97-3081(IT)I
BETWEEN:
KORAY M. SURSAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on September 30, 1998 at
Toronto, Ontario, by
the Honourable Judge Terrence P.
O'Connor
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Franco Calabrese
JUDGMENT
The
appeals from the reassessments made under the Income Tax
Act for the 1992, 1993, 1994 and 1995 taxation years are
allowed and the matter is referred back to the Minister of
National Revenue for reconsideration and reassessment in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 9th
day of October 1998.
J.T.C.C.
Date: 19981009
Docket: 97-3081(IT)I
BETWEEN:
KORAY M. SURSAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
O'Connor, J.T.C.C.
[1] These appeals
were heard at Toronto, Ontario on September 30, 1998.
[2] The Appellant
claimed business losses in the years 1992, 1993, 1994 and 1995
and these were disallowed by the Minister of National Revenue
("Minister").
[3] The Appellant is
an engineer engaged in an engineering consulting business which
he commenced in 1988. It was operated as a sole proprietorship
under the name Surcom.
[4] The Appellant had
also claimed losses from the same business in 1989, 1990 and 1991
and by a judgment dated February 12, 1997, the Honourable
C.H. McArthur of this Court reduced the expenses claimed to
what he considered reasonable amounts and allowed certain losses
for the 1989 and 1990 years. The expenses allowed for 1991
equalled the income in that year so there was no loss.
[5] The Appellant
described some of his main customers. His initial project in the
early years was an attempt to establish a training centre in
Saudi Arabia. That project eventually ended in 1992.
[6] The
appellant's basic work consisted in consulting in certain
areas with his customers such as Sperry, Thompson C.S.F. He would
add certain input into the submissions that these companies would
make to various customers. He cited at least one example which
resulted in a proposal for the Navy, both Canadian and the U.S.
The navies apparently liked the overall proposal but the business
went elsewhere. He also was consulted by Revenue Canada with
respect to Research and Development claims.
[7] The Appellant had
very small amounts of gross revenue in the years in question. He
did the work and submitted his proposals, however, the proposals
did not result in decent revenues because customers either chose
not to accept the proposals or to go to competitors.
[8] During the years
in question the Appellant was an engineer at Northern Telecom and
reported employment income as follows, 1992, $71,139; 1993,
$73,299; 1994, $74,424; and 1995, $75,938.
[9] The
Appellant's testimony, although credible, left much to be
desired in the way of detail. Furthermore, his income tax returns
for the years in question were shown to contain several
inconsistencies. The Appellant's submissions to the Court
failed to explain some of these inconsistencies. One main reason
for this was that the Appellant could not provide any supporting
documentation, stating that he had not brought any such
documentation to Court.
Analysis and Decision
[10] Notwithstanding the
Appellant's lack of detail and the inconsistencies referred
to above, I find that the Appellant did have a business in the
years in question and a business with a reasonable expectation of
profit. This would appear to have been the same conclusion as
that of McArthur, J. in his judgment allowing certain business
expenses in 1989, 1990 and 1991.
[11] Consequently, I allow
the appeals for the years in question provided however that the
losses shall be calculated as follows. Firstly, for 1992 the
allowable loss shall be in the amount claimed, namely $14,642.
Secondly, for 1993 the loss claimed of $38,819 shall be reduced
to the actual amount shown in the detailed statement of the
Appellant's business income in his 1993 return, namely
$19,200. Thirdly, for 1994, the loss claimed, namely $44,062 is
to be reduced by $14,829.45, representing a motor vehicle expense
which the Appellant, based upon his 1994 return, claimed twice.
The interest expense claimed is also to be reduced from $17,000
as claimed by $2,797 to $14,203 which I consider to be a more
reasonable amount and will equal the amount I am allowing for
1995. Consequently the amount of the allowable loss for 1994
shall be $26,435.55 (i.e., $44,062 - ($14,829.45 + $2,797). For
1995 the interest expense claimed of $27,805 is to be reduced to
$14,203 which is the amount shown on the detailed statement filed
with the 1995 returns and labelled "short term debt
interest/bank charges" which, in my opinion, was the correct
amount of interest expense attributable to the business.
Consequently, the amount of the allowable loss for 1995 shall be
$23,381 (i.e., loss claimed - $36,983 - non allowable interest -
$13,602).
[12] The matter is referred
back to the Minister of National Revenue for reconsideration and
reassessment on this basis.
Signed at Ottawa, Canada this 9th
day of October 1998.
J.T.C.C.
COURT FILE
NO.:
97-3081(IT)I
STYLE OF
CAUSE:
Koray M. Sursal and The Queen
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
September 30, 1998
REASONS FOR JUDGMENT BY:
The Honourable Judge T.P. O'Connor
DATE OF
JUDGMENT:
October 9, 1998
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent: Franco Calabrese
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
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