Date: 20010523
Docket: 2000-1396-IT-I
BETWEEN:
RICHARD KARLO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1] This appeal is from an assessment for the appellant's 1994 taxation year. The issue is whether the appellant is taxable on the sum of $7,000 received by him from his former employer.
[2] In 1994 the appellant was employed as a salesman by SailRail Enterprises Limited ("SailRail"). In November 1995 the company, as well as a company that was its controlling shareholder, went bankrupt. Even in 1994 however, both companies were experiencing financial difficulties.
[3] A T4 slip was issued by SailRail for 1994 showing that the appellant received employment income of $76,933.54 from which income tax of $27,236.32 has been deducted.
[4] By the assessment from which this appeal is taken the Minister added a further $20,162 as additional employment income. The addition was based upon a memorandum (Exhibit A-1) which is reproduced below. It is mostly in the handwriting of Ian C. Scarth, another salesman employed by SailRail.
< IMG src="2001TCC20001396.gif" alt="SAILRAIL" >
[5] Except for the words "Richard & Ian" to the right of the figure $9,129 and the words Set 26,000 9,129
up 9,129
the memorandum was written by Ian C. Scarth. The other words and figures were written by another employee of SailRail or of the parent company.
[6] The appellant accepts that he received the sum of $9,129 and is taxable on it. In fact even if he were not taxable on the $7,000 the correct additional taxable amount is $13,162 because it includes the tax withheld and credited by the CCRA to the appellant.
[7] What about the $7,000 then? In his notice of appeal Mr. Karlo states
The second amount is for $7,000.00. This I do not agree with. I have no record of receiving a cheque in this amount and there is no record of a cheque ever being issued in this amount. This has been clearly stated in previous correspondence from myself and my representative in this matter, Ernst & Young. I would request that you review the documentation pertaining to this case which I will forward a copy of along with my filing fee for this appeal. I have no problem paying tax on an amount that I received but object to paying tax on moneys that I did not receive.
[8] In fact he did receive $7,000. There are in evidence the following documents:
(a) a cheque numbered 2064 dated 20 May 1994 for $7,000 and drawn on an account of SailRail payable to the appellant;
(b) a cheque for $9,129 dated May 18, 1994 payable to the appellant and drawn on the same account;
(c) a print out of an account of SailRail showing a debit for a cheque 2064 in the amount of $7,000;
(d) an analysis of cash disbursements of Trenton Industries/SailRail/Trenton Machine Tool (the parent company) showing the two cheques for $9,129 and $7,000 and a further cheque, drawn on a different account, payable to Richard Karlo in the amount of $5,377.48.
[9] In light of this the evidence is overwhelming that the appellant received the further sum of $7,000. He argues however that this was a reimbursement of expenses because the company owed him for a substantial amount of expenses that he had incurred on its behalf. In support of this he points to the fact that the $7,000 cheque was issued two days after the $9,129 cheque and in Exhibit A-1 it is called an advance.
[10] Without impugning in any way Mr. Karlo's credibility I think the evidence is more consistent with the view that the $7,000 formed part of his commission income. I have reached this conclusion for the following reasons.
(a) $7,000 is a round number and it is unlikely to have been paid as a reimbursement of expenses. It may be compared to the $5,377.48 cheque which is admittedly a reimbursement of expenses. That amount included pennies, a clear indication of an expense reimbursement.
(b) In a letter from Ernst & Young to Revenue Canada and signed by Ernst & Young and also by Mr. Karlo the following statement is made in support of the position (which the Department accepted) that the $5,377.48 was not commission income.
Detailed records were prepared by Mr. Scarth of the commission entitlement which Mr. Karlo and Mr. Scarth shared. These records ran through the 1993 and 1994 year and clearly show the earning entitlement and those amounts were reduced by advance payments which were made to the taxpayers against those commissions. At no point did the $5,377.48 appear as a credit against those commissions owing. If indeed that had been a commission payment then those amounts would have been reflected on the commission claims.
No similar argument was advanced with respect to the $7,000.
(c) Exhibit A-1 was prepared by Mr. Scarth and it shows the $7,000 as a part of the total commissions of $40,324. Mr. Scarth obviously was receiving the same amounts as the appellant. It seems unlikely that he would receive the same amount, $7,000, as a reimbursement of expenses and would treat that as part of his commission income if it was really a repayment of expenses.
(d) The clincher is Exhibit R-3, which is a detailed analysis of the commissions making up the total of $40,324.38 which is obviously the same as the $40,324 found in Exhibit A-1. Clearly the $40,324 represents commissions and since the $7,000 forms part of the share of each of Mr. Scarth and the appellant it must represent commissions.
[11] I find that the $7,000 forms part of the appellant's commission income for 1994.
[12] The appeal is therefore dismissed.
Signed at Ottawa, Canada, this 23rd day of May 2001.
"D.G.H. Bowman"
A.C.J.