2010 TCC 196
Date: 20100412
Dockets: 2006-2137(GST)I
2006-2140(IT)I
BETWEEN:
GARY NEWELL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Margeson, J.
[1]
The Appellant filed a Notice of Appeal from a
reassessment of the Minister of National Revenue (the “Minister”) for the
2001 and 2002 taxation years. By that assessment, the Minister disallowed the
total expenses claimed of $39,997 in 2001 and $42,715 in 2002.
[2]
The Minister further reassessed the Appellant to
remove the gross business income in the amounts of $2,363 in 2001 and $3,696 in
2002.
[3]
These reassessments were confirmed by notice
dated April 12, 2006.
[4]
The Appellant also filed a Notice of Appeal with
respect to the Minister’s notices of assessment regarding claimed input tax
credits under the Excise Tax Act, R.S.C. 985, C.E.-15, as amended (the “ETA”)
for the period from January 1, 2001 to December 31, 2003 (the “First Period”);
for the periods from April 1, 2004 to June 30, 2004 (the “Second Period”),
and from July 1, 2004 to September 30, 2004 (the “Third Period”).
Issues
[5]
As set out by counsel for the Respondent during
argument, not disputed by the Appellant and confirmed by the evidence, the
issues are as follows: With respect to the appeals under the Income Tax
Act (the “Act”),
(1) Was the Appellant engaged in a business during the taxation years,
2001 and 2002?
(2) If the answer to that question is yes, can he claim the expenses as sought,
during those periods?
With respect to the
appeals under the Excise Tax Act,
(1)
Were the amounts expended in the course of the
Appellant’s commercial activity, or were they personal in nature? If the
Appellant was involved in commercial activity, can he claim the input tax
credits that are in issue?
Evidence
[6]
It was agreed that evidence given in one cause
would be considered to apply to the other, where applicable.
[7]
Gary Newell testified that he was a
miner-prospector. He used to receive his mail at a Post Office Box in
Prince George but changed his mailing address with the Canada Pension
Administration from Post Office Box 2107 in Prince
George to 28310 Telachick
Road in Prince George. Canada Pension had agreed to forward all mail up to August 25,
2004 to his new address.
[8]
During that period, everyone that he dealt with
was notified as to the change of address except one, Praxair.
[9]
When he received information from Revenue Canada, he gave a notice of change of
address to them on March 10, 2004. He did not remember how he did it, but he
presumed that he did it by telephone. All correspondence with Revenue Canada starting in January of 2004 showed
the new address.
[10]
In August of 2004, he received a notice of
assessment for his G.S.T. at his new address.
[11]
In April of 2005, he received a telephone call
from the collections office regarding his G.S.T. requirements. He told them
that it was under appeal and she said that no notice of objection was filed. He
told her that it was filed by his accountant on October 15, 2004 but they said
that they had not received it. He faxed copies of them but they phoned
again on April 5, 2005, looking for money as they had not received any notice
of appeal. He faxed the collections office copies of the G.S.T. appeal. She
told him that he needed new notices of objection and a request for an extension
of time, which was granted.
[12]
He received correspondence from both addresses
on January 28, 2004, but he used the same address on all correspondence with
Revenue Canada. On April 5, 2005,
when he called Mrs. Taylor, he was told that he owed $20,000 for income tax and
he said, “in no way”. He asked how the 90-day period could have passed when he
had not received the notice of reassessment. She said that she would try and
get a copy of the notice of reassessment, but he did not receive it.
[13]
When the issue of the G.S.T. came up, so did the
income tax issue. He opted to resolve it. On April 5, 2005, she was aware that
the 2001 and 2002 notices of assessment were “alive”.
[14]
In April of 2006, he received notices of
confirmation of the G.S.T. audit. He believed that he had also received a
letter that they were confirming his 2001 and 2002 income tax assessments.
[15]
In July of 2006, he sent a letter to the Tax
Court of Canada saying that he wanted to appeal his G.S.T. assessments for the
2001 to 2003 taxation years, for the second quarter of 2004, and the third
quarter of 2004. He further said that he wanted to appeal his income tax
assessments as referred to in the letter of August 12, 2004 from Revenue
Canada in Prince George. This
was in reference to the 2001 and 2002 taxation years. He told them that he did
not have the assessment numbers because he had not received the notices of
assessment.
[16]
From January of 2004 any correspondence from
Revenue Canada had the correct
address and all mail received from Revenue Canada regarding G.S.T. had the proper address after June of 2004.
[17]
The first indication of a notice of assessment
for income tax was April 5, 2005. He believed that his assessments
for income tax for 2001 and 2002 should be vacated because he did not receive a
notice of assessment.
Cross-Examination
on the Motion to Allow the Appeals
[18]
The accountant had prepared his returns since
the early 1990s. His proper postal code was V2N 2J8 although he had not been
sure earlier.
[19]
He changed his mailing address on February 25,
2004. He notified Canada Post. They advised everyone of the change but forgot
some. He did not forget to notify Canada Revenue Agency (“CRA”). Then he
said that he believed that he gave CRA the notice of change of address on March
10, 2004.
[20]
The audit began in January of 2004. It was
suggested to him that the auditor, Barbara Tompkins, sent mail to him or his Post
Office Box address regarding a settlement offer and had spoken on the
phone to him. He did not remember speaking to her on March 10, 2004.
[21]
Then he said that he may have spoken to the
receptionist when he called CRA even though he had the telephone number of Barbara
Tompkins. He received his information about the assessments as a result of an
access to information request. He relied on the G.S.T. record.
[22]
By August of 2004, he was still receiving mail
at his Post Office Box address.
[23]
It was suggested to him that when he spoke to
the agent in April of 2005, that is when he advised her about this new address.
He said that he was told that the notices of assessment were sent to the Post
Office Box address and that she would send him a new copy of the notice of
assessment.
[24]
Exhibit R-1 was admitted by consent. It was a
statement of business activities. Exhibit R-2 was the objection to the income tax
and G.S.T. assessments.
[25]
Up to May 19, 2005, he had not informed the
Department of Forests of his new address. He was not sure when he informed them
or whether it was by fax or telephone.
[26]
Exhibit R-3 was admitted by consent. It was
suggested to him that he received his notices of assessment in December of 2004
that had been regularly sent out in October. He denied that.
[27]
It was suggested to him that he had failed to
advise of his change of address with CRA in December of 2004. He denied that.
[28]
It was further suggested to him that he failed
to advise CRA about his change of address until April 2005. He denied that. He
said that this was a re-confirmation.
Evidence on the
Motion on behalf of the Respondent
[29]
Barbara Jean Tompkins was an auditor for CRA. She
was assigned to the Appellant’s file in December of 2003 and worked on it up to
June of 2004. There were letters, telephone calls and meetings. He did not
inform her about his change of address on March 10, 2004. She had reviewed
her notes before coming to Court. Exhibit R-4 was admitted by consent. She
conferred with the Appellant throughout March about his audit and his income.
[30]
Exhibit R-5 was admitted by consent. It showed
that his address on March 1, 2004 was his Post Office Box address.
[31]
She said that the Surrey office generated the
assessments. On August 10 or 11, the matter was completed. The
final letter was issued saying that the assessments would be issued in due
course.
[32]
Exhibit R-6 showed the notice of assessments
dated October 7, 2004.
[33]
The Appellant’s T-1’s were filed until 2005 with
the Post Office Box address. His postal code was incorrect and the system
picked it up. It showed V2N 2J8 and it was corrected to V2M 2J6.
[34]
On April 4, 2005, the system changed the
address. It was done by Glenda Conners. Debbie Taylor had asked Glenda to
change the address as she had spoken to the taxpayer.
[35]
On December 6, 2004, the assessments were
re-issued and sent out with a note that they had tried other addresses but
they were sent back by Canada Post.
[36]
Exhibit R-8 was entered by consent.
[37]
In cross-examination, she said that it would
take less than one week to make the change of address if it were given to a
receptionist. The system will not accept a change of address by telephone.
There was a form available for a change of address and the one printed was
not that form. That one was for a G.S.T. return.
[38]
In re-direct, she said that there was no
returned mail after December 6, 2004. The G.S.T. system and the
income tax system do not talk to each other. It would be necessary to
change the address on both systems.
Argument of
Respondent on the Motion
[39]
In argument, counsel for the Respondent said
that the Minister did all he could do. He relied on an incorrect address
given by the Appellant.
[40]
The Appellant himself said that he did not
inform everyone about the change of address. He claims to have called CRA about
the change but did not know who he called. He did not advise them until
April of 2005. That is when he updated his address. It is no good for income
tax purposes to advise the G.S.T. department. They are separate.
[41]
He did not contact the auditor until March of
2005 and changed the address in April of 2005 after collection action had
started. The Minister relied on the last known information for the taxpayer in
the return filed for 2003, which was filed on June 15, 2004. The
accountant for the taxpayer was still providing the wrong postal code.
[42]
The Minister has complied with subsection 165(3)
of the Act.
[43]
He received the letter in August and was aware
of the assessments. The notices followed.
[44]
The notices were sent out as required and then
were re-sent.
Decision on the
Motion to Quash the Assessments
[45]
The Court is satisfied that this motion cannot
succeed. The Court is satisfied that the Minister has complied with subsection
165(3) of the Act.
[46]
The Court accepts the evidence of the witness
called on behalf of the Respondent and where there is any contradiction
between that evidence and the evidence of the Appellant, the evidence of
that witness is preferred and is more reliable.
[47]
The Appellant himself could not remember who he
called. He did not talk to the auditor. He talked to someone with respect
to the G.S.T. audit but not about the income tax matter. These were two
separate matters and a proper change of address notification would have to
be given to both. The Court is satisfied that if he gave notice to anyone,
it was with respect to the G.S.T. audit.
[48]
The Minister sent the notice of reassessment to
the last known address as provided by the Appellant in his tax return
filed for 2003, filed on June 15, 2004. The accountant for the
Appellant still had the wrong postal code for the Appellant and this indicates
some lack of communication between him and the Appellant.
Evidence on the
Main Issues
[49]
Arthur James Burrows was referred to as an
accountant who prepared and filed the returns for the Appellant. He said
that the Appellant “staked claims”. He believed that the Appellant put about
$200,000 into this enterprise over fifteen years. Most mining operations go to
where mining had been done successfully. He found it difficult to accept
the Minister’s position that the Appellant had no “business”.
[50]
In cross-examination, he agreed that he had no
accounting designation. The Appellant had considerable mining machinery. The
Appellant sold gold prior to 2001, in the sixties, but he did not know how
much.
[51]
He was not a miner but he said that no miner
that he knows does anything formal about projections and has no plans for the
operations.
[52]
He does not do a review of the Appellant’s
claims. He agreed that the Appellant included personal expenses in his
returns for the years in question.
[53]
Gary Newell said that CRA told him that he had
not commenced a business but he had mining activities in search for minerals in
the Cariboo Mountains, 100 kilometres east of Quesnel,
British Columbia in the gold
belt. He had claims there. He was involved in both kinds of mining, i.e. hard
rock mining and placer mining which involved working with gravels. In 2001 and
2002, his activity was centred around placer mining. He sold gold on three
occasions in the nineties. He had in his possession $11,000 of recovered
and unsold gold.
[54]
Exhibit A-3 was entered into evidence and listed
the claims he held in 2001 and 2002. Exhibit A-4 was a list of his Free
Miner’s Certificates (FMCs) for 2002 to 2005.
[55]
He was required to give notice of the work he
was doing on the claims to maintain them or pay money to the Province of British Columbia.
[56]
Exhibits A-5 to A-16 were copies of such notices
together with his free use permits for 2001 and 2002 and his water
license for 1994, 2001 and 2002.
[57]
He worked above 4,000 feet and only in the
summer months, starting in May and going until the long weekend in
October. He was normally in camp 100 days per year and he worked about 2,000
hours per year.
[58]
He had the first rights to enter and also did
some logging for 2002 and the pine beetle infestation prevented him from
doing more in 2003.
[59]
In the winter, he does the paperwork; reviews
the maps and completes reports to the Minister. Everything is hauled home from
the camp for the winter, when he also completed repairs to his machinery.
[60]
Exhibit A-20 was the completed questionnaire
that he completed for CRA.
[61]
The logging was done by another company to clear
his land so that it could be worked.
[62]
Exhibit A-21 was pictures of his mining camp. Exhibit
A-22 was a list of his mining equipment. Exhibit A-23 was his library list
pertaining to 2000, 2001 and 2002.
[63]
He also had other small equipment that was not
listed. He did not consider this venture to be a hobby.
[64]
Exhibit A-25 was a map of “Antler Creek”. He
works this site. He has a camp there at the 4,500 foot level. It is a “neat” area
for mining purposes. There are different locations of “placer mining”
there.
[65]
At “California Creek” next to him there was a
discovery made, referred to as a “break out”. There were other good
developments made there. This goes right through his property.
[66]
Exhibit A-25 was a map of “Grouse Creek”. It
contained one of the richest finds in the world.
[67]
Exhibit A-26 was a Cariboo mining district map. This
shows that he is in the middle of the rich placers. His operations were
not speculative, as the Minister argues. His operations are aimed at seeking
out gold and opening up a successful operation. Market research is not
necessary as you can sell gold anywhere.
[68]
His business plan was his knowledge, his maps
and his information. He was going to put into it what he could afford.
[69]
In cross-examination, he said that he staked his
first claim in 1988 when he was still working at a plant. At that time he worked
at mining during vacations and on weekends. He took a prospecting course in
1973 because he had a personal preference for mining. He left full-time
employment because of a disability and took up mining full-time. If he was
not working at mining for himself, he would be working at mining for
someone else. He was the holder of licenses for mining before he started
mining full-time.
[70]
He had a plan. He spent hours researching sales
and other aspects of mining.
[71]
D&G Placer Mining is owned 50% by his wife. All
“placer claims” are owned by he and his wife. The expenses in issue all
relate to the “placer claims”. Exhibits R-2 and R-3 were entered by
consent. They were “notices of completion of work”.
[72]
His gold inventory was $11,000. He sold some
gold in the nineties. He can sell gold to the smelters, on the market, or to
individuals. There are no competitors because he has a market for any amount of
gold.
[73]
He has claimed losses in every year since he has
been mining. At this point in time he is not spending any money on equipment. He
purchased no major equipment in 2001 or 2002.
[74]
Exhibits R-4 and R-5 show the losses in 2001 and
2002, and Exhibits R-6 and R-7 are the revised statements of losses for those
years.
[75]
He was referred to a number of expenses which he
claimed but were obviously personal in nature by his own admission, or which he
could not justify as being for business purposes. These included gifts of
liquor, bakery items, repairs, Costco, Wal-Mart, Zellers, hotels, cigarettes, a
trip to Vancouver (which was
clearly personal in nature), Superstore, and other purchases which he could not
relate to business.
[76]
In re-direct, he admitted that any small amounts
for gasoline would be personal expenses as well as some charges for
propane.
[77]
The Respondent called Barbara Tompkins, who was
an auditor for CRA and had these files. She asked the Appellant for his records
and had personal dealings with him. She determined that there was no income. She
concluded that there was mining activity but no business. He used input
tax credits as revenue. He has been claiming losses since 1988.
[78]
Exhibit R-9 was his T-4 earnings and losses
history. She reviewed his G.S.T. file and found that no income was
reported but he paid expenses on the input tax credits claimed. She disallowed
all of the expenses because there was no business.
[79]
No gross negligence penalties were charged and
she waived some interest. She allowed a credit for Canadian Exploration
expenses but she could not tell which expenses related to mining.
[80]
At the appeals level, they allowed a Canadian
Exploration expenses credit, the costs of water licenses and “cross-over
fees”. The B.C. Exploration tax credit was also allowed. He is only entitled to
claim the Canadian Exploration expenses credit or the B.C. Exploration tax
credit. She took this into account.
[81]
She went over each receipt and itemized them. He
was expensing personal items under the guise of business. She compared the
revised list of expenses submitted by the Appellant with her list and some
items were removed or reduced.
[82]
At Tab 7 of the Book of Documents were the
totals that she could have allowed if there were a business. The document at
Tab 6 was taken into account. The Book of Documents was entered as Exhibit R-11.
The Appellant had no bank accounts.
[83]
They did not look at 2001 but if there was a
business they would have allowed a similar amount.
[84]
In cross-examination, she said that she
concluded that there was no business because there was no revenue.
[85]
There was no get together to review the alleged
personal items in her revised expense account. The total fuel claims did not
include all gas, oil, fuel and propane.
Argument on
Behalf of the Respondent
[86]
In argument, counsel for the Respondent said
that there were two appeals – an income tax appeal and a G.S.T. appeal, and the
evidence given applied to both.
[87]
In the income tax appeal there are two
questions: 1) Was there a business in 2001 and 2002; and 2) Can the
Appellant claim these expenses that he proposed in 2001 and 2002?
[88]
In the ETA matter, was there commercial
activity for the three periods in issue: January 1, 2001 to December 31, 2003;
April 1, 2004 to June 30, 2004 and July 1, 2004 to September 30,
2004? If so, is he entitled to claim the input tax credits that he has
proposed?
[89]
In answer, she opined that there was no source
of income and no business or commercial activity under the ETA.
[90]
He is entitled to claim only Canadian
Exploration expenses.
[91]
Under the ETA, there is a higher degree
of proof required of “commercial activity”.
[92]
Section 66 of the Act entitles him to claim
expenses incurred, including prospecting expenses. These credits can be
accumulated under section 66.13, referable to individuals.
[93]
Section 66.1(6) of the Act contains the
definition.
[94]
Further, the Act provides that once the
production starts then the Appellant can claim ordinary business expenses. These
amounts can be carried forward indefinitely and can offset future expenses. The
Act does not require a reasonable expectation of profit. But the B.C.
Exploration tax credit reduces the amount he can claim as expenses. He received
a credit of $4,563.83 in 2001, one of $4,506.99 in 2002, and $4,586.94 in 2003.
[95]
This resulted in a negative amount when the
amount received in one year is reduced by the amount received in the other
year.
[96]
He still received the full B.C. Exploration tax
credit but no additional credits because the amount was negative.
[97]
The Respondent argues that 25% of the expenses
claimed should be claimed as Canadian Exploration expenses.
[98]
The activities of the Appellant were in the
nature of a hobby and it had not reached the business stage.
[99]
She referred to Stewart v. Canada, [2002] 2 S.C.R. 645, and argued that if a personal element exists the Court must
consider the indicia of trade. This is not purely subjective but objective
factors must be considered. Was it conducted in a commercial or businesslike
manner?
[100]
Here there was a personal element to his
operation. He had a passion for mining. He passed his free time at it. There
are no indicia of commercial activity present. He did not carry on in a
commercial manner.
[101]
Since 1992 he has claimed $25,000 and up in
expenses. These are substantial. He estimated that the only revenue that he
received was the input tax credits that he received under the G.S.T. provisions
of the ETA. He never sold any gold or there is no proof that he
did. The losses indicate that he did not carry on for profit. He had no
clear business plan and did not attempt to bring his product to market. He
did not approach it with a business strategy. The personal element
overshadows the commercial element.
[102]
She referred to the case of Spasic v. Canada,
2009 TCC 193, [2009] 6 C.T.C. 2299, and asked the
question – had a business begun? There were continuous losses (see
paragraphs 10 and 13 of above case).
[103]
The Appellant acted in good faith but he had not
started a business. Any steps he took, such as filing claims, would have
to be taken if he were in business or not. His only business plan was that
he was expecting to discover a high concentration of gold but he had not
developed an organized plan as to how to get there. He has not met the
standards of businesslike behaviour.
[104]
It is true that he incurred substantial
expenses, but this has already been considered by Parliament in allowing those
expenses before it became a business (even though reasonable expectation of
profit was not necessary).
[105]
For purposes of the G.S.T. requirements, he has
not met the indicia of commercial activity test. More weight is given to
the “REOP” test in G.S.T. matters.
[106]
In the post-Stewart era, REOP has not
been abolished and there is a legislated REOP test in G.S.T. matters.
[107]
There were consistent losses and the only income
claimed was from G.S.T. credits. This is not income from his activity. He is
not entitled to any input tax credits.
[108]
A further area of consideration is the question
of the losses. If he is entitled to Canadian Exploration credits or business
expenses he cannot claim all of those he has submitted. He revised the amounts
that he was claiming in Exhibits R-6 and R-7. He conceded that the rent
column, $4,187.00 in 2001 and $2,865.83 in 2002 could not be claimed. He also
agreed that the amounts claimed for liquor should be disallowed, $1,447.20 in
2001 and $1,081.56 in 2002.
[109]
His revised totals were $31,271.56 in 2001 and
$23,306.82 in 2002.
[110]
Counsel said that there is reasonable doubt that
these were related to his gold activity.
[111]
On multiple occasions he could not link these
expenses to income. He claimed 100% of amounts that were unrelated to a
business.
[112]
The auditor did an extensive review of 2002 and
found that only about 20% would be claimable if there was a business (See Tab 7
of Exhibit R-11).
[113]
Extra fuel should be allowed in 2002 if there
was a business.
[114]
There was a pattern of improper expenses claimed
here.
[115]
If the expenses are allowed as a business expense,
they should amount to $10,979.54 in 2002 and $10,279.23 in 2001, as per
the auditor’s report.
[116]
However, there was no business and therefore
only the Canadian Exploration tax credits should be allowed of $5,742.40 in
2001 and $6,472.55 in 2002.
[117]
With respect to the G.S.T., there was no
commercial activity and so no amount should be allowed for that year.
Argument of the
Appellant
[118]
The Appellant did not agree that his enterprise
was only a hobby. He said that it consumed more of his time and much of the
money of himself and his spouse than he would expend on a holiday. He had about
$250,000 in equipment and he spends about 2,000 hours per year on his
mining initiative.
[119]
He starts out as early in the spring as the
weather permits, normally around the Victoria Day weekend at the 4,500 foot
level and moves down to the 4,000 foot level by the Thanksgiving weekend. Aided
by his research, he endeavours to develop a workable mine. It is a
business.
[120]
On the issue of the B.C. Exploration tax credit,
it is only applicable to taxes paid and not to expenses. The amount that is
calculated is applied to his taxes paid or it is given back to him.
[121]
He did not claim a Canadian Exploration tax
credit and will not do so. He claims only the B.C. Exploration tax credit.
[122]
He chose mining as his personal preference but
that does not make it a hobby. It is a full-time job to him.
[123]
He withdrew any issue regarding the question of
the proper time periods for the assessments. On the G.S.T. issue, he said that
he had a business and was entitled to claim the input tax credits.
[124]
The appeal should be allowed.
Analysis
and Decision
[125]
Most of the difficulty in this file has been
created because the Appellant did not keep proper records and receipts. Further,
he did not separate satisfactorily those expenses which might even be
considered as deductible, if there were a business, from those
expenditures which were clearly personal in nature and clearly not
deductible as a business expense.
[126]
If the Appellant were to suffer from this
failure, then he would have no one else to blame but himself.
[127]
The Court is satisfied that the Appellant was
treated with respect by the officials at the Canada Revenue Agency and in
fact they bent over backwards to help him.
[128]
The first issue to be decided is whether or not
there was a business during the relevant years, in the case of the income tax appeal
and whether there was any commercial activity in the case of the Goods and
Services Tax appeal. The Court is satisfied that the burden on the
Appellant is not the same in both cases. The Court will deal firstly with
the question of whether or not the Appellant was operating a “business”
under the Income Tax Act so as to be entitled to deduct any expenses
and, if so, what expenses he was entitled to deduct during the periods under
appeal.
[129]
Counsel for the Respondent argued that the
activities of the Appellant during the years in question were in the nature of
a hobby and that they had not reached the business stage.
[130]
Certainly there was no income earned during the
years in question and there was some personal element included because the
Appellant had a long-standing interest in gold mining and the areas where gold
had been found in the past. But this does not mean that what he did was in
the nature of a “hobby” only.
[131]
The Appellant impressed the Court with his
knowledge of this type of mining and his extensive knowledge of the terrain. He
obviously spent a great deal of time studying maps of the areas where he was
working and had staked out considerable claims in areas where he concluded, not
without some justification, that gold had been found already and where he
believed he would make a substantial find.
[132]
He had expended substantial resources on
equipment and plant in these claim areas and had done considerable work in
attempting to find gold there. It is true that he had only mined about $11,000
worth of gold over the years, but he obviously expected to find much more
gold in the future.
[133]
He was involved in hard rock mining and placer
mining and had a clear knowledge of both types of mining. He was familiar with
provincial requirements of giving notice about what work he was doing on the
claims and paid fees for water licenses to carry on his exploration.
[134]
He spent about 2,000 hours per year on his
enterprise and worked about one hundred days at it, which was all of the
time available to him in a year due to the limitations of the weather in those
areas.
[135]
In the winter months he did the paper work,
reviewed maps and completed reports that had to be filed with the Province of British Columbia. He also completed repairs on his machinery. He had to hire another
company to log his claims so that he could do mining there. He produced a
library list that he uses for his exploration and had a grasp of the
history of the areas where he was working and knew where good developments had
been made. The Court considers that his operations were not merely
“speculative” and he testified that his operations were in the middle of the
rich placer mining areas. His plan was to seek out gold and open up a successful
operation.
[136]
His position was that market research is not
necessary because you can sell gold anywhere. He had a plan which consisted of
his knowledge, his maps, his information, and he was willing to put into
the operation whatever he could afford.
[137]
The Court is satisfied that when Mr. Newell was
employed, he worked at mining during vacations and on weekends, but during
the periods in question he had gone well beyond that stage.
[138]
He took a prospecting course in 1973 because he
had a preference for it but after he left his employment he took up mining
full-time.
[139]
He spent hours researching sales and other
aspects of mining. He is not spending money on major equipment now nor
since 2001 and 2002.
[140]
In applying the test as referred to by Bowman C.J.
in Kaye v. The Queen, 98 DTC 1659, one asks simply, is there or is
there not truly a business?
[141]
In that test, Bowman C.J. would consider such
things as capitalization, knowledge of the participant and time spent. Further,
whether the person claiming to be in business has gone about it in an orderly,
business-like manner like a business person would.
[142]
The Court is satisfied that when applying these
factors to the Appellant here, it must conclude that he was conducting a
business and unlike the taxpayer considered by Boyle J. in the Spasic case,
the Appellant here, on the totality of evidence, had started to carry on a
business in the years in question.
[143]
The Minister determined that there was no
business because there was no income but that is not conclusive of the
issue.
[144]
Even though the Court has found that there was a
business in the years in question and that there were expenses incurred
that would be properly deducted, it is clear that not all of the expenses
claimed were deductible as business expenses.
[145]
Many of them were poorly documented, not
documented at all and many of them had nothing to do with the business.
Many of them were clearly personal in nature.
[146]
There was a pattern established that the
Appellant claimed many improper expenses. If it were not for the strength of
the Appellant’s evidence on the issue of whether or not there was a
business, these improper claims might very well have tainted the Appellant’s
evidence in toto.
[147]
Fortunately for the Appellant, the Respondent
produced calculations that indicated what amounts the auditor could relate to
the activities of the Appellant during the years in question.
[148]
The Court is satisfied that this is the best
evidence available and so the Appellant will be entitled to claim expenses
of $10,279.23 in 2001 and expenses of $10,979.54 in 2002.
[149]
In regard to the G.S.T. case, the Court is
satisfied that there is a legislated “reasonable expectation of profit” test.
[150]
The Court is satisfied that the Appellant has
not met that test on the basis of the evidence. It is in agreement with
the argument of counsel for the Respondent that there was no indicia of
commercial activity which enabled him to meet the test of showing that there
was a reasonable expectation of profit from the business in the years in
question.
[151]
The Court is not satisfied that the Appellant
has established, for the purposes of the Excise Tax Act, that he was
involved in a commercial activity within the meaning of subsection 123(1) of
the ETA and that the disallowed expenses were made for consumption, use
or supply in the course of commercial activities, as required by
subsection 169(1) of the ETA.
[152]
The Court is further satisfied that the
Appellant’s claim for input tax credits was not supported by supporting
documentation as required by subsection 169(4) of the ETA and the
Input Tax Credit Information Regulations.
[153]
The appeal is dismissed and the Minister’s
assessment is confirmed.
[154]
With respect to costs, the Appellant has only
been partially successful under the income tax matter and much of the
difficulties were created by his failure to keep complete and accurate
records and by failing to separate his personal expenses from his business
expenses. Much of the Court’s time and that of the Minister was wasted because
of this shortcoming. The Appellant is not entitled to any costs.
[155]
With respect to the G.S.T. matter, the Appellant
is not entitled to any costs.
[156]
Both parties submitted post-trial submissions on
the issue of the Canadian Exploration expense (“CEE”). However, the Court is
satisfied that it need not address this issue, as the result of adhering to the
Appellant’s submissions would be tantamount to increasing the amount of
tax owing by the Appellant from the amount calculated in the assessment.
Signed at
New Glasgow, Nova Scotia, this 12th day of April 2010.
“T.E. Margeson”
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