Citation: 2007TCC516
Date: 20070831
Docket: 2006-2438(IT)I
BETWEEN:
NORMAN MALIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre J.
[1] This is an appeal
against an assessment by the Minister of National Revenue (the “Minister”)
disallowing a net business loss of $24,355.65 claimed by the appellant for his
2002 taxation year. The expenses claimed and disallowed were, car, travel and
home expenses and expenses for supplies. As for the car expenses, the appellant
and his accountant testified that the amounts were estimates as the appellant
did not keep a logbook nor did he keep vouchers. They claimed approximately 80%
of the total car expenses. The expenses for supplies were also estimates and were
not supported by documentation.
[2] The expenses claimed
were disallowed on the basis that the appellant did not carry on a business in
2002 and that they were personal in nature. Alternatively, the Minister
submitted that the home expenses were limited by the application of subsection
18(12) of the Income Tax Act (the “Act”).
[3] The appellant admitted
the following facts relied upon by the Minister:
-
he
had no recorded sales or other revenues from the alleged business activities;
-
he did not have a
business that was registered for GST purposes;
-
his business card
showed that he was the chief executive officer of Innsbrooke Development Corp.
[the appellant explained in court that it is a corporation wholly owned by
Reevin Pearl, a lawyer and a friend of the appellant’s, with whom he intended
to carry on business in different fields, but mainly with respect to the
implementation of a currency-at-par system to be offered to credit card
issuers, such as American Express, Visa and Mastercard].
[4] By an agreement “Re: Currency at par system”
signed between the appellant and Reevin Pearl on July 8, 2002, which made
reference to a confidentiality and non-disclosure agreement executed on the
same date, the parties mutually agreed to enter into a 50-50 partnership arrangement
pertaining to the marketing of a new concept whereby a credit card issuer such as American
Express, Visa or Mastercard would enter into a joint venture with a corporation
which the said parties would eventually control on a 50-50 basis. I will
reproduce certain parts of this agreement, which is found at page 9 of Exhibit
R-3:
Re: Currency at par system
4. It is agreed between us that if, as and when any
commercial transaction is concluded with a third party, Innsbrooke Development
Corporation will be contracting party acting in trust for the mutual benefit of
both of us whereby we shall share all expenses and all benefits on a 50-50
basis.
[. . .]
7. Consequently, we are hereby signing this Letter Agreement
at this stage in its simplest form to confirm:
a)
all expenses that will be incurred to cause the
currency at par system to be marketed shall be shared equally;
b)
all benefits whether they be revenues or other
benefits available arising out of the marketing of the currency at par system
shall be shared equally;
c)
all decisions of a material nature will be made
jointly whereby there is required mutual agreement between us pertaining to
such matters.
d)
we shall not have any right to charge fees of
any nature whatsoever to our joint venture it being understood that the work
being performed is in consideration of this partnership and the only benefits
that we will derive will be those that we mutually agree upon in the future
where we shall have equal rights to share equally on [sic] any revenues
after reimbursement of our direct expenses;
8. It is understood that material decisions are deemed to be
any agreement with a third party that may affect in any way on a commercial
basis the rights pertaining to the marketing of a credit card or other monetary
vehicle (checks that are issued similar to travellers’ checks currently in use)
which may be used to obtain a service or product with an exchange rate at par
between the Canadian and US currency.
9. Our goal in the partnership is to enter into an agreement
with a credit card issuer to accept a philosophy and marketing program which
calls for marketing of a special credit card which when used will provide to
the consumer the right to have the product or the service at par with the
currency of their national origin.
[. . .]
12. We shall use our best efforts to attempt to successfully
market the concept and generate the appropriate benefit for the partnership.
[. . .]
14. The present partnership shall apply strictly and only to
the expenses and benefits that may accrue as a result of the activities
pertaining to the marketing of a currency at par credit card or a travellers
check to be issued as a currency at par vehicle to acquire goods, products and
services by any consumer who may travel from one country to another.
[. . .]
16. This agreement shall be binding upon the undersigned, our
legal representatives and assigns, and Innsbrooke Development Corporation has
intervened into the present agreement having taken cognizance thereof and
agrees to act in trust for the benefit of the partnership until we mutually
agree that a separate new corporate entity should be created for our mutual
benefit.
[5] The appellant testified that, in
furtherance of the agreement, he had discussions with different people, sent written
communications to financial institutions and met with a few people. However,
from the documentation provided, it would seem that, although the appellant
appears to have been very motivated, his actions never got beyond the stage of fruitless
attempts to convince entertainment publications and financial institutions of
the merit of his project.
[6] As an example, it appears that on or about
November 18, 2002 a letter was sent to the chairman and chief
executive officer of Amex by the appellant on behalf of Innsbrooke Development
Corporation (a copy of the letter has been provided in Exhibit R-3). In that
letter, the appellant states that he wishes to arrange a meeting to present his
project.
[7] It appears that Amex was not prepared to
discuss anything with the appellant and Mr. Pearl unless some legal
requirements were met. It is my understanding from the documents provided by
the appellant in Exhibit A-1 that the proposal was never analyzed by Amex, as
the prerequisite legal documents were never signed either by Amex or by the appellant
and Mr. Pearl.
[8] According to the appellant, Mr. Pearl put
an end to the project when the financial institutions refused to enter into a
non-disclosure agreement. It is my understanding that this would have been at
the end of 2003 or early in 2004.
[9] It is also my understanding that no serious
discussions actually took place with any financial institutions during the
period at issue. The appellant never provided any detailed concept statements
or business plan; nor did he provide any estimated cost, timelines or revenue
potential for his project. No projected financial statements were ever
provided.
[10] The appellant also had some ideas with respect
to a real estate project in Montreal at the corner of Simpson and Sherbrooke
Streets. Although he had some discussions with, and met with, the owner of the property,
it never went beyond the point of mere speculation. According to the appellant,
when the owner decided that he wanted to occupy a full floor of the building
proposed to be built, Mr. Pearl disparaged the project and the discussions
stopped right there. No figures or business plan were submitted with regard to
that project either, nor did Mr. Pearl testify.
[11] The appellant also claimed to have carried
on activities in the art field. He gave vague testimony regarding his trips to
New York and Toronto to visit art galleries and artists, but
did not produce any useful evidence to show that his taste for art was more
than a hobby.
[12] I agree with counsel for the respondent
that the appellant, although he had been a businessman in the past, did not
establish that he was operating any business in the year at issue. In that
year, he was retired and declared only RRSP income of $21,012 in his tax return.
[13] He acknowledged in court that his wife did
not declare a higher income than his. The expenses claimed were mostly expenses
that he would have had to incur whether he was in business or not. Those
expenses were personal in nature. The appellant had the burden of showing that they
were incurred in part to earn income from a business. He failed to convince me
that his activities in 2002 involved anything more than expectations. Nothing concrete
was ultimately put in place. Things remained at the stage of mere hopes of
going into business.
[14] The appellant did not convince me that he
started a business with Mr. Pearl. He did not convince me that he went beyond
the stage of merely intending to commence one. As stated in Samson et Frères
Ltée v. Canada, [1995] T.C.J. No. 1385 (QL), at paragraph 22:
It seems clear to me from [M.N.R. v. M.P. Drilling Ltd.,
76 DTC 6028 (FCA)] that, for a business to exist and to have commenced, one
must have gone beyond the stage of merely intending to commence it. A plan to
do so, even a clearly-stated one, is in my view merely the expression of that
intention and must be taken further. The essential elements relating to the
very structure of the business, that is the necessary financing, assets and
labour, must have been sought out and brought together before it can be stated
that the business exists and that it has commenced. I will add that the
decision to commence the business, as it may be detected from
"significant" or "essential" steps taken by the taxpayer
with a view to operating the business, is an important indicator that the business
has commenced. That, in my view, is the meaning of the decision by Judge
Bowman of this Court in Gartry [94 DTC 1947 (TCC)]. It is indeed fairly
difficult to conceive that a business has commenced before a firm decision has
been made to that effect and before the essential elements relating to the very
structure of such a business have been brought together.
[15] Since no business existed in 2002, the appellant
is not entitled to deduct any expenses for that year. The appeal is dismissed.
Signed at Ottawa, Canada, this 31st day of August 2007.
“Lucie Lamarre”
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