James B Conja v. Minister of National Revenue, [1982] CTC 2284, 82 DTC 1252

D E Taylor:—This is an appeal heard in Toronto, Ontario, on March 5, 1982 against an income tax assessment for the year 1977 in which the Minister of National Revenue disallowed as expenses deductible from business income, certain amounts claimed by the taxpayer. The financial statement filed with the appellant’s tax return showed:

JAMES CONJA — DESIGNER STATEMENT OF INCOME

FOR THE YEAR ENDED FEBRUARY 28, 1977

FEES							$14,935
EXPENSES
Advertising and promotion								1,909
Business use of residence								950
Office supplies								667
Travel								615
Bookkeeping								513
Capital cost allowance								368
Trade publications and fees								623
Equipment rental								166
Insurance								154
Interest and bank charges								258
Maintenance								69
							6,292
NET INCOME							$ 8,643
			CAPITAL COST
Undepreci	Undepreci-						Undepreci
	ated Capital			Adjusted			ated Capital
	Cost			Undepreci-		Capital	Cost Cost
	February			ated Capital Cost			February
	28/76		Additions	Cost Cost		Allowance	28/77
Office
equipment	$	528	$ —	$	528	$106	$	422
Technical
library	1,230		80	1,310		262	1,048
						$368

Prepared without audit for income tax purposes.

WM EISENBERG & CO

Chartered Accountants

The respondent relied, inter alia, upon the provisions of paragraphs 18(1 )(a) and (h) of the Income Tax Act, SC 1970-71-72, c 63, as amended, and noted as follows in the reply to notice of appeal:

— The appellant was self-employed in 1977.

— Throughout the whole of his 1977 taxation year, the appellant worked as a designer on contract with Franteck Investments of Canada Ltd, now known as Modern Technical Services Limited:

— pursuant to this contract the appellant was assigned to work for the Ontario Ministry of Natural Resources (“Ministry”);

— this assignment necessitated that the appellant work only at the premises of the Ministry;

— in filing his 1977 income tax return the appellant deducted from income expenses in the amount of $5,333.66 which were not expenses or outlays made or incurred to earn income during that taxation year; if incurred, the said expenses were personal expenses of the appellant.

Counsel for the respondent reiterated at the start of the proceedings that, during the years in question, the appellant was self-employed. This appeared to the appellant to be an unexpected admission, and he had not brought with him books, receipts or documents upon which to rely in an effort to overturn the remaining thrust of the respondent’s position. Faced with this situation, the appellant gave an oral account of the basis for the expenses, as well as he could reconstruct them. Certain critical facts emerged — the income of $14,935 all came from Modern Technical Services Limited (“Modern”) as alleged by the Minister, and his work had been entirely for the Ministry, again as alleged by the Minister. It was also clear that the appellant had no detailed contract with either Modern or the Ministry — but that the Ministry contract was with Modern, which company in turn made the financial arrangements with the appellant. He did not pay Modern a commission or fee as such, and proposed that although Modern had the contracts with the Ministry, he (the appellant) had in fact arranged the contracts and going through Modern was only a business convenience or arrangement that was not necessary or useful to him — nevertheless, it had been part of the Ministry’s policy and practice.

The appellant agreed that, to a great extent, his travel expenses were paid for (or reimbursed) by the Ministry and these were not included in the expenses claimed. The business expenses which the Minister had allowed were “bookkeeping — $513” and $445.34 of the “trade publications and fees”. Receipts and accounts for these amounts apparently satisfactory to the Minister had been provided at an earlier review of the taxpayer’s affairs. Even under specific questioning the appellant stated that he had neither failed nor refused to provide the Minister’s officials with details of the expenses when and if required to do so — no one from Revenue Canada had visited his “office” or seen all the bills he did have, according to him. The appellant pointed out that he did some of his work in an area Set aside in his home (his office), that he prepared estimates and drawings as well as reviewing technical information and trade publications there. He had a typewriter, a duplicating machine and a telephone answering service, as well as office insurance and a safety deposit box.

Counsel for the Minister referred to Libera v MNR, [1981] CTC 2298; 81 DTC 276, (dismissed by the Board) and to Cork v MNR, [1981] CTC 2367; 81 DTC 346, (allowed by the Board).

In view of the fact that his income all came from one source — Modern — which, in turn, was paid by some form of contract from the Ministry, it is difficult indeed to follow the appellant’s reasoning that some of the expenses were necessary. How or why the taxpayer felt obliged to do more than simply report for work when and where required; or in what manner he believed he could beneficially affect his net income by the expenses indicated is certainly not clear to me. He chose to do so, as he put it, in order to develop and maintain direct business contacts; keep good relations with the Ministry (and potentially at some time when he would be looking for other work,, with different clients); and to do the best job he could under the circumstances using his own research material and equipment when necessary. The specific circumstances under which the taxpayer earned the income in question from the Ministry through Modern do not lend themselves easily to an interpretation that he was other than an employee — but that issue is not before the Board. The issue is whether the appellant has discharged the onus on him arising from his appeal of the assessment.

While the appellant might find some limited comfort in Cork v MNR, (supra) cited by counsel for the respondent, the fact is that the task before him was properly and completely spelled out in the Minister’s reply to notice of appeal — it was not to prove he was an independent contractor, it was to prove the business expenses he claimed. This he has not done, and he cannot succeed. The appellant should not labour under the impression that once having gained the status of “independent contractor”, expenditures are deductible solely on his own perception of their objective contribution to his business purpose — that remains a hurdle to be overcome for every businessman when challenged by the Minister to do so.

The appeal is dismissed.

Appeal dismissed.