Abraham Ferszt v. Minister of National Revenue, [1978] CTC 2860, [1978] DTC 1648

The Chairman:—This is the appeal of Mr Abraham Ferszt from an income tax assessment by which the Minister disallowed, from certain expenses claimed by the appellant, amounts of $1,613.10 in 1973 and $2,086.52 in 1974.

Amendment to the Reply to the Notice of Appeal at the Hearing

The appellant, having raised the question of an expenditure of $7,000 for the purchase of a car in 1973, counsel for the respondent moved to amend his reply to the notice of appeal by adding thereto paragraphs:

2. (c) In computing the appellant’s income for the 1973 taxation year, the respondent included in the income of the appellant an advance on commission in the amount of $7,000.

3. (k) The appellant received a $7,000 advance in income in the course of his employment during the course of the 1973 taxation year.

8. The respondent further states that the amount of $7,000 received by the appellant in 1973 is correctly included in the income of the appellant in accordance with section 5 of the Income Tax Act.

The Issues

The two issues in this appeal therefore have to do with:

a) the $7,000 advance made by the employer to the appellant in 1973, and b) the expenses claimed by the appellant in each of the years 1973 and 1974.

The Facts

The appellant was, in the pertinent taxation years, a commission salesman for Rusco Distributors (Toronto) Limited and as such his territory covered all of Metropolitan Toronto and one hundred miles around Toronto. The use of a car was necessary for the appellant to carry out his duties as a salesman and none of his expenses were paid by the employer.

The $7,000 Advance

Dealing first with the $7,000 advance included in the appellant’s income for 1973, the appellant explained that he needed a new car and admitted obtaining from his employer a $7,000 advance on his commissions, most of which went toward the purchase of a car. Notwithstanding, as suggested by the appellant, that he could have borrowed the money from the bank and the interest on the loan for the purpose of acquiring an automobile would be deductible pursuant to paragraph 8(1)(j) of the Income Tax Act, SC 1970-71-72, c 63, as amended, he did not in fact do that. By accepting an advance on his commissions, regardless of what use he would put it to, he received part of his income in the amount of $7,000 which is clearly taxable pursuant to section 5 of the said Income Tax Act.

The appeal in that respect is therefore dismissed.

The Expenses

The expenses claimed by the appellant in 1973 and 1974 were purported to have been incurred in the exercise of his work as a commission salesman. The appellant, however, did not keep proper records, books of accounts, vouchers or even notes of the expenditures.

In making a routine audit of the appellant’s returns Mr Robert Dodson, an auditor with the Department of National Revenue, testified at the hearing that he had, on several occasions, either by interview or by phone, attempted to have the appellant provide vouchers or explanations of certain expenses claimed. This the appellant failed to do.

Mr Dodson filed, as Exhibits R-1 and R-2, the expenses claimed and the allowances made for each of the taxation years 1973 and 1974. On examining the figures in these two Exhibits it can be readily seen that all the expenses that were vouchered were allowed and some that were not supported by vouchers were also allowed. Additional ex- penses were also allowed by notice of re-assessment dated July 7, 1977, no doubt as a result of additional evidence that the expenses were incurred.

The section respecting the personal use of the appellant’s car was based on figures of nine miles per day, given to the auditor by the appellant himself, and was deducted with the result that in 1973 expenses in the amount of $1,613.10 were disallowed and in 1974 an amount of $2,086.52 was also disallowed.

The expenses that were disallowed were broken down as follows:

Of these expenses, the accounting expenses were admitted to have been for the preparation of the appellant's income tax returns which are not deductible.

Although the appellant may have had to take meals away from home when working in Metropolitan Toronto, he was not required to be away for a period of time over twelve hours and ^expenses for such meals are not deductible pursuant to subsection 8(4) of the Act. The appellant was, however, allowed $100 for each of the years 1973 and 1974 for meals taken when outside Metropolitan Toronto for a period of twelve hours or more. The information received from.the employer, and not contradicted by the appellant, is. that the appellant travelled out of town roughly once a month.

No evidence or explanation was given to the Board as to the nature or the amount of promotional expenses or office supplies which would justify allowing more expenses than were already allowed by the Minister on these items.

‘The automobile expenses were allowed on the basis of the mileage the appellant stated to have travelled in 1973 and 1974 and the Board has no justification to allow additional automobile expenses.

Listening to the appellant it became quite evident that the appellant did not understand the seriousness of his responsibility of substantiating to the Department of National Revenue, and to this Board, all the expenses claimed in his income tax returns. Notwithstanding that the appellant felt that the Department of National Revenue was not very helpful and that it sought to coerce him into abandoning his appeal by presenting him with the usual withdrawal form (Exhibit A-1), I find that the Department of National Revenue was in fact not only helpful, but generous, in giving the appellant the benefit of the doubt in the absence of substantiating evidence.

In the circumstances of this appeal the Board does not feel justified

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

Appeal dismissed.