Florian Trottier v. Minister of National Revenue, [1979] CTC 2730, 79 DTC 645

Guy Tremblay [TRANSLATION]:—This case was heard in Quebec City, Quebec on March 22, 1978.

1. Issue

The issue is whether the respondent is justified in refusing to allow the appellant’s entertainment ($9,400) and automobile ($6,676.35) expenses from 1972 to 1975 inclusive. During these years the appellant was a recruiter and the director of recruitment for the Grand-Mère Caisse d’En- traide économique.

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 During the period from 1972 to 1975 the appellant was a recruiter and the director of recruitment for the Grand-Mère Caisse d’Entraide économique. As a recruiter he was paid only a commission, whereas as director of recruitment he was paid both on a salary and on a commission basis. His employer did not pay any of his expenses.

3.2 The appellant claimed various expenses for the years in question, part of which the respondent refused to allow, as set out in the following table:

3.3 There was also an expense of $2,595.80 for 1973 in connection with a restaurant owned by the appellant. At the beginning of the hearing, however, the appellant withdrew this point.

3.4 The appellant’s territory covered chiefly St-Maurice and Laviolette counties.

3.5 During 1972 and most of 1973 the appellant was a recruiter. He was paid only a commission. According to his testimony the appellant would go to the office in Grand-Mère at about 9:00 in the morning and would be on the road by 10:00 to meet clients or arrange appointments for the evening.

From Monday to Thursday the appellant worked from 9:00 in the morning until 9:00 in the evening. On Friday he finished at 5:00 in the evening. On Saturdays he worked from 9:00 until 1:00 in the afternoon.

3.6 In 1974 and 1975, when he was director of recruitment, he would go to the office at 8:45 in the morning and leave at 10:30, either to train young recruiters or to do recruiting himself.

3.7 The appellant was paid a commission. During the years in question he made the following gross income from commissions and salary:

3.8 The appellant maintained that he used his car 10% for personal purposes and 90% for his work. In fact, he used his car for personal purposes only to go to his cottage on weekends. When filing his tax return, he allowed 25% for personal use and claimed 75% as a business expense.

3.9 As for the entertainment expenses, they consisted, according to the appellant, in buying meals and drinks for clients. There were also meals bought for recruiters. The appellant maintained he was so busy that he did not have time to belong to social clubs.

3.10 The appellant does not have any receipts to support this expense. He said he had always thought he was entitled to one third of his income as expenses. His employer pays into a pension fund calculating his income as being two thirds of his gross salary. According to the appellant, his employer bases this on the fact that he is not obliged to make contributions to a pension fund on expenses incurred by a director of recruitment or a recruiter.

3.11 The respondent issued notices of assessment and the appellant filed notices of objection on the following dates for the years in question:

3.12 These dates indicate that the notices of objection were filed late, that is, more than 90 days after the notices of assessment were issued. It seems, however, that the official notices of objection merely confirmed documents that served as notices of objection and were filed within the required time.

3.13 Following the notices of assessment and the filing of notices of objection, the respondent confirmed in his notice of April 26, 1977 the notices of assessment and his refusal to allow further expenses.

3.14 An appeal was filed on August 2, 1977.

4. Acts and Comments

4.1 The principal provision concerned is paragraph 8(1)(f) of the new Act:

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 to 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)(l), not be deductible in computing the taxpayer’s income for the year if the employment were a business carried on by him;

4.2 Comments

4.2.1 There is no doubt that the appellant satisfies the conditions set out in paragraph 8(1)(f).

The only problem is that the appellant did not file any supporting documents.

It is perhaps understandable that the appellant neglected to keep his receipts for 1972 and 1973 since he filed his tax returns at the same time, in April 1974. In June of the same year expenses of over $5,000, including $2,595.80 for the restaurant, were refused. For 1974 expenses of over $6,000 were refused in a notice of assessment issued on June 11, 1975.

The Board is of the view that the appellant was negligent in not keeping receipts.

4.2.2 Considering the evidence, leaving aside the question of receipts, the Board refuses to allow the sums that the appellant is supposed to have spent on entertainment. If they amounted to approximately $20 per week in 1973, they were about $100 per week in 1974 and 1975. The appellant’s income did not increase accordingly, (paragraph 3.7 of the facts).

Moreover, the appellant does not belong to social clubs or play social sports where he would meet business people. His sport is fishing.

Since he did not keep any receipts and his testimony did not convince the Board, the Board thinks that the amounts which the respondent refused to allow as entertainment expenses were justified.

4.2.3 The Board was more impressed by the evidence adduced regarding automobile expenses. It is of the view that not only 75% but 90% of the expenses were reasonable. However, the Board would have liked to verify the purchase contracts for the cars, and so on. Here again the appellant was negligent. Because of this negligence the Board is of the view that it should allow only 60% of the expenses.

5. Conclusion

The appeal is allowed in part and the matter referred back to the respondent for reassessment in accordance with the above-mentioned reasons for judgment.

Appeal allowed in part.