George Wilson v. Minister of National Revenue, [1981] CTC 2395, 81 DTC 333

D E Taylor:—This is an appeal heard in the City of London, Ontario, on April 10, 1981, against income tax assessments for the taxation years 1975 and 1976 in which the Minister of National Revenue added amounts of $12,169.47 to the income reported by the taxpayer in each of the said years. The appellant, during the time material, was a resident of the City of Windsor, Ontario, and an employee of Chrysler Canada Ltd in that city. In assessing the appellant, the respondent relied, inter alia, upon sections 3, 4, subsections 9(1), 152(7), 163(2) and section 169 of the Income Tax Act, SC 1970-71-72, c 63 as amended.

Contentions

For the appellant:

(a) From the notice of objection:

— The Minister has added $12,169.47 to my taxable income which is alleged to have been profit from engaging in betting on horses.

— They have not recognized any losses for my betting that had no return. My contention is that my wins and losses over the years have produced a deficit balance. If it were not for my job at Chryslers I probably would not have the money to engage in betting which I have enjoyed over the past several years.

— Any analysis of earned income at Chryslers together with such wins that I have enjoyed over the past several years would show that insofar as my betting is concerned that I have used substantial amounts of my Chrysler income to support this habit of mine.

(b) From the notice of appeal:

— The appellant was advised by representatives of the respondent that the assessments issued against the appellant were on the basis that the respondent alleges that the appellant was firstly, in the business of making bets and earning income therefrom and secondly, that the appellant was carrying on the business of a bookmaker.

— The appellant was advised by representatives of the respondent that the assessments issued against the appellant were in part based upon computations prepared by the representatives of the respondent from information obtained by the respondent through wire taps placed on the appellant’s telephone over a period of (39) days during the relevant periods subject to the assessments. The wire taps were allegedly effected by members of the City of Windsor Police force at the direction and request of the respondent.

— The appellant was further advised by the representatives of the respondent that the aforementioned assessments were additionally based in part on a net worth computation prepared by representatives of the respondent. The net worth statement appears to be predicated on deposits in the appellant’s bank, which the respondent allegedly could not find identifiable or vouchered sources for.

— The appellant is fully employed full-time as a carpenter by Chrysler Canada Limited and his time is fully occupied with his employment which includes, from time to time, overtime work with his employer.

— The appellant concedes that he is fond of horse racing and attends regularly at race track meets, during which time he places bets resulting in the occasional loss as well as the occasional win.

— The appellant further concedes that by reason of his frequent attendance at race track meets, he, from time to time, accepts requests from other friends or acquaintances to place bets on their behalf at specific race track meets. The appellant does not receive either commission or other monetary rewards for so obliging his friends and acquaintances for placing such bets as above described.

— The appellant considers his activities in attending at various race track meets from time to time, as a hobby.

— The appellant submits that the allegation of unreported revenue is not justified by reason of the fact that any net winnings accruing to the appellant from his betting at the race track constitutes winnings from a hobby and therefore not subject to taxation.

— The appellant submits in the alternative that in the event that he is determined by the Tax Review Board to be carrying on the business of making bets at the race track, he should correspondingly be entitled to deduction for losses incurred by him at the race track, from time to time, during the corresponding periods.

— The appellant submits that the respondent’s attempt to include into income the appellant’s gross winnings without taking into account the appellant’s losses at the race track is incompatible with the provisions of the Income Tax Act (Canada).

— The appellant submits that the alleged income that the appellant is deemed by the respondent to have earned by reason of his accepting for placement bets on behalf of his friends and acquaintances is without foundation and is based on an erroneous interpretation on the part of the representatives of the respondent as well as the members of the Windsor Police Force, and that the appellant denies that he is engaged in the activities of a bookmaker.

— The appellant further submits that on the facts he is earning a good income from his source of employment and that he and his wife live frugally such that the savings accruing to him together with his occasional winnings from his hobby of betting, is consistent with the life style that he enjoys and is not inconsistent with the deposits or credits into his bank account.

— The appellant therefore submits that the Minister’s assessment is incorrect as to the basis of assessment and in the alternative, if the Minister was correct in assessing income to the appellant, the appellant should correspondingly be allowed a deduction for his losses during the relevant period.

For the respondent:

From the reply to notice of appeal:

— During his 1975 and 1976 taxation years, and for a number of years prior to these years, the appellant carried on business as a bookmaker, without reporting any income from that source when he filed his income tax returns;

— The appellant was convicted of criminal offences relating to betting and bookmaking;

— during his 1975 and 1976 taxation years, the appellant made profits in the amount of $12,169.47 from his bookmaking activities in each of the said taxation years;

— at all material times, the appellant failed to maintain proper books, records and accounts;

— the appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in, the making of statements or omissions in his income tax returns as a result of which the tax that would have been payable by him for his 1975 and 1976 taxation years, if the tax had been assessed on the basis of the information provided in the returns, was less than the taxes payable by him for those years.

Evidence

The appellant was not represented at the hearing by either counsel or agent and provided no evidence or testimony which would conflict with the basic assertions of the Minister. He did contend, however, that he had not been in the business of bookmaking as alleged, although he did make bets both for himself and for friends. The presiding Member informed the appellant of both his rights and responsibilities (see Peter Rawsthorne v MNR, [1981] CTC 2187; 81 DTC 116, in connection with the appeals). Counsel for the Minister offered to present the respondent’s witnesses and evidence, since it would be required in any event with regard to the penalty issue. During his opportunity to cross-examine the respondent’s witnesses, the appellant raised certain points which were clarified or answered — the testimony of the respondent’s witnesses was not shaken or moderated in any way.

The first witness for the respondent was Staff Sergeant Loughland who was responsible for the investigation into the appellant’s bookmaking activities. The wire-taps noted above by the appellant had not been requested by the respondent in this appeal, but had been part of a criminal investigation into the appellant’s affairs carried on by the Windsor City Police Department. Evidence as to the legality and the result of the wire-taps, and the eventual prosecution and conviction of the appellant was presented. Staff Sergeant Loughland explained the extensive system for bookmaking uncovered by the police investigation, and presented a detailed record of the telephone operations of the appellant which were monitored from October 6, 1975 to November 13, 1975. When the recorded telephone bets were related to specific sums of money, and certain race results, it showed that the appellant’s net income over this period could be projected to be $1,300.30. The witness also pointed out that this made no allowance for either losses or winnings on his own personal account, nor the results which might flow from a separate part of the appellant’s operations referred to as “layoffs”. The “layoff” represented bets made by the appellant, using his telephone with other bookmakers, which had not formed part of the “called-in” bets resulting in the net income calculation of $1,300.30. How or where the appellant picked up the “layoff” bets was not the subject of the witnesses’ investigation, but he did agree that the $1,300.30 might be only a part of the gain realized by the appellant.

Mr Eugene Faubert, an assessor and investigator for Revenue Canada, testified that he had examined the police records after the conviction, particularly the summary of gains during the period October 6 to November 13, 1975, and calculated that the appellant’s income from this source, during the year, could be $12,169.47. A statement of net worth was then prepared from information obtained both from the appellant and from third parties, which showed that the apparent unreported income of the appellant was $13,730.05 for the year 1975 and $13,355.98 for the year 1976. This document was entered as Exhibit R-7 and is reproduced in total:

GEORGE WILSON

Schedule of Determination of Income

For the Years Ended December 31, 1975 and 1976

Assets	1974	1974	1975	1976
House — 2436 Cadillac	.................	$ 5,000.00	$ 5,000.000	$ 5,000.00
Toronto-Dominion Bank —
Wyandotte & Ouellette — #2626		6,178.50	1,690.62	6,109.21
Term Deposit — 263162 ...............		11,000.00	11,000.00	11,000.00
— 0094AL0064940			10,000.00	10,000.00
Toronto-Dominion Bank —
Tecumseh & Aubin — 1175		330.85	4,899.00	4,832.25
— 103210		1,363.94	950.58	477.36
— 103302		7,053.97	7,576.38	11,434.10
Royal Bank of Canada —
Tecumseh & Albert — 2048		1,570.08	1,821.52	998.04
— 3218		4,655.09	4,389.97	7,712,68
US — 1088		300.58	355.64	384.54
PCA — 576-402-4		(16.10)	113.13	607.84
Motorco Truck Division (Windsor)
Credit Union — 22773		10,207.88	4,650.22	6,571.47
— RRSP				2,900.00
— Term Deposit			8,000.00	8,000.00
1968 Dodge		4,000.00	4,000.00	4,000.00
1975 Dodge			5,638.40	5,638.40
Furniture		4,906.00	4,906,00	4,906.00
Total Assets ........................		$56,550.79	$74,991.46	$90,171.89
Liabilities .................................		NIL	NIL	NIL
Net Worth	.	$56,550.79	$74,991.46	$90.171.89
Deduct New Worth of Preceding Year . . .			56,550.79	74,991.46
Increase in Net Worth			$18,440.67	$15,180.43
Add: Gift — Mae LaBranche —
1971 Volkswagen				1,100.00
Property Taxes Paid			378.84	456.83
Income Tax Deducted			4,126.01	3,277.07
Personal Expenditures			9,837.78	10,571.94
			$32,783.30	$30,586.27
Deduct: Income Tax Refund				482.29
Apparent Net Income			$32,783.30	$30,103.98
Less: Net Income Reported			19,053.25	16,748.00
Apparent Unreported Income			$13,730.05	$13,355.98

Since Mr Faubert’s own reconciliation of the appellant’s net worth indicated unreported earnings greater than those reflected by the police investigation, Mr Faubert was satisfied that at least the lesser amounts were in order. Assessments were issued accordingly and form the basis of this dispute. Mr Faubert had been unable to locate records which would provide any other explanation for the discrepancies, and the appellant’s explanations had been of no value.

Argument

The appellant noted again that his winnings, if there had been any, should not be taxable since he was doing nothing different than many other people in simply going to the races or making bets. He contended that no allowance was made for losses he might have incurred, and that his criminal conviction had resulted from bad advice he had received from his lawyer, not because such a conviction was warranted.

Counsel for the Minister briefly summarized the evidence presented, noting that none had been proffered by the appellant. While jurisprudence directly related to this appeal was scarce, counsel did make reference to William George v MNR, 36 Tax ABC 81; 64 DTC 516, in which an arbitrary assessment against a gambler hads been upheld by the Board. Counsel’s position on the penalty was that the appellant had “knowingly” failed to report income.

Findings

The appellant appeared to be labouring under the illusion that winnings at the race track of from other wagering arrangements should not be taxable under any circumstances. However, the evidence supports a conclusion that his wagering activities were organized and directed in a manner completely consistent with a business operation. The evidence shows that the business resulted in a gain for the two years in question. The appellant’s decision not to keep business records (at least none were presented for examination at the hearing) and not to report any gain may have been warranted for reasons other than income tax,but such reasons are not relevant to this matter. The real basis upon which the assessments in question were made, in my view, is represented by Exhibit R-7 and the “wire-tap” information is only corroborative for purposes of this appeal.

In summary, it is the finding of the Board that the appellant had additional income at least equal to the amounts in question; that he was aware of such additional income; and that he knowingly did not report it in filing his income tax returns.

Decision

The appeal is dismissed.

Appeal dismissed.