Date: 20020123
Docket: 2001-828-IT-I
BETWEEN:
LES P. LAZARUK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Miller, J.T.C.C.
[1]
There are three issues in Mr. Les Lazaruk's appeal of the
Minister's reassessments of his 1989 to 1994 taxation years.
Firstly, whether Mr. Lazaruk is entitled to include in the
determination of charitable donations for the purposes of the
calculation of the non-refundable tax credit, amounts
representing unpaid wages from a registered charity. Secondly,
whether Mr. Lazaruk is entitled to expenses of $2,422, $1,723 and
$2,475 in connection with his renovation business for the
taxation years 1992, 1993 and 1994 respectively. Thirdly, whether
Mr. Lazaruk carried on a curriculum development business in 1992,
1993 and 1994, entitling him to claim business losses from such a
purported business.
[2]
Mr. Lazaruk has had a long and intensive interest in the
education of students in science, primarily as a high school
teacher. This reached something of a pinnacle in the late
1980's when Mr. Lazaruk founded the Canadian Academy of
Science Student Researches ("CASSR") while on leave at
the University of Victoria. This was a registered charity with a
mandate of developing a science curriculum for higher level high
school students interested in research projects. The reason for
establishing this organization as a charity was to facilitate the
raising of funds. Mr. Lazaruk indicated his organization had the
support of the British Columbia Science Council and the British
Columbia Ministries of Education and Advanced Education. This
charitable organization was short-lived as it stopped operating
as such in June, 1989 and dissolved altogether by November, 1989.
Mr. Lazaruk maintained he carried on thereafter himself, though
still relying on the name, CASSR. He made it clear that he always
considered himself and CASSR to be one and the same. Mr. Lazaruk
believed he was owed approximately $44,000 by CASSR, though never
received payment. This represented unpaid wages. Instead he
signed charitable receipts for the $44,000 in two amounts, one
for $10,000 dated October 30, 1989 and another for $34,014 dated
December 15, 1990. It is interesting to note that both receipts
were dated after the time when Mr. Lazaruk said CASSR no longer
operated as a charity. Mr. Lazaruk never reported the $44,004 as
income from CASSR.
[3]
Mr. Lazaruk remained very involved with the science education
community throughout the 1980's and well into the 1990's.
He sat on committees for the Society for the Advancement of Young
Scientists and the Youth Science Foundation, and served as
chairman of the Science Fair Committee for the Youth Science
Foundation. He travelled to many science fairs, wearing a number
of hats as he put it. One of the hats was someone in the business
of developing curriculum for science programs.
[4]
The steps that Mr. Lazaruk took in the operation of this business
were to not only attend these science fairs, but to contact
potential purchasers of curriculum, as well as actually producing
the curriculum. Mr. Lazaruk gave no evidence of any actual sales
but did produce copies of booklets entitled, "School
Districts Administration Package", "Student Resources
Package", "Curriculum Guides and Teacher Resources
Management Package". In all of these publications there is a
notation indicating a copyright 1989 and 1991 by CASSR, Les
Lazaruk and L. P. C. Enterprises. They also indicate an address
at the University of Victoria.
[5]
Mr. Lazaruk's evidence was that he was only in Victoria for a
couple of years in the late 1980's, and was only then able to
devote full-time to this project. While he indicated the
materials presented as Exhibits were developed over time his
evidence supports a finding that a great deal of the work was
conducted under the auspices of CASSR, while a separate society.
Two pilot projects were undertaken while CASSR was still a
charitable society. Mr. Lazaruk continued as a full-time
teacher commencing in February, 1990 and throughout the
1990's, though suffered some health problems in 1995 which
curtailed all of his activities.
[6]
For the 1992, 1993 and 1994 years Mr. Lazaruk claimed expenses
arising from his work on curriculum development in the amounts of
$13,264, $13,237 and $20,316 respectively. It was shown that some
of these expenses were reimbursed by the Youth Science Foundation
to Mr. Lazaruk in connection with his role with that
organization. Approximately $10,000 in each of the years in
question represented home office and automobile expenses. Also in
1994 an amount of $3,400 was expensed by Mr. Lazaruk as
"payback pension charges". He acknowledged in testimony
that this latter claim was inappropriate.
[7]
Mr. Lazaruk, as well as teaching and involving himself with
various provincial and national science committees, also
conducted a painting business during the summer months in the
years in question. As part of that business he claimed expenses
for advertising, materials and labour of $1,052, $1,760 and
$1,844 in 1992, 1993 and 1994 respectively. He provided no
supporting evidence for such claims. Neither did Mr. Lazaruk
provide any evidence to support his claim for automobile
expenses.
[8]
Turning first to the issue of the charitable donations, Mr.
Lazaruk conceded that he incorrectly handled this situation. He
believed it was inappropriate to document a payment of salary
from CASSR to himself with a coincidental immediate donation back
of the same amount. It is far more inappropriate to claim a
fictitious charitable donation without ever bringing the unpaid
wages into income. I believe Mr. Lazaruk realized his mistake.
While he devoted considerable time and effort to CASSR, he did so
as an employee. He was not fully paid for such services. He
cannot simply issue himself a charitable donation receipt for
such unpaid wages. There was no payment of wages and there was
consequently no payment of a charitable donation. No argument was
raised that there was a donation of services, but I shall address
that matter so that Mr. Lazaruk fully appreciates the law in
connection with this claim. Judge Lamarre Proulx explored
the issue in some detail in Slobodrian v. R., 1998
CarswellNat 808, [1998] 3 C.T.C. 2654 (T.C.C.), which she
summarized as follows:
26.
In the circumstances of the present appeal, the Appellant
contributed his knowledge, skill and talents in the form of
services to the university. While these added value to, and
ultimately resulted in a work capable of ownership, hence
property, the services themselves were not capable of ownership
and therefore should not be considered property. Not being
property, services cannot be the object of a gift.
[9]
Had Mr. Lazaruk received payment for his work and voluntarily
paid it over to CASSR, there may have been a gift of property, as
contemplated by the Act. That did not happen, and as Judge
Lamarre Proulx made clear, services cannot be the object of a
gift.
[10] With
respect to the second issue of the renovation expenses, Mr.
Lazaruk has provided no evidence to demolish the Minister's
assumption,.
[11] Finally,
regarding the issue of whether Mr. Lazaruk carried on a
curriculum development business in 1992, 1993 and 1994 entitling
him to claim business losses, I turn to the question raised by
Associate Chief Judge Bowman in Kaye v. R., 98 DTC 1659 at
p. 1660 as the appropriate jumping-off point in this
analysis: and that is, was there a business? He went on to
say,
...This is a broader but, I believe, a more meaningful
question and one that, for me at least, leads to a more fruitful
line of enquiry. No doubt it subsumes the question of the
objective reasonableness of the taxpayer's expectation of
profit, but there is more to it than that. How can it be said
that a driller of wildcat oil wells has a reasonable expectation
of profit and is therefore conducting a business given the
extremely low success rate? Yet no one questions that such
companies are carrying on a business. It is the inherent
commerciality of the enterprise, revealed in its organization,
that makes it a business. Subjective intention to make money,
while a factor, is not determinative, although its absence may
militate against the assertion that an activity is a
business.
[12] This case
is interesting as the enterprise started life as a charity, void
of any element of expectation of profit-making. Yet it was during
this early period that there appears to have been some of the
trappings of a business. For example the commencement of pilot
projects, considerable communication with Ministries of Education
and the devotion of some significant time to the project.
However, even these activities through the offices of the
charitable society known as CASSR still smack more of preliminary
research and investigation than an active operating business. To
then turn to the years in question, 1992 to 1994, when Mr.
Lazaruk was a full-time teacher, administrator, and a
painting contractor and suggest these preliminary steps had
evolved into a full-blown business, now with some expectation of
profit, stretches the reality of the situation. Mr. Lazaruk's
activities after the dissolution of the charity appeared to be
occasional communications with Education Ministers, attendance at
science fairs, where admittedly he was wearing different hats,
and some ongoing work on the curriculum development. His evidence
on this last point was at best sketchy. He provided no evidence
of a plan, of financial projections, of marketing analysis, of
business records, of business bank accounts, of sufficient
capitalization or of any other indicia of attending to this
project in an orderly business-like manner. Mr. Lazaruk displayed
a keen interest in the science education of high school students.
That was his job and his passion. He needed a mixture however of
passion and organization to take his hopes for developing a
saleable science curriculum to something beyond just that, hopes.
I am not satisfied he had such an organization in place. The
greatest flurry of activity was while the charitable society was
in existence. Thereafter, Mr. Lazauk's actions regarding
curriculum development were sporadic and certainly were not
sufficient to constitute a business with a reasonable expectation
of profit.
[13] Before
concluding, I wish to comment on an aspect of Mr. Lazaruk's
evidence which did not bear directly on the issues in question,
but was clearly motivational in his decision to appear in Tax
Court. According to Mr. Lazaruk, when he filed an objection with
the Surrey, British Columbia office it was directed to
collections in Victoria rather than appeals. He was advised that
this was as a result of computer error. This, according to Mr.
Lazaruk, resulted in a lien on his property and the garnishment
of long-term disability payments. Mr. Lazaruk suggested this
resulted in the sale of his home and thereafter being unable to
qualify for a new mortgage. He expressed both frustration and
sadness at this unfortunate sequence of events and helpless as to
how to stop a bureaucratic machinery in high gear. If nothing
else the Court served as a forum for Mr. Lazaruk to express these
sentiments. While mistakes will occur in a department that deals
with such a vast and complicated subject as the collection of
taxes, it is useful for the department to reflect on the
potential catastrophic consequences to an individual when errors
are made, and consequently be prepared to react swiftly and
compassionately to rectify such errors.
[14] For the
reasons given Mr. Lazaruk's appeals on all three issues are
dismissed.
Signed at Ottawa, Canada, this 23rd day of January, 2002.
"Campbell J. Miller"
J.T.C.C.
COURT FILE
NO.:
2001-828(IT)I
STYLE OF
CAUSE:
Les P. Lazaruk v. The Queen
PLACE OF
HEARING:
Castlegar, British Columbia
DATE OF
HEARING:
January 11, 2002
REASONS FOR JUDGMENT BY: The
Honourable Judge Campbell J. Miller
DATE OF
JUDGMENT:
January 23, 2002
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Victor Caux
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-828(IT)I
BETWEEN:
LES P. LAZARUK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on January 11, 2002 at
Castlegar, British Columbia, by
the Honourable Judge Campbell J. Miller
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Victor Caux
JUDGMENT
The
appeals from the reassessments made under the Income Tax
Act for the 1989, 1990, 1991, 1992, 1993 and 1994 taxation
years are dismissed in accordance with the attached Reasons for
Judgment.
Signed at Ottawa, Canada, this 23rd day of January, 2002.
J.T.C.C.
Email this Content