H. A. Coulson v. Minister of National Revenue, [1986] 1 CTC 2305

Tremblay, T.C.J.:—This appeal was heard on common evidence with the appeal of Royal Craft Products Ltd. (No. 80-1770) on April 15, 16 and 18, 1985 at the city of Edmonton, Alberta.

1. The Point at Issue

Pursuant to the pleadings, the point is whether the individual appellant, shareholder and manager of Royal Craft Products Ltd. (Royal Craft), is correct in not including in the computation of his 1969, 1972 and 1973 taxation years approximately $142,000.

The respondent contends that this amount was an appropriation made and benefits received by the individual appellant pursuant to subsection 15(1) of the Income Tax Act.

The appellant contends that the said amount is a reimbursement of expenses made by him on behalf of the company.

2. The Burden of Proof

2.01 The burden of proof is on the appellant to show that the respondent's assessment is incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486; [1948] C.T.C. 195: 3 D.T.C. 1182.

2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his assessment or reassessment are also deemed to be correct. In the present case, the assumed facts are described in the reply to notice of appeal as follows:

6. In so reassessing the Appellant, the Respondent assumed, inter alia, that:

(a) The amounts of $30,610.99, $23,000.30 and $78,625.64 shown on the schedule attached hereto as Schedule “A” were funds or property of Royal Craft Products Ltd. which were appropriated to the Appellant and have been properly determined and taken into account in computing the Appellant's income for the 1969, 1972 and 1973 taxation years;

(b) that the amounts of $498.59, $9,809.00 and $397.86 shown on the schedule attached hereto as Schedule "A” were benefits conferred on the Appellant by Royal Craft Products Ltd. and have been properly included in computing the Appellant’s income for the 1969, 1972 and 1973 taxation years; and

(c) the Appellant knowingly, or under circumstances amounting to gross negligence, has made, or participated in, assented to or acquiesced in the making of a statement

or omission in the returns of income in respect to each of the taxation years under appeal within the meaning of Section 163(2) of the Income Tax Act, as a result of which the taxes that would have been payable by the Appellant if the taxes had been assessed on the basis of the information provided in the returns are less than the taxes payable by the Appellant.

As Schedule “A” is part of the assumptions of facts, its content is also assumed to be correct. Schedule “A” reads as follows:

*not subject to penalty

3. The Facts

3.01 By notices of reassessment, dated April 30, 1976, the respondent reassessed the appellant for the 1969, 1972 and 1973 taxation years to increase the appellant’s income by the following amounts:

3.02 In the same notices of reassessment the respondent levied penalties under subsection 163(2) of the Income Tax Act in respect of the said appropriations and benefits as follows:

4, Conclusion

The appeal is dismissed for the 1969 and 1973 taxation years and allowed in part for the 1972 taxation year for the reasons given in the attached reasons for judgment of Royal Craft Products Ltd. (No. 80-1770).

Appeal allowed in part.