The Consortium Group Limited and David K. Lansdowne v. Minister of National Revenue, [1986] 2 CTC 2095, 86 DTC 1558

Christie, A.C.J.T.C. [Orally]:—These appeals were heard on common evidence. The appeal of The Consortium Group Limited (“The Consortium”) relates to its 1980 and 1981 taxation years. Its fiscal period and hence its taxation year ended on September 30 during the time relevant to these appeals. Mr. Lansdowne's appeals are in respect of his 1979, 1980 and 1981 taxation years. During the periods under review he was the president of The Consortium and owner of 98.5 per cent of its shares.

It is alleged in the reply to the notice of appeal filed by the respondent that, in computing its income for its 1980 taxation year, The Consortium improperly sought to deduct $4,368.66 in business expenses. This amount is made up of travel advances in the sum of $929.50, American Express charges of $2,733.41 and expenses of $705.75 pertaining to maintaining a villa on the island of Majorca, Spain. The amount improperly sought to be deducted by The Consortium in respect of its 1981 taxation year is $8,989.19 in respect of the same kind of expenditures in these amounts respectively: $4,180.94, $3,357.50 and $1,450.75. The position of the respondent as set out in the reply to the notice of appeal in respect of the appellant Lansdowne is that, in computing his income for his 1979 taxation year, he should have included $1,140.02 in travel advances. It is further alleged by the respondent that, in computing his income for his 1980 taxation year, Lansdowne should have included $4,761.80 consisting of travel advances in the sum of $802.26, American Express charges of $3,253.79 and expenses of $705.75 for maintenance expenses pertaining to the previously mentioned villa. The amount which has been said should have been included in computing Lansdowne's income for his 1981 taxation year is $7,455.53 in respect of the same kind of expenditures stated regarding 1980 and in these amounts respectively: $3,168.16, $2,837.12 and $1,450.25.

The reasons relied on by the respondent in reassessing the appellants is that the amounts sought to be deducted by The Consortium were not deductible because they were not expenses incurred by it for the purposes of gaining or producing income from its business or producing income from its business or property within the meaning of paragraph 18(1)(a) of the Income Tax Act but rather the amounts were funds of The Consortium appropriated to or for the benefit of Lansdowne under subsection 15(1) of the Act and, therefore, required to be included in computing his income.

At the outset it was conceded by counsel for the appellants that four items of a total value of $610 pertaining to American Express vouchers were not business expenses of The Consortium and, therefore, not deductible as such but rather were benefits to Lansdowne and to be included in computing his income. Also counsel agreed that an item pertaining to a briefcase valued at $158.36 was not included in reassessing.

With respect to The Consortium's 1980 taxation year, included in Exhibit R-1 is a notice of reassessment regarding that period which was mailed on October 27, 1983. It is a nil reassessment. It has been settled by judicial authority binding on this Court that it has no jurisdiction to entertain an appeal for a reassessment of that kind: Okalta Oils Limited v. M.N.R., [1955] C.T.C. 271; 55 D.T.C. 1176, a judgment of the Supreme Court of Canada; The Queen v. Garry Bowl Limited, [1974] C.T.C. 457; 74 D.T.C. 6401, a judgment of the Federal Court of Appeal and The Queen v. B. & J. Music Ltd., [1980] C.T.C. 287; 80 D.T.C. 6219, a judgment of the Federal Court — Trial Division.

The fact that no mention is made of this in either the notice of confirmation of the reassessment dated August 24, 1984 or the respondent's reply to the notice of appeal cannot operate to confer jurisdiction on this Court any more than, for example, litigants can confer jurisdiction on it by agreement or consent. The source of this Court's jurisdiction is Parliament.

With regard to what remains, in order for the appellants to succeed they must discharge the onus which is on them to establish that, on a preponderance of probabilities, the respondent's reassessments are in error, or to paraphrase Mr. Justice Rand of the Supreme Court of Canada in the often cited case of Johnston v. M.N.R., [1948] C.T.C. 195 at 202; 3 D.T.C. 1182 at 1183: The onus is on the appellants to demolish the basic facts or assumed facts on which the taxation rests.

Lansdowne testified on his own behalf and on behalf of The Consortium. No one else testified for the appellants. During the course of argument last Monday I indicated doubt regarding whether the appellants had discharged the onus of proof which rests on them. In the intervening time I have had a good opportunity to reflect on the documents placed in evidence and the oral testimony adduced. The result is that the doubt has been reinforced to the point that I am satisfied that the appellants have failed to do what I have said is required of them in order to succeed.

When regarded as a whole, the real substance of Lansdowne's evidence is a denial in general terms of the respondent's position that the items of expenses which are in dispute were not incurred by The Consortium for the purpose of gaining or producing income from its business. Focus was not brought to bear on the categories and amounts in dispute with evidence to demonstrate that in fact they were of the nature contended by the appellants.

While testifying, Lansdowne had before him a rather formidable stack of documents which had been prepared by him and were described as expense reports. These, it was said or suggested, contained particular verification of the appellants’ contention. He also made reference to the existence of other documents of a similar nature “which can be produced". Neither the expense reports nor the other documents alluded to were placed in evidence. During the course of argument, counsel for the appellants said that to launch a more particularized attack on the reassessments than was done would have been a very lengthy undertaking. Perhaps that is so. I do not know. Nevertheless, when the law places the onus of proving something on a litigant the fact that to do so may, in a particular case, be tedious and time-consuming cannot operate to alleviate him of that burden.

Two witnesses were called on behalf of the respondent: both are employees of Revenue Canada. Mr. James Powell was very much involved in the reassessments pertaining to these appeals. He explained what transpired in this regard in a straightforward manner when examined in chief. He was, of course, open to full cross-examination and nothing occurred by reason of it that can be regarded as assisting the appellants in their appeals.

The evidence of the second witness, Mr. Bruce Reed, was more peripheral in nature. Counsel for the respondent said that it was substantially directed at Lansdowne's credibility. My conclusion in relation to this evidence is the same as that regarding Powell’s evidence.

It flows from what I have said this morning that these appeals cannot succeed and, therefore, they must be dismissed.

Appeals dismissed.