Tardif T.C.J.:
1 These are appeals from notices of assessment for the 1992 and 1993 taxation years. The Minister relied on subsections 15(2) and 248(1) of the Income Tax Act as amended and as applicable when the reassessment, which is the subject of these appeals, was issued.
2 Only the appellant testified. He gave a brief account of his career path, indicating that he had worked for Revenue Canada for seven years.
3 In 1988, he decided to redirect his career toward private enterprise and became a shareholder and director of Redmond & Frères Ltée and Garage Redmond Inc.
4 He travelled a great deal in the performance of his duties, and he estimated the annual kilometrage required for his work at about 50,000 kilometers. He argued that the amounts Revenue Canada had added to his earnings for the taxation years at issue were not loans or advances but rather reimbursements for his transportations expenses. He admitted to not having any supporting documentation, claiming that the distance between the company's two places of business amply justified his estimated kilometrage; he travelled at least 1,000 kilometers a week for the purposes of his work.
5 He indicated that the reimbursement for expenses was characterized as advances to the directors, essentially to facilitate relations with the banks with which the companies did business.
6 The respondent had Jean Mercier, the author of the audit report filed as Exhibit I-1, testify. Mr. Mercier explained how he had arrived at the findings that led to the notice of assessment at issue. On this point, it is important to remember that the appellant admitted that the figures from the accounting by Redmond & Frères Ltée were accurate.
7 The amounts characterized as advances or loans paid to the appellant were regularly repaid by him. These repayments discredit his explanation that the payments made by the company were in fact to reimburse him for expenses; indeed, if this had in fact been the case, it would have been surprising for him to repay amounts that were deducted from the cumulative total described as advances.
8 The onus was on the appellant to show that the amounts at issue were expenses, and it was essential that valid, substantial evidence be adduced in order to do so. Not only did he fail to adduce such evidence, he admitted the accuracy of the figures obtained by the Department and admitted that the entries had been defined as advances.
9 The explanations submitted by the appellant have no evidentiary value because they totally discredit the value of the accounting kept by the companies concerned. The approach that was used produced results that were completely arbitrary and absolutely inadmissible. This Court must rule on the basis of the observed facts and written evidence, not on the basis of what the appellant could or should have had appear in the accounting of the companies audited.
10 The company's difficult financial situation does not constitute a valid argument justifying the fact that the reimbursement for expenses appeared as advances to the appellant shareholder. Revenue Canada issued the assessment on the basis of the situation created by the appellant himself.
11 There are cases in which the Court must consider the taxpayer's intention in order to clarify an ambiguous or confusing situation; the attempt to determine that intention thus becomes one piece of evidence among others for the purpose of determining the meaning of a particular action. However, when the facts are clear and not confusing in any way, it would be imprudent to render a decision on the basis of what the taxpayer intended to do rather than what was actually done. It may have been the appellant's intention to consider these advances as reimbursements for expenses; however, the truth from a clerical and accounting point of view was quite different, and this Court must render a decision on the basis of this situation alone, not what could have or should have been.
12 In Friedberg v. R. (1991), 92 D.T.C. 6031 (Fed. C.A.), Linden J.A. of the Federal Court of Appeal made the following remarks concerning the formal requirements in tax matters:
In tax law, form matters. A mere subjective intention, here as elsewhere in the tax field, is not by itself sufficient to alter the characterization of a transaction for tax purposes. If a taxpayer arranges his affairs in certain formal ways, enormous tax advantages can be obtained, even though the main reason for these arrangements may be to save tax (see The Queen v. Irving Oil, 91 D.T.C. 5106, per Mahoney, J.A.). If a taxpayer fails to take the correct formal steps, however, tax may have to be paid. If this were not so, Revenue Canada and the courts would be engaged in endless exercises to determine the true intentions behind certain transactions. Taxpayers and the Crown would seek to restructure dealings after the fact so as to take advantage of the tax law or to make taxpayers pay tax that they might otherwise not have to pay. While evidence of intention may be used by the Courts on occasion to clarify dealings, it is rarely determinative. In sum, evidence of subjective intention cannot be used to “correct” documents which clearly point in a particular direction.
13 The appellant argued that the amounts added to his earnings had to be compensated for or offset by a portion of the expenses he had incurred as part of his duties and for which he had received nothing. Those were two separate and, in my view, unrelated items, especially since the evidence as to the amount of the expenses was completely arbitrary.
14 For these reasons, the appeals are dismissed.
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