Tremblay T.C.J.:
1 These appeals were heard on common evidence under the informal procedure at Trois-Rivières, Quebec, on April 8, 1997.
1. Point at issue
96-903(IT)I Denis Beaumier Ltée
2 According to the Notice of Appeal and the Reply to the Notice of Appeal, the question is whether this appellant was correct, when computing its income for 1991, in claiming an expense of $7,540, or 80% of $9,425, incurred on a business trip to the Orient, the said trip having been sponsored by the Association de la construction du Québec.
3 This appellant was unable, however, to benefit from the knowledge acquired on the trip, in part because of a massive heart attack suffered by its president, Denis Beaumier, during his return from the Orient.
4 The respondent maintains that Mr. Beaumier was accompanied on the trip by his spouse and that consequently the expense was not incurred for the purpose of gaining or producing income within the meaning of paragraph 18(1)(a) of the Income Tax Act (the Act).
96-910(IT)I Denis Beaumier
5 The question is whether the amount of $9,425 expended by Denis Beaumier Ltée to pay for a trip to the Orient for the appellant and his spouse must be included in the appellant Denis Beaumier's income.
2. Burden of proof
6 2.01 The onus is on the appellants to show that the respondent's assessments are incorrect. This burden of proof arises from several court decisions including the decision of the Supreme Court of Canada in Johnston v. Minister of National Revenue
7 2.02 In that decision, the Supreme Court ruled that the facts assumed by the respondent as the basis for the assessments or reassessments are assumed to be correct unless proven otherwise. In the instant case, the facts assumed by the respondent are set out in subparagraphs (a) to (c) of paragraph 3 of the respondent's Reply to the Notice of Appeal (96-903(IT)I). That paragraph reads as follows:
[TRANSLATION]- 3. In making this determination, the Minister assumed inter alia the following facts:
(a) Denis Beaumier is the appellant's principle shareholder; [admitted]
(b) an analysis of the appellant's expenses revealed that the appellant had incorrectly claimed as business expenses for the taxation year ending November 30, 1991, an amount of $7,540 (80% of $9,425) in respect of a trip by the principal shareholder and his spouse to Singapore;
(c) in a Notice of Reassessment issued on July 4, 1994, the Minister disallowed travel expenses of $7,540 claimed by the appellant for the taxation year ending November 30, 1991, as he considered this amount to have been a personal expense of the principal shareholder.
8 2.03 The facts assumed by the respondent in the case of Denis Beaumier (96-910(IT)I) are as follows:
[TRANSLATION]
2. In making the reassessment of June 16, 1994, for the 1991 taxation year, the Minister assumed inter alia the following facts:
a. during the year under appeal, the appellant was employed by and the principal shareholder of Denis Beaumier Ltée (the “corporation”);
b. the appellant and his wife took a trip to Singapore in January 1991, which was paid for by the corporation;
c. the appellant and his wife therefore had the enjoyment of a trip paid for by the corporation, which thereby conferred on the appellant in 1991 a benefit within the meaning of subsections 15(1) and 56(2) of the Income Tax Act (the “Act”), which benefit was in the amount of $9,425.
3. Facts in evidence
9 3.01 The only witness in both appeals was Denis Beaumier.
10 The Court observed and listened attentively to the witness. It has no doubt as to his credibility.
11 3.02 Ninety-five per cent of the company's shares were held by Mr. Beaumier and five per cent were held by his spouse, who was an active employee of the company.
12 The construction business was started up in 1976 and incorporated in 1979. Initially active in the residential sector, the business moved towards institutional (governments, municipalities, hospitals) and commercial construction starting in 1985. From the outset, his spouse took an interest in the business and was involved in its management.
13 In December 1990, they decided, given the type of business they were involved in, to take part in the “Rendez-vous à Singapour” trip, which was to be from January 15 to 28, 1991. They were in a position to appreciate the trip and to benefit from it afterwards. The six-page advertising brochure describing the daily activities was filed as Exhibit A-1.
14 3.03 The appellant Denis Beaumier's testimony also confirmed the facts set out in part (b) of the Notice of Appeal entitled [TRANSLATION] “Statement of relevant facts in the appeal”. Those facts are as follows:
[TRANSLATION]
Statement of relevant facts in the appeal:
The appellant company signed up for a business trip to the Orient which was to take place from January 15 to 28, 1991; the trip was sponsored by the Association de la construction du Québec.
The trip was a business trip the cost of which was claimed as an expense incurred in connection with the appellant company's business.
On or about July 4, 1994, a Notice of Reassessment was issued to the appellant company putting the total of all amounts owing or refundable at zero (0).
There was subsequently issued with regard to the appellant company a Notice of Determination of a Loss putting the amount of its non-capital losses at eighty-three thousand nine hundred and fourteen dollars ($83,914), thereby disallowing the expense of seven thousand five hundred and forty dollars ($7,540) attributable to the business trip to the Orient, which would have resulted in non-capital losses of ninety-one thousand four hundred and fifty-four dollars ($91,454).
On December 22, 1995, the appellant company received a Notice of Confirmation from the Minister confirming the determination on the ground that it had not been shown that the expense was made or incurred for the purpose of gaining or producing business income.
The business trip to the Orient was a trip for which the appellant company signed up for business purposes and it should for the following reasons be considered as an expense incurred in connection with the appellant company's business:(a) it was sponsored by the Association de la construction du Québec;
(b) it was specifically organized for member contractors of the Association de la construction du Québec;
(c) its purpose was to enable participants to attend conferences offered by various construction associations including the Hong Kong builders association, the Thailand builders association, and the Singapore builders association;
- (d) The conferences were aimed at providing Canadian contractors with information on various techniques used by contractors in the construction industry in the Orient and on the conditions under which contracts are concluded there, particularly with regard to:
construction in wetlands;
materials used;
contractual obligations of contractors;
relations and negotiations between contractors and government organizations;
negotiations with unions;
etc.
All of this was aimed at improving building techniques in Canada and improving for contractors the conditions under which contracts are concluded, in order to ensure higher profitability in the execution of construction contracts, especially in the institutional sector.
(e) Representatives of the Canadian embassy attended the meetings;
(a) to further increase its business by carrying out more contracts in the institutional field; and
(b) to achieve greater profits on these contracts by executing them more efficiently.
The knowledge acquired about construction in wetlands would also have been useful to the appellant company given the existence of such lands in the Trois-Rivières-Ouest area.
The number of meetings was justified given the time required for the return trip to the Orient, namely six (6) days in travelling time alone.
The meetings in three (3) different cities also required a minimum of three (3) additional days for travel.
The appellant company was unable to benefit from the knowledge acquired by its president on this trip because during the return trip he suffered a massive heart attack which resulted in the paralysis of his left ventricle. The physician of the appellant company's president ordered him to reduce his activities to a minimum because of his health, which had no chance of improving.
As a result of his physician's advice, the president of the appellant company decided to terminate all involvement in his business.
There was no one else with the expertise of the appellant company's president to keep the business running after the president left.
Were it not for the health of its president, the appellant company would have continued its operations, which had been profitable ever since they began in 1976.
The appellant company's gross income for the period from 1976 to 1990 was between sixty-two thousand one hundred and sixty-one dollars ($62,161) and one million six hundred and eighty-seven thousand five hundred and fifty-five dollars ($1,687,555) and the business generated before-tax profits in virtually all of these taxation years.
The closure of the appellant company's business following the business trip to the Orient was the result of unforeseen circumstances that should not negatively affect the appellant company in terms of the deduction of the expense for this trip.
15 3.04 In respect of a loss of $100,000 that the company incurred in 1988 and 1989, the witness stated that the loss would not have been incurred if he had been aware of certain terms to include in a construction contract, about which he had learned on the trip.
16 3.05 Throughout his testimony, Mr. Beaumier spoke of nothing but contacts, numerous meetings, visits to buildings, sites, soils, equipment, etc. His testimony was full of such references.
17 3.06 The trip was however interrupted by a telephone call from Canada with the information that his wife's mother was very ill, followed by another call the next day or the day after that advising them that she had died.
18 They checked with the airlines with a view to returning to Canada. As they would have arrived in Canada two days after the group of contractors travelling with Groupe Voyages Québec Inc., it was decided that they would stay with the group.
19 3.07 A five-day layover in Hawaii had been planned by the group's organizers. Mr. Beaumier stated that without the stopover in Hawaii the flight would have taken 20 hours, which would have been too exhausting for most of the travellers because of their age. However, given the death that had occurred while they were away and as they had been to Hawaii the year before (at their own expense), Mr. Beaumier and his wife had planned to make a short stopover in Hawaii and then continue on to Canada.
20 Things turned out differently however: between Singapore and Hawaii the witness suffered a heart attack. Doctors were waiting for him on his arrival in Hawaii. He remained in hospital for the five days and was allowed to leave again with the doctor's authorization, on certain conditions.
21 3.08 Upon his return to Trois-Rivières, his physician obliged him to cut back his activities by 50 per cent. His three children, aged 30, 28 and 20, felt unable to continue the business without him. According to the witness, his wife needed another two years of experience to be able to take over. She had been involved in the business since 1976. She was the secretary-treasurer and was involved in the bidding process, if only, in the beginning, to the extent of transcribing the bids. She conducted job site meetings when the witness could not be there. When he was there she assisted him. She also looked after the bookkeeping, cheques, bank deposits, etc. The company had between 20 and 30 employees.
22 If the company's activities had been restricted to residential construction only, it could probably have continued operating. However, the institutional construction aspect was too demanding and the decision was made to wind up the company.
23 3.09 According to the witness, his wife took notes on technical, legal and other points throughout the trip.
24 In his view, her presence was very useful and because of her personal experience in the construction industry she was able to appreciate what was said and what she saw.
25 The witness testified that, for him, the trip was not a pleasure trip, but it was pleasurable because of all he and his wife learned.
4. Analysis
26 4.01 The Court in no way questions the witness's credibility. During the hour and a half his testimony lasted, he spoke of nothing but construction.
27 4.02 The experience acquired on the trip would certainly have been useful had it not been for the state of health of the appellant company's president and principal shareholder.
28 4.03 The fact that the appellant company was unable to benefit from that experience does not alter the fact that the expense was incurred for the purpose of gaining or producing income. The weight of the evidence supports the position of the appellant company.
29 4.04 As to the appeal of Denis Beaumier (96-910(IT)I), principal shareholder of Denis Beaumier Ltée, it follows that it is also allowed, including as to his wife's expenses.
30 From the time the business was started up, she had been actively involved in it, and increasingly so after its incorporation. Her presence on the trip would also have been beneficial to the company had it not been for her husband's state of health, which was the reason for the decision to wind up the company.
5. Conclusion
31 For the above reasons, the two appeals are allowed with costs and the assessments referred back to the Minister of National Revenue for reconsideration and reassessment.
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