[OFFICIAL ENGLISH TRANSLATION]
1999-2957(IT)I
BETWEEN:
MICHEL GILLES GAGNON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on August 9, 2000, at Fredericton, New-Brunswick, by
the Honourable Judge Gerald J. Rip
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Simon Petit
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1994 taxation year is allowed and the reassessment is vacated.
The appeal from the assessment made under the Income Tax Act for the 1995 taxation year is dismissed.
Signed at Ottawa, Canada, this 20th day of November 2000.
|
"Gerald J. Rip" |
J.T.C.C.
Translation certified true
on this 5th day of November 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20001120
Docket: 1999-2957(IT)I
BETWEEN:
MICHEL GILLES GAGNON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rip, J.T.C.C.
[1] These are appeals from assessments by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act") for the 1994 and 1995 taxation years. In making those assessments, the Minister determined the appellant had no reasonable expectation of profit either in 1994 when he was a "network distributor" for Sunrider Food Products ("Sunrider") or in 1995 when he was a "network distributor" for Amway and therefore that those activities did not constitute sources of income under sections 3 and 9 of the Act. Consequently, the Minister disallowed the appellant's deduction of $3,729 in business losses for the 1994 taxation year and of $6,912 for the 1995 taxation year.
[2] In 1995, the appellant took a computer course at the community college in Edmundston. Mr. Gagnon has a bachelor's degree in psychology with a minor in sociology from l'Université de Moncton. During the years at issue, he was working full time during the day as a graphic artist.
Sunrider
[3] Mr. Gagnon said he had been registered since August 9, 1992, as a "network distributor" for Sunrider, which distributed Japanese food supplements. Unfortunately, there is no financial statement for the activities he carried out for Sunrider for 1992 to 1995. Mr. Gagnon wrote to a Revenue Canada employee that he had honestly not done much with the business but the accountant he had in 1994 had insisted he report the business and that it was entirely legal to do so.
[4] On his tax return for the 1994 taxation year, Mr. Gagnon reported a gross income of $105 from Sunrider. He also reported $3,734.19 in expenses. His net loss as a result of his activities for Sunrider was $3,729.19.
[5] In his letter to Revenue Canada, Mr. Gagnon wrote that he had not received any assistance from his sponsors at Sunrider. He also wrote: [TRANSLATION] "I honestly did what I could for the business, but I was not sufficiently knowledgeable about multi-level marketing."
[6] During the trial, Mr. Gagnon did not argue that he was operating a genuine business as a distributor of Sunrider products.
[7] I do not in fact see any commercial element in Mr. Gagnon's activities for Sunrider. He never had a reasonable expectation of making a profit from those activities.
Amway
[8] Mr. Gagnon registered as an Amway distributor on March 17, 1995, but he said that he was not very active in Amway at first. The appellant also had a full-time job. He was working up to 75 hours a week, but there were weeks when he worked only 26 hours or less. Mr. Gagnon testified that his hours of work were rather concentrated in the period from Friday to Monday. He therefore had a great deal of time for business meetings.
[9] The appellant stopped working actively for Amway in 1996. Mr. Gagnon never made a profit from that activity. In his tax return for the 1995 taxation year, he reported a gross income of $3,287.31 from his activities as an Amway distributor. The cost of the merchandise sold was $3,260.75. His other expenses totalled $6,938.65. The appellant therefore reported a net loss of $6,912.09 on his activities for Amway.
[10] Mr. Gagnon was undoubtedly influenced by Amway's propaganda, particularly the testimonials of people who had been successful. Mr. Gagnon attended many Amway meetings where he was taught techniques for selling Amway products and how to make contacts.
[11] Mr. Gagnon determined that there were two ways of earning an income with Amway: by selling the products or by developing a sales team under him. He stated he had opted for the second approach and continued operating his business fervently, to the point that his girlfriend, now his wife, had said that she would leave him if he continued operating the business because he was not spending enough time with her.
[12] In his letter to the tax authorities he explained:
[TRANSLATION]
... During the day, while I was working [as a graphic artist], I would listen almost continuously to instructional and ... motivational tapes. I also posted sayings of an instructional and psychological nature all over my computer screen and on the walls ... to prepare for what I had to do.
[13] The appellant had drawn up a list of people to meet with and had contacted or met with almost everyone on his list. Unfortunately, he recruited only two distributors, both of whom were relatives. He wrote to Revenue Canada that many people were very interested until he mentioned the name of the organization behind the business plan, that is, Amway. He added:
[TRANSLATION]
... It was after I had gone through my list that I really had trouble. I was too shy to approach strangers (it was hard enough to approach people I knew, especially after the reactions I had already received).
He confirmed that reaction in his cross-examination.
[14] He did not meet his objective of recruiting at least one new distributor each month.
[15] According to Mr. Gagnon, the reason his business did not work was because he was not very gifted at making the approach needed to make sales. He was always afraid of bothering people. He also believes that the demographic and geographic situation of the area in which he lives did not help him either.
[16] Mr. Gagnon did not have a genuine business with Amway and had very little success with it. The evidence indicates that Mr. Gagnon tried to operate a business, but the business never really got started. He did not begin by drawing up a list of customers or real distributors. He was not making any progress.
[17] I have no doubt that Mr. Gagnon had very good intentions when he started his activities with Amway. He wanted to earn some money, but unfortunately he was not successful. In light of his testimony and his attitude during his testimony, I find Mr. Gagnon to be an honest man. Mr. Gagnon stated that perhaps ten percent of people like him succeed in Amway. I am certain he realized he did not have the personality needed to be among them. He therefore withdrew from that activity.
[18] For these reasons, the appeal from the assessment for the 1995 taxation year is dismissed.
[19] Counsel for the respondent informed me that the Minister reassessed Mr. Gagnon for the 1994 taxation year after the normal reassessment period, that is, after three years after the day of mailing of the notice of the original assessment: subsections 152(3.1) and 152(4) of the Act. I do not have the notice of assessment in front of me.[1] In its Reply to the Notice of Appeal, the respondent did not claim that Mr. Gagnon had made a misrepresentation that was attributable to neglect, carelessness or wilful default in his tax return for the 1994 taxation year or had committed fraud in filing his return. The burden is on the respondent to show that the taxpayer misrepresented facts through negligence or otherwise.
[20] The reassessment for the 1994 taxation year is therefore unfounded, the appeal from that reassessment must be allowed and the reassessment is vacated.
Signed at Ottawa, Canada, this 20th day of November 2000.
|
"Gerald J. Rip" |
J.T.C.C.
Translation certified true
on this 5th day of November 2003.
Sophie Debbané, Revisor