Date: 980828
Docket: 97-2441-IT-I
BETWEEN:
KEVIN O’BRIEN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Christie, A.C.J.T.C.
[1] These appeals are governed by the Informal Procedure provided for under section 18 and following sections of the Tax Court of Canada Act. The years under review are 1993 and 1994.
[2] The relevant background to and what is in issue in this litigation is set out in paragraphs 8 to 14 inclusive if the Reply to the Notice of Appeal. They read:
“8. In computing income for the 1993 taxation year, the Appellant reported gross business income in the amount of $50,429.47, expenses in the amount of $46,527.14 and net business income in the amount of $3,902.33.
9. In computing income for the 1994 taxation year, the Appellant reported gross business income in the amount of $74,456.55, expenses in the amount of $59,925.71 and net business income in the amount of $14,530,84.
10. The Minister of National Revenue (‘the Minister’) assessed the Appellant’s 1993 and 1994 taxation years, concurrent Notices of Assessment thereof dated November 14, 1995.
11. In assessing the Appellant for the 1993 and 1994 taxation years, the Minister disallowed expenses in the amounts of $31,532.00 and $44,498.00, respectively.
12. In reassessing the Appellant for the 1993 and 1994 taxation years, pursuant to subsection 165(3) of the Income Tax Act (the ‘Act’), concurrent Notices of Reassessment thereof dated April 14, 1997, the Minister revised the disallowed business expenses to $3,931.00 and $18,331.00 respectively, as per schedules A and B attached hereto.
13. In so reassessing the Appellant, the Minister made the following assumptions of fact:
(a) the Appellant’s income tax returns for the 1993 and 1994 taxation years were required to be filed on or before April 30, 1994 and April 30, 1995 respectively;
(b) the Appellant filed his income tax returns for the 1993 and 1994 taxation years, on or about July 17, 1995;
(c) at all material times, the Appellant was a self-employed commission salesman for Re/Max Realty Specialists Inc. (‘Re/Max’);
(d) during the 1993 and 1994 taxation years, the Appellant reported gross business income from Re/Max in the amounts of $50,429.47 and $74,456.55 respectively and net business income (excess of income over expenses) in the amounts of $3,902.33 and $14,530.84 respectively;
(e) the Appellant has failed to produce adequate receipts, invoices or other documents in support of the disallowed business expenses;
(f) the disallowed interest expenses in the amounts of $3,484.00 in 1993 and $2,698.00 in 1994 were not paid pursuant to legal obligation to pay interest on borrowed money used for the purpose of earning income from a business or property;
(g) expenses disallowed by the Minister were not made or incurred, or if made or incurred, were not made or incurred for the purpose of gaining or producing income from business or property;
(h) the disallowed expenses were personal or living expenses.
B. ISSUES TO BE DECIDED
14. The issue is:
(i) whether the Appellant is entitled to claim expenses in excess of the amounts allowed by the Minister in the 1993 and 1994 taxation years respectively.”
[3] At the hearing counsel for the respondent informed the Court that a number of the expenses in dispute had been resolved and a Consent to Judgment was filed with respect to these items. What is left in issue is interest on the personal credit cards of the appellant and an amount of $10,000.00 allegedly paid to the appellant’s wife in 1994. The amount of interest regarding 1993 is $1,239.00. The figure for 1994 is $1,385.00.
[4] The onus is on the appellant to show that the reassessments are in error. This can be established on a balance of probabilities. Where the onus lies has been settled by numerous authorities binding on this Court. It is sufficient to refer to two judgments of the Supreme Court of Canada in this regard: Anderson Logging Co. v. The King, [1925] S.C.R. 45 and Johnston v. M.N.R., [1948] S.C.R. 486.
[5] The evidence adduced at the hearing does not discharge that onus in respect of either the interest on the credit cards or the $10,000.00. It is not possible to say with confidence what portion, if any, of the amounts in issue pertaining to interest should be allowed. Nevertheless, in the course of argument counsel for the respondent made this concession, and I will give effect to it:
“Ms. Aultman: The total interest for 1993.
His Honour: Was how much —
Ms. Aultman: $1,239.00.
His Honour: Yes.
Ms. Aultman: And for 1994 it was $1,385.00.
His Honour: Oh, so what you are saying is that — you are conceding that he is at least entitled to 60% of $1,239.00 in 1993 and 60% of $1,385.00 in 1994?
Ms. Aultman: Yes.
His Honour: Thank you.”
[6] With respect to the $10,000.00, again there is no convincing evidence establishing what part of it, if any, should be allowed. There are no documents in evidence about this and the appellant’s wife was not called upon to testify. This omission was not explained. Had she testified, counsel for the respondent would have been able to cross-examine regarding precisely what services she rendered in the asserted capacity of independent contractor for the $10,000.00. Enns v. The Minister of National Revenue, 87 DTC 208 involved the failure to call witnesses whose testimony in the opinion of the trial judge, Sarchuk, T.C.J., would have been of considerable assistance to the Court. In this regard His Honour said at page 210:
“In The Law of Evidence in Civil Cases, by Sopinka and Lederman, the authors comment on the effect of failure to call a witness and I quote:
‘In Blatch v. Archer, (1774), 1 Cowp. 63, at p. 65, Lord Mansfield stated:
It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.
The application of this maxim has led to a well-recognized rule that the failure of a party or a witness to give evidence, which it was in the power of the party or witness to give and by which the facts might have been elucidated, justifies the Court in drawing the inference that the evidence of the party or witness would have been unfavourable to the party to whom the failure was attributed.
In the case of a plaintiff who has the evidentiary burden of establishing an issue, the effect of such an inference may be that the evidence led will be insufficient to discharge the burden.(Levesque et al. v. Comeau et al., [1970] S.C.R. 1010; (1971), 16 D.L.R. (3d) 425.)” [emphasis added in the original text]
See also Markakis v. Minister of National Revenue, 86 DTC 1237 (T.C.C.) and Estate of John Sedelnick v. Minister of National Revenue, 86 DTC 1563 (T.C.C.).
[7] The appeals are allowed to the extent specified in the Consent to Judgment and to allow the appellant to deduct 60% of $1,239.00 and $1,385.00 pertaining to 1993 and 1994 respectively. The appellant is entitled to no other relief.
Signed at Ottawa, Canada, this 28th day of August 1998.
“D.H. Christie”
A.C.J.T.C.C.