Maurice Bouchard v. Minister of National Revenue, [1981] CTC 2488, 81 DTC 403

Guy Tremblay [TRANSLATION]:—This case was heard at Quebec City, Quebec on October 19, 1979. It was taken under advisement on January 7, 1980 after the last pleading had been filed.

1. Issue

The issue is whether the appellant, a pediatrician, was justified in claiming the sums of $2,062.87, $2,564.13 and $5,188.09 for the 1972, 1973 and 1974 taxation years respectively as expenses incurred for the purpose of gaining professional income. The respondent maintained that the said sums were personal expenses and therefore not deductible in calculating the appellant’s income.

2. Burden of proof

The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof derives not from one particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR [1948] CTC 195; 3 DTC 1182.

3. Facts

A. General

3.01 During 1972, 1973 and 1974 the appellant practised as a doctor specializing in pediatrics, a profession he had practised since 1964. In 1972 he practised in association with Dr R Albert and in 1973 and 1974 with Dr Albert and Dr P Grégoire. The appellant’s fiscal year ended on January 31 of each year.

3.02 The appellant was a member of numerous organizations and held various positions, including:

1. Head of the Pediatrics Department at the Jeffrey Hale Hospital:

2. Member of the Executive Committee of the Council of Doctors and Dentists at the Jeffrey Hale Hospital:

3. Member of the Medical and Dental Evaluation Committee at the Jeffrey Hale Hospital:

4. Active member of the St-Sacrement Hospital:

5. President of the Quebec Pediatric Society;

6. Member of the Pediatric Practice Committee of the Canadian Paediatric Society;

7. Member of the Public Safety Committee of the Canadian Paediatric Society:

8. Member of the complex pediatric cases committee of the Health Insurance Board;

9. Member of the Board at the St-Ambroise Hospital;

10. Member of the committee of examiners for certification in pediatrics of the Province of Quebec;

11. Lecturer at Laval University;

12. Chairman of the pediatrician’s Reunification Committee in Quebec City.

3.03 For the years concerned the appellant claimed the following expenses in computing his net income, part of which were allowed by the respondent and part disallowed:

The following is a breakdown of these amounts for 1974:

3.04 The appellant produced an impressive number of receipts to prove these expenses. The amount of the expenses claimed was equal to the total of the individual receipts when he submitted them to the respondent.

B. Automobile expenses

3.05 The appellant owned two automobiles during the years in question: a Camaro purchased before 1972 and a vehicle called a Jimmy 4X4 purchased on April 27, 1972 and replaced by a Blazer 4 X 4 in 1973. He still owned it and the Camaro in 1974.

3.06 The appellant used the 4X4 chiefly for professional purposes. Because of the nature of his work as a frontline doctor, that is, one of the first to be called in cases of emergency, the appellant had to use such a vehicle to be able to get to the hospital at any time despite the problems posed by winter conditions. During storms he even replaced other doctors who could not travel through the snow in their vehicles. He was on emergency duty every second day and every second weekend in 1972; every third day and every third weekend in 1973 and 1974. On weekends he had to be available 24 hours a day. House calls were limited to the Quebec City area. The appellant did not adduce any evidence respecting the frequency of such visits, even though he maintained that they were more frequent than at present. The appellant also used his 4X4 to go to his parents’ farm at least once a week, a farm that was located 65 miles from Quebec City (Transcript, pp 54 and 55). The various hospitals he attended were located at the following distances from his residence:

During the hunting and fishing season the appellant used his 4 X 4 for trips to Chicoutimi and Squatec. He also used the 4 X 4 to go to Laval University to give classes and to go to meetings of the various associations to which he belongs.

3.07 The appellant did not keep any mileage records for the years in question.

3.08 The Camaro was used for personal purposes after the Jimmy 4X4 was purchased on April 27, 1972. It was only occasionally used for professional purposes after that time. No expenses in connection with the Camaro were claimed in computing the appellant’s income.

3.09 Two of the invoices filed in support of automobile expenses related to the Camaro: one dated July 21, 1971 and one April 25, 1971. The other invoices do not necessarily relate to the 4X4. The gas for the Camaro was purchased at the same garage as that for the 4 X 4 (Transcript, p 47).

3.10 The appellant claimed 75% of the expenses for the 4 X 4 as professional use, 25% being considered personal use. He did not claim any expenses for the Camaro as professional use.

C. Expenses in connection with a snowblower and garage

3.11 The appellant also claimed depreciation on a snowblower used to clear the entrance to a garage he had rented, presumably not far from his residence. In 1974 he claimed inter alia, $319.23 for "garage rental and snow removal" and $142.80 for "depreciation of the snowblower". These sums were disallowed totally.

D. Telephone expenses

3.12 The appellant testified that in computing his income he deducted the entire cost of the telephone in his residence without subtracting the personal portion. There is only one telephone in his residence which is for the use of the entire family, including two daughters aged 10 and 12.

The respondent’s witness stated that he allowed all long distance call charges to be deducted, even though some of the calls may have been personal.

The telephone expenses claimed, allowed and disallowed are as follows:

E. Promotion expenses

3.13 The expenses claimed for “travel, conferences, entertainment and Subscriptions” and those allowed and disallowed are as follows:

3.14 In assessing the appellant the respondent allowed all the conference expenses but disallowed the others.

3.15 According to the appellant, most of the expenses disallowed were for meals and drinks bought for medical colleagues and nurses:

In addition, colleagues in general practice — or specialists or interns, when they were in private practice elsewhere — when they came into town they always came to see Maurice — they never called me Dr Bouchard, it was always Maurice. Our house was always full, and it wasn’t always up to my wife to prepare meals, so I had to incur expenses going to eat in restaurants, buying liquor and giving presents, even to nurses and interns or residents, to thank them. These are part of my expenses, and these presents were mostly in the form of liquor, of bottles. (Transcript, pp 21-22).

Q. There were get-togethers at home, get-togethers elsewhere?

A. Get-togethers at home; I gave receptions, even completely for interns, with specialists at my house, what could be called large parties to thank these people for practising, because this was the only way of thanking them for the favours they had done us. (Transcript, p 22)

Q. How did you compile this, the entertainment expenses for ($1,344)?

A. I collected my hotel receipts, my American Express and Diner’s Club card expenses, which I added up at the end of the year, and my Liquor Board expenses. And in addition, restaurant expenses.

DANIELLE THOBODEAU:

Q. But explain to us in greater detail what you mean by entertainment expenses, the expenses you claimed; what are they, the’re presents, meals you bought for clients?

A. There were some presents in this, as I said, mostly liquor from the Liquor Board.

Q. Who did you give these presents to?

A. Either to interns.

Q. Interns who had worked for you?

A. That’s right.

Q. As you said, “to thank them for good service”?

A. That’s right, that’s right. Either to my colleagues who saw my wife or my daughters because they got sick as well. These were gifts given at Christmas time, mostly. And even during the year as well. (Transcript, pp 63-64)

DANIELLE THIBODEAU:

Q. Your colleagues are also your friends: do you have any friends other than your colleagues?

A. Certainly after 15 years of practice I have many friends.

Q. And they can refer clients to you like that, just as any friend can refer a client?

A. Definitely.

Q. The expenses you claimed, you said gifts of liquor?

A. Yes.

Q. Are there. . .

A. There are — I’m sorry — there aren’t just presents! When I receive a colleague at our home, if I decide to buy him a drink, I think that out of regard or gratitude for what he’s done, or if he comes to see me or consult me, then I’m entitled to deduct it. This is why the liquor was included, plus part that was for the presents as well.

CHAIRMAN:

Q. The meeting at your house, for parties which would be parties only for your own family, personal, parties. ..

A. That’s not certain.

Q. You sometimes have them, like that?

A. Yes, yes. (Transcript, pp 67, 68, 69)

Q. Did you receive them individually or at receptions?

A. No. We might have a meal at our house, we might have an evening at home. They might come — they might be passing through Quebec City, people from elsewhere, and stay in the hotel or spend an evening at the house, that’s how it was. I received interns, I received residents, it’s only been in the last two years that there have no longer been any at Jeffrey Hale; we received these people, we received general practitioners, four, five, six, seven, eight. One evening we even received 80 people at one time; they were all colleagues and . . . (Transcript, pp 77, 78)

DANIELLE THIBODEAU:

Q. But I would like to know, when you received people at home, your colleagues, what type of meeting was it, were there wives with them?

A. On some occasions yes, on some occasions no.

Q. Yes?

A. There were friendly meetings, others were receptions to thank people. Like interns, colleagues, specialists, GP’s. (Transcript, pp 81-82).

Q. The Chicken Villa, that would be the same thing?

A. The same thing. When friends came to spend the evening with us, and we decided we were hungry at the end of the evening, I don’t think it was up to my wife to prepare a snack. So we used to send out for it. (Transcript, p 83)

Q. But you received colleagues at Christmas time; do you often receive guests as a family?

A. It’s not among friends! When I have a get-together it’s to chat with colleagues or because I owe them thanks; these are the people I invite to my house. But I don’t invite the Jeffrey Hale hospital to my house; I invite friends with whom I have dealings, professional dealings. (Transcript, p 88)

Q. Mr Bouchard, I note than in the partnership’s financial statements no such expenses are Claimed; and yet — how is this so?

A. No, because our personal expenses are not billed at the partnership level. (Transcript, pp 88-89)

The appellant testified that in 1973 there were 14 pediatricians working with him at one point and that he paid for food for all of them.

3.16 the appellant, who practises in association with two other doctors, shares the net profits equally, that is, one-third each. Promotion expenses are not paid by the partnership, however. The appellant explained why:

Q. Mr Bouchard I note that in the partnership’s financial statements no such expenses are claimed; and yet — how is this so?

A. No, because our personal expenses are not billed at the partnership level. (Transcript, pp 88-89)

Q. Mr Bouchard, I don’t understand how it is that you don’t claim expenses in your partnership; because you explained at the outset that ultimately you shared expenses and profits — one-third, one-third, one-third — how is it that you did not insist on reducing the partnership’s expenses; why did you assume these expenses all on your own, when they produced income? Since this income is divided three

(3) ways, why wouldn’t the expenses be assumed by all three (3)?

A. It’s for the same reason that when Dr Albert came to work with me, from the first day the income was split fifty (50); and the same thing when Dr Grégoire arrived, it was split one-third, one-third, one-third. There were not twenty (20), forty (40), sixty (60) per cent shares, that’s why we didn’t include the social things because I have more, social in the sense, to go back a bit, I do much more outside, I meet many more patients, I receive many more colleagues at home to develop my practice. It’s not my business to have my colleagues share at the office level for income. (Transcript, p 112)

3.17 The receipts filed by the appellant concerning promotion expenses are not as detailed as they might be to show that they relate to expenses incurred for the purpose of earning income.

The receipts from the liquor board do not indicate any name or shed any light on the circumstances of the expenditure. Several do not even give the date. At the hearing the appellant was not generally able to state the specific purpose of a particular expenditure. Some of the receipts related to the hunting trip.

As for the meal invoices, a number of them related to meals delivered to the appellant’s residence. Others were for meals eaten in the Quebec City area near the Jeffrey Hale hospital. The appellant admitted that these were meals he had eaten when he did not go home for dinner.

4. Act — case law — comments

4.1 Act

The statutory provisions relevant to this case are paragraph 18(1 )(a) and section 67 of the Income Tax Act. These sections read as follows:

18. General limitations.

(1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

(a) General limitation.—an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;

67. General limitation re expenses. In computing income, no deduction shall be made in respect of an outlay or expense in respect of which any amount is otherwise deductible under this Act, except to the extent that the outlay or expense was reasonable in the circumstances.

4.2 Case law

The parties referred the Board to the following cases:

1. Doctor E Poss Henry v MNP, [1972] CTC 33; 72 DTC 6005;

2. Dr Lemeul F Prowse v MNR, [1971] CTC 736; 71 DTC 5443;

3. H Lionel Posen v The Queen, [1976] CTC 462; 76 DTC 6274;

4. Rev Gary Ostler v MNP, [1979] CTC 2775; 79 DTC 657;

5. Bentleys, Stokes & Lowless v Beeson, 33 TC 491;

6. Manning Harold Roebuck v MNP, 26 Tax ABC 11; 61 DTC 72;

7. Dr W F Shaw v MNP, [1978] CTC 3230; 79 DTC 26;

8. John Adaskin v MNP, 8 Tax ABC 356; 53 DTC 242;

9. Herbert L Wisebrod v MNP, [1978] CTC 2782; 78 DTC 1581;

10. Tim Alfred Brice Clements v MNP, 21 Tax ABC 77; 58 DTC 752;

11. R M Latta, Active Petroleum Products Ltd v MNP, [1978] CTC 3003; 78 DTC 1719;

12. Jean-Charles Beauchemin v MNP, [1977] CTC 2029; 77 DTC 26.

4.3 Comments

A. Automobile expenses

4.3.1 The receipts dated 1971 (para 3.09) related to the 1972 fiscal year since the fiscal year ended on January 31, 1972. During this period, moreover, the Camaro was still the vehicle used for professional purposes since the Jimmy 4X4 was not purchased until April 1972, during the 1973 fiscal year.

4.3.2 In addition to the lack of detail in the receipts, on the face of which it is not always clear whether they relate to the 4 X 4, the chief weakness in the evidence is the fact there there is no indication of the mileage covered during the year.

The appellant stated that the vehicle was used 75% for professional purposes, and the mileage covered during the year would have been an important means of verifying this statement. The court cannot accept the statement of a fact unless it is confirmed by other evidence, even if the person presiding personally believes the satement.

In his pleadings the appellant’s representative stated the following:

When the appellant claimed 25 per cent personal use on his 4 X 4 vehicle, he had already allowed for his personal travel between his house and the hospital, the occasional trips to his farm and one or two seasonal hunting and fishing trips.

The appellant testified before the Board, inter alia, that he used his principal vehicle 75% for professional purposes; it seems obvious that we must know the number of miles travelled, especially since the evidence indicated that he travelled at least 6,500 miles merely to go to his father’s farm on weekends. With this personal use of the vehicle alone, the appellant would have had to travel 26,000 miles during the year to be able to claim 75% as professional expenses, without taking into account the personal use of the vehicle to travel from his residence to the hospital or the office or the university, or to go to meetings of various associations. The Board must uphold the assessment on this matter of automobile expenses.

B. Snowblower and garage

4.3.3 The appellant argued that the snowblower was absolutely necessary to keep the entrance to his garage clear in case of emergencies, which might arise at any time of day or night.

On the other hand, the appellant did not have an office at home. If this expense had been incurred in clearing the snow from the parking lot at his office, there is no doubt that it would have been deductible. Moreover, the evidence respecting the garage does not establish clearly which vehicle used the said garage. The claim for these expenses must be disallowed.

C. Telephone expenses

4.3.4 In view of the evidence adduced, the Board has no hesitation in upholding the assessment. The amounts disallowed are barely, and sometimes less than, 25% of the total. For a family of four, including two daughters aged 10 and 12, family use of the telephone is really estimated at a minimum. The amount disallowed is barely the amount paid for a personal telephone line. In addition, the total cost of the long-distance calls was allowed as a deduction.

D. Promotion expenses

4.3.5 The Board is of the view that part of the appellant’s clientele may come from the good relations maintained with doctors in other specialties and nurses. Such good relations may be maintained by means of get- togethers and presents to express gratitude.

It must be admitted, however, that these are in part social activities which would take place in any event between employer and employee and also among friends and people who do favours: such as presents for the doctors who treat or examine the appellant’s wife and children.

It has long been established by the case law that in order to be deductible, the expense must be principally aimed at earning income.

The evidence of the expense, namely the receipts from all the purchases at the Liquor Board, in restaurants, and so on (para 3.16), is not the clearest evidence possible.

The Board is of the view, however, that some of the expenses were in fact incurred principally to earn income and allows 40% of the expenses disallowed.

Conclusion

The appeal is allowed in part and the matter referred back to the respondent for reassessment.

Appeal allowed in part.