Tickins Industrial Products Limited, Jack Joseph Tickins v. Minister of National Revenue, [1981] CTC 2079, 81 DTC 142

M J Bonner:—These appeals were heard together on common evidence. Each appellant appeals from assessments of income tax for the 1972 and 1973 taxation years.

The individual appellant is president and principal shareholder of the corporate appellant. His duties appear to have involved a great deal of entertainment for the purpose of the promotion of the business of the company. That entertainment took place at trade fairs and exhibitions, at two golf clubs to which he belonged and at a cottage and on a houseboat owned by him.

In assessing the company the Minister disallowed in each year deductions in respect to payments alleged to have been made for the purposes of travel and entertainment expenses. The Minister pleaded that on assessment he found or assumed that:

. Since the appellant has been unable or unwilling to produce vouchers or receipts which would support its total claim for business expenses for the 1972 and 1973 taxation years, it has not shown that said expenses were incurred for the purpose of gaining or producing income from its business .. .* [1]

In argument counsel for the Minister relied heavily on lack of receipts. Mr Tickins, in giving evidence, did not at any time assert that the amounts in question were in fact the correct amounts of expenditures made by the company for the purposes of travel and promotion. He did indicate that some records were not kept as the result of what he understood to be instructions from an assessor who had dealt with the company many years before.

In my view, at trial undue attention was paid to the question of the necessity of receipts. Where the legislature requires that receipts be produced as a condition precedent to deduction it says so in clear and unequivocal language such as, for example, that used in the closing words of paragraph 110(1)(c) of the Income Tax Act. In the absence of words in the Act which indicate the existence of such a requirement the Minister cannot insist on the production of receipts as a condition precedent to deduction. However, in an appeal when one of the issues is whether expenditures were in fact made there must be some sort of acceptable evidence which can form the foundation for a finding of fact that expenditures were made. By reason of the absence of such evidence the company cannot succeed on this branch of its appeal for either year.

Next I turn to the question of golf club expenditures. Mr Tickins was a member of two clubs. It appears that each year the company paid his food and drink accounts at the clubs. In recognition of the fact that a portion of the charges were the cost of entertainment of clients of the company one half of the charges thus paid by the company were charged to Mr Tickins. On assessment for both years the Minister added to Mr Tickins’ declared income the remaining half. The Minister’s position in this regard is set forth in paragraph 8(d) of the reply to the notice of appeal as follows:

... Since no records or details of expenditures or persons entertained at the golf clubs were provided the appellant was reassessed additional amounts for taxation years 1972 ($860.33) and 1973 (1,178.61) representing the value of the benefit he received or enjoyed by virtue of his employment .. .

Mr Tickins’ evidence, which I have no reason to disbelieve, was that more than 75% of the amounts spent at the two golf clubs during the two years in question was for the purposes of entertainment of clients of the company. The appeal therefore succeeds on this point and the assessments will be referred back to the respondent for reconsideration and reassessment on the basis that only 25% of the amounts paid by the company to the golf clubs is to be included in the computation of Mr Tickins’ income for the years in question.

Next I turn to the houseboat and cottage expenses. Here the situation is outlined in paragraph 8(e) of the reply to the notice of appeal of the Mr Tickins as follows:

... the appellant owned a houseboat and cottage in the taxation years 1972 and 1973 which the appellant’s employer rented in each of the summers 1972 and 1973. The appellant’s employer credited the appellant with $2,524 in the taxation year 1972 and $3,370 in the taxation year 1973, amounts which the appellant did not declare. In addition, the appellant received the benefit in the amount of $648.50 being for gas and maintenance paid by his employer in the taxation year 1973 for the houseboat owned by the appellant.

The position taken by the respondent insofar as the corporation was concerned is outlined in paragraph 6(f) of the reply to the notice of appeal as follows:

. . . the appellant entertained persons on the houseboat of Jack Joseph Tickins in the taxation years 1972 and 1973 and paid a rental based on a daily rate less 10% profit margin to the said Jack Joseph Tickins. The appellant rented the cottage of Jack Joseph Tickins during the taxation years 1972 and 1973 but has not provided a record of when or for what purpose it so rented.

Mr Tickins’ evidence, which was unshaken and which I accept, was that the boat and cottage belonged to him. They were used from time to time for the purposes of corporate entertainment. The payments made by the company to him for use of both houseboat and cottage were in the nature of an indemnity. There was no suggestion that the amounts paid by the company to Mr Tickins exceeded a fair share, pro-rated by length of use for corporate purposes, of the cost to Mr Tickins of holding and maintaining the two assets. There was no suggestion that Mr Tickins was overcompensated in relation to direct operating expenses of the houseboat.

Paragraph 18(1 )(l) of the Income Tax Act was relied on by counsel for the Minister as a prohibition of the deduction sought by the company. The decision of the Federal Court of Canada in Jaddco Anderson Limited v Her Majesty the Queen, [1981] CTC 11; 81 DTC 5002, is fatal to the Minister’s arguments based on that provision.

As to the inclusions in the income of Mr Tickins of amounts paid by the company by way of indemnity against cottage and houseboat costs, the appeals must be allowed as well. The amounts paid to Mr Tickins did not exceed his expenses and there is therefore no income.

The assessments are referred back to the Minister for reconsideration and reassessment not inconsistent with these reasons.

Appeals allowed.