Bousfield v. The King

Bousfield v. The King
Court (s) Database
Tax Court of Canada Judgments
Date
2022-12-28
Neutral citation
2022 TCC 169
File numbers
2015-1001(GST)G, 2015-1002(IT)G
Judges and Taxing Officers
David E. Graham
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Dockets: 2015-1001(GST)G 2015-1002(IT)G
BETWEEN:
JONATHON BOUSFIELD,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
Appeals heard on November 13, 14, 15, 16, 2018 and October 31, November 1, 2, 3, 7, 8 and 9, 2022, at Regina, Saskatchewan
Before: The Honourable Justice David E. Graham
Appearances:
For the Appellant:
The Appellant himself
Counsel for the Respondent:
John Krowina
JUDGMENT
The appeals of the Appellant’s 2006, 2007 and 2008 tax years are allowed and referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that:
(a) the Appellant’s net business income be reduced by $49,211 in 2006;
(b) the Appellant’s net business income be reduced by $54,668 in 2007;
(c) the Appellant’s net business income be reduced by $51,485 in 2008; and
(d) the penalties under subsection 163(2) of the Income Tax Act be deleted for 2006 and 2007.
The appeals of the Appellant’s reporting periods ending between July 1, 2007 and December 31, 2008 are allowed and referred back to the Minister for reconsideration and reassessment on the basis that net tax be reduced by the following amounts in the following periods:
Reporting Period
Reduction in Net Tax
July 1 to September 30, 2007
$899.25
October 1 to December 31, 2007
$899.25
January 1 to March 31, 2008
$650.92
April 1 to June 30, 2008
$650.92
July 1 to September 30, 2008
$650.92
October 1 to December 31, 2008
$650.92
The parties shall have until January 27, 2023 to reach an agreement on costs, failing which the parties shall have until March 3, 2023 to serve and file written submissions on costs and the parties shall have until March 17, 2023 to serve and file a written response. Any such submissions shall not exceed 10 pages in length. If the parties do not advise the Court that they have reached an agreement and no submissions are received within the foregoing time limits, the parties shall bear their own costs.
Signed at Ottawa, Canada, this 28th day of December 2022.
“David E. Graham”
Graham J.
Citation: 2022 TCC 169
Date: 20221228
Dockets: 2015-1001(GST)G 2015-1002(IT)G
BETWEEN:
JONATHON BOUSFIELD,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
REASONS FOR JUDGMENT
Graham J.
I. Overview
[1] In 2006, 2007 and 2008, Jonathan Bousfield operated a taxi and transportation business in Regina. Mr. Bousfield owned a number of vehicles. He used one vehicle as a taxi. He used one or more other vehicles to provide transportation services to a company owned by his brother.
[2] The Minister of National Revenue reassessed Mr. Bousfield to increase his revenue from the taxi business using a combination of four different alternative assessment techniques. The Minister also increased Mr. Bousfield’s revenue from his transportation business. The Minister further denied various expenses that Mr. Bousfield had claimed on the basis that they had not been incurred or, if incurred, had not been incurred for a business purpose. Finally, the Minister imposed gross negligence penalties.
[3] The Minister made corresponding adjustments to Mr. Bousfield’s GST reporting periods ending between July 1, 2007 and December 31, 2008.
[4] Mr. Bousfield has appealed all of the resulting reassessments.
II. Issues
[5] The single largest issue in these appeals is the determination of Mr. Bousfield’s revenue from the taxi business.
[6] I have never seen so many different alternative assessment techniques used for one taxpayer. The Minister calculated Mr. Bousfield’s revenue from the taxi business using the average of four different techniques. Mr. Bousfield has countered with three different techniques. Ultimately, to best determine Mr. Bousfield’s revenue, I have had to create a modified technique of my own.
[7] These appeals raise interesting issues concerning how alternative assessment techniques can be attacked, the use of industry averages in alternative assessment techniques, the use of assumptions of fact in alternative assessment techniques and the ability of a taxpayer to rely on his or her own alternative assessment techniques.
[8] After dealing with the revenue from the taxi business, I will turn to the lesser issues of Mr. Bousfield’s revenue from his transportation business, his expenses, the GST impact of any changes that I may make and, finally, the imposition of gross negligence penalties.
III. Alternative Assessment Techniques
[9] Alternative assessment techniques are sometimes called “arbitrary assessments” or “net worth assessments”. However, these three terms have very different meanings.
[10] An arbitrary assessment is an assessment that the Minister issues with little, if any, analysis usually with the goal of prompting a taxpayer who has failed to file a tax return to do so.
[11] By contrast, an alternative assessment technique involves some level of analysis and calculation (often very detailed) in an attempt to determine the taxpayer’s income or revenue.
[12] A net worth assessment is one type of alternative assessment technique. While net worth assessments are perhaps the most common form of alternative assessment technique, referring to all alternative assessment techniques as net worth assessments is both inaccurate and potentially confusing.
[13] These appeals provide an excellent example of the differences among these three terms.
[14] Mr. Bousfield did not file tax returns for his 2006 and 2007 tax years. In an effort to get him to file, the Minister issued arbitrary assessments. This prompted Mr. Bousfield to provide returns for those years and to file his return for 2008. The Minister then audited Mr. Bousfield. The auditor used alternative assessment techniques in an attempt to more accurately determine Mr. Bousfield’s revenue from the taxi business. The Minister reassessed 2006 and 2007 and assessed 2008 based, in part, on those techniques.
[15] Mr. Bousfield has responded with three alternative assessment techniques of his own. Two of those techniques attempt to determine his revenue from the taxi business. The third technique is a net worth assessment. It attempts to calculate his total income from all sources.
A. Use of Alternative Assessment Techniques
[16] Subsection 152(7) of the Income Tax Act allows the Minister to issue an arbitrary assessment or assess a taxpayer using an alternative assessment technique. [1] The subsection does not establish a specific technique that must be used. [2]
[17] Alternative assessment techniques should not be the norm. They should be a last resort. [3] That said, although the Minister generally does not use alternative assessment techniques unless a taxpayer’s books and records are an inadequate means of determining the taxpayer’s income or revenue, poor books and records are not a prerequisite to applying an alternative assessment technique.
[18] The Court does not have to be satisfied that it was necessary for the Minister to use an alternative assessment technique. The Minister can use an alternative assessment technique at any time regardless of the state of the taxpayer’s records. [4]
[19] Subsection 152(7) specifically states that the Minister is not bound by a return or information supplied by the taxpayer and that the Minister can assess notwithstanding any return or information so supplied. The subsection does not say that the taxpayer’s records have to be inadequate. Once the Minister assesses under subsection 152(7), subsection 152(8) deems the assessment to be correct subject to being vacated or varied on objection or appeal.
[20] While some cases seem to suggest that unreliable books and records are a prerequisite to a subsection 152(7) assessment, a more accurate description is that reliable books and records are one way that a taxpayer can attack an alternative assessment technique. The five ways of attacking an alternative assessment technique are described below.
B. Attacking Alternative Assessment Techniques
[21] When the Minister determines a taxpayer’s income or revenue using an alternative assessment technique, the taxpayer can win:
(a) by showing that the taxpayer’s income or revenue can be more accurately calculated using the taxpayer’s own books and records; [5]
(b) by accepting that the alternative assessment technique used by the Minister is appropriate but attacking components of the calculation in an effort to reduce the income or revenue; [6]
(c) if the year in question is statute barred, by showing that the alternative assessment technique used by the Minister is fundamentally flawed; [7]
(d) by presenting a different alternative assessment technique that more accurately calculates the taxpayer’s income or revenue; [8] or
(e) by accepting that the alternative assessment technique used by the Minister was appropriate but showing that the income or revenue calculated by the technique was from a non-taxable source. [9]
[22] As the third option described above is very important to Mr. Bousfield’s appeals, I will expand on it briefly.
[23] Unless a year is statute barred, a taxpayer cannot win by simply showing that the Minister’s alternative assessment technique is fundamentally flawed. The Minister will have made assumptions of fact to support her technique, but she will also have made an assumption of fact that the taxpayer earned the income or revenue calculated by that technique. It is up to the taxpayer to demolish that assumption.
[24] The taxpayer cannot demolish the assumption by simply showing that the alternative assessment technique is fundamentally flawed. The taxpayer can only demolish the assumption by either showing that the assumed revenue or income was from a non-taxable source or presenting the Court with a viable alternative for determining the taxpayer’s revenue or income - be it the taxpayer’s own records or some other technique.
[25] If that were not the case, consider what would happen to a taxpayer who earned income but had no books and records and had not filed a tax return. If the taxpayer could win by simply showing that the alternative assessment technique the Minister used to assess him or her was fundamentally flawed, the assessment would be vacated and the taxpayer would end up having no income at all for the year. The taxpayer would be rewarded for having failed to comply with his or her obligations under the Income Tax Act.
[26] The situation is, of course, very different if the year in question is statute barred. In that case, the Respondent would have the burden of proving that the taxpayer had unreported income or revenue. [10] If the Court found the alternative assessment technique that the Minister used to be fundamentally flawed, then the Respondent could not meet that burden. The taxpayer would not have to show that he or she had some other amount of income or revenue.
C. Mr. Bousfield’s Approach
[27] In Mr. Bousfield’s case, none of the years in issue is statute barred. Therefore, Mr. Bousfield has to do more than simply show that the Minister’s alternative assessment techniques are fundamentally flawed. He has to turn to one or more of the remaining four methods of attack. He has done so.
[28] He argues that his books and records are a more accurate means of determining his revenue from the taxi business, that the alternative assessment techniques used by the Minister were flawed and that his own alternative assessment techniques are better. I will address each of these arguments in turn.
IV. Books and Records Are Inadequate
[29] Before I review Mr. Bousfield’s books and records, I want to emphasize that the only reason that I am looking at this issue at all is because Mr. Bousfield says that his books and records are a more accurate means of determining his revenue from the taxi business. As discussed above, unreliable books and records are not a prerequisite to an assessment under subsection 152(7).
[30] Furthermore, I am considering this issue first, not because I have to, but rather because doing so helps to explain Mr. Bousfield’s business in a way that later allows me to more clearly analyze the alternative assessment techniques used by the parties.
[31] I find that Mr. Bousfield’s books and records from his taxi business are not an adequate means of calculating his revenue. He tracked revenue using different systems but did not follow those systems consistently. He and his taxi drivers either failed to complete the necessary documents or did not retain those documents.
[32] In order to explain what records Mr. Bousfield should have had, I need to first explain how his taxi business operated.
A. Taxi Business
[33] During the years in question, a taxi business in Regina needed four things: a taxi plate issued by the city, a vehicle, a dispatch company and a licenced driver. Mr. Bousfield had a vehicle but did not have a taxi plate. He leased his plate from the owner of the plate through a company called Capital Cabs. Capital Cabs also acted as the dispatcher for the taxi.
[34] Mr. Bousfield was a licenced taxi driver. Sometimes he drove his taxi himself. However, most of the time, he entered into what he called subleases with various drivers. Under the terms of the subleases, Mr. Bousfield split all taxi fares from a given shift 50/50 with the driver. He and the driver shared the cost of fuel on the same basis.
[35] Having set out the basics of how Mr. Bousfield’s taxi business operated, I can now describe why his books and records were inadequate.
B. Taxi Business was Largely Cash-Based
[36] The vast majority of the revenue earned in Mr. Bousfield’s taxi business was generated in cash. He paid many of his expenses in cash. This included paying his drivers in cash most of the time. There is always an increased risk of under-reporting in cash-based businesses. This makes it all the more important for the business to maintain a reliable system for tracking its revenues.
[37] Mr. Bousfield primarily used a system of what he called “white envelopes”. Capital Cabs provided him with preprinted envelopes. Mr. Bousfield’s drivers were supposed to write the date, their name and the times of their shifts at the top of the envelopes. They were to then record the pick-up and drop-off points for each fare, the amount of the fare and whether the fare was paid by cash or some non-cash means of payment such as a credit card.
[38] At the end of the shift, drivers were supposed to use the white envelopes to calculate their 50% share of the fares and their fuel costs. They were to take their share from any cash collected and leave the remaining cash in the envelope for Mr. Bousfield.
[39] Capital Cabs processed all credit card payments, payments made on corporate accounts, government accounts or school board accounts on behalf of Mr. Bousfield. I will refer to these types of payment as non-cash fares.
[40] Capital Cabs would send Mr. Bousfield a monthly reconciliation of the non-cash fares they had collected on his behalf and, after deducting Mr. Bousfield’s lease payments to the taxi plate owner and his dispatch fees, would write Mr. Bousfield a cheque.
[41] In a perfect world, the white envelopes showing the cash and non-cash fares combined with the Capital Cabs monthly statements showing the non-cash fares should have been sufficient to accurately establish what Mr. Bousfield’s revenue from his taxi business was. The Minister could have verified the accuracy of these documents by cross-referencing them against Mr. Bousfield’s bank account deposits and his general ledger. It was not a perfect world.
C. White Envelopes Were Missing and Incomplete
[42] Mr. Bousfield could not produce most of the white envelopes. For example, for 2006, he could only produce five envelopes for May, two envelopes for April and November and no envelopes at all for January, March, June, October or December. In total, he produced only 81 envelopes for the entire year. If the taxi were driven two shifts a day, there should be 780 envelopes for the year. Even accounting for days when the taxi might have been being serviced, days when no drivers were available, bad weather days and drivers who filled out envelopes for more than one day, Mr. Bousfield is still dramatically short of envelopes. Without these white envelopes, Mr. Bousfield’s records are not a reliable means of determining his revenue.
[43] In addition, the white envelopes that Mr. Bousfield did provide were missing many key pieces of information such as the driver’s name, the date and the times of the shift. This makes it difficult, if not impossible, to reconcile these envelopes to the deposits that Mr. Bousfield made to his bank account and entries that he made to his general ledger.
[44] Furthermore, because Mr. Bousfield paid the drivers in cash rather than by cheque, he did not have any alternative means of proving what their share of revenue was for the missing envelopes.
D. Other Methods of Tracking Revenue Were Inadequate
[45] For some unexplained reason, Mr. Bousfield used a different system to track revenue for his main daytime driver. That driver was Ron Hooper. For the most part, Mr. Hooper worked day shifts from Monday to Friday during the school year.
[46] Mr. Hooper and Mr. Bousfield each used their own systems to track revenue. Neither of these systems involved the white envelopes.
[47] Mr. Hooper kept a logbook where he recorded his fares. It appears to me that he did not give a copy of that logbook to Mr. Bousfield.
[48] Mr. Bousfield initially tracked Mr. Hooper’s fares using small slips of paper. He filled out these slips on a monthly basis. They showed no daily details, could not be reconciled to Mr. Hooper’s logbook and did not break out fares into cash or non-cash payments. Mr. Bousfield did not explain how he knew how much to put on the slips each month.
[49] Towards the end of 2006, Mr. Bousfield abandoned even this slip system and simply used spare scraps of paper. He reverted to the slip system for the first half of 2007. He either used no system at all in the second half of 2007 and all of 2008 or kept no records of the system that he used.
[50] As set out in more detail below, I find that only a small portion of Mr. Hooper’s cash fares were recorded as revenue on the slips and scraps of paper. This means that only a small portion of those fares were recorded in Mr. Bousfield’s books. This makes this system of recording revenue completely unreliable.
E. Mr. Bousfield Lacks Bookkeeping Skills
[51] In the years in question, Mr. Bousfield used QuickBooks to account for his business income. He readily admits to being unfamiliar with the program and unsure how to properly record transactions. Although the entire general ledger was not entered into evidence, it is clear from the portions that were entered that Mr. Bousfield regularly made errors in his entries.
F. Conclusion
[52] Based on all of the foregoing, I find that Mr. Bousfield’s books and records are not a reliable way of determining his revenue from the taxi business. The only way to determine Mr. Bousfield’s taxi revenue is through some sort of alternative assessment technique.
[53] I will now review the techniques used by the Minister, then the techniques proposed by Mr. Bousfield and, finally, the modified technique that I have concluded most accurately captures Mr. Bousfield’s revenue from his taxi business.
V. Alternative Assessment Techniques Used by the Minister
[54] The auditor, Sherry Canton, testified about the alternative assessment techniques that she employed to determine Mr. Bousfield’s revenue. I found Ms. Canton to be a credible witness. While I do not necessarily agree with the approaches that she chose, I was impressed by her detailed understanding of the issues at hand.
[55] Ms. Canton used the average of four different alternative assessment techniques to determine Mr. Bousfield’s taxi revenue. I will review each of those techniques.
A. Average Daily Revenue Technique
[56] The first technique that Ms. Canton used to determine Mr. Bousfield’s taxi revenue involved calculating the taxi’s average daily revenue.
[57] Before considering the technique itself, I first need to address the use of industry averages and the importance of assumptions of fact in alternative assessment techniques.
(i) Use of Industry Averages and Statistics Canada Figures
[58] Both parties relied on or attempted to rely on industry averages and Statistics Canada figures in their alternative assessment techniques. These types of averages and figures often appear in alternative assessment techniques. However, it would be extremely unusual for a party to actually call a witness to explain how the averages or figures were determined. In the absence of such a witness, what should the Court do with these types of averages and figures? The answer depends on how they are being used.
[59] There is nothing wrong with the Minister using an industry average or Statistics Canada figure as the basis for an assumption. In fact, the Minister routinely does so in alternative assessment techniques.
[60] In Bigayan v. The Queen, Chief Justice Bowman dealt with Statistics Canada figures that had been used to estimate personal expenditures in a net worth assessment. He observed that no one from Statistics Canada had been called as a witness and that he had no evidence of how the figures were arrived at. Yet he concluded that, “[u]nreliable as the StatsCan figures may be they at least represent the Minister’s assumptions that it was the appellant’s onus to demolish.” [11]
[61] In other words, the Minister does not have to prove that the average or figure is accurate. The Minister simply makes an assumption of fact that the average or figure applied to the taxpayer. It is up to the taxpayer to demolish the assumption.
[62] By contrast, if either party wants to rely on industry averages or Statistics Canada figures as evidence, that party will need to call a witness to explain how the averages or figures were determined. In the absence of such a witness, such averages and figures should not be admitted into evidence. They are hearsay.
[63] An example will help to make this distinction clear. As described in Bigayan, when conducting a net worth assessment the Minister sometimes relies on Statistics Canada averages to estimate a taxpayer’s personal expenses. Say that, using those averages, the Minister assumed that a taxpayer spent $1,000 a month on food for himself and his family.
[64] The Respondent would not have to call a witness from Statistics Canada to explain how that average had been determined. The Minister would simply make the assumption.
[65] The taxpayer would have to demolish that assumption. He could do that through oral testimony or, better yet, by showing proof of his actual grocery expenditures.
[66] The taxpayer could not, however, demolish the assumption by pointing to a report from Health Canada that said families spent $700 a month on food unless he called a witness from Health Canada. This is because, unlike the Minister, who relied on the Statistics Canada figures to form the basis of her assumption, the taxpayer would be trying to enter the Health Canada report for the truth of its contents.
(ii) Assumptions of Fact in Alternative Assessment Techniques
[67] The Respondent is required to set out in the Reply the assumptions of fact that the Minister made in reassessing. [12] If the Minister made an assumption but the Respondent failed to include it in the Reply, the Respondent does not enjoy the benefit of the assumption being presumed to be true. If the Respondent wants to rely on the unpled assumption, the Respondent must introduce evidence to support it just as the Respondent would if he wanted to rely on a fact that the Minister had not assumed. [13]
[68] Where the Minister used an alternative assessment technique, the Respondent should not simply plead that that the Minister assumed the taxpayer had $X in income or $Y in revenue. The Respondent should also plead the facts that the Minister assumed in making the calculation that gave rise to that income or revenue. This is true both because the Respondent has a duty to fully disclose to the taxpayer the precise findings of fact which gave rise to the controversy [14] and because, if the Respondent fails to do so and the taxpayer challenges those facts, the Respondent will be left having to prove them.
(iii) Analysis of the Technique
[69] Having established the ground rules for industry averages and assumptions of fact, I will now turn to my analysis of Ms. Canton’s average daily revenue technique.
[70] Ms. Canton reviewed a study on the Regina taxi industry that a consultant had prepared for the City of Regina. Based on her reading of that study, she assumed that Mr. Bousfield’s taxi earned $800 per day.
[71] Ms. Canton recognized that repairs, driver illness and weather would likely have prevented Mr. Bousfield’s taxi from being on the road every day of the year. She estimated that he drove 343 days of the year. Multiplying her assumed daily revenue figure of $800 by the 343 days, Ms. Canton determined that Mr. Bousfield’s taxi would have had $274,000 in revenue each year.
[72] I have two concerns with this technique. First, while it is clear to me that Ms. Canton made an assumption of fact that Mr. Bousfield’s taxi earned $800 in revenue per day, 343 days per year, the Respondent did not plead those assumptions of fact in the Reply. This means that the Respondent needed to prove these facts if the Respondent wanted to rely on them. The Respondent failed to do so.
[73] While I find Ms. Canton’s reasoning for picking 343 days per year to be appealing, in the absence of an assumption, it is nothing more than her opinion.
[74] As for the $800 in revenue per day, I have no evidence of that figure at all. The Respondent cannot rely on the Regina taxi study. Had the Respondent pled the assumption that Mr. Bousfield earned $800 per day in revenue, Mr. Bousfield would have had to demolish that assumption. Without that assumption being pled, the Respondent cannot use the taxi study as evidence of daily taxi revenues in Regina. [15]
[75] I understand the difficult position that the Respondent was in when pleading. Because Ms. Canton used the average of four different techniques, the Respondent needed to plead the assumptions of fact relating to each of those techniques. Those assumptions would, in some cases, have been contradictory. That does not, however, relieve the Respondent from his obligations.
[76] Even if the Respondent had pled Ms. Canton’s assumption that Mr. Bousfield’s taxi had $800 in revenue per day, I would still have had difficulty with this figure. Ms. Canton appears to have accidentally doubled the amount of daily revenue set out in the taxi study. The study states that taxis have revenue ranging “from an average low of $400 per day to an estimated high of $600 per day or greater when these taxis are utilized in a double shift system in peak winter season”. [16]
[77] Ms. Canton appears to have misunderstood the above quotation to mean that revenue ranged between $400 and $600 per shift as opposed to per day. In an effort to be conservative, she used the $400 figure. However, since Mr. Bousfield ran his taxi over two shifts, she used twice that figure (i.e. $800) as the daily revenues. Using the figures that I understand she intended, the revenue should have been $137,200. [17]
[78] My second concern with this technique is that it assumes that Mr. Bousfield’s taxi business was operated in the same manner as all of his competitors’ businesses. Where possible, an alternative assessment technique that accounts for the specifics of a taxpayer’s business should be preferred over one that is based purely on industry averages.
[79] As mentioned above, Mr. Bousfield subleased his taxi to drivers on a 50/50 arrangement. At the time, the rest of the taxis operated through Capital Cabs required drivers to pay a flat fee to rent the taxi for a given shift. Under that system, the driver kept all of the fares. It appears to me that a driver working on a 50/50 split would have less incentive to track down every possible fare than a driver who was going to lose money if he or she did not generate enough fares to cover his or her fixed fee for the shift. Since Mr. Bousfield’s taxi was the only taxi at Capital Cabs that operated on a sublease basis, his revenues may have lagged those of others in the industry.
[80] For all of the above reasons, I find that the average daily revenue technique is not an appropriate means of determining Mr. Bousfield’s revenue from his taxi business.
B. Average Trip Revenue Technique
[81] The second alternative assessment technique that Ms. Canton used involved calculating revenue using an assumed fare for an average trip.
[82] Ms. Canton assumed that the average taxi trip in Regina took 20 minutes. She divided a 24-hour day by 20 minutes and concluded that there must have been 72 trips per day. She assumed an average fare of $11.40 per trip. That meant that a taxi would have earned $820 per day. She multiplied that figure by the 343 working days that she had used in her average daily revenue technique and concluded that Mr. Bousfield’s taxi had earned $281,260 in revenue each year.
[83] I have two concerns with this approach. First, while it is clear to me that Ms. Canton made an assumption of fact that Mr. Bousfield’s taxi earned $11.40 per trip, took 72 trips per day and drove 343 days per year, the Respondent did not plead those assumptions of fact in the Reply. This means that the Respondent needed to prove these facts if the Respondent wanted to rely on them. The Respondent failed to do so.
[84] In the absence of an assumption, the 343 days per year figure is simply Ms. Canton’s opinion. So is the 72 trips per day figure.
[85] Even if the Minister had assumed that the taxi took 72 trips per day, I would not have found that to be a reasonable approach. Ms. Canton essentially assumed that the trips were continuous. She did not build in time for washroom breaks, coffee breaks, travel in an empty taxi to pick up a customer at a specific location or travel back from a customer’s drop-off in an empty taxi.
[86] As for the $11.40 per ride, Ms. Canton was unable to recall where she came up with this figure. It was not from the taxi study.
[87] Mr. Bousfield analyzed figures from Ms. Canton’s summaries of the white envelopes. He determined that the average fare on trips that were reported on his white envelopes was $9.77 in 2006, $10.47 in 2007 and $10.94 in 2008. In the circumstances, this is the best evidence that I have. [18] However, even if I accepted those figures, this technique would still not be useful.
[88] My second concern with Ms. Canton’s technique is that it assumes that the taxi was driven all night. This conflicts with the Minister’s pled assumptions that the taxi operated during the day and evenings on weekdays and only operated 24 hours a day on weekends. [19] As set out in more detail below, none of the witnesses provided reliable evidence regarding the hours and days that they drove the taxi. However, I am comfortable concluding from their evidence that the taxi was not driven between midnight and 6:00 a.m. on weekdays.
[89] For all of the above reasons, I find that the average trip revenue technique is not an appropriate means of determining Mr. Bousfield’s revenue from his taxi business.
C. Industry Cash to Non-Cash Ratio
[90] The third alternative assessment technique that Ms. Canton used examined the ratio of cash fares to non-cash fares.
[91] At the time of the audit, Ms. Canton worked in the Canada Revenue Agency’s underground economy unit. Her unit had completed many audits of taxi businesses in Regina. She testified that her unit had determined that, on average, taxis collect 85% of their fares in cash and 15% in non-cash forms of payment.
[92] As set out above, non-cash fares were run through Capital Cabs. Capital Cabs provides Mr. Bousfield with a monthly accounting of those fares. That accounting is a reliable source.
[93] Ms. Canton calculated that the total revenue from Mr. Bousfield’s taxi should have been equal to his non-cash payments received through Capital Cabs divided by 15%. This is a reasonable approach but I have two concerns.
[94] The first concern is that, once again, the Respondent did not plead the relevant assumptions of fact in the Reply. Ms. Canton clearly assumed that 85% of the taxi’s fares were cash fares but this assumption was not pled. This means that the Respondent needed to prove this fact if the Respondent wanted to rely on it. Ms. Canton’s testimony that it came from her unit’s audit experience is not enough.
[95] My second concern is that the technique assumes that, on average, the mix of cash and non-cash fares would be consistent throughout the day, week and year. That is not an unreasonable assumption if the taxi operates in a consistent manner. However, Mr. Bousfield’s taxi did not operate in a consistent manner.
[96] During the school year, the Regina public school board used taxi drivers to transport certain children to school. Various government social service bodies also used taxis to transport children. For example, they would use a taxi to transport a child from a foster home to a supervised visit with a parent. For simplicity, I will refer to these types of trips as “child trips”.
[97] Child trips generally occurred during the daytime, on weekdays, during the school year. Mr. Hooper drove those shifts. He would pick up the children in the morning, transport them to school and then return them home at the end of the school day. In the case of younger children, Mr. Hooper had to return them home around noon.
[98] While Mr. Hooper was free to pick up normal fares during the parts of the day that he was not making child trips, it was clear that child trips made up a significant part of his day.
[99] The school board and public service bodies arranged for the child trips through contracts with Capital Cabs. They paid Capital Cabs directly. Therefore, all child trips were non-cash trips.
[100] Over the course of the entire year, child trips made up more than 75% of all non-cash fares. As a result, they had the potential to significantly skew the ratio of cash to non-cash fares. It would be unreasonable to use an industry average that did not involve child trips to determine the revenue of a taxi that frequently took those trips.
[101] Overall, while I prefer this technique to the two previous techniques used by Ms. Canton, I have no evidence supporting the ratio of cash to non-cash fares and have serious concerns that the inclusion of the child trips in the non-cash fares may have significantly skewed the results.
D. Actual Cash to Non-Cash Ratio
[102] The final technique that Ms. Canton used was the same as the previous technique except, instead of using industry averages, she used the ratio of cash to non-cash fares of Mr. Bousfield’s taxi itself.
[103] Ms. Canton examined a sample of the white envelopes that Mr. Bousfield had provided to her. She determined what the ratio of cash fares to non-cash fares was on those envelopes. The percentage of cash fares was slightly lower than the ratio that the CRA’s industry average suggested.
[104] Ms. Canton applied that ratio to the non-cash fares reported by Capital Cabs and determined what the total revenue from Mr. Bousfield’s taxi would have been.
[105] Since Mr. Hooper did not use white envelopes, the child trips were not included in the ratio that Ms. Canton calculated. However, she did not make any adjustment for the child trips. Instead, she applied the ratio to all non-cash fares. This had the same effect of skewing the outcome described above.
[106] Of the four techniques used by Ms. Canton, I find this to be the most reliable. It is preferable to the third technique, as it uses data directly from Mr. Bousfield’s business rather than industry averages. Although the Respondent did not plead the assumptions that Ms. Canton made, the evidence underlying those assumptions was entered into evidence.
[107] However, the technique still does not address the fact that the child trips artificially inflate the non-cash fares against which the ratio is applied. While this technique produced the lowest revenue in each year, that revenue is still, in my view, significantly inflated.
[108] During the trial, Ms. Canton prepared her own amended version of her actual cash to non-cash ratio technique to try to address the child trip issue. To do so, she reviewed the evidence for Mr. Bousfield’s 2006 tax year on a level of detail that she had not had time to conduct during her audit. In particular, she reviewed every available white envelope for 2006 instead of just a sample and took an in-depth look at Mr. Hooper’s fares.
[109] I prefer her updated analysis but I still find that it did not capture key aspects of the evidence. In addition, it overlooked the fact that Mr. Bousfield was only entitled to 50% of Mr. Hooper’s cash fares.
E. Average of Alternative Techniques
[110] As described above, Ms. Canton ultimately calculated Mr. Bousfield’s taxi business revenue by taking the average of the revenues calculated using the four techniques describe above. She then reduced that revenue by 50% to account for the fact that Mr. Bousfield had to share his revenue with the drivers. The following chart summarizes Ms. Canton’s conclusions:
2006
2007
2008
Average Daily Revenue
$274,400
$274,400
$274,400
Average Trip Revenue
$281,260
$281,260
$281,260
Industry Cash to Non-Cash Ratio
$257,735
$335,578
$353,384
Actual Cash to Non-Cash Ratio
$161,084
$228,803
$182,785
Total
$974,479
$1,120,041
$1,091,829
average of above methods
$243,620
$280,010
$272,957
Appellant’s 50% share
$121,810
$140,005
$136,479
reported revenue [20]
$55,437
$65,084
$64,609
unreported revenue
$66,373
$74,921
$71,870
F. Conclusion
[111] In summary, I have not found any of the four alternative assessment techniques used by Ms. Canton to be reliable. In addition, three of the four techniques were neither supported by assumptions of fact nor evidence.
[112] However, as set out above, Mr. Bousfield must do more than just show me that those techniques are unreliable. The Minister assumed that Mr. Bousfield earned $121,810, $140,005 and $136,479 in revenue from his taxi business in 2006, 2007 and 2008 respectively. [21] In order to demolish those assumptions, Mr. Bousfield must show me how to better calculate his income.
[113] I will now turn to the three alternative assessment techniques that Mr. Bousfield says do so.
VI. Alternative Assessment Techniques Proposed by Appellant
[114] Mr. Bousfield submits that I should determine his income using one of three alternative assessment techniques: a net worth assessment, a calculation based on estimated hourly taxi revenue and a modified version of Ms. Canton’s actual cash to non-cash ratio technique.
[115] These calculations were prepared by an accountant named Loren Wirth. Mr. Wirth assisted Mr. Bousfield during the audit and his objection.
[116] Before analyzing these techniques, I would like to quickly address an issue that arose at trial regarding Mr. Wirth’s alternative assessment techniques.
A. Comments on Expert Evidence
[117] Counsel for the Respondent objected to Mr. Wirth’s calculations being introduced on the grounds that they amounted to expert evidence. I disagreed.
[118] It would be grossly unfair for me to allow the Minister to put forward evidence of the alternative assessment techniques that she employed while preventing a taxpayer from doing the same without calling an expert witness.
[119] As a CPA, Mr. Wirth brought his accounting expertise to bear in preparing his net worth assessment just as Ms