Thomas Duncan Macdonald v. Minister of National Revenue, [1978] CTC 2764, [1978] DTC 1554

Guy Tremblay:—This case was heard in Halifax on June 12, 1978, on common evidence with the appeals of Constance Eva MacDonald (77-641) and West Coast Lighting Exclusive Ltd (77-643).

1. Point at Issue

The two main points at issue are: (a) whether an appeal is valid from a “nil” assessment, and (b) whether the loss of the appellant’s documents is the responsibility of the inspector of the Department of Revenue Canada, and if it is, what are the consequences concerning the ability of the appellant to reverse the burden of proof.

2. Burden of Proof

The burden of proof is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof derives not from one particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. The Facts

3.1 In his two and one half years experience on the Board, it Is the first time this presiding member has heard such a complicated case. According to the appellant, he wrote some 200 letters to the respondent concerning his case and the cases of his wife, Constance Eva MacDonald (77-641), and of his company, West Coast Lighting Exclusive Ltd (77-643). He also met the respondent’s representatives on numerous occasions.

3.2 Different judgments are given for the other two cases.

3.3 The taxation years in question are 1969 to 1976 inclusive. It appears from documents on hand concerning the 1969 to 1972 taxation years that the appellant having declared a “nil” net income, the Department of Revenue Canada prepared the returns in 1975 adding various amounts to each year. The assessments were issued on April 28, 1976.

3.4 Those amounts added were income from “profit on sub-division in Nova Scotia”. The type of business of the appellant was described as “real estate sales”.

3.5 Following the filing of a notice of objection, reassessments were issued on May 11, 1977, so as to reflect nil taxable income in each of the taxation years 1969 to 1972 inclusive so that no tax was payable by the appellant.

3.6 For the taxation years 1973 and 1974 the appellant filed his returns on May 15, 1974, and April 30, 1975, accordingly.

3.7 By notice of assessment dated April 28, 1976, the Minister added the amounts of $333.50 to the appellant’s 1973 income and $428 to the appellant’s 1974 income.

3.8 Following the filing of a notice of objection, the added amount of $333.50 for the 1973 taxation year was maintained, but the added amount of $428 for the 1974 taxation year was reduced to $100.

3.9 Those amounts added to the 1973 and 1974 income represented, according to the respondent, an appropriation of corporate funds by the appellant from West Coast Lighting Exclusive Ltd. The amounts represented payments made by the company to Ocean Construction Supplies Ltd and Construction Aggregates Ltd for materials delivered to the appellant’s personal residence at 981 Royal Oak Avenue, in Victoria, BC.

3.10 According to the appellant, the materials (wood, steel, etc) were stock of the company and were used by the company and not by him personally.

3.11 It appears, according to the proof, that the assessments for the 1975 and 1976 taxation years were issued according to the income declared by the appellant. It seems, however, that the income declared was not correct in the appellant’s opinion. During discussion with the representatives of the respondent it was underlined by them of the possibility of adding income concerning a condominium to the declared income of the appellant and to the declared income of his wife. In fact, the respondent has not added income and the appellant has not filed an amended return for those years, 1975 and 1976.

3.12 To protect his rights, the appellant filed on December 3, 1976, notices of objection for the years 1975 and 1976. The assessment for 1975 was issued on April 30, 1976, and the assessment for 1976 was issued on April 19, 1977,

3.13 On June 18, 1977, an appeal was lodged for the taxation years 1969 to 1976 inclusive.

3.14 The only witness, in the present case and in the other two cases referred to above, was the appellant himself, Thomas Duncan MacDonald.

3.15 He underlined the difficulty of reversing the onus of proof because all the accounting books and records of the company, which were in the possession of the inspector of the respondent, were destroyed. The tax inspector, during his inspection at the office of the company, had left the books and records on a desk near some garbage boxes. They apparently fell into the garbage box and the workmen destroyed them with the rest of the regular garbage. The appellant claimed that the books and records were in the possession of the tax representative because he was still working on them, and he should be held responsible for them.

3.16 No witness was heard for the respondent.

4. Motions to Quash for the 1969 to 1972 Taxation Years Inclusive

4.1 At the beginning of the hearing counsel for the respondent made motions to quash the appeal concerning the years 1969 to 1972 inclusive because the appeals in question were “nil” assessments. The Board had taken those motions under reserve.

4.2 At the hearing, the appellant offered no contradictory evidence for those years. In fact, the appellant could not give any proof because all the income that the respondent had added for those years by assessment dated April 28, 1976, was annulled by the reassessment dated May 11, 1977. That reassessment in fact reflected nil taxable income so there was no point to appeal.

4.3 The Board has no alternative but to dismiss the appeal concerning the taxation years 1969 to 1972 inclusive.

5. Motions to Quash for the 1975 and 1976 Taxation Years

5.1 Motions to quash the appeal were also made on the basis that the notice of objection was filed late for the 1975 taxation year and antedated for the 1976 taxation year.

5.2 The facts outlined in paragraph 3.12 proved the well-founded basis of the motion. Moreover, the appellant who opposed the motion proved at the hearing (paragraph 3.11) that in fact there was no point to appeal. If the income declared on his own return is incorrect the only way to correct it is not by filing a notice of objection, but by filing an amended return. Concerning income from condominium, the respondent may add that to income, but a taxpayer must await the assessment of the respondent before filing a notice of objection or an appeal.

5.3 The Board has no alternative but to dismiss the appeal concerning the taxation years 1975 and 1976.

6. Appropriation—1973 and 1974 Taxation Years

6.1 The appellant denied (paragraph 3.10) the facts alleged in the proceedings by the respondent concerning the appropriation of $333.50 in 1973 and $100 in 1974.

Even if the Board has some doubt concerning the manner in which the books and records were lost, the appellant was under oath and the Board accepts his version. The respondent did not offer any contradictory evidence. The Board has no alternative but to allow the appeal in respect of the 1973 and 1974 taxation years. Without the books and records, how can the appellant company give appropriate evidence?

7. Conclusion

The appeal is allowed for the 1973 and 1974 taxation years and the matter referred back to the respondent for reassessment in accordance with the above Reasons for Judgment. The appeal is dismissed in respect of the 1969 to 1972 taxation years inclusive and in respect of the 1975 and 1976 taxation years.

Appeal allowed in part.