Clement Mathieu v. Minister of National Revenue, [1978] CTC 2646, [1978] DTC 1474

Guy Tremblay [TRANSLATION]:—This case was heard in Montreal, Quebec on June 10, 1977.

1. Point at Issue

The Board must decide whether expenses totalling approximately $29,000, refused by the respondent for the taxation years 1971, 1972, 1973 and 1974 in computing the income of the appellant, a commission salesman, are to be accepted.

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 Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. Facts

3.1 During 1971 the appellant was employed by “Les Entreprises Amyot”. From 1972 to 1974 he was employed by “Les Promotions Boischatel Inc’’ at Ville St-Laurent.

3.2 The appellant did not receive a salary; he was paid only on commission, at 30% of the sales price.

3.3 None of the appellant’s expenses were paid by the employer.

3.4 The car was the property of the appellant.

3.5 The appellant was away from home from thirty-five to forty weeks a year, travelling throughout the province. He travelled, on the average, between 30,000 and 35,000 miles a year. During these weeks he was away for 4 days.

3.6 He worked approximately 8 weeks a year in the Montreal region and went home at night.

He usually took his vacation in January, but since he liked the country and he lived there, he spent his vacation at home.

3.7 Income from commissions and total expenses claimed, allowed and refused for the years in question are broken down as follows:

3.8 The main expenses claimed are broken down as follows:

3.9 According to the appellant, meals cost $73.74 in the past few years: up to $2.50 for breakfast, $5 for dinner and $7.50 for supper.

3.10 Depreciation on his car over the years is broken down as follows:

3.11 Having spent most of the time on the road (his car was his office; “it’s my living’, the appellant said), the appellant bought a “Thunderbird” in 1973 for $9,500. It was purchased completely on time payments, and he paid from $250 to $275 a month. This make of car obtains twelve miles to the gallon. According to the appellant, he would have had to have 2 “Chevettes” to cover the distance he did. 3.12 According to the appellant’s tax returns, his net income was as follows:

3.13 His wife, until her death in 1973, worked and helped the appellant with common expenses. They lived in a trailer. He did not claim his wife as a personal exemption.

3.14 Even though the appellant collected all his supporting documents from 1975 on for the years in question, he did not keep them, as he then considered it pointless.

3.15 The appellant filed an objection as a result of the notices of reassessment issued on January 26, 1976. The Minister gave his reply on November 26, 1976, confirming the notices of assessment for the years in question. The appeal was lodged with the Board on January 7, 1977.

4. Acts, Precedents and Comments

4.1 The main sections involved in this case are 3, 5, paragraph 8(1 )(f) and section 67 of the new Act and section 3, subsections 11(6) and 12(2) of the old Act.

4.2 There is no doubt that the appellant meets the conditions laid down by paragraph 8(1)(f) and that he is entitled to claim expenses incurred in order to earn income from commissions.

4.3 Obviously the problem stems from the fact that he has no supporting documents, on the one hand, and that the respondent considers the expenses unreasonable, on the other.

4.4 Counsel for the respondent cited the following precedents:

—William Howell Ramsay v MNR, 10 Tax ABC 386; 54 DTC 261;

—Harry Markus v MNR, 7 Tax ABC 295; 52 DTC 429;

—Stefan W Sherbowich v MNR, [1968] Tax ABC 1175; 58 DTC 850:

—Gerald L Burke v MNR, 38 Tax ABC 56; 65 DTC 260:

—Edward R Wahl v MNR, [1969] Tax ABC 1178; 69 DTC 783.

In short, these decisions refused most of the expenses when they were not supported by supporting documents and were considered unreasonable. The basic argument is that since the appellant is the main party concerned, and the burden of proof rests with him, he alone is to blame for not having kept the supporting documents.

In this case, a judgment based on the same principle would not be unjust in itself, but the Board wonders if there is not reason to allow more than the 30% allowed by the department.

4.5 First, the question is whether the expenses were excessive. The Board considered mainly 1972, 1973 and 1974. Living expenses (hotel

and meals)—1972: $6,720; 1973: $7,250; 1974: $7,500. According to the appellant, it often cost him $2.50 for breakfast, $5 for dinner and $7.50 for supper.

He did not give figures for rooms. He did not specify whether he took the best or the worst hotels. The Board feels that $20 is a reasonable average for a room between 1972 and 1974. According to the evidence, he was away 4 days a week. The Board concluded that he sometimes returned home on Thursday evening, sometimes early Friday.

Therefore, the Board feels that an average of $70 for rooms plus an average of $67 for meals, totalling $137 is reasonable. This makes approximately $5,100 a year for the thirty-seven weeks (37 x $137). Entertainment allowance—1972: $1,500;. 1973: $1,800; 1974: $2,000. According to the appellant, these expenses were incurred in Montreal when clients from various regions came to the city. He invited them to dinner, to the club and so on. The Board feels that such expenses do exist, but the evidence did not indicate how many times a year the appellant entertained such visitors.

The Board feels that a monthly amount of $75 is reasonable; this means $900 for 1972. In view of the increase in income, the Board felt it reasonable to allow $1,080 for 1973, $1,250 for 1974. Car expenses—gasoline—for 1972: $2,342; for 1973: $2,765; for 1974: $3,150. According to the appellant, the “Thunderbird” did twelve miles to the gallon. He travelled an average of 32,400 miles and therefore used 2,700 gallons at $0.60 ($0.60 a gallon is a generous average for 1972, 1973 and 1974), thus $1,620, and $1,700 with oil. Maintenance— 1972: $1,200; 1973: $1,500; 1974: $1,800. The Board feels that car maintenance (spring and fall check-up, towing, washing) is not likely to cost $30 a week, unless there are special expenses, but there is no evidence of this. An amount of $750 is considered reasonable for each of these years.

Depreciation

The purchase of a- “Thunderbird” for $9,500 in 1973 is definitely considered unreasonable. Several cases have dealt with this matter: G H Chambers (Northiam Farms) Ltd v Watmough (HM Inspector of Taxes), 36 TC 711; P F Niessen v MNR, [1960] Tax ABC 62; 60 DTC 489; No 485 v MNR, [1958] Tax ABC 358; 58 DTC 69; G Zakoor v MNR, [1964] Tax ABC 338; 64 DTC 392; W J Kent and Co Ltd v MNR, [1971] Tax ABC 1158; 72 DTC 1018.

The essence of these precedents is that the expenses claimed for cars considered luxury cars (Bentley, Cadillac, Rolls-Royce) were unreasonable expenses. The taxpayers had not shown any evidence of requiring a car considered to be a luxury car for the needs of their businesses.

In the case at bar, the Board feels that a car for $6,500 in 1973 could have provided the same service.

Because of the reasons given, the Board considers the following figures reasonable:

4.6 If the taxpayer had collected all his supporting documents, he would probably have arrived at these figures. Does the Board have to allow him these amounts simply because it considers them reasonable? It does not believe so, because this would be placing the appellant on the same basis as the taxpayer who was diligent enough to collect all his supporting documents and thereby prove all his expenses. The taxpayer gave no valid reason for the lack of supporting documents. Therefore, the Board feels that it is fair to reduce the expenses by 50% (the case cited above reduced it by 70%).

4.7 Whereas the claimed expenses were considered excessive in the following amounts:

Whereas 50% of the expenses considered reasonable, allowed above, equals approximately 30% of the total expenses, and this was allowed by the respondent; the Board accordingly concludes that there is no reason to change the notices of reassessment established by the respondent.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.