P Litvinchuk v. Minister of National Revenue, [1979] CTC 3141, 79 DTC 899

Delmer E Taylor:—This is an appeal heard in the City of London, Ontario, on November 5, 1979, against income tax assessments in which the Minister of National Revenue disallowed unvouchered expenses for adver- t i si ng and promotion in the amounts of $2,400, $2,000 and $600 for the years 1974, 1975 and 1976 respectively. In assessing the appellant, the respondent relied, inter alia, upon subsections 8(2) and 8(4) and paragraph 8(1 )(f) of the Income Tax Act, SC 1970-71-72, chapter 63, as amended.

Background

During the years under review, the appellant was employed as a real estate salesman, on a commission basis. His gross earnings as such were $47,700, $55,570 and $67,834, from which he deducted total expenses of $7,741, $8,313 and $6,546 respectively. Included as part of the total expenses were claims for advertising and promotion of $4,122, $3,594 and $3,333, which were reduced by the Minister to the extent of the disallowed amounts under appeal.

Contentions

The notice of appeal sets out the taxpayer’s position appropriately:

Each year I keep an appointment book and in that book I mark down unvouchered expenses for car parking at meters and parking lots, purchases of coffees, purchases of drinks, use of pay telephones, etc. When the accountant prepared my tax forms, through lack of knowledge I took out the pages I wished to follow up on and threw the rest out. I thought once these expenses were totaled that was sufficient. When I was audited these expenses were not allowed.

I met the auditor R H Keers with the accountant and the auditor told us that it was Suspicious that for the three years the unvouchered expenses were $2,400, $2,000, and $600. I asked the acountant why this was the case and he couldn’t understand and assumed that he had rounded out the figures to the closest lowest amount. As a direct result I dismissed this accountant because I was angry over his carelessness and poor work. I appealed the initial decision to not allow these expenses.

On the appeal in London Jim Lamont told me that in his opinion I should be allowed a portion of these expenses. He also advised that the three amounts in question were $2,402.54, $2,000, and $605.40. I knew then and told J Lamont that I did not appreciate Keers using an entrapment ploy and misleading us to make it appear as these amounts were plucked from thin air. Over this I had made an error in firing the accountant.

J Lamont offered me $600, $600, and $300. I told him this was not acceptable because the figures I showed were tactual and my 1977 appointment book showed this was possible. He phoned me once again and I told him again it wasn’t acceptable.

When I received the Toronto decision I phoned Lamont. He told me his recommendation on this report was $720, $720, and $300.

To this my question is why did Keers use the entrapment method, why did Lamont offer me one amount and put another amount in his report or if he didnt’t why did he tell me he did. When I asked Lamont he told me I could appeal as it was out of his jurisdiction. He also told me I had received notice of the Toronto appeal and it was up to me to have written to the Board as invited. I did not receive any correspondence from anyone after I had spoken to Lamont and told him the offer wasn't acceptable.

To generate the amount of earnings as a commission real estate salesman I can't do it without spending any money for the items that I can’t obtain vouchers. I have these expenses on a daily basis.

If Revenue Canada is at all interested in being fair, and not just to collect as much as you can no matter how it is done, then I am asking to have the expenses allowed as claimed.

The assertions of the respondent were that:

where the appellant is unable or unwilling to provide substantiation for all promotion and advertising expenses, and where a portion of the receipts that were received were for meal expenses incurred by the taxpayer during a period while he was not required to be away for less than 12 hours from the municipality where his employer’s establishment was located, then the amounts disallowed were reasonable in the circumstances . . . .

Evidence and Argument

The appellant repeated the general circumstances related in his notice of appeal, and requested consideration from the Board on the basis that such expenses—parking, coffee, liquor, meals, pay telephone booth calls, etc—are inevitable and a necessary part of performing his functions, and the results are reflected in the substantial commission earnings reported.

Counsel for the Minister noted that no supporting documentation was available, but did recognize that the appellant probably incurred some of the expenses claimed. Counsel also saw a degree of discretion which seemed to be exercised by the Federal Court under somewhat similar circumstances in the case of Melvin P Deutsch v Her Majesty the Queen, [1979] CTC 217; 79 DTC 5145, and suggested that the Board might consider whether the situation in the instant appeal warranted the use of similar discretion.

Conclusion

The Board has no doubt that some of the expenses claimed by the appellant might have been incurred, and that some or all of these might be deductible in relation to his commission income. However, the fact is that the Board has no basis at all upon which to accept either any portion or all of the amounts so claimed. No information was provided to the Board by counsel for the Minister to support the apparent offers of settlement recited in the notice of appeal at $600, $600, $300; and $720, $720, and $300 respectively, and the role of the assessor with Revenue Canada may well include the exercise of such discretion at that level of the matter. There were no reassessment notices issued relating to such possible arrangements and for his own good reasons the taxpayer saw fit to reject these “offers” by Revenue Canada. The Board has no power to reinstate them and the matter must be determined on the basis of the assessments in question.

It is my view that the Tax Review Board Act provides little if any latitude for the exercise of discretion by the Board in deciding an appeal, even though there may be flexibility and informality in the hearing procedures. Acceptance by the Board on the basis of credibility alone of simple statements offered by an appellant, without corroborating evidence, comes exceedingly close to the exercise of discretion in my opinion. Conversely, determination by the Board that unsubstantiated testimony provided by or on behalf of an appellant is insufficient to discharge the onus placed upon him under the Act should not automatically be construed as a reflection on the credibility of an appellant.

It is fundamental to the taxing system as I understand it that since employees earning commission income are permitted to deduct certain expenses under the Act, that are not permitted to other employees (a fact that is frequently brought forcibly to the attention of the Board by appellants in this latter group of employees), the responsibility reciprocally assumed by the “commission” group of employees /s to maintain records and documentation in support of such expenses and to provide them when challenged to do so by the Minister. In this matter, the appellant Litvinchuk has failed and it is he, not the Minister, who must bear both the initial and the ultimate responsibility for the inadmissibility of his claim.

With reference to the case of Deutsch (supra), it is clear to me that the learned justice therein had a substantial base of information which arose at the hearing upon which to vary the assessment and, as noted at pp 219 and 5147 respectively of the judgment, it was not done entirely on the exercise of discretion:

In view of the fact that the original assessment made by the Minister in 1973 was more than fair having regard to the information available at that time and having regard to the fact that it was only at or about the time of the trial, some six years later, that definite information was supplied by the appellant which would have permitted some form of reassessment, he shall not be entitled to any costs. (Italics mine)

As noted earlier, the Board was not provided with any information at the hearing other than the unsupported testimony of the appellant which warranted a conclusion different than that reached by the Minister in the assessment.

Decision

The appeal is dismissed.

Appeal dismissed.