MACLEAN’S REPOSTS

WHO SAYS YOU CAN’T BEAT THE TAX COLLECTOR?

Despite what many think, the income-tax collector’s ruling isn’t an unarguable decision from heaven. If you believe you’re being overtaxed, you can appeal. It’s a no-risk opportunity — and chances are you’ll win

GRATTAN GRAY March 1 1967
MACLEAN’S REPOSTS

WHO SAYS YOU CAN’T BEAT THE TAX COLLECTOR?

Despite what many think, the income-tax collector’s ruling isn’t an unarguable decision from heaven. If you believe you’re being overtaxed, you can appeal. It’s a no-risk opportunity — and chances are you’ll win

GRATTAN GRAY March 1 1967

WHO SAYS YOU CAN’T BEAT THE TAX COLLECTOR?

Despite what many think, the income-tax collector’s ruling isn’t an unarguable decision from heaven. If you believe you’re being overtaxed, you can appeal. It’s a no-risk opportunity — and chances are you’ll win

GRATTAN GRAY

THÉODORE LARIVIÈRE, a Quebec laborer. may have felt just as intimidated as most taxpayers would when the polite but unpleasant notice arrived from the income-tax offlice. “For the past four years," the notice said in effect, “you have been claiming an exemption for supporting your wife. Yet all that time she has been in a hospital to which you owe money.”

What the notice said was true, but Larivière still thought he deserved the benefit of the exemption. Many another taxpayer would have knuckled under anyway, but Larivière decided to fight. First he went to his district tax office. No. they said, he'd have to make up for that improper exemption, just as the notice said. Next he appealed to the Department of National Revenue in Ottawa—again without success. Finally, he put his argument before a body most taxpayers have scarcely heard of—the Tax Appeal Board.

And he won. After hearing the facts, one of the board members, Maurice Boisvert, ruled: "|Larivièrel has indeed supported his wife by ensuring her comfort and needs and, in illness, having the necessary care provided. He visited her regularly in hospital, brought her clothes, lingerie, toilet articles, sweets and pocket money. What more could he do? He is a poor man and ran into debt with the hospital. But that's no concern of the tax authorities.”

Larivière’s experience illustrates an important point that a good many taxpayers have evidently never grasped: the tax collector is not always right — and nobody in Ottawa even pretends that he is. For a starter, the Department of National Revenue (which is what most of us commonly call the “income tax department") has its own appeal section, which rules against the department’s own tax assessors a surprising 50 percent of the time. Beyond that, any dissatisfied taxpayer can appeal, as Théodore Larivière did, to the Tax Appeal Board, a government-appointed body completely independent of the Department of National Revenue. Each year, the six members of TAB fan out across the country to listen individually to tax appeals and rule on them. Even though the board's members handle the hard-core cases—the ones where tax men have continued to insist they were right— TAB decides in some taxpayers’ favor in about one case out of every three.

Through these various levels of appeal, about 4,000 taxpayers won reductions, ranging from a few dollars

to six-figure refunds, in 1965, a pretty typical year.

Since we're all inclined to cheer when almost anybody wins even a tiny measure of relief from the tax collector, it's pretty easy to picture the taxpayer as the oppressed hero of a melodrama featuring Ottawa’s 2.500 tax assessors as villains. But independent tax experts say such a view is not only unfair it’s extremely naïve. The real villain of the piece, they say, is the Income Tax Act — 272 pages of legal gobbledygook so complicated in some sections and so vague in others that what appears white to the tax man can just as clearly seem black to the taxpayer.

In an understatement befitting his position as assistant chairman of the Tax Appeal Board, R. S. W. Fordham says, “Nothing could be further from the truth than to suppose that the answer to any question of incometax liability can be found merely by looking at the tax statute. There's much more to it than that.”

Both Walter Gordon, when he was first in the cabinet as minister of finance, and the late George C. Nowlan, when he was minister of national revenue before that, commented in parliament that Canadian tax laws are too complex. Their observations have often been echoed by the independent Canadian Tax Foundation, and are borne out even by senior officers of the Department of National Revenue.

In fact, to hear a DNR spokesman tell it, the real victim of our incometax laws is not the taxpayer at all, but the tax assessor.

“He has a hard job," says the spokesman. “Being human, he can make mistakes. But it’s important to realize that most problems arise from incomplete returns—not enough information comes from the taxpayer. And then, of course, disagreements are bound to develop over the meaning of the tax regulations.”

A 50 - year - old Cape Bretoner named Duncan Morrison knows what the DNR spokesman means about tax disagreements. Morrison, who ekes out a living most years by farming, fishing, woodcutting and roadworking, once accepted a construction company's offer of two and a half cents a ton for rock fill on his farm property. In due course he received $17.000. But to remove the rock the construction company had to blast, and the results had been disastrous. Three springs were diverted so that Morrison could no longer water his livestock. The road to his timber stand was ruined. The acreage of land he could cultivate was reduced by half, and his farmhouse was damaged. The tax assessors, faced with such evidence, and showing commendable agility, now claimed the money on the grounds that Markowitz "gave so much o: his time and attention to horse racing that it constituted an engagement in trade or business." Thus his income would be taxable.

As if he hadn't enough troubles by then, the DNR. aware of Morrison's $17,000 income from the deal, sent him a tax bill for $5,154.

‘‘But the damage to my property, plus the tax, more than wipe out what I got for my rock!" said Morrison.

" I he SI 7.000 you got." replied the tax assessor, "was an adventure in trade. If it wasn't that, it comes under the heading of production from property. In either case, it’s taxable."

Morrison took his case to the Tax Appeal Board. He won. A board member. .1. (). Weldon, called him "a hardworking man of the outdoors

with absolutely no experience in realestate matters, or in selling rock. The fact that he unquestioningly accepted the ridiculously low price of two and a half cents a ton for his rock shows the transaction to he anything but an adventure in trade." He further ruled that the rock was not a "production from property" but a tax-free sale of

part of his farm. The tax man had been wrong on both counts.

The records show that if you've made an honest return and can hack it up. you have a good chance of winning. When Alexander Kiss, a Montreal barber, claimed exemptions for supporting his wife and two children in Hungary, the DNR rejected the claim. To the Tax Appeal Board. Kiss showed a letter from his local post office confirming sizable shipments to his family for four years, spending up to $700 a year on them while they awaited exit permits to come to Canada. Instead of money, he'd sent merchandise that could he sold to good advantage. And he submitted letters from his wife acknowledging the parcels. R. S. W. Fordham of the hoard said the barber was right, and the tax collector was wrong.

When John Bell, of Regina, a power - line construction worker, claimed his 28-year-oki son. a wheelchair polio invalid, as a dependent, and deducted medical expenses of some $2,500, tax assessors disallowed the deductions because the son had earned more than $950 in the year.

"He lives at home and requires continuous care.” Bell argued before Fordham. "Even w'hen he works, he still needs nursing help. If he is not my dependent. I can’t understand whose responsibility he is. If he's entitled to care and a place to live. I don't feel that I can supply it and still pay tax on all the money required for that purpose.”

Fordham agreed. "Almost every appeal has its peculiar facts and this is but another instance.” he said. “Clearly the appellant was the mainstay of the family, primarily liable for the medical bills since the son's contribution was necessarily limited by reason of poor health.”

Perhaps the oldest taxpayer ever to appear before the appeal board was 78-year-old Alex Markowitz, of Toronto. His case began several years ago when Markowitz, a retired court interpreter who had mastered I I languages without a formal education, made a lucrative hobby of betting on horses. When the tax men learned of his bulging hank account, they took their time-honored stand that it represented unreported taxable income.

"I w'on it at the races,” pleaded Markowitz. "And such winnings arc not taxable.”

Unfortunately, he couldn’t prove to the department's satisfaction that he had indeed fattened his bank account at the racetrack, and he had to pay a tax bill of several thousand dollars. The costly lesson didn't make Markowitz abandon the horses. Instead, he began keeping detailed records of every bet he made. He even lined up witnesses from the race track, and from his hank.

Neither age nor the threat of taxes dimmed his sharp eye for picking winners, because the next time around, DNR slapped a $13,501 tax bill on him. This time Markowitz was ready. He produced for Cecil F. Snyder, TAB's chairman, his records and witnesses to support his claim of nontaxable gambling profits.

continued on page 76a

Why the trouble? You don’t give tax men enough information

Snyder decided that this was nonsense. "It was not a business, but a hobby." he ruled, adding dryly, a practice in which "the appellant does not occupy a lone position."

When Peter Teresko. of Toronto, sent his two deaf daughters for speech therapy to a licensed, private school m Minnesota, the tax department would not allow the $1,250 costs as medical expenses. The assessors said the institution was not a hospital and its speech therapists not the equivalent of trained nurses.

J. 0. Weldon of the Tax Appeal Board titled for Teresko. "It's unsound to be too rigid, since the whole field of medicine and hospitals is so broad," he stated. "Speech therapy in my view is medical in nature. The term 'school' is probably preferable psychologically to 'hospital' from the standpoint of handicapped children. It is quite incomprehensible to me that alcoholics can take treatment in sanitaria and deduct their expenses, but a father with two handicapped children requiring professional care is denied the same privilege.’-

The routine for appealing a tax assessment is simple enough. District tax offices will supply a "notice of objection” form which must be sent by registered mail to the Deputy Minister of National Revenue, Ottawa, within 90 days of the notice of assessment. The local tax office will then get in touch with you.

Many an appeal succeeds, a DNR official says, simply because the taxpayer by then supplies some explanation that was lacking in his original return. “When we get the missing information, we're glad to make the adjustment. Our appeal board at the district level excludes the original assessor. About half of the appeals are settled at the Ottawa level."

If a taxpayer loses out in an appeal to DNR. he can apply for a hearing before the Tax Appeal Board, also by written notice. TAB was set up in 1948 to overcome the cumbersome processes of regular courts. T he board charges a fee ol .$15 to dis-' courage frivolous claims, but refunds this money if a taxpayer’s assessment is decreased by even as little as one dollar.

The Tax Appeal Board's four English-speaking and two French-speaking members sit individually tor courthouse hearings in the 29 tax districts, handing down written judgments, sometimes within a few days. Among them they handle 500 to 600 cases a year. As R. S. W. Fordham, who has served on the board longer than any other member, advises, "You don’t need a lawyer or accountant to plead your case, but if a sizable amount is involved, 1 recommend you get one. DNR always has a lawyer representing it.”

Incidentally, if you do hire a lawyer or accountant and win. his fees are tax-deductible. Should you lose, you don't have to pay costs, as you

would in any appellate court. Furthermore, if the board finds you've been under-assessed, it won't advise the tax department to raise your assessment. So. in that sense, you can’t lose.

The Tax Appeal Board, of course, is not a last resort. Beyond it lies the Exchequer Court and. finally, the Supreme Court of Canada. These are

the big leagues for tax appeals. If you lose here, you must pay not only substantial court costs but the tax department's legal costs as well.

DNR assessors say nobody would be happier than they if the tax regulations were so clear as to eliminate the constant wrangling that results from honest differences of opinion. Is there

any chance of our getting such a

tax law?

Hardly, says Fordham. "The ingenuity of man has not progressed far enough to make the drafting of such a comprehensive piece of legislation possible," he says. “And there appears little likelihood that it ever will."

In short, the Tax Appeal Board seems likely to be in business for a long time yet—to the gratification of taxpayers seeking nothing more than a fair shake. ★