Jean-Alain Bisaillon v. Minister of National Revenue, [1979] CTC 2901, 79 DTC 754

Guy Tremblay [TRANSLATION]:—This case was heard at Montreal, Quebec, in part on June 10, 1977 and in part on July 14, 1978.

1. Point at Issue

The question is whether the respondent is correct in denying expenses of $2,125 (1971) and $5,716.44 (1972) in calculating the income of the appellant, a developer who is paid on a commission basis. The amounts of $2,146.10 (1971) and $4,388.86 (1972) have already been allowed by the respondent.

2. Burden of Proof

The burden is on the appellant to show 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

3.01 In 1971 and 1972 the appellant worked for Armand DesRosiers Inc.

3.02 According to the testimony of the president of this company, Mr Jean DesRosiers, the appellant was in charge of the development department. This department “conducted research on land for the purpose of feasibility studies, to see what the development potential of land might be. It accordingly had to have the assistance of specialists such as architects and engineers, in order to determine the best use of the land, make plans, or rather have plans made, submit these plans to the town, see whether they would be in accordance with zoning by-laws, and in addition investigate potential feasibility and financing. These are the duties of Mr Alain Bisaillon” (transcript of June 10, 1977, page 4).

3.03 All this research and work on projects entails expenses (including lawyers’ or notaries’ fees) which Mr Bisaillon paid.

When the projects ‘‘did not culminate in a real estate deal, Mr Bisaillon bore the cost himself, without participation by the company” (transcript of June 10, 1977, page 6).

According to Mr DesRosiers, “four or five projects may be worked on before you get one which succeeds”.

3.04 When the project culminated in a sale, the appellant’s expenses were reimbursed and the balance of the profit made was divided equally between the company and the appellant. The appellant also received a commission depending on the profits made.

3.05 Usually, the working procedure was as follows: after the appellant found a piece of land which he felt had potential and he had decided what building or business was most appropriate to it, he found a possible purchaser. He then took a purchase option on the land with a reasonable time limit, and on the condition that all title was free and clear, permits of all kinds could be obtained, and so on. The appellant contributed 50% of the deposit and the company the other 50%. He also made an agreement with the purchaser.

After all the research had been done, permits obtained and so, on within the specified time limit, the appropriate contracts were concluded.

When he had a successful project, the appellant told Mr DesRosiers and it was then that any agreement with the owner and possible purchaser was made by DesRosiers Inc.

The land had to be bought and the appellant contributed half of the deposit or investment (transcript of July 14, 1978, page 73).

The bank required the appellant’s endorsement (transcript of July 14, 1978, page 73).

3.06 In addition to the office which the company provided to the appellant, the latter like all other brokers had an office at home for receiving clients and a telephone to communicate with them.

3.07 It was clearly established that in 1971 the appellant’s situation was different from the other company salesmen, in the sense “that by the nature of his duties he had to be responsible for expenses which a regular real estate broker would not ordinarily assume” (transcript of June 10, 1977, page 16). The appellant testified that at a particular point he was paying 25% of the office expenses, DesRosiers 50% and one St-Jacques 50%.

3.08 All these agreements between the company and Mr DesRosiers were not written, but verbal.

3.09 According to Mr DesRosiers, the company transacted some 3,000 deals per annum. In 1971, there were about 50 salesmen. In 1978 the staff consisted of 300 persons.

3.10 The appellant testified that he began working for DesRosiers Inc in November 1971, at the age of 29. Previously, he had been a developer on his own account since 1964, after working as a draftsman for a firm of architects.

3.11 The appellant confirmed Mr DesRosiers’ testimony regarding the agreement between himself and the company. He called it a “joint venture”.

3.12 The appellant stated that the department which he headed at DesRosiers Inc earned $700,000 to $800,000 per annum in commissions.

3.13 The appellant explained that in 1971, before he went to work for DesRosiers Inc, from commissions of $4,250 received from Hyshell Investments Limited he paid Mr Roger Vanier, with whom he had a “joint venture”, a commission of $2,125.

Mr Roger Vanier, who said he was a developer and promoter, also testified that in 1971 and earlier years he had dealt with the appellant several times. He had known him since 1959. He stated that in 1971, for a project known as “Projet des abeilles” (bee project) (which involved the building of 3-400 cottages by Paravent Construction), he had located an interim lender with the appellant. This was a Mr Hyshell, who made loans through his companies.

For this project, a commission of $4,250 was paid to the appellant. The latter paid half of it to the witness. A photocopy of a document which Mr Vanier had already signed on December 5, 1974 was filed as No A-1. The Original, which had been supplied to the respondent’s employee, had apparently been lost.

3.14 As a consequence of this evidence the respondent, through his counsel, conceded the appeal relating to 1971 (transcript of July 14, 1978, page 34).

3.15 With regard to 1972, the appellant maintained that he had paid the sum of $5,716.44 to Mr Paul Lefebvre for Delta Construction Limitée, to repay expenses incurred for plans, notarial fees for title searches, and so on. In the submission of the appellant, in project known as “Jardins Renoir”, the expenditure had been advanced by Delta Construction Limitée. According to the agreement between Mr Lefebvre and the appellant, the latter was to repay the amount if the project did not succeed.

Mr Lefebvre testified that this “Jardins Renoir’ project concerned the construction of apartment buildings. The witness was the builder, through his company Delta Construction Limitée. He maintained that the appellant had been responsible for title searches, plans, aerial photos, loans and so on. The witness had not had time to look after such matters. For various reasons, however, the project had to be abandoned.

As Exhibit A-2 a document signed by the witness Mr Paul Lefebvre, and dated December 5, 1974, was filed, stating that Delta Construction Limitée received the sum of $5,716.44 from the appellant.

However, Mr Lefebvre did not clearly remember the exact amount or whether it was Delta Construction Limitée which had initially made the expenditure. Nonetheless, he concluded that that must have been the case Since the appellant paid him. He remembered having signed the receipt, Exhibit A-2, in December 1974, but said that he did not prepare it. He testified to the honesty of the appellant, whom he had known for a long time.

The appellant further stated that payment of the said amount, in accordance with the agreement with Mr Lefebvre, had been profitable for him because he subsequently finalized other contracts with Mr Lefebvre.

3.16 It was admitted that, with regard to 1971, the appellant did not appeal an amount of $1,222.30 which was disallowed by the respondent (transcript of July 14, 1978, page 8). He also did not appeal an amount of $1,015.94 relating to 1974, which the respondent had also disallowed.

4. Act— Case Law—Comments

4.1 Act

The principal sections of the new Income Tax Act involved in the case at bar are paragraph 8(1 )(f), subsection 8(2), paragraph 18(1)(a) and section 67, and they read as follows:

8. Deductions allowed.

(1) In computing a taxpayer’s income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(f) Salesman’s expense.—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 similar amounts fixed by reference to the volume of 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 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.

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.

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) 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 expense.

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 and Theory

The case law and theory cited by the parties are as follows:

1. Dr William H Alexander v MNR, [1969] CTC 715; 70 DTC 6006;

2. Bay City Realty Limited v MNR, No 8522 PABC 6027;

3. Comet Realties v MNR, No 8544 PABC 6062;

4. Margaret Ann Frappier v Her Majesty the Queen, [1976] CTC 85; 76 DTC 6066;

5. Wolfgang Hauser v MNR, [1978] CTC 2728; 78 DTC 1532;

6. Dr V Klemes v MNR, [1977] CTC 2210; 77 DTC 120;

7. Charles A Latimer v MNR, [1977] CTC 2128; 77 DTC 84;

8. Donald B MacDonald v MNR, [1974] CTC 2204; 74 DTC 1161;

9. Mann & Martel v MNR, No 8502 PABC 5958;

10. Henry L Molot v MNR, [1977] CTC 2170; 77 DTC 111;

11. Montreal v Montreal Locomotive Works Ltd et al, [1947] 1 DLR 161;

12. Morren v Swinton and Pendlebury Borough Council, [1965] 2 All ER 349;

13. Quebec Asbestos Corporation v G Couture, [1929] SCR 166;

14. Albert Quesnel v MNR, [1977] CTC 2143; 77 DTC 92;

15. H Lionel Rosen v Her Majesty the Queen, [1976] CTC 462; 76 DTC 6274;

16. Don Whiteside v MNR, [1977] CTC 2328; 77 DTC 239;

17. No 732 v MNR, 26 Tax ABC 285; 61 DTC 251;

18. G L Burke v MNR, 38 Tax ABC 56; 65 DTC 260;

19. S W Sherbowich v MNR, [1968] Tax ABC 1175; 68 DTC 850;

20. E R Wahl v MNR, [1969] Tax ABC 1178; 69 DTC 783;

21. Murray v MNR, [1950] CTC 7; 50 DTC 723;

22. Markus v MNR, 7 Tax ABC 295; 52 DTC 429;

23. Ramsay v MNR, 10 Tax ABC 386; 54 DTC 261;

24. Medica v MNR, [1969] Tax ABC 479; 69 DTC 360;

25. Kanally v MNR, [1971] Tax ABC 99; 71 DTC 92;

26. Purves v MNR, [1971] Tax ABC 410; 71 DTC 277;

27. Guy Duchesne v MNR, [1978] CTC 2187; 78 DTC 1156;

28. Skyview Photos Ltd, PAB 8563;

29. Hôpital Notre-Dame v Dame Villemure (1970), CA 538;

30. Dame Villemure v Dr Turcot et al, [1973] SCR 716;

31. Article by Mr Marc Noël (1977), Conf Reports, pp 712 et seq.

4.3 Comments

4.3.1 As counsel for the respondent admitted the amount on appeal relating to 1971 (paragraph 3.14 of the facts), it only remains for the Board to decide concerning the amount of $5,716.44 relating to 1972.

4.3.2 Was Mr Bisaillon an employee or a partner?

The Board has no doubt that the appellant was not an employee or ordinary salesman. The appellant was a partner with DesRosiers Inc and also Subsequently with Mr Roy.

The manner in which the appellant did his work, paid his share of the expense in ongoing projects and absorbed expenses when the projects could not be successfully concluded clearly demonstrates, according to the principles laid down by precedent (freedom of action, possibility of gain, risk of loss) that he was not an employee but a partner in what was by consent referred to as a “joint venture”.

4.3.3 The fact that the agreements between the appellant and DesRosiers Inc regarding the partnership were verbal and not written does not, so far as the Board is concerned, constitute a valid argument for dismissing the appeal. This is a common occurrence in the business world between persons who are accustomed to working together. The evidence concerning the partnership persuaded the Board of the latter’s existence.

4.3.4 Although the appellant did not file a receipt issued on the date of payment for the sum of $5,716.44 in 1972, which would have been the best evidence, the Board nonetheless considers that the burden born by the appellant was discharged.

The Board does not question the appellant’s credibility. His testimony was indeed confirmed by Mr DesRosiers and by Mr Roger Vanier, and also in large part by Mr Paul Lefebvre, although he had difficulty recalling all the details.

5. Conclusions

The appeal is allowed and the matter referred back to the respondent for re-assessment in accordance with the foregoing reasons for judgment.

Appeal allowed.