Joseph Laberge v. Minister of National Revenue, [1978] CTC 2806, [1978] DTC 1605

The Chairman [TRANSLATION]:—The appeal of Joseph Laberge from a tax assessment in respect of the 1970, 1971 and 1972 taxation years was heard in Montreal, Quebec, on December 16, 1977.

Points at Issue

(1) The taxpayer allegedly failed to report the following amounts as income:

$4,025 in respect of the 1970 taxation year;

$6,500 in respect of the 1971 taxation year;

$6,500 in respect of the 1972 taxation year;

(2) the taxpayer allegedly failed to report as income in respect of the 1970 taxation year shares in Ciné Parc Mercier Inc worth $6,900;

(3) the taxpayer allegedly deducted the following amounts from his income as travel expenses in respect of a rental property known as the Place de la Berge:

$1,413.37 in respect of the 1970 taxation year;

$1,530.24 in respect of the 1971 taxation year.

Of these amounts claimed, the respondent refused to allow $913.37 in respect of the 1970 taxation year and $1,030.24 in respect of the 1971 taxation year.

The respondent penalized the taxpayer $152.88, $243.94 and $224.93 for 1970, 1971 and 1972 respectively, pursuant to subsection 56(2) of the Income Tax Act, RSC 1952, c 148, as amended, and subsection 163(2) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Facts

During the years in question, the taxpayer was the agent for Ciné Parc Mercier Inc (hereinafter referred to as ‘‘Ciné Parc”) responsible for preparing, organizing and operating this new business. He also owned a building from which he derived rental income.

Submission of the appellant

The appellant argued that the $4,025, $6,500 and $6,500 he received for 1970, 1971 and 1972 respectively were allowances for the ex- penses he incurred in performing his duties. He further argued that the shares in Ciné Parc worth $6,900 were given him in 1970 in repayment for expenses connected with his duties as the agent for Ciné Parc.

According to the taxpayer, the $1,413.37 and $1,530.24 for the 1970 and 1971 taxation years respectively were incurred for travelling to his property, Place de la Berge, to clear snow, rent the premises and collect the rents. He also objected to the penalties imposed on him for each of the years in question.

Submission of the respondent

Counsel for the respondent argued that the $4,025, $6,500 and $6,500 that the taxpayer received in 1970, 1971 and 1972 were fixed allowances. Paragraph 3, page 2 of the taxpayer’s contract of employment, submitted as Exhibit I-1, reads as follows:

3. The General Manager shall receive an annual salary of $5,200 plus an expense allowance of $6,500, the whole payable at a weekly rate of $225, including the salary and expenses inherent in his duties.

In the event that outside travelling is required, he shall be entitled to reimbursement for the expenses incurred in the performance of his duties upon the presentation of supporting documents.

Counsel for the respondent argued that the taxpayer’s remuneration of $225 per week was a fixed wage and therefore taxable under section 5 Of the Income Tax Act, and that the exception contained in subparagraph 6(1 )(b)(v) of the said Act did not apply, since the Cine Parc was the sole place for which the taxpayer acted as agent. Counsel for the respondent pointed out that, according to the taxpayer’s testimony, the latter did not have to travel frequently outside the city of Montreal, and that, under the terms of his contract of employment, he did not have to pay for expenses so incurred; counsel therefore concluded that the deductions permitted under paragraph 8(1)(h) of the Income Tax Act, SC 1970-71-72, c 63, could not apply under the circumstances. Counsel further argued that paragraph 8(1 )(f) of the said Act also did not apply, since this section deals with travel expenses for salesmen, and the taxpayer was not a salesman; hence he maintained that no deduction could be allowed the appellant under subsection 8(2).

Counsel for the respondent reminded the Board that in his cross- examination the appellant, in trying to account for the expenses of $6,900 he incurred, and in compensation for which he had received Ciné Parc shares, was unable to elaborate on these expenses except for $4,000 he claimed to have paid in bribes.

Conclusion

What I find most astonishing in this case is the appellant’s almost complete lack of concern about submitting to the Board the slightest documentation, evidence or even an explanation of the expenses he says he incurred and claimed as deductions.

The appellant failed to explain to the Board’s satisfaction not only the amounts but also the type of expenses he incurred in performing his duties as agent for Ciné Parc that were not wholly or partially personal expenses. Having offered no valid explanation for expenses totalling $17,025 for the three taxation years in question, he argued that the $6,900 worth of shares received from Ciné Parc was remuneration for other expenses incurred, and he can only account for $4,000 of this, as payment of bribes, which is needless to say unsubstantiated, leaving $2,900 in expenses totally unexplained.

I have no choice but to doubt the appellant’s credibility and conclude that he did not discharge the burden of proof which was on him to show that the $17,025 received during 1970, 1971 and 1972 was not an allowance or gratuity within the meaning of section 3 and subsection 5(1) of the Income Tax Act.

As regards the $1,413.37 and $1,530.24 for the 1970 and 1971 taxation years respectively, claimed by the appellant as expenses for the purpose of earning revenue from the Place de la Berge, the respondent, without any supporting documentation, allowed the appellant a $500 deduction for each of the years in question. The appellant’s explanations about these expenses would in no way justify me in allowing more generous deductions. In view of the fact that counsel for the respondent intimated to the Board that the respondent did not insist that the penalties for each of the years in question be levied, the Board orders that the said penalties be waived.

For these reasons, the appeal in respect of the 1970, 1971 and 1972 taxation years is allowed in part, setting aside the penalties levied for the said years, and the whole is referred back. to the respondent for reassessment. In all other respects, the appeal is dismissed.

Appeal allowed in part.