Scott v. R., [1998] 3 CTC 2146

Christie A.C.J.T.C.:

This appeal is governed by the Informal Procedure provided for under section 18 and following sections of the Tax Court of Canada Act. The year under review is 1994.

In reassessing the appellant’s liability for income tax for that year the Minister of National Revenue included in the appellant’s income a further amount of employment income in the sum of $37,812.00 [1] . The alleged employer was Pleasant Contractors, a sole proprietorship owned and operated by the appellant’s former husband, Peter Scott.

There is in evidence a cheque for $29,194.00 dated January 20, 1994 payable to the appellant and issued by Pleasant Contractors. It was deposited to the credit of her bank account. There is also in evidence a cheque dated February 2, 1994 payable to the Receiver General in the sum of $11,612.00 issued by Pleasant Contractors. On the face of the cheque there is this note: “For re CPP tax for Linda Scott.” and an “Amended” T4 is in evidence as Exhibit R-4. It was issued to the appellant and shows employment income of $40,000.00 and deductions of $806.00 for CPP and $10,000.00 for income tax.

The appellant and her former husband separated on May 4, 1994. Prior to that date they were married for 24 years and during that time she did some work pertaining to her husband’s business. In particular she said: “All I did was, I didn’t do any of his bookkeeping. All I did was balance his monthly bank statement and do his GST. It took me about two hours a month”. She stated that she “set up the GST system for the business”. This work commenced “a little later than 1988”. She was not paid for it. The only cheque issued to her by Pleasant Contractors was the one for $29,194.00 dated January 20, 1994.

With reference to this cheque the appellant was asked these questions by counsel for the respondent and gave these replies:

Q. Now you have indicated that the cheque was deposited into your account and it’s an account that was solely in your name?

A. Yes.

Q. And what happened with the money after that then? It was around $28,000.00 you said was deposited to your account?

A. Well, he told me I could spend some of it on shopping. So I would take out maybe $100.00 here and $100.00 next week, or whatever. And we paid the property taxes with it, which I think was about $900.00 showing on the statement. And he asked me to make withdrawals for him, it might have been cash withdrawals. And then there was a large cheque on March 15th for $13,000.00.

Q. What was that for?

A. I don’t know. He asked me to write a cheque for $13,000.00 for him and I’m sure that is what he purchased the car with. Yes, I have a copy of the cheque here. [2]

Q. Okay. So your evidence would be that some of the money would have been spent on shopping, some on property taxes, some was withdrawn and given to your husband for the purchase of the car?

A. Yes. The majority of it went back to him.

Q. And, by that, how much do you mean? Do you have a breakdown?

A. I couldn’t trace all of these here withdrawals. I have a cheque being issued to him for $13,000.00. I made a cash withdrawal of $2,050.00.

Q. But you don’t have any record of what that was for?

A. No. Well this was all within a couple of months after the large cheque had been deposited. And another one for $1,875.00 for cash.

Q. But you don’t have any record of what those ones are for?

A. No.

Q. Your Honour, those are all my questions of this witness.

Peter Scott testified on behalf of the respondent. He confirmed that the appellant “set up the GST” and that she balanced the bank statements. He said that she also did “book work”. The appellant had started doing work many years ago, but more on a full-time basis since 1992. She was busier in 1993 and 1994. He was asked these questions and replied as indicated:

Q. Did you keep track of her hours or anything like that?

A. No, she wasn’t being paid by the hour. She was being paid by the yearly salary or whatever it was.

Q. Was she paid in any other year?

A. No.

Q. So it was just in the 1994 year we are dealing with?

A. Yes.

Q. But she had done work for the company in other years?

A. Yes, yes.

Mr. Scott was asked whether the cheque for $29,194.00 was payment in full for the appellant’s services for 1994. This evidence followed:

The Witness: It was for ’94, a previous time that she had spent into the company. Like she had done work for the company before and never got paid for it. She never got paid a salary an hour or by the week, by the month. It was just one lump sum.

His Honour: But this was to cover what period?

The Witness: It would cover the whole period of ’94 and ’93, probably, I guess, for work she done then too. It was all combined.

His Honour: Would it go back beyond 1993?

The Witness: Well, she had done work years before that as well. But she never got paid for it. So this one year in 1994 she got paid for it.

His Honour: For all that back work?

The Witness: Yes, she got paid in the 1994 year.

His Honour: Because you are paying her on January 20, 1994 $29,000, which is at the beginning of the year?

The Witness: That’s correct. But that’s for work in ’93 you see, that would have been for work she done in 1993.

His Honour: This is for previous times?

The Witness: For the 1993 year, yes.

Later on the transcript reads:

The Crown: Q. All right. Then if we can go back to the cheque that was issued to Linda Scott in the amount of $29,194.00. You have indicated to His Honour that that amount related to wages, not only for 1994 but for the preceding years. And it was paid to Linda Scott on that basis?

A. M’hmm, yes, that’s correct.

I believe that the foregoing is a sufficient review of the evidence for the purpose of these reasons. The onus is on the appellant to show that the reassessment is in error: À. v. Anderson Logging Co., [1925] S.C.R. 45 (S.C.C.) and Johnston v. Minister of National Revenue, [1948] S.C.R. 486 (S.C.C.). She says that she was not a paid employee of Pleasant Contractors in 1994 or at any other time. I accept this. She did some minor work for Pleasant Contractors in 1994 and in previous years. But she was not paid for it. It was simply a wife gratuitously helping her husband in his business. The $29,194.00 was given to the appellant in her capacity as the wife of Peter Scott and not as his employee. At the time of the payment the marriage was in jeopardy. Why this method of transferring the funds was chosen is something that could be speculated about. It is not, however, necessary for present purposes to do so.

The appeal is allowed.

Appeal allowed.