Davis v. R., [1998] 4 CTC 2633

Brulé T.C.J.:

The Appellant is appealing amounts imposed by the Minister of National Revenue (the “Minister”) to her income received by way of tips in the restaurant in which she worked.

Facts

The Appellant was employed as a waitress at the Mediterranean Restaurant in Saint John, New Brunswick, during the taxation years in question. The Appellant did not report gratuities received from her employment and by Notices of Reassessment dated February 27, 1997, the Minister included in her income $14,189 and $15,636 for the 1994 and 1995 taxation years respectively.

The Minister analyzed the Appellant’s actual credit card sales from May to December 1994 and found that she received an average of 13% in gratuities from such sales. Apparently this average was consistent with that of other employees of Mediterranean. Based on these sales, the Minister estimated the rate of gratuities on cash sales by the appellant to be 10%. A review of the Appellant’s total sales from June to November 1994 found that she made an average of $75.64 in sales per one hour worked. The estimates of total gratuities for the years were then reduced by $750 for each year to account for $5.00 per night tip to busboys on weekends.

Analysis

The Appellant argued that she “would be lucky” to earn $30.00 over an 8-hour day. She stated that an average of 5-6% of sales is a more realistic estimate of the tips. The Appellant states that she believes she took home around $14,000 in tips over the two years prior to her letter dated June 15, 1996. At trial, the Appellant also argued that she worked as a hostess for three or four months of the year and received no tips during that period, and that she often worked at catered parties where she received little or no tips.

In Cliche-Paquet v. Minister of National Revenue (1980), 80 D.T.C. 1282 (T.R.B.) the Appellant did not report tips for the 1975 taxation year and, according to the Minister, underreported the quantum of tips received in 1976. Roland St. Onge, Q.C. (as he was then) on behalf of the Board wrote that the Minister’s duty in such cases was to use “the best method to establish the Appellant’s income”. In Tabatabai v. R. (February 26, 1998), Doc. 97-2388(IT)I (T.C.C.) Margeson, T.C.J. held in favour of the Minister on the bases that the Minister had used the best method available and that the Appellant did not produce evidence which would rebut the presumptions in the Reply or the basis of the Minister’s assessment.

These decisions are consistent with the general principle often applied in such fact driven cases that an onus lies on the Appellant to show that the Minister’s assumptions of fact are incorrect. This principle was discussed in Dezura v. Minister of National Revenue (1947), 3 D.T.C. 1101 (Can. Ex. Ct.) at 1103-4 where Thorson P. wrote:

...Ordinarily, the taxpayer knows better than any one else the amount of his taxable income and should be able to prove it to the satisfaction of the Court. If he does so and it is less than the amount determined by the Minister, then such amount must be reduced in accordance with the finding of the Court. If, on the other hand, he fails to show that the amount determined by the Minister is erroneous, he cannot justly complain if the amount stands.

In the case at bar, the Appellant failed to produce records which would rebut the Minister’s assumptions of fact. The Minister has provided a sound approach to the calculation of tips and the Appellant has not disputed the Minister’s method of calculation beyond questioning the accuracy of 10% as an estimate of tips on cash sales. Given the fact that the Minister can prove that the Appellant received an average of 13% tips on credit card sales for a six-month period, it would seem the 10% estimate is a reasonable estimate. The Appellant also failed to show that the period of May to December 1994 and the sample period from June to November 1994 were somehow anomalous. While the Appellant argued that there are factors which the Minister did not take into consideration, such as her working as a hostess and the restaurant sometimes catering parties, given the fact that the Minister’s calculations were based on an analysis of actual sales by the Appellant, these periods of low tips are accounted for in the Minister’s calculations.

The appeal is accordingly dismissed.

Appeal dismissed.