Date: 20020123
Docket: 2001-828-IT-I
BETWEEN:
LES P. LAZARUK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Miller, J.T.C.C.
[1] There are three issues in Mr. Les Lazaruk's appeal of the Minister's reassessments of his 1989 to 1994 taxation years. Firstly, whether Mr. Lazaruk is entitled to include in the determination of charitable donations for the purposes of the calculation of the non-refundable tax credit, amounts representing unpaid wages from a registered charity. Secondly, whether Mr. Lazaruk is entitled to expenses of $2,422, $1,723 and $2,475 in connection with his renovation business for the taxation years 1992, 1993 and 1994 respectively. Thirdly, whether Mr. Lazaruk carried on a curriculum development business in 1992, 1993 and 1994, entitling him to claim business losses from such a purported business.
[2] Mr. Lazaruk has had a long and intensive interest in the education of students in science, primarily as a high school teacher. This reached something of a pinnacle in the late 1980's when Mr. Lazaruk founded the Canadian Academy of Science Student Researches ("CASSR") while on leave at the University of Victoria. This was a registered charity with a mandate of developing a science curriculum for higher level high school students interested in research projects. The reason for establishing this organization as a charity was to facilitate the raising of funds. Mr. Lazaruk indicated his organization had the support of the British Columbia Science Council and the British Columbia Ministries of Education and Advanced Education. This charitable organization was short-lived as it stopped operating as such in June, 1989 and dissolved altogether by November, 1989. Mr. Lazaruk maintained he carried on thereafter himself, though still relying on the name, CASSR. He made it clear that he always considered himself and CASSR to be one and the same. Mr. Lazaruk believed he was owed approximately $44,000 by CASSR, though never received payment. This represented unpaid wages. Instead he signed charitable receipts for the $44,000 in two amounts, one for $10,000 dated October 30, 1989 and another for $34,014 dated December 15, 1990. It is interesting to note that both receipts were dated after the time when Mr. Lazaruk said CASSR no longer operated as a charity. Mr. Lazaruk never reported the $44,004 as income from CASSR.
[3] Mr. Lazaruk remained very involved with the science education community throughout the 1980's and well into the 1990's. He sat on committees for the Society for the Advancement of Young Scientists and the Youth Science Foundation, and served as chairman of the Science Fair Committee for the Youth Science Foundation. He travelled to many science fairs, wearing a number of hats as he put it. One of the hats was someone in the business of developing curriculum for science programs.
[4] The steps that Mr. Lazaruk took in the operation of this business were to not only attend these science fairs, but to contact potential purchasers of curriculum, as well as actually producing the curriculum. Mr. Lazaruk gave no evidence of any actual sales but did produce copies of booklets entitled, "School Districts Administration Package", "Student Resources Package", "Curriculum Guides and Teacher Resources Management Package". In all of these publications there is a notation indicating a copyright 1989 and 1991 by CASSR, Les Lazaruk and L. P. C. Enterprises. They also indicate an address at the University of Victoria.
[5] Mr. Lazaruk's evidence was that he was only in Victoria for a couple of years in the late 1980's, and was only then able to devote full-time to this project. While he indicated the materials presented as Exhibits were developed over time his evidence supports a finding that a great deal of the work was conducted under the auspices of CASSR, while a separate society. Two pilot projects were undertaken while CASSR was still a charitable society. Mr. Lazaruk continued as a full-time teacher commencing in February, 1990 and throughout the 1990's, though suffered some health problems in 1995 which curtailed all of his activities.
[6] For the 1992, 1993 and 1994 years Mr. Lazaruk claimed expenses arising from his work on curriculum development in the amounts of $13,264, $13,237 and $20,316 respectively. It was shown that some of these expenses were reimbursed by the Youth Science Foundation to Mr. Lazaruk in connection with his role with that organization. Approximately $10,000 in each of the years in question represented home office and automobile expenses. Also in 1994 an amount of $3,400 was expensed by Mr. Lazaruk as "payback pension charges". He acknowledged in testimony that this latter claim was inappropriate.
[7] Mr. Lazaruk, as well as teaching and involving himself with various provincial and national science committees, also conducted a painting business during the summer months in the years in question. As part of that business he claimed expenses for advertising, materials and labour of $1,052, $1,760 and $1,844 in 1992, 1993 and 1994 respectively. He provided no supporting evidence for such claims. Neither did Mr. Lazaruk provide any evidence to support his claim for automobile expenses.
[8] Turning first to the issue of the charitable donations, Mr. Lazaruk conceded that he incorrectly handled this situation. He believed it was inappropriate to document a payment of salary from CASSR to himself with a coincidental immediate donation back of the same amount. It is far more inappropriate to claim a fictitious charitable donation without ever bringing the unpaid wages into income. I believe Mr. Lazaruk realized his mistake. While he devoted considerable time and effort to CASSR, he did so as an employee. He was not fully paid for such services. He cannot simply issue himself a charitable donation receipt for such unpaid wages. There was no payment of wages and there was consequently no payment of a charitable donation. No argument was raised that there was a donation of services, but I shall address that matter so that Mr. Lazaruk fully appreciates the law in connection with this claim. Judge Lamarre Proulx explored the issue in some detail in Slobodrian v. R., 1998 CarswellNat 808, [1998] 3 C.T.C. 2654 (T.C.C.), which she summarized as follows:
26. In the circumstances of the present appeal, the Appellant contributed his knowledge, skill and talents in the form of services to the university. While these added value to, and ultimately resulted in a work capable of ownership, hence property, the services themselves were not capable of ownership and therefore should not be considered property. Not being property, services cannot be the object of a gift.
[9] Had Mr. Lazaruk received payment for his work and voluntarily paid it over to CASSR, there may have been a gift of property, as contemplated by the Act. That did not happen, and as Judge Lamarre Proulx made clear, services cannot be the object of a gift.
[10] With respect to the second issue of the renovation expenses, Mr. Lazaruk has provided no evidence to demolish the Minister's assumption,.
[11] Finally, regarding the issue of whether Mr. Lazaruk carried on a curriculum development business in 1992, 1993 and 1994 entitling him to claim business losses, I turn to the question raised by Associate Chief Judge Bowman in Kaye v. R., 98 DTC 1659 at p. 1660 as the appropriate jumping-off point in this analysis: and that is, was there a business? He went on to say,
...This is a broader but, I believe, a more meaningful question and one that, for me at least, leads to a more fruitful line of enquiry. No doubt it subsumes the question of the objective reasonableness of the taxpayer's expectation of profit, but there is more to it than that. How can it be said that a driller of wildcat oil wells has a reasonable expectation of profit and is therefore conducting a business given the extremely low success rate? Yet no one questions that such companies are carrying on a business. It is the inherent commerciality of the enterprise, revealed in its organization, that makes it a business. Subjective intention to make money, while a factor, is not determinative, although its absence may militate against the assertion that an activity is a business.
[12] This case is interesting as the enterprise started life as a charity, void of any element of expectation of profit-making. Yet it was during this early period that there appears to have been some of the trappings of a business. For example the commencement of pilot projects, considerable communication with Ministries of Education and the devotion of some significant time to the project. However, even these activities through the offices of the charitable society known as CASSR still smack more of preliminary research and investigation than an active operating business. To then turn to the years in question, 1992 to 1994, when Mr. Lazaruk was a full-time teacher, administrator, and a painting contractor and suggest these preliminary steps had evolved into a full-blown business, now with some expectation of profit, stretches the reality of the situation. Mr. Lazaruk's activities after the dissolution of the charity appeared to be occasional communications with Education Ministers, attendance at science fairs, where admittedly he was wearing different hats, and some ongoing work on the curriculum development. His evidence on this last point was at best sketchy. He provided no evidence of a plan, of financial projections, of marketing analysis, of business records, of business bank accounts, of sufficient capitalization or of any other indicia of attending to this project in an orderly business-like manner. Mr. Lazaruk displayed a keen interest in the science education of high school students. That was his job and his passion. He needed a mixture however of passion and organization to take his hopes for developing a saleable science curriculum to something beyond just that, hopes. I am not satisfied he had such an organization in place. The greatest flurry of activity was while the charitable society was in existence. Thereafter, Mr. Lazauk's actions regarding curriculum development were sporadic and certainly were not sufficient to constitute a business with a reasonable expectation of profit.
[13] Before concluding, I wish to comment on an aspect of Mr. Lazaruk's evidence which did not bear directly on the issues in question, but was clearly motivational in his decision to appear in Tax Court. According to Mr. Lazaruk, when he filed an objection with the Surrey, British Columbia office it was directed to collections in Victoria rather than appeals. He was advised that this was as a result of computer error. This, according to Mr. Lazaruk, resulted in a lien on his property and the garnishment of long-term disability payments. Mr. Lazaruk suggested this resulted in the sale of his home and thereafter being unable to qualify for a new mortgage. He expressed both frustration and sadness at this unfortunate sequence of events and helpless as to how to stop a bureaucratic machinery in high gear. If nothing else the Court served as a forum for Mr. Lazaruk to express these sentiments. While mistakes will occur in a department that deals with such a vast and complicated subject as the collection of taxes, it is useful for the department to reflect on the potential catastrophic consequences to an individual when errors are made, and consequently be prepared to react swiftly and compassionately to rectify such errors.
[14] For the reasons given Mr. Lazaruk's appeals on all three issues are dismissed.
Signed at Ottawa, Canada, this 23rd day of January, 2002.
"Campbell J. Miller"
J.T.C.C.
COURT FILE NO.: 2001-828(IT)I
STYLE OF CAUSE: Les P. Lazaruk v. The Queen
PLACE OF HEARING: Castlegar, British Columbia
DATE OF HEARING: January 11, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge Campbell J. Miller
DATE OF JUDGMENT: January 23, 2002
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Victor Caux
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-828(IT)I
BETWEEN:
LES P. LAZARUK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on January 11, 2002 at Castlegar, British Columbia, by
the Honourable Judge Campbell J. Miller
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Victor Caux
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1989, 1990, 1991, 1992, 1993 and 1994 taxation years are dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 23rd day of January, 2002.
|
"Campbell J. Miller" |
J.T.C.C.