Rollande Thibault v. Minister of National Revenue, [1979] CTC 2563, 79 DTC 447

Guy Tremblay [TRANSLATION]:—This case was heard at Montreal, Quebec on July 10, 1978.

1. Point at Issue

It must be decided whether the respondent is justified in disallowing amounts of $1,550.47 for the 1972 taxation year and $3,923.41 for the 1973 taxation year in calculating the income of the appellant, who is a realtor. For these years she had claimed amounts of $3,505.73 (1972) and $7,149.07 (1973).

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 R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. Facts

3.1 In the years 1972 and 1973 the appellant was a realtor for Westgage Realties Inc.

3.2 Her work involved obtaining commissions to sell or purchase properties, visiting them, arranging for them to be visited, and so on.

3.3 Under a verbal agreement with her employer she was paid solely on a commission basis and had to pay her own car expenses. The employer provided a room in his own offices and did not require her to have an office at her residence, which was at 430 rue St-Alexandre, Longueuil, Quebec.

3.4 The appellant claimed certain expenses against her gross income for 1972 and 1973, and these were disallowed or admitted by the respondent as shown in the following table:

3.5 The expenses claimed and disallowed are shown in more detail below:

The appellant stated as regards the car expenses that she used the car seven days a week for business purposes.

3.6 The appellant stated in her testimony that when she filed her tax returns for 1972 and 1973 she had most of the vouchers, which were stored in a filing cabinet in her basement. On August 4,1975, however, following a flood, water entered the basement to a depth of three feet, probably owing to the inadequacy of the drainage system. The vouchers and all the documentation became worthless and were thrown out. The appellant contended that for this reason she could not produce them as evidence.

3.7 However, a letter to the respondent filed as (Exhibit 1-1), signed by the appellant and dated June 6, 1975 (that is, almost two months before the flood), reads as follows:

Revenue Canada—Taxation

T 1 Audit

Section 51(4), 5th floor

Attn: Mr G Rheault

Dear Sirs:

I have received your letter of May 20 in which you ask me to submit to you a list of receipts or paid invoices retained by me to support the claims in my income tax returns for 1971, 1972 and 1973.

I am unfortunately unable to meet your request. The fact is that once I received the department’s assessments and paid my tax for the aforementioned years, I genuinely believed that everything was in order and destroyed the invoices relating to each of these years.

I have just re-examined the amounts claimed for each of these years. You will agree that the expenses under each of the items, taken separately or as a whole, are not exceptionally high.

I am sorry that I cannot meet your reasonable request and I hope you will accept my apologies.

Yours truly,

(signed) Mrs Rollande Thibault

430 St-Alexandre

Longueuil, Que

The appellant stated that she did not remember having written this letter, but thought that she still had the invoices.

3.8 Following the assessment dated September 2, 1975, the appellant wrote as follows in the third paragraph of her notice of objection of November 10, 1975 (that is, more than three months after the flood):

Lastly, I did explain in my letter of June 6,1975 in relation to this assessment that I believed when I received the original assessment that everything was in order and destroyed whatever invoices I may have had; naturally there were some which I could not possibly have had. However, the failure to produce invoices for a reasonable and unavoidable expense does not justify disallowing it. See Cholette, 61 DTC 464, Logan, 67 DTC 189, and so on.

3.9 Following the notification by the Minister of September 29, 1976 upholding the notice of assessment of September 2, 1975, a notice of appeal was filed with the Tax Review Board on November 12, 1976.

3.10 In this appeal the flood is given as the main reason for the loss of the vouchers.

4. Act, Precedents and Comments

4.1 Act

The sections relevant to the instant case are the following:

8(1)(f) Salesman’s expenses.—where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for his employer, and

(i) under the contract of employment was required to pay his own expenses,

(ii) was ordinarily required to carry on the duties of his employment away from his employer’s place of business,

(iii) was remunerated in whole or part by commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated, and

(iv) was not in receipt of an allowance for travelling expenses in respect of the taxation year that was, by virtue of subparagraph 6(1)(b)(v), not included in computing his income, amounts expended by him in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts fixed as aforesaid received by him in the year) to the extent that such amounts were not

(v) outlays, losses or replacements of capital or payments on account of capital, except as described in paragraph (j), or

(vi) outlays or expenses that would, by virtue of paragraph 18(1)(i), not be deductible in computing the taxpayer’s income for the year if the employment were a business carried on by him;

8(1)(i) Dues and other expenses of performing duties.—amounts paid by the taxpayer in the year as

(i) annual professional membership dues the payment of which was

necessary to maintain a professional status recognized by statute,

(ii) office rent, or salary to an assistant or substitute, the payment of which by

the officer or employee was required by the contract of employment,

(iii) the cost of supplies that were consumed directly in the performance of the duties of his office or employment and that the officer or employee was required by the contract of employment to supply and pay for,

8(2) General limitation.—Except as permitted by this section, no deductions shall be made in computing a taxpayer’s income for a taxation year from an office or employment.

4.2 Precedents

The parties cited the following precedents:

(1) Alexandra Hotel (1960) Ltd v MNR, [1971] Tax ABC 1135; 71 DTC 767;

(2) Clement Mathieu v MNR, [1978] CTC 2646; 78 DTC 1474;

(3) Jean Cholette v MNR, 27 Tax ABC 199; 61 DTC 464;

(4) Dr Lawther Logan v MNR, [1967] Tax ABC 276; 67 DTC 189.

4.3 Comments

4.3.1 As regards the flood, the Board is indeed of the opinion that some papers became worthless and had to be thrown away; in view of the evidence presented, however (paragraphs 3.7 and 3.8 of the Facts), the Board cannot take this factor into consideration. It believes rather that the appellant had destroyed “whatever bills she may have had”.

4.3.2 The Board takes the view that the respondent was justified in disallowing the items: (A) depreciation of furniture; (B) insurance; (G) stationery and so on. According to the evidence presented, all these expenses were in connection with the office the appellant had at her residence (stationery was supplied by her employer). Subparagraphs 8(1 )(i)(i), (ii) and (iii), cited above and subsection 8(2) are clear: only expenses specified in s 8 are allowable. As the Income Tax Act is a public law it can only be strictly interpreted, and the Board has no choice but to interpret it in that way and to disallow these expenses.

4.3.3 No substantive evidence has been produced as regards the expenses for gratuities, gifts and entertainment (items (C), (D) and (E) of paragraph 3.5 of the Facts). The Board is of the opinion that in the circumstances the amounts disallowed by the respondent for lack of vouchers and explanations are justified.

The same applies to the other expenses (taxis and telephone).

The appellant, who is an experienced business-woman, has only herself to blame for not having supported her position better. In addition her own testimony (that before the flood she had most of the vouchers) is contradicted by her written statements (Exhibit 1-1 and notice of objection). This leads the Board to think that she is not a very reliable witness.

The Board must uphold the assessment.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.