Orest Halkowich v. Her Majesty the Queen, [1987] 2 CTC 20, 87 DTC 5280

Strayer, J.:— This is an appeal from a decision of the Tax Court of Canada with respect to the reassessment by the Minister of National Revenue of the plaintiff's 1978 income.

At the beginning of the hearing of the appeal, counsel for the plaintiff advised the Court that he was proceeding on only two of the three matters referred to in the statement of claim commencing this appeal. Both these matters related to the plaintiff's farm income for 1978: the amount received by the plaintiff as crop insurance and the amount received by him from the sale of cattle.

In both cases, the taxpayer's problem arose from the manner in which his 1978 income tax return had been prepared. It emerged from the evidence that this return was prepared by a female employee in the office of the taxpayer's counsel, Mr. Hawrish. In both cases, according to the taxpayer, his income had been overstated by the person preparing his return. His subsequent attempts to amend the return had been rejected by the Department of National Revenue, in whole or in part. The defendant takes no objection to the plaintiff's right to amend his return or the procedure by which this was attempted. The sole dispute is as to the amounts actually received by the plaintiff from these two sources in 1978.

With respect to the proceeds from crop insurance, the taxpayer in his original return for 1978 showed total receipts of $8,337.25. In his appeal, as amended at the hearing he asserted that the actual amount received was only $4,520.19. During the course of the hearing before me, this matter was settled by agreement of both counsel with the result that the correct amount of income received from crop insurance in 1978 was fixed at $4,956.35. The Minister will be directed to reassess accordingly.

With respect to income from livestock sold in 1978, the taxpayer in his original return reported total receipts from cattle sold as $20,163.38. Subsequently he has contended that the correct amount was $16,783.80. The Minister has insisted on maintaining the assessed income at the total originally stated in the 1978 return. This amount was reduced by $554.17 in the appeal to the Tax Court of Canada. The learned judge of the Tax Court on the basis of weigh scale ticket 56174 (Exhibit A-4 in the Tax Court of Canada, part of Exhibit P-1 in this Court) apparently concluded that the total amount shown on it, $554.17, had been added in error to the taxpayer's receipts from livestock sales when his return was prepared. He therefore reduced the total receipts from cattle sales by this amount.

According to the evidence before me, upon delivery of cattle at the stockyard of the Saskatchewan Wheat Pool Livestock Division, they would be unloaded, weighed, and then put in the sale ring. When the cattle were sold, a yellow weigh ticket would be completed showing, inter alia, the weight and price per hundredweight paid for the cattle. Such tickets would be sent immediately to the office where a white sales record slip would be prepared showing the gross amount received, the charges imposed by the Saskatchewan Wheat Pool Livestock Division as deducted therefrom, and the net amount owing to the vendor. A cheque for this amount would be issued, to which would be attached a copy of this white sales record and of the relevant yellow weigh scale tickets. According to the taxpayer, he would take these documents home and throw them in a box. When preparing his materials each year to take to Mr. Hawrish's office for preparation of his income tax return, he would sort through the documents in the box and would normally remove the yellow tickets since they would be duplicative of the white sales records. According to him some seven such yellow tickets must have been left with the material which was given to Mr. Hawrish's office for the preparation of the 1978 return. His only explanation for these tickets being among such material is that his parents must have put the tickets back with the other documents after he had sorted them out. Of these seven tickets, one, number 56174 (Exhibit A-4 in the Tax Court, part of Exhibit P-1 in this Court) has already been taken into account by the Tax Court and the total receipts for cattle have been reduced by the amount of that ticket, as noted above. The other six tickets were apparently not put before the Tax Court.

The remaining amount in dispute is $2,825.41, being the difference between the revenue from cattle sales as reduced by the Tax Court of Canada to $19,609.21, and the total sales as claimed now by the taxpayer, namely $16,783.80. I have concluded on the balance of probabilities that the taxpayer is right in his assertion that his income was overstated by this amount in his 1978 return as prepared in his lawyer's office and as signed by him. While the defendant, of course, need not prove its case, it has produced no evidence to refute the evidence of the plaintiff. That evidence is in my view substantiated to an important extent by the documents in evidence consisting of the white sales records (part of Exhibit P-1) and the six yellow weigh tickets (Exhibit P-6).

The net amounts paid to the taxpayer in respect of cattle sales covered by the white sales records total $16,783.80, the amount which he claims he actually received by the sale of cattle in 1978. The six yellow weigh scale tickets, when examined in relation to those sales records, appear to relate to certain of the sales already included in them. While the amounts shown on the yellow tickets for any of the relevant dates do not correspond with the total of sales recorded on the white slips for those dates, this is not surprising since there would usually be two or more yellow tickets in respect of each day's sales — the tickets being issued in respect of each lot of cattle as auctioned, with any given vendor's cattle being sold in possibly several lots. The totals on the yellow tickets and on the sales records are quite consistent with this: for each of the yellow tickets put in as evidence there is a corresponding sales record of the same date and the total sales shown on the sales records are in excess of the amounts shown on the yellow ticket or tickets for that day. That is, the yellow tickets could well be only one or two of several tickets issued on those particular days. Further, when the six yellow tickets are added up, they total $2,825.29 which is within 12 cents of equalling the excess amount by which the taxpayer claims his revenues were reported in his 1978 return. It is improbable that there could be such a coincidence and in my view the most reasonable explanation is that the person in Mr. Hawrish's office who completed the taxpayer's return erroneously added in the amounts shown on these six yellow tickets not realizing that the amounts covered by them were also already included in the white sales records. This is also consistent with the finding of the Tax Court with respect to the seventh yellow ticket: the learned judge of the Tax Court reduced the taxpayer's income by the amount shown on that ticket but apparently did not have the other six tickets before him.

While this situation shows negligence on the part of the person who prepared the tax return, and on the part of the plaintiff himself in signing the return without questioning the fact that his livestock sales had been inflated by about 25 per cent, nevertheless I am satisfied that such an error did occur and that therefore the taxpayer's 1978 income should be reassessed on the basis that his cattle sales did not exceed $16,783.80. He is entitled to costs.

Since preparing these reasons I have received from counsel for the plaintiff further argument in writing. No leave was given for the filing of such argument and under the circumstances I have ignored it.

Appeal allowed