Date: 19990507
Docket: 98-1493-IT-I
BETWEEN:
MARLÈNE GODIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Tardif, J.T.C.C.
[1] These are appeals for the 1993, 1994 and 1995 taxation years. During that period, the appellant worked as a barmaid at a bar named Disco-Spec Dagobert Inc. (“Disco”). In doing her work, she received tips.
[2] At issue is the amount of tips the appellant received during the three taxation years in question.
[3] In her testimony, the appellant indicated that she always worked on Thursdays, Fridays, Saturdays and Sundays at one of the eight bars in the Disco, which were located on three levels. Actually, she shared responsibility for the only bar on the third level. She and her colleague worked there together; all of the drink sales were recorded on the same cash register. The tips paid by customers were not shared between them. Each of them kept her own tips; however, they had to give one percent of half of the sales to the waiters working on the floor.
[4] Every day, the appellant completed a tip book provided by the Department of National Revenue (“Department”) to the Government of Quebec; she wrote down the total sales, the amount of her tips in cash and the tips shown on customers’ credit card slips. Lastly, the book showed the amount given to the waiters on the floor, which was a percentage of half of the sales recorded.
[5] At the end of the year, her tip income was added up and her spouse completed the income tax returns for both levels of government.
[6] Michel Côté, an auditor with the Department, explained that the appellant’s file was audited as part of a huge investigation relating specifically to the class of taxpayers who receive tips. The many files audited included that of the Disco, where the appellant worked as a barmaid.
[7] He explained that the Department had told all the managers of the establishments being audited that departmental auditors might come to their premises to gather all the information they needed for their analysis and audit.
[8] The establishment where the appellant worked was the subject of such observation and analysis. Mr. Côté and a co-worker thus went to the Disco on April 25, 26 and 27 and May 1, 1995, to observe what kind of customers were there, how many there were and how generous they were in order to determine the income resulting from tips.
[9] Jean-Paul Fortin, who was responsible for the file as regards the preparation of the assessments, also testified. He admitted that the data concerning the amount of sales recorded on the cash register and written down in the book completed daily by the appellant balanced with the figures provided by the business.
[10] Acting on the assumption that the data provided by the appellant were inconsistent with the facts observed by the auditors, the Department refused to give credence to the appellant’s amended arguments, especially since she had initially provided false information.
[11] Moreover, the numerous reviews and analyses, and the extensive observation, carried out by the Department in the Disco-Spec Dagobert Inc. file and other such files were used to prepare scales and establish certain standards.
[12] Mr. Côté referred to his various findings, including the fact that the establishment in question did a great deal of business; he also noted that the customers were generally young professionals and so the tips given were usually very generous.
[13] According to Mr. Côté, the tip income reported by the appellant did not correspond in any way to what he had observed during his four visits to the establishment where she worked.
[14] He also noted that the customers usually gave much higher tips than the Department had attributed to the appellant; thus, according to the respondent, the contested assessments involved an amount of tips that was more than reasonable, and indeed minimal.
[15] The Department’s approach was certainly valid and reasonable given the facts and circumstances available in the vast majority of such cases, in which taxpayers have no data, books or records. In such cases, it is normal and usual, essential even, to use a method in which certain facts and observations become the basis for an extrapolation that allows an assessment to be made that is arbitrary in part and yet valid and reasonable given that there is no other way of assessing.
[16] When such a procedure is used, it is essential that the foundations of the approach be credible, sound and above all highly relevant.
[17] In the case at bar, the premises were visited on a Monday, a Tuesday, a Wednesday and a Thursday in April 1995. During the four visits, which lasted a few hours, the eight bars on the three different levels were observed.
[18] Even before the description of the circumstances of the visits, the evidence had shown that the three levels targeted different customers and especially that business varied a great deal over the course of a given week. Mr. Côté made no remarks or comments on this, but rather argued that his observations were applicable to each day of the week, including the days when the appellant worked, that is, Thursday, Friday, Saturday and Sunday.
[19] It was shown that there were shows and activities at the beginning of the week that generally resulted in steadier business and drew an older clientele.
[20] In addition to these specific facts, there was the fact that certain times of the year were busier than others; for example, the appellant’s spouse said that the period when Ontario students visited the Québec area was very unusual in that businesses in general were exceptionally busy.
[21] The burden of proof is on the appellant. To be successful, it is not enough to challenge the method used to make an assessment. It is essential that the appellant demonstrate the soundness of her arguments through credible and plausible evidence.
[22] In this regard, the appellant’s testimony was irreproachable and the evidence did not provide this Court with any justification for excluding all or even part of it. Her testimony was honest, credible and spontaneous.
[23] When all is said and done, the Court must decide between two types of records. One of them resulted from a plausible exercise involving hypothetical data recorded on the basis of a one-time sampling.
[24] The other is a daily record completed in a manner whose quality the evidence does not warrant casting any doubts on.
[25] The only factor that discredits the plausibility of the appellant’s arguments is the fact that her spouse, who prepared her tax returns, took the initiative of omitting certain figures on the pretext that Revenue Canada dealt unfairly with employees who receive tips. Following the auditing of the file, the appellant’s spouse, who had prepared her tax returns for the years at issue, did the calculations again using the data the appellant wrote down daily in the book designed for that purpose. Based on the new calculations, which were documented and highly itemized, the appellant argued that her tip income was $11,551, $3,965 and $8,310 for the three years at issue, respectively (Exhibit A-1).
[26] The aforementioned gross negligence is certainly imputable to the appellant; however, must it discredit the value of her testimony? I do not think so. The appellant’s testimony was spontaneous and the Court believes that she has proved the soundness of her arguments.
[27] The Court therefore accepts the corrected figures, namely those written down in the daily record kept by the appellant.
[28] The appeal is allowed in that the appellant’s tip income for the 1993, 1994 and 1995 taxation years is deemed to have been $11,551, $3,965 and $8,310, the whole without costs.
Signed at Ottawa, Canada, this 7th day of May 1999.
“Alain Tardif”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 25th day of February 2000.
Erich Klein, Revisor