Smargdi Rozanis and Nick Rozanis v. Her Majesty the Queen, [1993] 2 CTC 2309

Christie, A.C.J.T.C.C. (orally):— I shall now deliver the reasons for the judgments that shall issue in the appeals of Nick and Smargdi Rozanis v. The Queen.

These appeals were heard together. The appellants are husband and wife and, at the time relevant to these appeals, carried on the business of a Pizza- Pizza franchise in an equal partnership.

Nick Rozanis appeared on his own behalf and as agent for his wife. She did not testify but expressly adopted the evidence adduced by or on behalf of her husband in support of her appeal.

The essentials of what led to this litigation and the nature of the dispute are set out in paragraphs 1 to 7 of the replies to the notices of appeal. Both are essentially the same and it is sufficient to reproduce those paragraphs from the reply in the Nick Rozanis appeal:

A. STATEMENT OF FACTS

1. He denies all allegations of fact contained in the notice of appeal except as hereinafter specifically admitted.

2. In computing income for the 1984, 1985 and 1986 taxation years, the appellant deducted the following business expenses:

1. Expenses:	1984 1984	1985	1986
Drivers ana Cooks	$82,980.00	—	—
—Drivers-Deliveries	—	$105,493.00	—
—Deliveries	—	—	$155,105.00
Commission	—	—	13,968.00
Other Expenses	99,127.00	115,895.00	157,017.00
Total Expenses	$182,107.00	$221,388.00	$326,090.00
2. Coupons and Discounts netted
Sales:	$ 21,139.90	$ 24,533.00	$ 24,845.43
against Sales:
	$203,246.90	$245,921.96	$350,935.43
Less: Spouse's share: 50% thereof	$101,623.45	$122,960.98	$175,467.72
Total	$101,623.45	$122,960.98	$175,467.71

3. In reassessing the appellant for the 1984, 1985 and 1986 taxation years, the Minister of National Revenue (the "Minister") disallowed the deduction of the business expenses mentioned in paragraph 2 as follows:

1. Expenses:	1984	1984	1985	1986
Drivers and Cooks	$20,118.27			—
—Drivers-Deliveries		—	$26,531.78	—
—Deliveries		—		$46,462.01
Commission		—	—	13,968.00
	$20,118.27		$26,531.78	$60,430.01
2. Coupons and Discounts netted
against Sales:	$ 6,771.50		$ 6,485.68	—
	$26,889,77		$33,017.46	$60,430.01
Less: Spouse's share: 50% thereof	$13,444.88		$16,508.73	$30,215.00
Total	$13,444.88		$16,508.73	$30,215.01

4. In so reassessing the appellant, the Minister made the following assumptions of fact:

(a) the appellant, on two occasions in the past, has signed undertakings to maintain proper books and records for the business;

(b) the appellant failed to maintain records and to provide proper documentation to substantiate the amounts deducted as business expenses listed in paragraph 3 above;

(c) on reassessment, the Minister allowed reasonable expenses based on statistics of comparable businesses despite the absence of documentary evidence;

(d) the expenses in excess of the amounts allowed by the Minister were not made or incurred for the purpose of gaining or producing income.

B. ISSUES TO BE DECIDED

5. The issue is whether expenses in excess of the amounts allowed by the Minister were incurred by the appellant for the purpose of gaining or producing income from a business or property.

C. STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT

6. He relies on sections 3, 9 and 67, subsection 248(1) and paragraphs 18(1)(a) and 18(1)(h) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") as amended for the 1984, 1985 and 1986 taxation years.

7. He submits that the disallowed expenses have not been shown to have been outlays or expenses incurred by the appellant for the purpose of gaining or producing income from a business or property within the meaning of paragraph 18(1)(a) of the Act.

The onus is on the appellants to show that the reassessments are in error. This can be established on a preponderance of probabilities. Where the onus lies has been settled by numerous authorities binding on this Court. It is sufficient to refer to two judgements of the Supreme Court of Canada in this regard indexed as: R. v. Anderson Logging Co., [1925] S.C.R. 45, [1917-27] C.T.C. 198, 210, 25 D.T.C. 1209, 1215, and Johnston v. M.N.R., [1948] S.C.R. 486, [1948] C.T.C. 195, 3 D.T.C. 1182.

The evidence placed before this Court this morning does not even begin to discharge the onus just referred to. The evidence of Nick Rozanis was very brief and did not cast doubt about the correctness of the reassessments. He offered to place a number of letters in evidence, alleged to be from persons who worked for the partnership about remuneration received but, understandably, counsel for the respondent objected to their being received in the absence of having the opportunity to cross-examine the authors of the letters. The objection was sustained.

Mr. Abdul Dhanji, an accountant-bookkeeper, testified for the appellants. The essence of what he had to say was an opinion to the effect that a number of individuals who did work for the partnership did so in the capacity of independent contractors rather than employees.

The last witness was Mr. lan Dupigny, an auditor with Revenue Canada, who carried out an audit of the business affairs of the appellants at the times relevant to these appeals. He was called on behalf of the respondent. Nothing said by him in the course of examination-in-chief or cross-examination helps the appellants. It is clear from his evidence that the business records kept by the appellants were very inadequate.

The reassessments, not having been successfully challenged, they must stand and the appeals regarding them must fail.

Appeals dismissed.