The Assistant Chairman:
1 This is the appeal of Stephen Gramlewicz from an income tax assessment dated February 17, 1975 in respect of the appellant's 1973 taxation year. The appellant filed a notice of objection to the said assessment on February 20, 1975. The Minister having confirmed the assessment on February 24, 1975, the appellant produced his notice of appeal on June 17, 1975. Appearing at the hearing of appeals set by the Tax Review Board for the week of July 7, 1975, in Halifax, the appellant wished to have his appeal heard at the current sittings and since the 60-day time limit for the respondent's filing of his reply to notice of hearing had not yet expired and the said reply had not yet been filed, the appellant waived his right to the reply rather than wait for the next hearing of appeals to be held in Halifax in 1976.
2 Counsel for the respondent, under the circumstances, agreed to the hearing of the appellant's appeal notwithstanding that it had not been placed on the current role, sent to Ottawa for the appellant's file, and the appeal was heard on July 9, 1975.
3 There are two issues in this appeal. The first is the deductibility of $11,000 which was claimed in the appellant's 1973 tax return as a loss which he alleges was salary earned by him but not received in the 1968 or 1969 taxation years. The second issue is the appellant's objection to the manner in which he was reassessed.
4 The appellant, an electrical engineer, was employed by Eastech Limited, a plant which manufactured electrical equipment, in which the appellant held 25% of the shares, and for his services he was paid between $10,000 and $12,000 a year. In 1968 and 1969 the appellant and his wife commenced and operated a manufacturing company similar to Eastech Limited which they named Eastech Newfoundland Limited.
5 During the years 1968, 1969 and early 1970, at which time Eastech Newfoundland Limited was wound up, the appellant, although he allegedly worked 30 hours a week at the plant, did not receive any salary or compensation for his efforts, but lived on the salary he was making from Eastech Limited. Early in 1970 Eastech Limited was sold and the new owners required the appellant's services on a full-time basis at the Eastech Plant which forced the appellant to wind up Eastech Newfoundland Limited.
6 The appellant, on the basis of the salary he received from Eastech Limited for comparable work, considered that he should have received from Eastech Newfoundland Limited a salary of $11,000 a year and applying a 50% income tax rate to the level of salary he should have received, he claimed in his 1973 tax return a loss of $11,000 for the 1968 and 1969 taxation years which was eventually disallowed by the Minister.
7 In determining whether or not the $11,000 was deductible, it must first be considered whether the appellant sustained a loss. The appellant and his wife were the sole beneficial owners of Eastech Newfoundland Limited and all the effort and work that they may have put into that company no doubt increased its capital value. The appellant could rightly and legally have taken an $11,000 a year salary for his services but the evidence is that he did not choose to do so.
8 No amounts for salary were ever registered in the company's books or in the company's tax returns. Further, there was no contract which forced Eastech Newfoundland Limited to pay a salary to the appellant. The amount of $5,898.26 paid to Mrs M G Gramlewicz, the appellant's wife, which appears in Exhibit R-1, can in no way be considered as a salary to her as claimed by the appellant. All the evidence confirms that no salary was in fact payable by Eastech Newfoundland Limited to the appellant nor to the appellant's wife and therefore, in my opinion, no loss of salary can now be claimed by him or by Mrs Gramlewicz.
9 Although it may be true that the appellant put into Eastech Newfoundland Limited considerable effort and time, it is also true, as suggested by counsel for the respondent, that a missed opportunity cannot for income tax purposes be considered as the source of a deductible loss.
10 In my opinion, the deduction of $11,000 claimed by the appellant in the 1968 and 1969 taxation years is not a loss within the meaning of the Income Tax Act and is therefore not deductible.
11 As to the second issue, the appellant notes that in the Minister's assessment of May 1974 of the appellant's 1973 taxation return an overpayment by the taxpayer of $5,787.42 was indicated and a cheque for that amount was received by the appellant from the Department of National Revenue. The appellant claims that, having already invested this amount in other enterprises, he was put to unfair duress when, by notice of reassessment in February 1975, the Department of National Revenue claimed an amount of $4,428.15 as the balance of taxes owing by the appellant for his 1973 taxation year. The appellant contends that such a reassessment was, under the circumstances, inequitable and unjust.
12 Counsel for the respondent explained that in order to process the millions of dollars of refunds claimed by the taxpayers in their returns as expeditiously as possible, the original assessments are done by means of computers and refunds forwarded as quickly as possible. A second assessment is usually made in these instances to verify the validity of the refund and in most cases the refunds were properly made. However, in this appeal the appellant's deduction of $11,000 as a loss for the years 1968 and 1969 was not allowed as being a valid loss and the refund therefore was not justified.
13 The appellant, unmindful that he is personally liable and responsible for all taxes payable pursuant to the Income Tax Act for a particular taxation year, contends that the Department of National Revenue, having made an error in making the refund, should exempt him from paying the full amount of tax which he truly owed in 1973.
14 Even if the Department of National Revenue had in fact made a mistake in refunding the appellant money, the Minister of National Revenue, whose responsibility and duty it is to collect all taxes payable pursuant to the Income Tax Act has by law the authority to reassess at any time within the limits of the Income Tax Act whenever it is found that the full amount of taxes payable by a taxpayer in a particular year has not been paid. The Minister's second assessment in this appeal was well within the time limit set down in the Income Tax Act and the Minister's reassessment was legal and valid.
15 The fact that the explanation for the reassessment was in handwriting and unsigned is immaterial since it was subsequently duly confirmed by the Minister.
16 I have no alternative but to dismiss the appeal.
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