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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. ... The business expenses which the Minister had allowed were “bookkeeping — $513” and $445.34 of the “trade publications and fees”. ... 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. ...

These notices of assessment imposed on the appellant the following penalties and additional taxes: Additional Taxes Penalties 1968 $1,432.80 $358.20 1969 $1,351.12 $337.78 1970 $ 648.84 $162.61 The burden of proof with respect to the additional taxes falls on the appellant in accordance with, among other things, the decision handed down by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182. ... The dates on which the returns were filed and the various notices of assessment were issued are as follows: 1968 1969 1969 1970 1970 Return filed 21/04/69 14/04/70 13/04/71 1st notice of assessment 16/06/69 03/06/70 28/06/71 1st notice of reassessment 04/10/76 04/10/76 04/10/76 2nd notice of reassessment 22/06/78 22/06/78 22/06/78 2.03 The gross income (GI) and taxable income (Tl) concerned in the first notices of assessment (FNA), the first notices of reassessment (FNR) and the second notices of reassessment (SNR) are as follows: 1968 1969 1969 1970 1970 (a) FNA GI $ 4,854.98 $ 3,054.36 $ 5,281.19 Tl $ 1,607.92 $ 14.66 $ 2,155.75 (b) FNR GI $31,437.92 $17,941.52 $17,862.82 Tl $28,185.10 $14,775.92 $14,693.62 (c) SNR GI $14,542.93 $12,401.82 $ 9,237.38 Tl $11,290.11 $ 9,236.22 $ 6,068.18 2.04 Mr André Houle, a witness for the respondent, testified that he had carried out the investigation and had issued the first notices of reassessment on October 4, 1976. ... All of these statements were in general supported by documentation. 2.08 The statement of assets and liabilities shows that between December 31, 1967 and December 31, 1970 the following increase took place: Assets 1967 1967 1970 1970 Difference Current $13,035.05 $ 1,945.70 Investments $56,950.00 $ 72,950.00 Fixed assets $ 1,616.33 $ 32,718.83 $71,601.38 $107,614.53 $36,013.15 Liabilities Loan $ 4,000.00 Mortgage $ 21,149.00 Capital $71,601.38 $ 82,465.53 $71,601.38 $107,614.53 $36,013.15 2.09 The following is a summary of the figures shown in the capital reconciliation (exhibit I-4): 1968 1969 1969 1970 1970 Increase in capital $ 2,476.24 $ 1,753.54 $ 6,634.37 Plus Cost of living and other expenses $12,122.69 $10,954.28 $11,352.91 $14,598.93 $12,707.82 $17,987.28 Minus Family allowance and surrender of insurance policy $ 306.00 $ 306.00 $ 8,749.90 Revised total income $14,292.93 $12,401.82 $ 9,237.38 Deduct Total reported income $ 4,854.98 $ 3,054.36 $ 5,281.19 Increase in total income $ 9,437.95 $ 9,347.46 $ 3,956.19 2.10 According to exhibit I-4, the cost of living was established as $5,500 in 1968, $6,000 in 1969 and $6,000 in 1970. ...

The partners’ shares were as follows: Charles Laurin $ 3,385.18 Jacques $ 6,358.88 Jean-Guy $10,907.00 Laurent ”’ $10,429.25 Hubert ”’ $10,561.80 Jean-Pierre ”’ $10,447.65 These amounts, derived from the partnership distribution, were included by the respondent in the income of the appellant and his brothers respectively. 3.9 The respondent included in each partner’s income an amount of $1,843.10, one-sixth of $11,058.77, which the partnership had earned and not reported. ... The changes are underlined: Salary Share: Charles Laurin $ 3,385.18 $ 3,385.18 Jacques ”’ $ 6,358.18 $ 6,358.18 Jean-Guy $ 5,407.00 $10,907.00 Laurent $ 4,929.25 $10,429.25 Hubert ”’ $ 5,061.80 $10,561.80 Jean-Pierre ”’ $ 4,947.65 $10,447.65 $30,089.06 $52,089.76 The salaries totalling $30,089.06 were deducted from the total income of $52,089.76, leaving assets of $22,000.70 in the partnership. ... This notice shows that the appellant was assessed as follows: Salary: $ 4,947.65 Share: $ 5,500.00 Unreported income: $ 1,843.10 $12,290.75 The Board’s decision is that the appellant’s income should be computed thus: Salary: $ 4,947.65 Profit share: $ 5,509.76 $10,457.41 5. ...

ILLUSTRATION OF THE INCOME OF A POLICE OFFICER ABSENT DUE TO OCCUPATIONAL DISABILITY Officer injured 52 weeks (col 1) (col 2) (col 3) (col 4) (col 5) Situation — 1974-1977 Suggestion Situation 1978 Officer on Agreement of Department Reductions Reductions duty — 1976 Situation of Revenue — Article XX T-4 — TP-4 52 weeks Deductions on Quebec $22,445 Situation — Deductions on $8,945 $ $ $ $ $ Salary 22 445,00 8 945,00 8 945,00 2 834,75 19 610,25 (22 445- (996,63- 13 500) 1 838,12) Source deductions Quebec Pension Plan 169,20 169,20 143,01 33,03 136,17 MUC pension plan 1 626,40 1 169,20 1 652,59 1 762,57 (136,17) UIC 187,20 187,20 134,17 42,52 144,68 Health program contributions 235,00 235,00 101,20 — 235,00 Provincial tax 3 017,68 3 017,68 487,50 — 3 017,68 Federal tax 2 712,89 2 712,89 324,97 — 2 712,89 Total: 7 948,37 7 948,37 2 843,44 1 838,12 Net salary received from employer 14 496,63 996,63 6 101,56 996,63 (8 945- (14 496,63- 7 948,37) 13 500) Benefits payable under the Workmen’s Com pensation Act — 13 500,00 13 500,00 13 500,00 Tax repayments — 5 104,93 — — Total net income 14 496,63 19 601,56 19 601,56 14 496,63 Source: Table of source deductions for 1978 1981.11.16 3.11 In paragraphs 5, 6, 7, 8, 9, 10 and 11 of his pleading, counsel for the respondent provided a good summary of the facts explained by witnesses regarding the 1978 amendments. ... IV — STATEMENT OF EARNINGS AND DEDUCTIONS (I-4, p 5) FOR 1978 A B C ($) ($) ($) Income — Salary 20 488,30 3 097,43 17 390,87 — Overtime 473,98 — 473,98 Total: 20 962,28 3 097,43 17 864,85 Deductions — Federal tax 2 272,86 588,92 1 683,94 — Quebec tax 2 785,23 686,24 2 098,99 — MUC pension plan 1 458,92 — 1 458,92 — QPP 169,20 — 169,20 — Unemployment insurance 187,20 — 187,20 — Health program contributions 145,80 4,94 140,86 Total: 7 019,21 1 280,04 5 739,11 A: Provisional totals as of December 29, 1978 B: Adjustments to totals reflecting the application of article XX C: Totals according to the pay record for 1978 entered on 1978-T-4 and TP-4 slips and not including the benefits payable under the Workmen’s Compensation Act 1981.11.16 16. ... Is it then $19,041.09, or $20,962.28 — $1,921.19, as the appellant claims? ...

Chairman of the pediatrician’s Reunification Committee in Quebec City. 3.03 For the years concerned the appellant claimed the following expenses in computing his net income, part of which were allowed by the respondent and part disallowed: Claimed Allowed Disallowed 1972 $6,430.79 $4,367.92 $2,062.87 1973 $7,735.99 $5,171.86 $2,564.13 1974 $9,672.73 $4,484.64 $5,188.09 The following is a breakdown of these amounts for 1974: 1974 Claimed Allowed Difference General expenses Association $ 913.50 $1,003.00 $ (89.50) Travel, conferences, entertainment and subscriptions $4,089.59 293.51 $3,696.08 Legal fees and collection Telephone $ 379.33 $ 279.30 $ 100.03 Medicaments and instruments $ 400.75 205 97 $ 194.78 $5,783.17 $1,881.78 $3,901.39 Automobile expenses Gas and maintenance $3,170.73 $2,746.15 $ 424.58 Insurance $ 392.00 $ 392.00 Garage rental and snow removal $ 319.23 — $ 319.23 Parking $ 46.30 — 47.30 Depreciation-Automobile $1,114.02 $1,199.94 $ (85.92)-Snowblower $ 142.80 — $ 142.80 $5,186.08 $4,338.09 $ 847.99 Less Personal use $,296.52 $,735.23 $ 438.71 $3,889.56 $2,602.86 $1,286.70 $9,672.73 $4,484.64 $5,188.09 3.04 The appellant produced an impressive number of receipts to prove these expenses. ... There are — I’m sorry — there aren’t just presents! When I receive a colleague at our home, if I decide to buy him a drink, I think that out of regard or gratitude for what he’s done, or if he comes to see me or consult me, then I’m entitled to deduct it. ... Act — case law — comments 4.1 Act The statutory provisions relevant to this case are paragraph 18(1)(a) and section 67 of the Income Tax Act. ...

It was on the basis of these that the appellant and the respondent were able to establish the following income: 1976 — $ 5,307.34 1977 — $ 9,015.39 1978 — $11,858.33 The returns were then completed for the years in question (Exhibits 1-1, 1-2 and I-3). ...

He filed a schedule of farm losses for the years 1969 to 1976 inclusive which reads as follows: 1A ARTHUR BELL HOLDINGS LTD SCHEDULE OF FARM LOSSES 1969 — 1976 Year Available Date loss Ending Farm Carried 30 June Loss Available 30 June Loss Claimed Forward 1976 Expired To 1969 $ 7,500.00 $ 5,000.00 $ 2,500.00 $- $2,500.00 1970 15,848.67 5,000.00 10,848.67 — 10,848.67 1971 21,299.12 5,000.00 16,299.12 — 16,299.12 1972 38,363.04 5,000.00 33,363.04 33,363.04 — 30 June 1977 1973 37,828.26 5,000.00 32,828.26 32,828.26 — 30 June 1978 1974 28,115.00 28,115.00) — — — 1975 15,309.33 15,309.33) (1)- — — 1976 74,650.42 74,650.42) — — $238,913.84 $143,074.75 $95,839.09 $66,191.30 $29,647.79 (1) Treated as a business loss, but Revenue Canada has already served notice that 1974 loss is being disallowed and treated as restricted farm loss. ... I quote from a decision of my colleague, Mr D E Taylor, in James R Leslie v MNR, [1982] CTC 2233; 82 DTC 1216, at 2244 and 1225 respectively: It would appear from Moldowan (supra) that “start-up costs” as a deduction may not be limited to just the restricted farm loss — the Court speaks of.. deduct the full impact.. ... The “start-up costs” for farming which this taxpayer is entitled to deduct as operating “losses” are founded in the appropriate classification into which he falls, as outlined in Moldowan (supra) — Class (2), restricted to $5,000 per annum. ...

Net Farming Loss $13,210.45 Less: Net Garage Profit 390.05 Farming Loss to be carried forward to future years $12,820.40 $12,820.40 Fixed Assets and Depreciation Balance Oct. 31/62 Additions Depreciation Oct. 31/63 Garage, — Equipment $2,388.91 $ 477.78 $ 1,911.13 Automotive 2,517.76 503.55 2,014.21 4,906.67 $ 981.33 $ 3,925.34 Farm, — Land $12,500.00 $12,500.00 Building 7,500.00 $ 750.00 6,750.00 Equipment 7,860.00 1,572.00 6,288.00 $27,860.00 $2,322.00 $25,538.00 Rent Garage — AD Rosene, Cam rose $ 1,740.67 Farm — D McLeod, Viking 500.00 Total $ 2,240.67 Interest Garage, — Provincial Treasury Branch $ 48.29 Farm, — Provincial Treasury Branch 21.32 Mr Boyd, Edmonton, Alberta 574.36 $ 643.97 Assets Sold to Company by shareholder Assets of Jubilee Esso Service $16,816.75 20 head of cattle 3,000.00 $19,816.75 Shares Issued for Cash — October 10, 1962 Mr Alfred D Rosene, Cam rose, Alberta 20 shares Mrs Dorothy E Rosene, Cam rose, Alberta 1 share In 1971 the appellant changed accountants as he found the first firm “too expensive” and hired a Mr Loren Blain, APA, who continued to complete Jubilee’s returns until 1974 when the company was wound up. In the balance sheet of Jubilee for the taxation year 1963, there is an item referred to as: Deferred Liabilities Loans payable — shareholders $15,686.97 The appellant cannot explain this item. ...

(k) The appellant set up a company called the St-Léonard Flying Club Ltd for training young air pilots. 3.2 The financial statements of Commuter Air Services Ltd for 1969, 1970, 1971, 1972, and 1973 reveal the following: 1969 Income $ 7,850.00 Expenditure $36,787.01 Less personal expenses $20,868.61 $15,918.40 Losses $ 8,068.40 1970 Income $ 3,363.50 Expenditure $23,997.04 Less personal expenses $14,486.78 $ 9,510.26 Losses $ 6,146.76 1971 Income $ 4,764.00* Expenditure: General insurance $ 1,940.80 Bank interest and costs $ 2,812.00 Operating expenses $ 7,098.60 Depreciation $ 9,360.00 Wages $ 2,691.10 Travel $ 1,467.89 Rent $ 350.00 Professional fees $ 375.00 $26,095.39 Losses $21,331.39 ‘Included in this amount of $4,764.00 is an amount of $200 for personal use. 1972 1973 Income $ 1,201.50 Expenditure $11,945.70 $17,107.91 Less personal expenses Losses $10,744.20 $17,107.91.. — 3.3 The appellant maintained that he bought this plane in order to obtain an air carrier’s licence. ... It appears from Exhibit A-8 that in 1971 the total of hours was calculated at a rate of $60 an hour. 3.17 It appears from the appellant’s tax returns that in 1969 and 1970 the airplane was used for his personal ends roughly 60% of the time. 3.18 The company’s income and expenditure for the fiscal year from February 28, 1970 to January 31, 1971 were as follows: Income $ 6,045.65 Expenditure $52,716.72 Of the expenditure, wages amounted to $4,900.40 and the remainder was depreciation. 3.19 From October 1969 to January 30, 1970, the company’s income amounted to $430.80 whereas its expenditure was $9,446.21. 3.20 The respondent, through his notice of assessment dated May 27, 1974, disallowed the expenditure of $21,331.39 claimed by the appellant for his seven-passenger plane. 3.21 The appellant appealed to the Minister, filing a notice of objection dated August 22, 1974. 3.22 The Minister notified the appellant on March 7, 1975 that he upheld the assessment of May 27, 1974. 3.23 The appellant submitted a notice of appeal to the Board on June 2, 1975. 4. ... Paragraph 12(1)(a) and subparagraph 139(1)(ae)(i) state: 12(1) In computing income, no deduction shall be made in respect of (a) 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 property or a business of the taxpayer... 139.(1) In this Act, (ae) “personal or living expenses include (i) the expenses of properties maintained by any person for the use or benefit of the taxpayer or any person connected with the taxpayer by blood relationship, marriage or adoption, and not maintained in connection with a business carried on for profit or with a reasonable expectation of profit... 4.2 The Board took notice of the following judgments, several of which were cited by counsel: — Her Majesty the Queen v Douglas C Matthews, [1974] CTC 230; 74 DTC 6193; — Ken Huband v MNR, [1974] CTC 2001; 74 DTC 1039; — MNR v Henry J Freud, [1968] CTC 438; 68 DTC 5279; — Donald Preston McLaws v Her Majesty the Queen, [1976] CTC 15; 76 DTC 6005; — Marcel Crépeau v MNR, 37 Tax ABC 280; 65 DTC 99: — Williamson v MNR, 1 Tax ABC 369; 50 DTC 147; — Alan R Needham v MNR, [1974] CTC 2078; 74 DTC 1057; — Riedle Brewery Ltd v MNR, 1939 SCR; [1938-39] CTC 312; 1 DTC 499-29; — F George Walker v MNR, 76 DTC 1224; — John S Stewart v MNR, [1964] CTC 45; 64 DTC 5023; — Onni Paju & Oiva V Paju v MNR, [1974] CTC 2121; 74 DTC 1087; — Ernest C Hammond v MNR, [1971] CTC 663; 71 DTC 5389; — R C Huffman Construction Company of Canada Ltd v MNR, 39 Tax ABC 172; 65 DTC 597; — William E Newton v MNR, [1969] Tax ABC 1174; 69 DTC 778; — D Carom v MNR, [1977] CTC 2085; 77 DTC 67. 4.3 Considering the appellant’s numerous activities, as shown by the evidence (paragraph 3.1), some would describe him as a “wheeler dealer’, while others would regard him as an “entrepreneur’’ or “captain of industry.’’ ...

If the provisions of section 7 relating to exemptions for children can be applied herein, the total of such exemption amounts to $106,000 as hereunder set out, and therefore no estate tax is payable: Sheal Richard Green $10,000 + $17,000 $27,000 David Zalman Green $10,000 + $13,000 $23,000 Charles Leslie Green $10.000 + $11,000 = $21,000 Cheryl Adrienne Green $10.000 + $ 8,000 $18,000 Coleman Oscar Green $10.000 + $ 7,000 = $17,000 Total $106,000 The pertinent portion of section 7 of the Estate Tax Act, RSC 1970, c E-9, reads as follows: 7. (1) For the purpose of computing the aggregate taxable value of the property passing on the death of a person, there may be deducted from the aggregate net value of that property computed in accordance with Division B such of the following amounts as are applicable: (c) in respect of each child of the deceased who survives him, the lesser of (i) the value of any property passing on the death of the deceased to which the child is the successor that can, within six months after the death of the deceased or such longer period as may be reasonable in the circumstances, be established to be vested in the child for his benefit indefeasibly, or subject to defeasance only in the event of his death before attaining such age, not exceeding forty years, as is specified in the will or other instrument under or by virtue of which the property so passing became vested in him, except any such property comprising a gift described in paragraph (b) or (e) or consisting of a pension or compensation described in paragraph (f) or (g), and (ii) $10,000 plus (A) where the child was, at the time of the death of the deceased, wholly dependent upon the deceased or his spouse, or both, for support by reason of being infirm, an amount equal to the product obtained when $1,000 is multiplied by the number of full years in the period commencing on the day of the death of the deceased and ending on the day on which the child will, if ever, become 71 years of age, or (B) in any other case, the amount, if any, by which (I) the product obtained when $1,000 is multiplied by the number of full years in the period commencing on the day of the death of the deceased and ending on the day on which the child will, if ever, become 26 years of age, exceeds (11) [not applicable]. ...