Kuldip Dhillon v. Her Majesty the Queen, [1996] 3 CTC 2198 (Informal Procedure)

Hamlyn J.T.C.C.: - These appeals for the 1989, 1990 and 1991 taxation years were heard under the informal procedure.

In computing his income for the 1989, 1990 and 1991 taxation years, the Appellant claimed rental losses in the following amounts:

1989: $857.03

1990: $7,424.09

1991: $11,471.62

In further computing his income for the 1989, 1990 and 1991 taxation years, the Appellant reported business income/losses in the following amounts:

1989: $7,404.50

1990: $755.25

1991: ($701.03)

In reassessing the Appellant for the 1989, 1990 and 1991 taxation years, by concurrent Notices of Reassessment dated June 29, 1993, the Minister of National Revenue (the “Minister”) disallowed rental expense deductions of $345.00, $5,634.00 and $9,614.53 respectively (resulting in corresponding decreases to the Appellant’s assessed rental losses in these years), increased the Appellant’s reported net business income by amounts of $5,042.00, $47,578.00 and $45,207.00 respectively and disallowed deductions for carrying charges of $4,926.00 and $1,978.00 in the 1990 and 1991 taxation years respectively.

At the outset of the appeal, the Respondent’s counsel sought to amend the Reply to the Notice of appeal to lower the amounts of the business income. (This amendment would have been to the Appellant’s benefit.)

The Appellant’s representative opposed this amendment and the Court, because of the lateness of the amendment and the position of the Appellant, as a consequence did not allow the amendment.

Facts

In reassessing the Appellant, the Minister made the following applicable assumptions of fact:

- at all material times, the Appellant operated a taxi-cab business;

- during the 1989, 1990 and 1991 taxation years, the Appellant reported business revenue, expenses and net business income/losses as follows:

YEAR REVENUE		EXPENSES	INCOMEMLOSSES)
1989	$48,759.00	$41,354.50	$7,404.50
1990	$13,149.00	$12,393.75	$755.25
1991	$12,000.00	$12,701.03	($701.03)

- carrying charges of $4,926.00 and $1,978.00 claimed by the Appellant as deductions in the 1990 and 1991 taxation years were not incurred or, if incurred, were not incurred for the purpose of gaining or producing income from a business or property;

- during the 1990 and 1991 taxation years, the Appellant’s taxi, a 1987 Chevrolet Caprice, was driven an average of 72,028 km a year and was used directly by the Appellant in an estimated 2,881 fare paying trips in each of these years (based on 40% business use of taxi by the Appellant and an average trip distance of 10 km), generating gross business revenues of $40,334.00 in each of the years (based on an average fare of $14.00); and

- during the 1990 and 1991 taxation years, the Appellant earned annual estimated tips from the taxi business amounting to $4,840.00 (12% of fare revenue).

Issue

The issue is whether the business expenses in excess of amounts allowed were made or incurred for the purpose of gaining or producing income from a business or property in the 1989, 1990 and 1991 taxation years.

The Appellant’s Position

The Appellant’s focus in this case related to his taxi rental operation. He stated he drove his taxi in 1989 until the month of October. Thereafter, he was employed as a taxi dispatcher or was unemployed and receiving unemployment insurance. He further stated he leased his taxi to others, and did not personally drive it for the balance of 1989, 1990 and 1991. Thus, he concludes, he was in the taxi rental business and did not earn the assessed income as a taxi driver.

Beyond that base assertion he was unable to give the Court details of the rental agreements or receipts to support his alleged business or other witnesses to support his position. The other persons who allegedly rented the taxi were not subpoenaed to Court as witnesses and no other evidence was tendered. Further, no books or records were produced nor bank accounts records submitted for the purported business.

The Revenue Canada auditor called by the Respondent as a witness was, on audit inspection, unable to substantiate the Appellant’s taxi rental business assertion. In the absence of documentation, books and records, he explained to the Court how, in view of all the facts he observed, he concluded the Appellant was driving his taxi for the period in question. The auditor further based the income determination on the kilometres travelled by the vehicle and the fares applicable at that time.

Conclusion

The onus is on the Appellant to show the assessment is wrong.

The Minister is not bound by the tax return filed by the Appellant.

Books, records and relevant supporting witnesses as involved with the purported business in a fact situation such as this are essential.

Failure to Substantiate Claims

The law on the issue of keeping proper records and receipts in order to support claims for deductions is well summarized by Christie A.C.J.’s decision in Kay v. R. (sub nom. Kay v. Canada), [1995] 1 C.T.C. 2310 (headnote only), 95 D.T.C. 1. He stated at page 2:

Under subsection 230(1) of the Income Tax Act every person carrying on business and every person who is required to pay taxes shall keep records and books of account in such form and containing such information as will enable the taxes payable under the Act to be determined. Failure to comply with the subsection will not, of itself, result in the dismissal of an appeal against a reassessment of liability to income tax. But it could interfere with an appellant’s ability to discharge the burden of proof on him of showing that, on a balance of probability, the reassessment is in error.

Christie A.C.J. then cited from the Federal Court of Appeal’s judgment in Sidhu v. Minister of National Revenue (sub nom. Sidhu v. Canada), [1993] 2 C.T.C. 278, 93 D.T.C. 5453 (F.C.A.), where Mahoney J.A. stated at pages 281 (D.T.C. 5454-55):

The failure to record transactions will inevitably handicap a taxpayer seeking to discharge the burden of proving that they took place but the responsibility of the trial judge in such circumstances is to decide, on a balance of probabilities having regard to all the evidence and its credibility, whether any, all or none took place. The proper approach was demonstrated by Strayer, J. in Schwartz v. Her Majesty the Queen, 87 D.T.C. 5274 at page 5275.

The law places the onus on the taxpayer in such cases to prove wrong the Minister’s reassessment on the basis that the taxpayer is in a better position to prove what actually happened, if he chooses and is able to do so. Unfortunately, the plaintiff has not been willing or able to particularize in any way the purchases made by him. He has confirmed on many occasions that the figures provided by his accountant as to his total purchases were correct. If he had made any effort to corroborate this and his oral evidence had seemed forthcoming and credible, it might have been possible to find in his favour even in the absence of any vouchers, receipts or other written records. Unfortunately neither of these requirements were met.

[Emphasis added.]

Christie A.C.J. then continued on pages 2-3:

To the foregoing I might add that if on an appeal to this Court the circumstances are such that because of failure to keep records of business transactions or to keep reasonably comprehensible records the onus on the appellant cannot be discharged then, I think, the appellant can only be regarded as the author of his won misfortune.

Conclusion

The Appellant’s evidence in relation to the taxi cab rental business is difficult to accept. I conclude the taxi was available, the kilometres were travelled, the Appellant was unemployed for a substantial part of the period and was available to drive the taxi and no other convincing evidence was shown to the contrary.

As a separate issue, rental expenses in relation to certain property was pleaded by the Appellant but no evidence at all was tendered on this issue at the hearing of the appeals.

Decision

The appeals are dismissed.

Appeals dismissed.