MRS Gisèle Gauthier Ferland v. Minister of National Revenue, [1978] CTC 2095, [1978] DTC 1077

Guy Tremblay:—This case was heard in Montreal on June 6, 1977.

1. Point at Issue

The Board must decide whether, in respect of the 1973 taxation year, the appellant, who claims to be a self-employed person, is entitled to a deduction of $3,232.35 claimed as employment expenses, and to a deduction of $1,040 as education expenses for her son.

2. Burden of Proof

The. burden is on the appellant to show that the respondent’s assessment is 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 1192.

3. Facts

3.1. During 1973 the appellant, a mother of three children aged 14, 15 and 16, worked as an office clerk for Provost Cartage Inc at a salary of $5,614.50.

3.2. Although she received an additional income of $780 in alimony payments, the appellant claims that the total was not adequate to support herself and her three children.

3.3. Consequently, she continued to work as a “sewing contractor’’, as she put it, or as a self-employed person, for Auvents des Marchands Ltée. Her work consisted of making flags. She has been a “sewing contractor’’ since 1966.

3.4. Against her income of $2.329.45 from her contracts to make flags the appellant claimed a total of $3,932.35 in expenses, broken down as follows:

3.5. The appellant was unable to produce any documents in support of her claim because, as a result of her bankruptcy, all her papers including tax returns and supporting documents were in the possession of the trustee. For these expenses the respondent granted the lump sum of $700.

3.6. The work was done in her home using three sewing machines (One one-needle and two two-needle machines) owned by Auvents des Marchands Ltee. The material used to make the flags was also supplied by the company.

3.7. Her work involved first making a bid and then waiting for the result. She sometimes bid as often as four or five times per week. She also bid to companies other than Auvents des Marchands Ltée of Quebec. The bids were usually made in writing, but sometimes Orally. When she obtained the contract, she went to pick up the material and started work. In due course she delivered it. She was paid by the piece. She often hired other persons and paid them by the piece as well. Five people worked for her on a fairly regular basis. There were rush periods, and slower times. Most of the work was done between April and early September.

3.8. Sometimes the bids submitted did not bring in any work until a year later. They were filed in the company’s Montreal office, located 23 miles away from the appellant’s residence. When she did not use her car, it cost $10 to deliver her bids or make another trip to the company’s office.

3.9. In 1973, the appellant lived in an old, 8-room farmhouse for which she paid a rent of $70 per month. Three 9 x 10 foot rooms were used for contract work. According to the evidence, these rooms occupied approximately four-ninths of the house.

3.10. Heating costs for this old farmhouse were normal under the circumstances, in other words about $250, but the electric bill was quite high because of the three electric sewing machines used for contract work.

3.11. In October 1973, the appellant paid $6,500 for a 1974 Omega, which caused her a number of problems. It was a “lemon”. In fact, she had to have the shock absorbers changed in December of the same year, and again on several later occasions. By 1976 the car was a total wreck. Prior to October 1973, she used a relative’s car and paid all the expenses herself.

3.12. The appellant alleged that insurance on her car cost approximately $800. She got 20 miles to the gallon.

3.13. According to the appellant, she needed a car for her numerous trips to Auvents des Marchands Ltée. She did not use it to drive to her regular job at Provost Cartage Inc, since she rode with another employee. She used the car to visit her son at his school in Thetford Mines once a month.

3.14. Due to special circumstances, one of the appellant’s sons attended school in Thetford Mines, thereby incurring considerable expenses. He was in Grade 6. The appellant visited him once a month, and he came home once a month as well.

The appellant testified that the family allowance for her son was not sent to her but forwarded directly to the authorities in his school.

In computing her taxable income, she claimed the amount of $1,040 for transportation and other expenses.

4. Comments

4.1. Claim of $1,040 for her Son

The only sections under which deductions may be made for students are the following: 60(f), 62(3) and 110(1 )(g) of the new Act.

Paragraph 60(f) cannot apply in this case since it concerns a taxpayer who is a student. Such a person may claim any tuition fees paid to an educational institution. From the section, it appears that such an institution must be at least at the post-secondary level. The appellant’s son, however, attended a primary school.

Moving expenses for a student at the post-secondary level are covered under subsection 62(3). The student in the case at bar is involved in a primary program.

Paragraph 110(1)(g) allows a deduction of $50 per month for students in attendance at a “designated institution” and enrolled in an ‘educational program”.

The appellant, on whom the burden of proof rests, has not shown that the educational institution attended by her son was a “designated institution” within the meaning of the Act. Furthermore, it appears from the section that the educational institution involved must be at the post-secondary, not the primary. level.

The only amount that can be claimed for her son is $300, since $1,400 has already been claimed for another child as a wholly dependent person under paragraph 109(1)(b). The total amount of personal exemptions to which the appellant is entitled is $3,850, and not $3,550 as allowed by the respondent.

4.2. Sewing Contractor

According to the evidence presented, the work of a sewing contractor is completely different from that of an office clerk, in which capacity the appellant works at Provost Cartage Inc, a transport company.

Work as a sewing contractor, as described by the appellant, is not an employment but a business, however small it may be. She is entitled to deduct from her income from this business expenses incurred for the purpose of earning income.

Should the total amount of $3.932.35 in expenses originally claimed be allowed? The respondent arbitrarily allowed the appellant $700.

(a) Automobile expenses: $1,739.35

The appellant alleged that in late 1973 she owned a relatively expensive car (a 1974 Omega) purchased in October for $6,500. The only maximum capital cost allowance was $1,950. However, she was not forced to take the maximum. Furthermore, she said that she paid $800 for insurance, which already gives a total of $2,750 without considering other expenses, yet she claimed only $1,739.35; still, she did not provide any supporting documents. The fact that she declared bankruptcy does not relieve her of the burden of proof, and she could certainly have submitted proof of the purchase of a $6,500 car, and the records of payment of her insurance premiums. Due to the lack of supporting documents and her personal use of the car on the one hand, and the justification of this expense on the other, the Board believes it is reasonable to allow the amount of $800 on the total claim of $1.739.35.

(b) Fire and liability insurance: $48

Because of the electric sewing machines and the appellant’s liability for the material on hand, the Board believes that the expense is justified and that it was incurred. The expense is allowed in full.

(c) Rent: $600

The appellant paid $70 a month, or $840 a year in rent. According to the evidence presented, four-ninths of the house was used for the business. Consequently the Board allows $375.

(d) Salaries and wages: $805

Five persons allegedly derived benefit from this expenditure. It seems reasonable but no supporting evidence was adduced. The pay cheques could have been obtained. Only the amount of $402.50 is allowed.

(e) Telephone, heating, electricity: $740

Of the amount of $740, heating allegedly cost $250, which seems reasonable. Four-ninths, or $112, is allowed. In light of the lack of supporting evidence, only $75 is allowed. Here again cheques could have been submitted.

The various expenses allowed amount to a total of $1,655.50 on $3,932.35. Since the respondent has already allowed $700, an additional amount of $955.50 should be allowed.

5. Conclusion

The appeal is allowed in part and the whole referred back to the respondent for reassessment in accordance with the above reasons.

Appeal allowed in part.