West Coast Lighting Exclusive LTD v. Minister of National Revenue, [1978] CTC 2768, [1978] DTC 1557

Guy Tremblay:—This case was heard in Halifax on June 12, 1978, on common evidence with the appeals of Constance Eva MacDonald (77-641) and Thomas Duncan MacDonald (77-642).

1. Points at Issue

The first point at issue is whether the respondent is right in including in the appellant’s income for the 1972, 1973 and 1974 taxation years the following amounts: $1,837.66, $4,941.67 and ($1,604.72).

The second point at issue is whether the loss of the appellant’s books and records by the representative of the respondent discharged the appellant from the ordinary onus of proof.

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof results not from any provision of the Income Tax Act, but from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in RWS Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. The Facts

3.1 The appellant corporation was owned and operated in the 1972, 1973 and 1974 taxation years by Mr Thomas Duncan MacDonald and Mrs Constance Eva MacDonald.

3.2 The appellant corporation operated a retail lighting fixture business in the Hillside Shopping Centre in the City of Victoria, in the Province of British Columbia, from August 1, 1971, to October 1, 1975, at which time the business was sold.

3.3 For the years 1972, 1973 and 1974, the appellant corporation had declared nil income in its returns. By assessment the respondent added income for those three years as follows:

3.4 All those incomes were in the nature of disallowance of travel expense, salaries expense, capital cost allowance, interest expense, repairs expense, legal expense, purchases expense, advertising expense and contract labour expense, etc.

3.9 Following the filing of notices of objection, reassessments were issued and the revised figures were as follows:

3.6 At the hearing the representative for the appellant underlined the difficulty of reversing the onus of proof which is on his shoulders because all the appellant’s books, records, bank notes, etc had been destroyed. The tax inspector, during his inspection at the appellant’s office, had left books and records on a desk near boxes of garbage. The books apparently fell into the garbage box and the workmen destroyed them with the rest of the garbage. The appellant claimed that the books and records were in the possession of the tax representative because he was still working on them and should be held responsible for them.

3.8 No witness was called on behalf of the respondent.

4. Comments

4.1 For the taxation years 1972, 1973 and 1974, even if the Board has some doubt concerning the manner in which the books and records were lost, it must consider the proof as legal. The appellant was under oath and no contradictory evidence was given by the respondent. Without the books, how can the appellant company give appropriate evidence?

4.3 The Board has no alternative but to allow the appeal in respect of the 1972 and 1973 taxation years.

5. Conclusion

The appeal is allowed in respect of the 1972 and 1973 taxation years and the matter referred back to the respondent for reassessment in accordance with the above reasons for judgment. The appeal is dismissed in respect of the 1974 taxation year.

Appeal allowed in part.