[OFFICIAL ENGLISH TRANSLATION]
Date: 19981016
Docket: 98-61(IT)I
BETWEEN:
FRANÇOIS BRETON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Watson, D.J.T.C.C.
[1] This appeal was heard pursuant to
the Informal Procedure at Sherbrooke, Quebec, on October 6,
1998.
[2] In computing his income for the
1992 and 1993 taxation years, the appellant deducted $13,836 and
$11,032, respectively, as business losses.
[3] By notices of reassessment dated
September 13, 1995, for the 1992 and 1993 taxation
years, the Minister of National Revenue ("the
Minister") disallowed $15,872 and $12,317, respectively, as
business expenses. By notices of reassessment dated
November 12, 1996, the Minister, in response to the
appellant's notice of objection for the 1992 and 1993
taxation years, adjusted the previously assessed net business
income to nil.
[4] In making the reassessments, the
Minister assumed, inter alia, the following allegations of
fact:
[TRANSLATION]
(a) during the years
at issue, the appellant reported employment income from
L. Breton Transport Ltée;
(b) the appellant
claimed to be operating as "F. Breton Enr."
with respect to the activities of a sewing business;
(c) the alleged
sewing income reported by the appellant during the years at issue
came exclusively from Louise Jacques, who carried on her
business as
"Les Confections Louise Jacques Enr.";
(d) the alleged
sewing income reported by the appellant during the years at issue
amounted to $2,035 and $1,284, respectively;
(e) the appellant
began operating his alleged business in 1992, at which time he
had no expertise in the field;
(f) Linda
Fortin and the appellant are the parents of a child born in
November 1992;
(g) during the years
at issue, the appellant paid so-called wages to just one
person, Linda Fortin;
(h) the
so-called wages paid by the appellant to Linda Fortin
during the years at issue amounted to $9,668 and $10,383,
respectively;
(i) the
so-called wages paid by the appellant to Linda Fortin
were paid yearly over an unbroken period of employment of
14 consecutive weeks;
(j) Linda
Fortin allegedly worked 744 hours during the 14 weeks of her
period of employment from June 16 to
September 28, 1992;
(k)
Linda Fortin allegedly worked 763 hours during the 14 weeks
of her period of employment from May 17 to
August 17, 1993;
(l) the sewing
machine was owned by the worker, Linda Fortin;
(m) the sewing work was
done in the dwelling of the worker, Linda Fortin, and the
appellant paid her $1,800 for the use of the said dwelling each
year;
(n) the motor
vehicle expenses claimed by the appellant were considered to be
unwarranted because it was Louise Jacques who was in charge
of picking up, delivering and returning the materials;
(o) the appellant
has not shown that there was a reasonable expectation of profit
from the sewing activities for the 1992 and 1993 taxation
years;
(p) the
so-called wages paid to the appellant during the years at
issue are unreasonable having regard to the income generated;
(q) the hours
allegedly worked by Linda Fortin are unreasonable having
regard to the sewing work performed.
[5] At the hearing, the appellant
admitted the facts alleged in subparagraphs (a) to (k) and
(m) and denied the facts alleged in subparagraphs (l) and
(n) to (q).
[6] During those two years, did the
appellant incur the expenses that were claimed each year with
respect to the sewing activities for the purpose of gaining or
producing income from a property or business? Did the appellant
have a reasonable expectation of profit?
[7] The burden is on the appellant to
prove on the balance of evidence that the notices of reassessment
dated November 12, 1996, are unfounded in fact and in
law.
[8] The appellant and
Linda Fortin testified during the hearing of the appeal. No
documentary evidence was provided by the appellant in support of
his testimony, which was based instead on his vague memory of the
essential details of what occurred in 1992 and 1993.
[9] In this kind of appeal, there is
well-established case law for determining whether an objectively
reasonable activity exists.
[10] Moldowan v. The Queen, [1978] 1
S.C.R. 480, sets out the following factors:
The following criteria should be considered: the profit and
loss experience in past years, the taxpayer's training, the
taxpayer's intended course of action, the capability of the
venture as capitalized to show a profit after charging capital
cost allowance. The list is not intended to be exhaustive.
[11] In Sipley (P.D.) v. Canada
[1995] 2 C.T.C. 2073, Judge Hamlyn of this Court stated the
following at page 2075:
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.
[12] The evidence showed that there is also
a personal element in this case given the great majority of the
business' operating expenses, including the wages paid to
Ms. Fortin, the mother of his child born on
November 16, 1992, and the rent paid to her for the use
of her dwelling.
[13] Having regard to all the circumstances,
including the testimony, the admissions and the documentary
evidence, I am satisfied, in light of the Act and the case law,
that the appellant has not discharged his burden of proving on
the balance of evidence that there was a reasonable expectation
of profit that justified deducting the claimed losses.
[14] Therefore, the appeal is dismissed.
Signed at Ottawa, Canada, this 16th day of October 1998.
D.J.T.C.C.
Translation certified true
on this 9th day of July 2003.
Sophie Debbané, Revisor
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