Josette Noël-Fortin, Riccardo Peiroio, Carl Corbeil, Antoine Xenopoulos, Fernand Fournier, Jean-Paul Sarradet, Richard Bergeron v. Minister of National Revenue, [1982] CTC 2543, 82 DTC 1516

Guy Tremblay [TRANSLATION]:—These cases were heard on common evidence at Quebec City, Quebec on October 14, 1981. They were taken under advisement on February 11, 1982 after counsel had submitted written arguments.

1. Issue

It is necessary to determine whether the sums taxed by the respondent as tips in the hands of the appellants were actually received by the appellants. Furthermore, it is necessary to determine whether the penalties imposed should be upheld. Finally, could the Board regard as taxable sums allegedly deducted by the respondent in computing the appellant’s income?

2. Burden of Proof

2.01 The appellants have the burden of showing that the respondent’s assessments are incorrect. This burden of proof results not from a single section of the Act but from several judicial decisions, including the judgment of the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 Moreover, this judgment lays down that the presumptions of fact relied on by the respondent in making the assessments are also presumed to be true.

The facts presumed by the respondent are contained in the replies to the appellants’ notices of appeal. All these facts are similar, except in the case of the appellant Josette Noël-Fortin. We reproduce here the presumptions of fact in respect of Mr Fernand Fournier (80-467). Only the amounts of salaries and tips differ from those of the other appellants. However, these amounts appear in paragraphs 3.03 and 3.09 of the facts:

4. In assessing the appellant for the 1976 and 1977 taxation years, the respondent, the Minister of National Revenue, relied, inter alia, on the following presumptions of fact:

(a) During the aforementioned taxation years the appellant worked as a waiter at the Hilton Hotel in Quebec City, which is the property of Hilton of Canada Ltd;

(b) The appellant’s work during the said years consisted in serving in the “Toit de Québec” bar in the Hilton Hotel:

(c) In his tax returns for the 1976 and 1977 taxation years the appellant reported salaries from his work at the Hilton Hotel of $6,367.95 and $6,246.50 respectively. He reported that his tips were nil in each of the said years;

(d) During the aforementioned years the appellant received substantial sums in tips, both for credit card sales and for cash sales;

(e) In respect of credit card sales by the appellant during 1976, the respondent determined the figure for the relevant tips on the basis of the cash records of the “Toit de Québec” bar;

(f) These records indicated the total sums received by the appellant from the cash register in the “Toit de Québec” bar at the end of each day of work in immediate payment of tips appearing on credit card invoices issued in his name;

(g) The respondent relied on the cash records in the “Toit de Québec” bar of the Hilton Hotel and not on the credit card sales invoices because these invoices were not available at the time of the audit. In doing so, the respondent assessed only tips from credit card sales that appeared in the records, and consequently failed to tax those tips resulting from credit card sales that were left in cash on the table;

(h) According to the entries in the cash record for the “Toit de Québec” bar,

the appellant received $7,362.28 in tips from credit card sales during 1976;

(i) With respect to cash sales by the appellant during 1976, the respondent determined the amount of tips from these on the basis of the cash invoices for 1976 bearing the appellant’s name from the “Toit de Québec” bar;

(j) To determine the figure for the appellant’s cash sales and generally to determine the cash sales for each waiter, the respondent deducted substantial sums from the cash sales at the Hilton Hotel in order to avoid any arbitrariness in his assessments; the respondent proceeded as follows:

(i) sales of $322,864 were ignored because the relevant invoices could not be found at the time of the audit;

(ii) invoices totalling $144,147 on which the waiter number was not indicated or was illegible were ignored;

(iii) invoices totalling $95,000 on which the numbers of two waiters appeared were ignored;

(iv) other invoices totalling $30,000 were ignored for various reasons;

(k) Cash invoices bearing the appellant’s number and relating to 1976 totalled $55,071.60;

(l) To the appellant’s cash sales figure of $55,071.60 the respondent applied a rate of 8.40%, thus determining the appellant’s total tips from cash sales for 1976 as $4,626.01;

(m) the said rate of 8.40% was obtained by first determining an average rate of tips on credit card sales for all waiters in the “Toit de Québec” bar, as they appeared in the cash records of the establishment, and applying the figure thus obtained to the total tips from credit card sales appearing in the establishment’s cash records:

Total credit card	Total tips on credit	Average rate of
sales of the	card sales in the	tips for the
establishment	establishment	establishment
(from cash records)	(from cash records)
“Toit de Québec” bar		13.40%

The rate of 13.40% thus obtained for credit card sales was itself reduced by 5 per cent in order to take account of two factors: first, the fact that tips given on cash sales are generally less than those given on credit card sales; second, the fact that waiters in an establishment differ in experience and skill, hence the necessity to obtain a minimum tip rate so as to reflect the percentage that would be received by a less experienced or skilled waiter; hence the rate of 8.40% mentioned in paragraph (1);

(n) the tips earned by the appellant during 1976 were not less than $11,988.29;

Tips received on credit card sales	$7,362.28
Tips received on cash sales	4,626.01
TOTAL (1976)	$11,988.29

(o) The figure of $11,988.29 thus obtained was itself reduced by $239.77 to take account of the practice at the Hilton Hotel, but not at all hotels, of distributing certain tips among bus boys. This reduction in the tips was made by the respondent following meetings between his officers and the representatives of the employees;

(p) The tips received by the appellant in his own right during 1976 were not less than $11,749;

(q) The amount of tips received by the appellant during 1977 was determined by the respondent to be the same as that for 1976, namely, $11,749, notwithstanding the inflation in the price of goods and services;

(r) The tips received by the appellant during 1977 were not less than $11,749.

5. In assessing the appellant for the 1976 and 1977 taxation years, the respondent was of the view that he had knowingly or under circumstances amounting to gross negligence made false statements or omissions in his tax returns for the said years and that the effect of these false statements or omissions was to reduce the tax payable by the appellant for these taxation years.

3. Facts

The facts are generally not in dispute. They are set out by counsel for the parties in their arguments. The Board has borrowed from these documents to a large extent.

3.01 During the period to which the assessments apply, all the appellants were employed at the Quebec City Hilton, 3 Place Québec, Quebec City.

All the appellants worked as waiters in the restaurants of the Quebec City Hilton with the exception of Josette Noël-Fortin, who was a bar waitress.

3.02 All the appellants, with the exception of Josette Noel-Fortin, worked during the period to which the assessments apply in the Toit de Quebec restaurant, while Miss Fortin worked in the Toit de Quebec bar; it should also be noted that Mr Xenopoulos worked during the 1976 taxation year in Le Villeray restaurant in the Quebec City Hilton, but was transferred in late 1976 to the Toit de Quebec restaurant.

3.03 The following is information concerning the returns and assessments of each appellant. It should be noted that only the “tips added” were subject to penalties:

3.04 In accordance with the established practice in the restaurant and hotel industry, and in particular the Quebec City Hilton, all the appellants were expected to and did pay to third parties twenty-five per cent of the tips received from customers. This amount may be broken down as follows: ten per cent to the maître d’hôtel, ten per cent to the bus boys and five per cent to the barman. The balance of seventy-five per cent was shares between two waiters. In the case of Josette Noël-Fortin, these figures were fifteen per cent to the barman and ten per cent to the barboy. Miss Fortin retained the balance for herself.

3.05 In his reply to the notice of appeal (with the exception of paragraph 4(o) (Fernand Fournier) )the respondent admitted that he had reduced the final amount of tips calculated by him in order to take into account the practice at the Hilton Hotel of sharing certain tips with bus boys.

3.06 It was submitted in evidence that the appellants other than Josette Noel-Fortin formed the basic staff of the Toit de Québec restaurant and that the waiters in the Toit de Québec restaurant always worked in teams of two. The same applied to the Le Villeray restaurant.

3.07 The testimony also showed that although these appellants worked in teams with other waiters, they were regularly responsible for preparing the bills themselves and for including therein their waiter number. This procedure was based on the appellants’ seniority in the employ of the Hilton. The testimony also made it possible to reconstruct the following periods during which the appellants prepared the bills themselves. The parties differed with respect to some of the figures, however.

In the written arguments counsel for the appellants finally accepted the respondent’s position.

3.08 In his testimony, Mr Fortier, the representative of the respondent, indicated that the assessments were made on the basis of the numbers of the bills and that each number corresponded to one of the appellants. The evidence also showed that the waiters in charge of preparing the bills, after receiving the tips corresponding to the bills prepared and paying out 25% of them, handed over one-half of the balance of the sums received as tips in order to reflect the fact that there were always two waiters to a bill.

3.09 The appellants contended that in view of the various factors involved, the taxable income of the appellants was as determined in the following table:

4. Act, Case Law, Analysis

4.01 Act

The principal provisions of the Income Tax Act involved in these cases are sections 3, 5 and subsection 163(2). They will be cited in the analysis where appropriate.

4.02 Case law

Counsel for the parties referred the Board to the following cases:

1. MNR v Pillsbury Holdings Ltd, [1964] CTC 294; 64 DTC 5184;

2. Bates v Lord Hailsham, [1972] 3 All ER 1019;

3. Anderson Logging Co v The King, [1917-27] CTC 198; 52 DTC 1209;

4. Harry Dezura v MNR, [1947] CTC 375; 3 DTC 1101;

5. Roberts v CIR, 49-2 USTC 639;

6. Mendelson v CIR, 62-2 USTC 85,560;

7. Anson v CIR, 64-1 USTC 91,710;

8. Cécile Cliche-Paquet v MNR, [1980] CTC 2331; 80 DTC 1282;

9. Cohan v CIR, [1930] CA 2; 39 F (2d) 540, 543, 544 (2 USTC 489);

10. Dauphin Plains Credit Union Ltd v Xyloid Industries Ltd & The Queen, [1980] 1 SCR 1182.

4.03 Analysis

A. Taxable tips

4.03.1 The preponderance of evidence shows that work was done in teams and that twenty-five per cent of the tips received was redistributed to various persons, although only one person received the tip (paras 3.04, 3.05, 3.06 and 3.07).

The Board is of the view that the person receiving the tip (whose employee number was entered on the bill) was merely a distribution agent and kept 37 /2 per cent for himself in the case of the waiters and 75 per cent in the case of Miss Fortin, the barmaid.

4.03.2 The Board is of the opinion that the attached table mentioned in paragraph 3.09 reflects the situation as it was described in the evidence, bearing in mind all the factors that had to be taken into consideration. The amounts in the last column are the amounts to be taxed in the hands of the appellants, unless the question of law raised by the respondent and discussed below changes this finding.

B. Offset defence

4.03.3 During the hearing of the evidence, counsel for the respondent attempted to set up what he called an “offset defence” (TS, p 258). The substance of this defence is based on the following facts: the accounts omitted by the respondent in computing the income of each appellant because of the system of sharing tips are largely counterbalanced by amounts not included by the respondent in income because he was not able to account for them. These sums are made up of thirty per cent of the cash bills (which were illegible) and cash tips left on the table following payment by means of a credit card. Such tips left on the table made up seventy-five per cent of credit card sales in 1976 and 1977.

To prove this point, a print-out (Exhibit I-3) gave a list of all meals taken during 1978 with the date and price of each. However, this document also mentioned meals costing $9,004.86, $693, $687.50, $528.99 and $506.88, for which the witness for the respondent could give no explanation.

This exhibit (I-3) concerned the appellant R Bergeron, who was taxed on the credit card sales. It was filed merely for purposes of comparison, so that the other appellants could be taxed for 1976 and 1977 by way of offset.

It was agreed that arguments concerning this question of offset, inter alia, should be submitted in writing.

4.03.4 Arguments concerning offset

Given the unusual nature and importance of this question of offset, the Board felt it would be useful to cite the arguments of the parties at length.

4.03.4.1 Argument of the appellants

In short, the respondent made his assessment on a particular basis, the details of which he explained to the appellant taxpayers. The appellant taxpayers proved, and this evidence was accepted by the Board, that the respondent erred in not taking into account the sharing of tips, at least with respect to the quantum thereof, but the respondent replied that he could in any case have assessed a greater amount.

To ensure that his working methods would not be objected to and, as he himself stated in his reply to the notice of appeal, to avoid any elements of arbitrariness in the assessments, the respondent issued the assessments on the basis of the evidence available to him. This procedure was proper and enabled the respondent to use a method whereby the assessment issued became very watertight and difficult to object to.

When the appellant taxpayers contended with supporting evidence that the respondent had failed to take into account an essential aspect of the actual work of a waiter, namely the sharing of tips, the respondent, who had already stated his claim, then wished to change the method used by the auditors to take into account the sales that he had until then ignored so as to avoid any element of arbitrariness.

The respondent now wishes to add an element of arbitrariness to his method in order allegedly to offset a fact that was adduced in evidence clearly and accurately and accepted by the Board, namely, the sharing of part of the tips by the appellant waiters.

In short, the respondent wishes to plead an offset that should counterbalance precise facts with elements of arbitrariness as he himself admitted, namely, an undisputed sharing of sixty-three per cent of the tips collected as against thirty per cent of sales deducted, which, by the respondent’s own admission, cannot be attributed with certainty to the appellants.

The onus of proof is on the taxpayer to show that the assessment as issued by the representatives of the respondent was incorrect. By basing his argument on the factors adduced by the respondent in his reply to the notice of appeal, the appellant taxpayer is prepared to object to the assessment while assuming the burden of proving the errors therein. To judge by the comments of the Board, at the end of the hearing on October 14, this is what he successfully did.

The respondent contended, however, that although the taxpayer had proved a substantial error, this was not sufficient to reduce the assessment since the respondent could in any case have assessed a greater amount.

If this were the case, why did the respondent not take into account the sales that he claimed to have deducted in making his assessment at the same time as he took account of the sharing of the tips? It was submitted in evidence that the representatives of the respondent had been informed of this procedure for sharing the tips and of the relevant amounts, but that they had taken no follow-up action, given the large amount of audit work that would have been involved.

In Johnston v MNR, [1948] SCR 486; [1948] CTC 195; 3 DTC 1182, the Supreme Court clearly laid out the principle that in appeals from assessments the burden of proof is on the appellant taxpayer. The appellants proceeded accordingly to discharge this burden at the hearing on October 14. Once this was done, the respondent, rather than relying on the facts presumed by him in reaching his assessment, wished to allege other facts that allegedly supported or helped his assessment.

The respondent decided, however, not to allege these further facts, namely the offset, in his reply to the notice of appeal.

In this context we would refer you to MNR v Pillsbury Holdings, [1964] CTC 294; 64 DTC 5184, where Cattanach, CJ Of the Exchequer Court considered this problem as follows:

The Minister could, of course, as an alternative to relying on the facts he found or

Although the respondent mentioned sales deducted, this was not for the purpose of taking them into account in making the assessments, but rather to indicate the contrary. Consequently, the appellants did not have to prove that the sales deducted, to which the respondent referred in his reply to the notice of appeal, were connected with the appellants.

In any case, as was stated earlier, the respondent did not rely in making his assessment on the sales that were deducted, and therefore the appellant did not have to concern himself therewith.

At best, even if the respondent had presumed in making his assessment that sales were deducted, he did not presume that they offset the sharing of the tips.

Furthermore, even if these sales that were deducted had to be taken into account as an alternative presumption of fact, the respondent, by his own admission in his reply to the notice of appeal, cannot connect them with the appellants and even described these sales as “elements of arbitrariness”. On the contrary, the appellant proved to the satisfaction of the Board that the facts relied upon by the respondent in making his assessment were incorrect, especially in respect of the amount of the tips shared with the busboys, maîtres d'hôtel and the barman, and even more so because the respondent did not take into account the team system in which the appellants worked.

In respect of the appellants Fortin and Bergeron, the respondent did not even mention in his reply to the notice of appeal the sales that were deducted and to which he seemed to refer in the case of the other appellants. Thus he is even less entitled to speak of offset in respect of these two appellants without amending his pleadings substantially, and he could not do so without taking these two appellants by surprise. The principle laid down for the other appellants is even clearer in the latter two cases. The respondent should at least adduce in evidence that he wishes to argue and before doing so, he must clearly allege these facts.

Moreover, in respect of the sales that were deducted, although the Board acknowledged that this was a presumption of fact by the respondent and although it recognized that the offset that had not been alleged could be argued, the fact remains that these sales of more than $300,000 that were deducted were made not only in the Toit de Québec but in all five or six restaurants and bars in the Hilton in which the appellants did not work, so that it is impossible to adduce such evidence without adding an element of arbitrariness.

Consequently, the assessments should be referred back to the respondent for reassessment in view of the facts adduced in evidence and in accordance with the attached table in respect of each of the appellants and the penalties and interest reduced accordingly.

4.03.4.2 Reply of the respondent

We should like to make five preliminary comments. At the very end of the hearing of these appeals, the Chairman indicated that fairness seemed to support the arguments of the respondent (TS, p 280). We respectfully submit that this statement was accurate, without prejudice to any arguments that may be made against the strictly technical grounds advanced by the appellants.

Under the Department of National Revenue Act, RSC 1970, c N-15, the Minister of National Revenue is responsible for the application of the Income Tax Act. The Minister must perform this administrative duty fairly, and must constantly bear in mind, in addition to the strict provisions of the Act, the idea of a fair distribution of the tax burden among taxpayers. Moreover, it is to ensure that this principle of natural justice should not be a dead letter that subsection 152(7) of the Act provides as follows:

The Minister is not bound by a return or information supplied by or on behalf of a taxpayer and, in making an assessment, may notwithstanding a return or information so supplied or if no return has been filed, assess the tax payable under this Part.

In performing his statutory duty, the Minister had to confirm that there had existed for a long time a fundamentally unfair practice in the hotel and restaurant industries: the recipients of tips simply did not report income received in this form or, if they did report it, it was usually a ridiculously low sum of money. This situation was totally unfair to the average taxpayer whose taxes were deducted at source and who enjoyed no loopholes.

Second, the appellants argued that, unlike the Minister, they did not have at their disposal the necessary resources to retain the services of experts in Statistics and data processing. This argument rings false: the Minister would not have had to incur expenditures, admittedly large, if the appellants had in fact kept adequate records of their tips. No one is supposed to know his affairs better than the taxpayer himself, and it is in part for this reason that the onus of proof is on him in litigation such as the instant case before the Board.

In cross-examination on this subject, moreover, the appellants all admitted that they did not keep records of their tips. Furthermore, they all admitted that it would have been easy to keep such records because they all counted their tips each day precisely for the purpose of sharing them. This being the case, what was said by Thorson, J in Dezura v MNR, [supra] should be applied in its entirety:

Ordinarily, the taxpayer knows better than any one else the amount of his taxable income and should be able to prove it to the satisfaction of the Court. If he does so and it is less than the amount determined by the Minister, then such amount must be reduced in accordance with the finding of the Court. If, on the other hand, he fails to show that the amount determined by the Minister is erroneous, he cannot justly complain if the amount stands. If his failure to satisfy the Court is due to his own fault or neglect such as his failure to keep proper accounts or records with which to support his own statements, he has no one to blame but himself.

This principle of justice is not based on subsection 152(7) alone; it is so universal and inalienable that it has been expressed in judgments rendered in other jurisdictions. In Roberts v CIR (1949), 2 USTC 639, where the taxation of tips was in issue, the Court of Appeals for the Ninth Circuit stated the following (at 643):

The petitioner had kept no books. So the Tax Court had to determine the amount /f the result is an approximation, the lack of exactitude is traceable to the petitioner’s own failure to keep accurate accounts. As said by the Court of Appeals for the Second Circuit:

Absolute certainty in such matters is usually impossible and is not necessary; the (Cohan v Commissioner, 1930, CA 2, 39 F (2d) 540, 543, 544 [2 USTC 489].).

Third, as was noted earlier, the appellants relied on highly technical arguments in support of their submission: these arguments of law are based on the appellants’ notion of the rules governing the burden of proof. However, and with deference to the contrary opinion, we respectfully submit that this is not the approach that should prevail here. Under subsection 9(2) of the Tax Review Board Act, SC 1970-71-72, c 11, the Board is not bound by any legal or technical rules of evidence. In this context, the respondent respectfully submits that the Board should apply subsection 9(2) in the instant case, since what is important above all here — where the question is primarily one of fact — is to reach a fair result that will take account of the ‘reality of a waiter’s work’, to use an expression used by the appellants themselves. Once again, this comment is made without prejudice to the arguments to be raised later.

Fourth, as was noted by Board member St-Onge in Cliche-Paquet v MNR [Supra], a case involving tips, “it . . . falls to the Board to determine the appellant’s income”. The respondent therefore respectfully submits that the Board should take into account the following factors in its overall assessment of the case:

(a) thirty per cent of the cash sales figure of the whole Hilton Hotel could not be attributed to the waiters at the hotel for various reasons (illegible bills) two waiter numbers entered on the bill and so on). This applies in 1976, 1977 and 1978;

(b) seventy-five per cent of credit card invoices did not mention the tips paid. It often happens in the case of credit card purchases that a tip is left in cash on the table. it is this considerable amount of tips that the Minister was not able to assess in 1976 and 1977 for the simple reason that there was no technical means of relating them to any particular waiter. It should be noted that this factor is not relevant for 1978: the Minister is not therefore relying on this argument with respect to Mr Bergeron since his appeal relates only to the 1978 taxation year.”

4.03.4.3 Reply of the appellants

“1. Duty of Minister

What we are disputing is not the Minister’s power to assess or his administrative duty under the Income Tax Act, but rather the manner in which we think he performed this duty in the instant case, where the evidence showed that this duty had not been performed fairly because, as the respondent indicated, the duty must be based on a fair distribution of the tax burden among taxpayers. More specifically, in this case the Minister’s representatives did not take account of a sharing of income among certain taxpayers and consequently could not arraive at a fair distribution of the tax burden among the appellants and their colleagues.

2. Records

It is true that the appellants admitted that they did not keep records of their tips. However, the consequence of this failure is borne by the appellants themselves, who have the onus of proving the amounts of these tips. The principle laid down by Thorson, J in Dezura v MNR, [supra] cited by the respondent, can have no application here. It states that where an appellant is unable to satisfy the court of the validity of his claims because of his own negligence, he has only himself to blame. However, despite the lack of records, the appellants satisfied the court on several points (TS, pp 288, 289 and 290), and after reviewing the facts adduced in evidence, the Chairman of the Board stated:

These are elements that, in my opinion, are clear, concerning which I have no doubt.

3. Rules of evidence

It has always been recognized that before the Tax Review Board it is the appellants who have the burden of proof. However, as was stated by the respondent himself, the essential question here is one of fact. Nonetheless, not satisfied that the burden of proof is on the appellants and not satisfied with evidence accepted by the Board, the respondent is attempting to exert further pressure on the appellants by arguing a form of offset on the basis of the fact that the representatives of the respondent could perhaps have assessed greater sums but did not have sufficient evidence in this regard. The Board cannot perhaps ignore this factor adduced by the respondent, but an analysis of the argument reveals its weakness, both in respect of the principle and even more so in respect of the substance, which will be analysed below.

4. (a) The respondent requests the Board to take into account in its overall assessment of the case the fact that thirty per cent of the cash sales figure of the whole Hilton Hotel could not be attributed to waiters for various reasons

As was mentioned in our written notes, this thirty per cent of the sales figure applies to the whole of the Hilton Hotel, which has five or six restaurants and/or bars and more than 500 rooms, not including conventions and special banquets; the respondent wishes to relate this thirty per cent figure to five or six persons working in only one of these restaurants. It is possible that the Board could have taken some of these bills into account if the representatives of the respondent could have shown that they applied to the Toit de Québec, but this evidence was not available and was not adduced.

(b) The respondent also requests the Board to take into account the fact that seventy-five per cent of the credit card sales invoices did not mention the tips paid

It is necessary to ensure here that the credit sales invoices are not confused with the credit card invoices (TS, p 272). When the respondent talks of a considerable amount of tips that the Minister was not able to assess, he is referring to this seventy-five per cent of the credit sales invoices. However, this seventy-five per cent figure of the credit sales invoices also includes the invoices relating to rooms and everything paid for by credit card in the Hilton Hotel in contrast to what is paid in cash. In this context we would refer you to page 271 of the transcript, where the following exchange is reported:

Mr Chairman, do I understand correctly that in that case, when Mr Fortin speaks of credit sales that he means the whole establishment, or is he still speaking of the whole establishment?

Mr Fortier — A: Yes, I’m speaking of everything.

Mr Patry: You’re not speaking of the Toit de Québec in particular? Does that include the $60 rooms?

Mr Fortier — A: That is the credit for the restaurant.

Later, Mr Fortier stated at p 272:

I’m speaking only of the restaurant, a restaurant bill paid by credit card, whether it’s charged to the room or paid immediately by Chargex.

We understand of course that these are not tips on the cost of rooms, but tips on restaurant bills (from any of the five or six restaurants and bars in the Hilton Hotel) and that this also includes restaurant bills. for room service. The appellants worked in the Toit de Québec and did not provide room service. Here again the respondent is now trying to attribute tips to the appellants that were not received by them, while the assessors were not even able to attribute them.”

4.03.5 The Board generally shares the opinions of the appellants.

Moreover, the Board would like to add that the only points that the appellants were required to rebut are the presumptions of fact made by the respondent which form the basis of the assessment.

Once the evidence and contervailing evidence concerning the said presumptions of fact are adduced, the case itself is at an end with respect to evidence.

If the respondent wishes to prove other facts that are not alleged in his reply to the notice of appeal, but that will confirm the basis for the assessment, the burden of proof is upon him.

If, however, he wishes to allege further facts that will change the very basis of the assessment, then the appellants are entitled to object thereto, not only because they are taken by surprise, but also because the new facts that the respondent wishes to prove are simply not relevant.

In order to avoid any ambiguity, it should be pointed out that the basis of an assessment does not merely consist of the amount of tax or the amount of taxable income determined by the respondent, but also of the facts justifying the amount.

In the instant case the facts that it is desired to prove constitute a new basis of assessment. It is desired to allege other facts and to explain the procedure for arriving at the amount in a different way.The Board cannot accept this evidence, which is irrelevant to the case.

4.03.6 Subsection 9(2) of the Tax Review Board Act relied upon by the respondent in his argument does not allow such evidence to be led. This provision reads as follows:

9. (2) Notwithstanding the provisions of the Act under which an appeal is made, the Board is not bound by any legal or technical rules of evidence in conducting a hearing for the purposes of that Act, and all appeals shall be dealt with by the Board as informally and expeditiously as the circumstances and considerations of fairness will permit.

This provision allows the Board to hear a case informally, but does not allow it to hear evidence that would not be admissible in the Federal Court. The Board understands how complex the work of the Department of National Revenue is in the preparation of assessments of the kind involved in this case. Nevertheless, the old principle of law, “as you make your bed, so shall you lie on it” also applies to the Department of National Revenue.

4.03.7 The respondent cited Board Member St-Onge in Cliche-Paquet v MNR, a case in which tips were also in issue: “it . .. falls to the Board to determine the appellant’s income”. This is very true, but it applies only with respect to the admissible evidence and the issue before the Board. This is what Mr St-Onge laid down.

It was, moreover, in this same spirit that the undersigned rendered the decision in this case in paragraph 4.03.2 in respect of the principal amount Owing.

4.03.8 Penalties and interest

The interest must be adjusted in accordance with the principal amount owing. In respect of the penalties provided for in subsection 163(2), since the Board in its consideration of the unreported taxable amounts (paragraph 3.09, last column of table) finds that there was at least gross negligence on the part of the appellants, the said penalties (paragraph 3.03, last column) must be adjusted in accordance with the above decision.

5. Conclusion

The appeals are allowed in part and the matter referred back to the respondent for reassessment in accordance with the above reasons for judgment.

Appeals allowed in part.