Kenneth G Mills v. Minister of National Revenue, [1978] CTC 3166, [1978] DTC 1851

The Assistant Chairman:—The appeals in this instance relate to the income tax assessed the appellant for the 1972, 1973 and 1974 taxation years. For the first two of those three years, the respondent added to the appellant’s income amounts which the appellant admits he received but which amounts he believed were not income. In the third of those years the appellant, apparently realizing by that time what the respondent would do, added the amount from the source to his other income, but he added the words “(without Prejudice)” after the amount. Shortly after the 1974 income tax return was filed giving the above information, an amended return was filed Stating that the amount previously added “(without Prejudice) was deleted. For the 1972 taxation year there was added the sum of $2,830, for 1973 the sum of $56,037.36, and for 1974 the sum of $33,597. Briefly stated, the position taken by the appellant was that all of those sums were, in effect, gifts to him and none of them or any portion of any of them had the character of income. The respondent contends that, in the circumstances of the case, all of those amounts did have the character of income and were income to the appellant, being income from a business within the meaning of section 3 of the Income Tax Act, RSC 1952, c 148 as amended by tax reform. “Business” is defined by section 248 of the said Act as including “a profession, calling, trade, manufacture or undertaking of any kind whatever and includes an adventure or concern in the nature of trade but does not include an office or employment.”

In 1972 the appellant was in his late 40’s. As to his type of occupation, in the space reserved for this information on the income tax return for the 1972 taxation year nothing was. shown, while for the 1973 and 1974 taxation years the words “Teacher-lecturer” and “self employed” were inserted. With each income tax return he filed a Statement of Income and Expenses for the year. In the 1972 statement there were three sources of income mentioned, namely:

In the 1973 statement there were six reported sources, namely:

In the 1974 statement there were three reported sources as follows, but the second one, as previously stated, was indicated to be “(without Prejudice)”:

Of course there were expenses of $6,381.68, $39,103.75 and $87,253 respectively claimed against those amounts.

The appellant had always been a music teacher and did carry on that activity during the years in question. To his acquaintances he came to be known as somewhat of a philosopher—a person who seemed to have a way with others and with whom others could discuss not only their problems but also philosophical matters. He seemed to them not only to be willing to discuss various topics of that nature, but also to be able to help one straighten oneself out in one’s approach to life. His contact with people was not solely with his music students. While some of the persons with whom he had conversations came from that group, it appeared that by far the greatest number of his “followers” came from people he met and others whom those people brought to meetings. When the charismatic or philosophical attractiveness of the appellant first appeared was not clearly stated, however one witness Stated that she and her husband first met him at a social gathering in the fall of 1968. They talked with him at that gathering, and not only did they find him very interesting but were immediately impressed by him, and they seemed to strike up an immediate rapport. Others were present at that first social function. The conversation with the appellant continued that evening, after that function had terminated, and, as may be expected, for many evenings thereafter. These meetings or conversations in time grew in number and frequency. If I understand the evidence correctly, there were what one might call two groups of persons who looked to the appellant for an “uplift”. There were the older group and the newer ones. At least prior to 1972, some of the older group would meet with the appellant at his home or one of their homes for an evening discussion as well as meet with him at lunch or dinner. In setting the factual background to the events which gave rise to these appeals, I shall refer to all discussions, conversations and meetings as “meetings”. At any of those meetings it could be that there would be only one person, or it could be there would be a few couples, or six or eight people. Those meetings were conducted informally. It seems that his fame and reputation grew so that there were new people who wished to know him and to hear his philosophy. As a result, starting apparently in the fall of 1972, a room was rented by the appellant for a Sunday evening meeting at the Inn on the Park, a hotel in the City of Toronto, Province of Ontario, so that the older group, if they wished to gather with the newer acquaintances, could attend. In this way the number in attendance at one meeting could range much higher than six or so to some number in the vicinity of fifty. This type of meeting continued at the Inn on the Park until around 1975 when, because of the number of people in attendance, larger accommodation had to be obtained. The Sunday meetings, since about 1975, have been held at the Sheraton Centre, a large hotel, also in Toronto.

The evidence indicated that, following these Sunday meetings at the Inn on the Park, some of the older group as well as some of the newer group would be invited to attend at the appellant’s home to continue the meeting or to start anew. As one would expect, the older group expanded through the influx of new members. It also followed that there were greater demands or should I say requests, if demand is too strong a term, for Opportunities to have meetings with the appellant. With the growth in the size of the group, the home of the appellant became too small to accommodate those who would attend meetings there. In 1973 the appellant took steps to acquire a much larger home so that those attending a meeting at his home could be conveniently accommodated. He stated that he had arranged for the purchase and financing of this new home and was prepared to follow the plans he had made but events occurred which changed the financing plans. The meetings at the Inn on the Park on Sunday evenings were, on my understanding of the evidence, a regularly scheduled event. However, my conclusion from the evidence is that all other meetings were not scheduled in the sense that a schedule of meetings for any member of the older group was drawn up and publicized months in advance. It seems that these meetings would be arranged on relatively short notice by one of the older group ascertaining whether or not the appellant was free at a given date and a stated time. If his answer were in the affirmative, then that member would contact others in the group. When I use the word “member” I am not implying that people in the group were “card-carrying members”—there were no dues or fees, nor was there any membership card. There were assistants to the appellant and, while at least one was paid by him, it appears others were volunteers.

As one may realize, there was the cost of renting a meeting room at the Inn on the Park which had to be met by the organizer of the meeting, the appellant. According to the evidence, there was no set charge or admission fee to be paid by each before he gained admittance to the meeting. It was made known to all that costs had to be met and that “contributions” or the like would be accepted for that purpose. In the result, amounts were received at each of those meetings which were included in the reported income of the appellant— presumably included in the source identified by the caption “Lecture fees” or “fees”. It was stated that the meeting room rental was charged as one of the expenses of the appellant. The 1972 and 1973 expenses show “Lecture Hall Rental” as $275 and $2,115 respectively. No specific amount was shown under that or a similar caption in 1974.

I have previously indicated when one witness, a Mrs Marsh, and her husband met the appellant and how, at least she, continued to keep in touch with the appellant thereafter. Later she and her husband separated, but before they separated he had stopped attending the meetings. For a while after their separation he resumed, but later stopped. She has continued to date.

Another witness was a Mr C D Dedrick. Professionally he was a singer, arranger, composer and a musician. He was not, nor had he ever been, a piano student of the appellant. At the time of the hearing he was 31 years of age. He stated he had heard of the effect the appellant had on others—how he was stimulating, thought-provoking and by his conversation was able to assist people—and as a result he wished to attend a meeting. In March or April of 1973 he attended his first meeting with the appellant at the Inn on the Park. Naturally many others were there. While he knew no one there, he was warmly greeted by the other persons present. Shortly thereafter, the appellant appeared and spoke to the group. His speech or discussion covered many areas and dealt with all matters with a philosophical air. Dedrick enjoyed the evening and wished to continue meeting with the appellant. At that meeting the appellant, through someone, asked Dedrick whether or not he, with a few others, would like to go to the appellant’s house to continue the meeting. Needless to say he went. The group sat around and talked—the communication passing was not a lecture but more of a deep conversation. He stated that, from the meetings of that evening with the appellant, he had a good rapport with him, had gained considerably from it and wished to continue. The next day or so took Dedrick on a professional engagement to the mid-west United States. He returned to the Buffalo, New York area and on the following Friday or Saturday got in touch with the appellant by telephone. The appellant informed him that some people were coming in on Saturday night and invited him to join them. He drove from Buffalo that evening for that meeting. He continued 'to attend the Sunday meetings at the Inn on the Park as well as having other contacts with him. On occasion he was asked for lunch or dinner and the dinners would be followed by a small meeting. In general his relationship with the appellant continued on through two of the years under consideration, namely, 1973 and 1974.

Another witness was one Mr W D Costello. His original contact with the appellant was around 1961 when he took piano lessons from him. Costello was then about 11 years old. About 1965 he, and his family, returned to their original home in Boston and he had no contact with the appellant until the fall of 1971. Costello, then in his final year at university in the Boston area, and a friend were having a philosophical discussion and questions arose which they would not answer. He advised his friend that he knew a person in Toronto who could help and so they drove to that city to have a meeting with Mills. Costello and his friend stayed with his sister who had met Mills years before and who had kept in touch with Mills over the years. Over the three days in Toronto they saw Mills a few times and, as a result of his meetings with Mills, Costello’s life changed. Later he changed his plans and decided to finish his senior year. He saw Mills on a couple of occasions before he was graduated the next spring. Following graduation he met the appellant in New Brunswick and, in the fall of 1972, he moved to Toronto and initially lived with. his sister. His contact with Mills was maintained. He was enthralled with him and saw him frequently. He moved into Mills’ house in the fall of 1972 and lived with him until the latter part of 1974. His education had a background of business theory and his involvement with Mills initially concerned the running of the house and later he took control of the receipts. Without going into detail at this time as to what Costello did after he moved into the appellant’s home, the relationship with the appellant continued until early 1975 when it was terminated. He has not been back to the meetings since then although he has spoken to him several times and has visited him a couple of times.

The appellant stated that the group meetings came into existence because he could not cope with the persons individually. The Inn on the Park arrangement was made because of the large numbers attending. He incurred the cost of the room there and let it be known he would accept contributions for his costs. He stated that his basic source of income was through piano lesson fees, although he did charge fees for lectures and discussions which are not subject matter of the present appeals. He stopped teaching music in 1975. With respect to his new house in 1973, he let it be known to the people who met with him at his home that his place was becoming too small and he would need a larger place to accommodate more people. He did buy a new larger house in 1973. Mr Costello, who moved into the appellant’s home in the fall of 1972, in effect became the treasurer and banker for the appellant. Money was given to Mr Costello for the appellant in each of the three years under appeal. There was filed at the hearing of these appeals a handwritten list (Exhibit R-1) indicating the names of those who gave money to Mr Costello for the appellant in each of the years 1972 and 1973. There was no such list filed for 1974. The amount added to the appellant’s income was taken from information supplied to the respondent by the appellant or his represenative. Relying on the three persons who gave evidence, the motivation in giving that money was not that they had received an invoice, or account payable, or a bill from the appellant for services rendered, but rather they just felt indebted to him or morally obligated to thank him for what he had done for them or to assist him in buying his home. Exhibit R-1 shows that 29 people gave money in 1972 and all of them, except 3, gave money in 1973. For 1973, Exhibit R-1 indicates amounts after the names of 70 people who contributed in 1974 and the number is not known. While the money went to the appellant’s credit, he did not know the names of the contributors nor the individual amounts given. The evidence did not indicate whether or not the amount shown after a person’s name was as a result of one contribution or more than one. Mrs Marsh did write one cheque for $6,550—her contribution for 1973. The amount she contributed was $15 in 1972. Dedrick, who only met the appellant in the spring of 1973, contributed $2,610 in that year. The maximum contribution in 1972 was $498, with the minimum being $2, and the average about $100. In 1973, the greatest contribution was $6,550 and the least $5, with an average of about $800. There were 20 contributions over $1,000 and 35 between $100 and $999. It cannot be ignored that Mrs Marsh, for her contribution of $6,550 to the appellant, filed a Province of Ontario Gift Tax Return reporting a gift of that amount to the appellant and she paid gift tax to the Province of Ontario in respect thereof in the amount of $675.

As mentioned previously, Costello moved in with the appellant in the fall of 1972 and became somewhat of a treasurer for him. Costello was paid a salary by the appellant, which salary was shown as an expense by the appellant. The total salaries the appellant paid in each of the years was one of his larger expenses. Costello’s initial involvement was the running of the appellant’s home and later he became more intricately involved in the meetings—he bought tape recorders and tapes, he transcribed the lectures and acquired duplicating equipment to reproduce the lectures, and he maintained control of the receipts and kept a record of them but, while he paid the amounts received to Mills, Mills never knew who gave what amount.

I have previously mentioned the appellant’s sources of income as shown on his income tax returns and, in 1973 and 1974, one such source was summer school. The expenses in connection therewith were at least $19,729.72 and $47,266 respectively. The duration of the school was four weeks in 1973 and eight weeks in 1974 and there were about fifty persons in attendance at all times—some stayed only for one week and others up to four weeks. A fee was charged. Many persons on the list of contributors were among those who attended this summer school. It clearly was an organized event.

The question to be resolved is whether or not the amounts the appellant received in the three years from the contributors were income to the appellant—that is, Were they within the ambit of section 3 of the said Income Tax Act? As mentioned, no fee was charged to those who attended the meetings, nor was any invoice sent. There was no evidence of any advertising by the appellant himself. If there was advertising, it was by word of mouth from those who attended the meetings. The appellant’s position was that the sums in question were gifts and, as such, did not have the character of income, especially income from a business. In this respect reference was clearly made to the contribution by Mrs Marsh to Mills. Not only did she contribute $6,550 to him, but she filed a gift tax return with the Province of Ontario and paid gift tax thereon of $675. The respondent’s position was that the appellant was in a business and those amounts were receipts from that business and so should be included in computing his income. While it may be that he did not “charge” a direct fee for the meetings as he did for some lectures, respondent’s counsel queried: “What was the difference in what he was doing?”

The appellant’s counsel referred to various cases with respect to gifts to clergymen and gifts to sports figures. He submitted that if the gift came as a result of an office or employment it would be income, but if not, it was not income. In the instant case counsel suggested that there was a personal friendship throughout, there was no obligation to pay anything, and there was no campaign to induce the gift— the payment was just a means whereby the contributor could express his gratitude to the appellant for the assistance, aid and peace of mind which he had given to the contributor.

Counsel for the Crown on the whole agreed in principle with the law as cited by the appellant’s counsel. He made a specific reference to a quotation from the Master of the Rolls in the case Rev G N Herbert v J A McQuade, 4 TC 489, at 500:

Now that, whether the particular facts justified it or not, is certainly an affirmation of a principle in law, that a payment may be liable to income tax although it is voluntary on the part of the persons who make it, and that the test is whether from the standpoint of the person who receives it, it accrues to him in virtue of his office; if it does, it does not matter whether it was voluntary or whether it was compulsory on the part of the persons who paid. That seems to me to be the test; and if we once get to this— that it has come to him by virtue of his office, accrued to him in virtue of his office—it seems to me that it is not negatived, that it is not impossible merely by reason of the fact that there was no legal obligaion on the part of the persons who contributed the money, to pay it.

Also referred to the headnote in the case of Calvert v Wainwright, 27 TC 475 as follows:

tips, having. been given in the ordinary way as remuneration for services rendered, were assessable to Income Tax.

The whole thrust of the respondent’s submission was really that the amounts contributed to the appellant, in the circumstances outlined above, were income to the appellant in. that the contributions were income from a business. I was told, in effect, that there were two groups of people who had recourse to the appellant, one called the older group and the other the newer group. The newer group, at least initially, attended the Sunday meetings only and apparently later graduated into the older group, although I must note that Dedrick graduated a few minutes after his first Sunday meeting. The older group and the newer group could attend these Sunday meetings where it was made known that a contribution was expected to defray costs. Of course the older group attended with the appellant during the week at his home, as well as at their homes, and sometimes over dinner or lunch. Would that older group not know that the appellant was incurring costs because of them and they should defray those costs as they did the cost of the room at the Inn on the Park? Did the appellant not let it be known in 1973 to those who attended the meetings at his home that he would have to have larger accommodations as the group or groups were becoming too large? If I recall the evidence correctly, he stated: “The old house was too small for the growing number in the group.” In addition, also from at least the fall of 1972, Mills knew he was receiving money as Costello was receiving it and was advising Mills of that fact. Since it continued through 1972 into 1973 and 1974, and realizing the generosity of the contributors, Would there be any need of the appellant asking for money? How many hours the appellant spent with each contributor in 1973 was not known, but when 1973 contributors make an average contribution of $800 as a debt of gratitude, to me it seems the operation was running smoothly.

All the facts of the case having been considered, I am satisfied that the contributions came to Mills as a result of a business operation and therefore the amounts added by the reassessments were properly included in his income.

Judgment will go dismissing the appeals.

Appeal dismissed.