William I Blunden v. Minister of National Revenue, [1979] CTC 3079, 79 DTC 839

John B Goetz:—This appeal was heard in Sydney, Nova Scotia, on July 23,1979, and is from assessments of the appellant’s income tax liability for his 1974 and 1975 taxation years, when the Minister disallowed the sums of $1,726.56 for the 1974 taxation year and $1,911.35 for the 1975 taxation year. The sum disallowed in the 1974 taxation year represents (1) deduction of automobile expenses, $311.56 and (2) gift expenses $1,415. For the 1975 taxation year, the following items were disallowed as expenses on the part of the taxpayer: (1) deduction of automobile expenses, $436.46; (2) meal expense, $500; (3) gift expense, $910.17; (4) home office expense, $64.72, totalling $1,911.35.

The respondent relied, inter alia, on paragraph 6(1 )(e), subsections 6(2), 6(2.1 ), paragraphs 8(1 )(f), (h), (i), (j), subsection 8(2) and section 67 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

During the taxation years 1974 and 1975, the appellant was a commission salesman with the American motor dealers in Sydney, Nova Scotia. The appellant’s geographical area of operation was within a 12-15 mile radius from Sydney, Nova Scotia, and required him to be absent from his home no more than 12 hours a day. He travelled every day to his place of business and was in the show-rooms of the auto dealers most evenings and at least 3 afternoons a week. He used his own demonstrator car. The company allowed him $3 for gas on trips for which he was demonstrating a particular model of vehicle for a prospective customer.

The respondent’s reply to notice of appeal provided the following details regarding the disallowance:

(a) at all material times the Appellant was a commissioned salesman employed by an automobile dealership in the area of Sydney, Nova Scotia;

(b) the Appellant claimed expenses of earning his commission income in the amount of $4,228.13 in 1974 and $3,960.79 in 1975;

(c) the Appellant failed to produce any records which would support the expenses claimed in the years under appeal;

(d) in each of the years 1974 and 1975, the Respondent (sic) drove approximately 30,000 miles using various cars all belonging to his employer;

(e) the cars used averaged about 12 miles per gallon;

(f) the average cost of gasoline in 1974 was $.72 per gallon and in 1975 $.75 per gallon;

(g) approximately 25% of the total miles driven by the Appellant was related to personal use and not to the earning of his income in the 1974-1975 taxation years;

(h) the Appellant did not incur the gift expense claimed for the purpose of gaining or producing income;

(i) the Appellant was not required by his contract of employment to maintain an office in his home;

(j) the Appellant was not ordinarily required to carry on the duties of his employment away from his employer’s place of business or in different places;

(k) the Appellant was not required by the duties of his employment to be away from the municipality where his employer’s establishment was located and away from the metropolitan area for more than 12 hours;

(l) the expenses claimed by the Appellant in his 1974-1975 taxation years were not reasonable in the circumstances.

As previously mentioned, the appellant was a commission car salesman and working out of Sydney, Nova Scotia. In his evidence, he stated that he sold approximately 100 cars a year. He also stated that he checked in to the dealers’ office premises every day and spent most of the evenings at the show-room. He claims a deduction in the sum of $500 for meals he said he was obliged to pay for and he usually ate at one of the MacDonald’s walk- ins. He had no receipts for these expenditures.

With respect to his gift expense, he talks about “tipsters” who gave him leads as to prospective customers and to these people he would give a quart of whisky or actual money. In this regard he refused to give the Department of National Revenue any particulars as to the recipients of this largesse as “it would embarrass them”, namely, the tipsters. He stated that one-half of the sales came from such tips and the balance came from his attendance at the show-room and repeat business.

With respect to his personal driving time and use of his demonstrator vehicle provided by his employer, he stated that his personal use was “practically none” and that his car sat in his yard most evenings and he “used it very, very little for himself”. As opposed to that a witness on behalf of the respondent, who was an auditor with the Department of National Revenue, with respect to the relevant years, testified and filed Exhibit R-1 and R-2, showing working papers for the years 1974 and 1975. These are the documents on which this witness calculated the proper deductions on the part of the appellant. Counsel for the respondent used the auditor’s working papers for the years 1974 and 1975 where it is indicated that the appellant drove his vehicle approximately 30,000 miles per year. Blunden had agreed with a Department of National Revenue auditor that the car expenses for 1972 and 1973 should be reduced to 25% for personal use. It was on this basis that the auditor for the Minister made the assessments referred to herein.

Counsel for the Minister submitted the following cases to the Board’s attention:

Eric O Claus v MNR, 40 Tax ABC 395; 66 DTC 248;

No 589 v MNR, 21 Tax ABC 153; 59 DTC 41;

R M Latta, Active Petroleum Products Ltd v MNR, [1978] CTC 3003; 78 DTC 1719;

Clement Mathieu v MNR, [1978] CTC 2646; 78 DTC 1474;

Charles J Corrigan v MNR, [1978] CTC 2310; 78 DTC 1256;

A Ferszt v MNR, [1978] CTC 2860; 78 DTC 1648.

Findings

Dealing first with the automobile expenses claimed by the appellant in his relevant tax returns, we find that the 25% deduction from his expenses and allocated to personal use by the Minister’s officers, is correct, especially in light of the fact that the appellant had agreed to this proportion of his automobile expenses as being personal use in the years 1972 and 1973.

With respect to the home expense, the assessment of the Minister is upheld in that the appellant directed no evidence to this subject matter at all in his evidence adduced at the hearing.

With respect to the disallowance of meal expenses by the Minister’s officers, the assessment should stand in that the appellant worked in a limited area from his home base in Sydney, Nova Scotia, and spent almost half of his time at the show-rooms of his employer.

The item with respect to gift expenses poses some difficulty to the Board, but it is clear that the appellant, as he stated in his evidence, refused to identify the liquor receipt slips which he had and which were being used for the purpose of compensating people who advised him of prospective sales and could not and would not give any names of such persons. If the appellant seeks to come under the aegis of paragraph 18(1)(a) of the Act, namely:

18.(1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

(a) General limitation.—an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;

on the face of it he must establish that the entertainment expenses claimed by him in his 1974 and 1975 taxation years could be substantiated. It is ruled that the mere tendering of liquor receipts and, secondly, the fact that no records were kept of any monetary expenditure being made to the tipsters, force us to the position, that, because of his refusal to identify the recipients of his entertainment expenses and the absence of any relevant records, he fails to come under the provisions of paragraph 18(1)(a). For this reason the disallowance of the gift expense in the relevant taxation years is upheld.

Decision

It is therefore ruled that the appeal of the appellant relating to his 1974 and 1975 taxation years be dismissed.

Appeal dismissed.