96-4767(IT)I
BETWEEN:
DAVID P. PRINCE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on November 6, 1997, at Halifax, Nova
Scotia, by
the Honourable Judge E.A. Bowie
Appearances
Counsel for the Appellant: Joseph M.J. Cooper, Q.C.
Counsel for the Respondent: Marcel Prevost
JUDGMENT
The
appeals from the assessments made under the Income Tax Act
for the 1992, 1993 and 1994 taxation years are dismissed.
Signed at Ottawa, Canada, this 16th day of January, 1998.
J.T.C.C.
Date: 19980116
Docket: 96-4767(IT)I
BETWEEN:
DAVID P. PRINCE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bowie J.T.C.C.
[1] These appeals arise out of the
Appellant's contention that in computing his income in accordance
with section 3 of the Income Tax Act (the Act) for
the taxation years 1992, 1993, and 1994 he was entitled to take
into account what he characterizes as certain business losses. In
August, 1995 the Minister of National Revenue (the Minister)
reassessed him for those three years, taking the position that
the Appellant had no reasonable expectation of deriving profit
from the alleged business, and that it is therefore not a
business at all. I should note at this point that the Minister
did allow to the Appellant his losses sustained in the 1992
taxation year in connection with an ill-fated salmon farming
enterprise.
[2] Mr. Prince retired in 1993,
following a career in the public service of Nova Scotia. His
wife retired not long after from her position at the Dartmouth
Public Library. Prior to retirement they turned their minds to
what they might do to enhance their combined retirement income
through some sort of business activity. In 1992 Mr. Prince
registered the business name "Principality Marketing" pursuant to
the laws of Nova Scotia, although he was still uncertain at that
time what sort of business he might carry on under that name. He
considered a number of possibilities, including a boat charter
business, and the manufacture of custom canes for the disabled.
In the end he decided to try his hand at the manufacture and sale
of knitted goods.
[3] In furtherance of this, he created
a few knitting patterns, and his wife, for whom knitting was a
long-time hobby, turned them into prototypes. Some of these were
sold through local craft shows, but neither the level of
production nor of sales ever reached what could be called a
commercial scale. Mr. Prince, in his evidence, attributed this to
the fact that he could not recruit people to do either the
knitting or the selling for him at what he considered to be
suitable rates of pay. In fact, only one person, other than Mrs.
Prince, ever did some knitting for him, and the extent of that
seems to have been minimal. His daughter and two other people did
try to do some selling for him, but they did not have great
success.
[4] The Appellant had virtually no
capital invested in the business, and there were no employees
other than his wife. He himself had no background or training to
suit him for this type of venture. He had nothing that could
properly be described as a business plan. I do not believe that
he even put much of his own time and effort into the so-called
business. As he put it in his evidence, he was merely the
proprietor - he did not knit.
[5] For her part, Mrs. Prince bought
the yarn and knitted the prototypes. She did not intend to become
one of the knitters. Her job was to recruit the knitting and
sales personnel, and to manage the operation. Her recruiting
efforts went unrewarded, because the prospective employees could
see that there was no significant amount of money to be made by
them. Mr. Prince lacked the capital to purchase knitting
machines, or to advertise. In total, the sales amounted to about
20 items in 1992, and about 19 in 1993. Mostly they were
sweaters, hats and gloves.
[6] I find that this activity had no
real commercial aspect to it, and that it certainly had no
reasonable prospect of making a profit. It was not, and could
never have become, a business. The history of revenues and
expenses reported, and of the losses claimed, amply demonstrates
that there was not only no reasonable expectation of profit here,
but that the Minister had good reason to view the Appellant's
claim as a case of fiscal abuse.
1992
1993
1994
Revenues
$
680
$
818
$343
Expenses
$12,297[1]
$9,446
$992
Losses
$11,617
$8,628
$649
[7] The total expenses reported by the
Appellant for the three years amount to $22,735, of which $19,150
is for the use of his own house ($1,800) and automobile ($1,657),
and for the salary paid to his wife ($15,693).
[8] Mr. Prince attempted, in giving
his evidence, to lend some credibility to this supposed business
by tying it to a totally different venture relating to the
raising of salmon for market. In the fall of 1991, he purchased
4,000 young salmon (4 units of 1,000 fish each) part of the
inventory of a salmon farm at Mahone Bay, under an arrangement
whereby the vendor would raise them to market size and then sell
them for him. For this service he agreed to pay a monthly fee of
$100 per unit of 1,000 salmon. He expected that when the salmon
were sold, after 1½ or 2 years, he would receive a return
of 100% over and above his initial investment of $12,000. In
fact, the fish were all lost as the result of a storm, and his
investment was lost with them. The Appellant argued that this
venture was part of the business of Principality Marketing, and
that if that business were viewed in its entirety there was a
reasonable expectation that it would produce a profit.
[9] This argument has no merit. The
salmon farming and the knitting were completely separate and
unrelated activities. If they had both produced profits, which of
course they did not, they would have been separate businesses,
and separate sources of income.[2] In reassessing the Appellant, the Minister
accepted that his fish farming investment was a business with a
reasonable expectation of profit, and permitted him to offset the
losses from it against his other income. Whatever the prospect of
profit from the fish farming might have been, it could not turn
the knitting activity into a business with a potential for
profit.
[10] The appeals are dismissed.
Signed at Ottawa, Canada, this 16th day of January, 1998.
J.T.C.C.
COURT FILE
NO.:
96-4767(IT)I
STYLE OF
CAUSE:
David P. Prince and
Her Majesty the Queen
PLACE OF
HEARING:
Halifax, Nova Scotia
DATE OF
HEARING:
November 6, 1997
REASONS FOR JUDGMENT BY: The Honourable
Judge E.A. Bowie
DATE OF
JUDGMENT:
January 16, 1998
APPEARANCES:
Counsel for the
Appellant:
Joseph M.J. Cooper, Q.C.
Counsel for the
Respondent:
Marcel Prevost
COUNSEL OF RECORD:
For the Appellant:
Name:
Joseph M.J. Cooper, Q.C.
Firm:
Blackburn English
For the
Respondent:
George Thomson
Deputy Attorney General of Canada
Ottawa, Canada
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