Date: 20010516
Docket: 2000-1901-IT-I
BETWEEN:
LILY TASSO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Watson, D.J.T.C.C.
[1] This appeal for the 1995 and 1996 taxation years was heard under the informal procedure at Montréal, Quebec, on May 1, 2001.
[2] In making reassessments dated April 19, 1999, the Minister of National Revenue ("the Minister") disallowed business losses of $14,178 and $12,342 claimed by the appellant for the 1995 and 1996 taxation years, respectively.
[3] In making the reassessments, the Minister made the following assumptions of fact:
[TRANSLATION]
(a) until 1992, when the appellant retired, she worked as a journalist with the newspaper La Presse, where she covered the cultural communities beat in particular;
(b) since retiring, the appellant has mostly been writing articles on, in particular, cultural communities and how they have settled in and become harmoniously integrated into our society;
(c) the appellant has applied a number of times for grants to support her writing activities but to no avail;
(d) however, the appellant has obtained a few research and secretarial contracts and has published an article in Sélection du Reader's Digest;
(e) the appellant has reported very little gross income over the past few years and, since 1993, has claimed a total of $47,795 in business losses, calculated as follows:
YEAR GROSS INCOME EXPENSES LOSS
1993 $1,600 $12,197 ($10,597)
1994 $0 $10,677 ($10,677)
1995 $500 $14,679 ($14,179)
1996 $750 $13,092 ($12,342)
TOTAL $2,850 $50,645 ($47,795)
(f) the business expenses that were claimed by the appellant are as follows:
1995 1996
Rent (12 months at $500) $6,000 $6,000
Telephone (12 months at $20) $240 $240
Travel $2,598 $2,357
Supplies, office expenses $787 $813
Subscription fees, purchase of
newspapers, trade journals $2,815 $2,902
Entertainment, gifts $1,986 $780
Total expenses $14,679 $12,092
(g) the appelant's expenses were not incurred for the purpose of gaining or producing income from property or a business but rather were the appellant's personal or living expenses;
(h) in the alternative, the appellant has claimed a number of personal expenses, including a monthly rent of $500, but she has not established that part of the self-contained domestic establishment in which she resides is either:
(i) her principal place of business, or
(ii) used exclusively for the purpose of earning income from business and used on a regular and continuous basis for meeting her clients or customers in respect of the business;
(i) moreover, if the expenses relating to the appellant's principal place of business met the criteria set out in the preceding paragraph, the appellant would have been able to deduct her work space expenses only if they were otherwise deductible and only to the extent that they did not exceed her income for the taxation year from the business she carried on at home or elsewhere, that income being determined before deducting the work space expenses.
[4] The onus of proof is on the appellant. The Appellant has to establish on the balance of evidence that the reassessments dated April 19, 1999, are unfounded in fact and in law. Each case stands on its own merits.
[5] There is a vast case literature on what "reasonable expectation of profit" means, including the decisions cited below.
[6] In Moldowan v. Her Majesty the Queen, [1978] 1 S.C.R. 480, Dickson J. of the Supreme Court of Canada stated the following at page 485:
Although originally disputed, it is now accepted that in order to have a "source of income" the taxpayer must have a profit or a reasonable expectation of profit. Source of income, thus, is an equivalent term to business . . . If the taxpayer in operating his farm is merely indulging in a hobby, with no reasonable expectation of profit, he is disentitled to claim any deduction at all in respect of expenses incurred.
[7] In Landry v. Her Majesty the Queen, 94 DTC 6624, Décary J.A. of the Federal Court of Appeal stated the following at pages 6625-26:
There comes a time in the life of any business operating at a deficit when the Minister must be able to determine objectively, after giving someone a head start for a number of years, as the case may be, that a reasonable expectation of profit has turned into an impossible dream. . . .
. . .
Apart from the tests set out by Mr. Justice Dickson, the tests that have been applied in the case law to date in order to determine whether there was a reasonable expectation of profit include the following: the time required to make an activity of this nature profitable, the presence of the necessary ingredients for profits ultimately to be earned, the profit and loss situation for the years subsequent to the years in issue, the number of consecutive years during which losses were incurred, the increase in expenses and decrease in income in the course of the relevant periods, the persistence of the factors causing the losses, the absence of planning, and failure to adjust. Moreover, it is apparent from these decisions that the taxpayer's good faith and reputation, the quality of the results obtained and the time and energy devoted are not in themselves sufficient to turn the activity carried on into a business.
[8] In Tonn v. Canada, [1996] 2 F.C. 73, Linden J.A. of the Federal Court of Appeal stated the following at pages 103-04:
However, where circumstances suggest that a personal or other-than-business motivation existed, or where the expectation of profit was so unreasonable as to raise a suspicion, the taxpayer will be called upon to justify objectively that the operation was in fact a business. Suspicious circumstances, therefore, will more often lead to closer scrutiny than those that are in no way suspect.
. . .
Another listing of the factors to be assessed was set out in Sipley (P.D.) v. Canada [[1995] 2 C.T.C. 2073]:
The objective test includes an examination of profit and loss experience over past years, also an examination of the operational plan and the background to the implementation of the operational plan including a planned course of action. The test further includes an examination of the time spent in the activity as well as the background of the taxpayer and the education and experience of the taxpayer.
[9] In McKinney v. Canada, [2000] F.C.J. No. 453, Robertson J.A. of the Federal Court of Appeal stated the following in a judgment delivered orally on April 3, 2000:
The applicant, a retired university professor, claimed accumulated expenses of $47,000 against revenue of $50 over the four taxation years in question. The expenses were incurred in regard to a number of research endeavours which the applicant hoped would lead to publications. In fact no publication resulted. In our respectful view, Judge Mogan did not err in holding that the applicant did not have a reasonable expectation of profit. Accordingly, the application should be dismissed.
[10] The appellant was the only witness at the hearing. She testified very honestly and demonstrated that she had always acted in good faith.
[11] Having regard to the case law and all the circumstances of this appeal, including the appellant's testimony, the admissions and the documentary evidence, the Court is satisfied that the appellant has not been able to establish on the balance of evidence that she had a reasonable expectation of profit during the years at issue and that the reassessments of April 19, 1999, were unfounded in fact and in law.
[12] Therefore, the appeal is dismissed.
Signed at Ottawa, Canada, this 16th day of May 2001.
|
"D. R. Watson" |
D.J.T.C.C.
Translation certified true on this 12th day of November 2002.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-1901(IT)I
BETWEEN:
LILY TASSO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on May 1, 2001, at Montréal, Quebec, by
the Honourable Deputy Judge D. R. Watson
Appearances
Agent for the Appellant: Jacques Hovsépian
Counsel for the Respondent: Simon Petit
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1995 and 1996 taxation years is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 16th day of May 2001.
|
"D. R. Watson" |
D.J.T.C.C.
Translation certified true on this 12th day of November 2002.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]