assessment is referred back to the respondent for reconsideration on the basis that the deduction of $12,188.26 out of the $14,950.89 be allowed in computing the appellant's income. The appeal for the 1981 taxation year is allowed.

The appellant is entitled to his costs on a party-party basis.

Appeals allowed in part.