Wilson v. The Queen, docket 2000-1349-IT-I (Informal Procedure)

Date: 20010910

Docket: 2000-1349-IT-I

BETWEEN:

EVELYN ELLEN WILSON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Margeson, J.T.C.C.

[1]            In computing income for the 1996 taxation year, the Appellant reported net rental income in the amount of $3,000 and net business income in the amount of $6,300 and claimed a non-refundable tax credit for allowable medical expenses in the amount of $386.

[2]            The Minister of National Revenue ("Minister") assessed the Appellant for the 1996 taxation year, notice of which was mailed on July 27, 1998, as filed. The Appellant filed a Notice of Objection in respect of the assessment of her 1996 taxation year and filed an amended tax return for that year claiming net rental losses in the total amount of $20,281, net business losses in the total amount of $10,419 and a credit for additional medical expenses of $871.

[3]            The Minister reassessed the Appellant for the 1996 taxation year and reclassified the amount of $3,000 retiring allowances income as self-employment income, allowed net rental losses in the total amount of $1,316, allowed net business losses in the total amount of $0, and confirmed the disallowance of the Appellant's claim for additional credit in respect of medical expenses.

[4]            The Appellant, on her own behalf, filed a relatively complicated Notice of Appeal, dated March 29, 2000, in which she elected the informal procedure and disputed the Minister's assessment.

[5]            At trial, counsel for the Appellant sought to introduce Exhibit A-1, a book of exhibits, which was accepted in Court for identification purposes with each individual document to be identified more particularly and to be admitted during the course of the trial.

[6]            Tab 1 of Exhibit A-1 was identified as a document setting out a proposed sale of the property at 2330 Glastonbury Road, Burlington, Ontario, dated April 1994. The Appellant said that she prepared it in January of the year 2001. The sale was proposed in April of 1994 and the proposed sale price was $157,900.

[7]            Tab 2 was an Order of the Ontario Court (General Division) on May 18, 1994, a consent order, (referable to the Appellant's daughter and spouse) which among other things ordered interim support to the wife for herself and the children payable by the husband at $1,000 per month, commencing as of June 1, 1994 and on the first of each month thereafter. The consent order also provided that the wife should have exclusive possession of the matrimonial home, which was to be listed for sale and sold as soon as possible. The order also provided for enforcement of the support order unless it was withdrawn from the Office of the Director of the Family Support Plan.

[8]            The Appellant said that she owned the second mortgage on this property, but if the property had been sold at that time, she would not have received enough from the sale to pay off what was owing to her.

[9]            Tab 3 was a document dated June 9, 1995, which was referred to as an Agreement to Transfer Property at 2330 Glastonbury Road, Burlington, and was written by the Appellant to her solicitor, Andrew C. Knox. The Appellant referred to this document as an agreement to transfer the property to her, but in essence it was a letter of direction from herself to her lawyer regarding this property. It was difficult to conclude exactly what the legal effect of this document was, but the Appellant considered it to entitle her to sell the property for whatever amount she could, without having to reveal the sale price. She said that this was confirmed in the document at Tab 4, which was a letter to O'Connor, Macleod, Barristers, instructing them to immediately commence foreclosure proceedings on the property. She said that the transfer to her had not taken place and she was advised to foreclose on her second mortgage. This letter contained the instructions to her lawyer to proceed with the foreclosure on the second mortgage. She believed that the property would be worth in the neighbourhood of $170,000 by the fall of 1995.

[10]          She expected to hold the property for four to six months, when she would own it outright and she would sell it. She believed that it would be worth closer to $200,000 at that time.

[11]          She checked the real estate market and there was reason to believe that prices would go up to earlier levels. One of the reasons was that Highway 407 was to be brought closer to the property and there was to be extensive development in that area. She believed that there would be greater sales in the spring, "according to the normal cycle".

[12]          She said that she analysed the cost in 1995 and believed that the carrying costs at that time would be $15,000. To her knowledge there were no taxes owing, there were no arrears on the mortgage but there were some utilities that had to be paid. She was aware of nothing else against it. She was referred to Tab 9 of Exhibit A-1, which is a Residential Tenancy Agreement between Yvan Dagenais and herself, referring to herself as "the Landlord". This was dated April 17, 1996 and she admitted that she did not have title at that time. She agreed to include the tenant clause, which was referred to at page three of the document. That clause provided that in the event that the house was placed on the market for sale, the sale agreement would include a clause stating that the buyer was obligated to honour the contract. To secure this agreement would require a penalty owed to the tenant of three months' rent. She reduced the rent because of this clause. In November of 1997 she received title to the property. In August of 1998 the sale took place which she instigated.

[13]          She also identified a Multiple Listing Agreement at Tab 10, dated July 4, 1997. She said that she did not have title at that time. However, she believed that she could proceed with the sale.

[14]          Tab 11 was a letter to Re/Max Realtors, dated October 5, 1997 from herself inquiring with respect to the prospects of sale. Tab 12 was an Addendum to a Listing Agreement with Re/Max Escarpment Realty Inc., which the Appellant referred to as a second listing agreement with another Re/Max agent. She did not know the listing price but said that she might have reduced the price.

[15]          Tab 13 was a Memorandum dated October 12, 1997 to the tenant, Yvan Dagenais, which the Appellant indicated had as its purpose the advising of the tenant about the upcoming sale. Tab 14 was a letter to Yvan Dagenais regarding the sale of this property at the proposed sale price of $189,900 and the tenant was asked if he wanted to put in an offer. Tab 15 was a Classified Ad Receipt and Tab 16 was a Conditional Rental Agreement between Frederic and Sharon Daillant and Evelyn E. Wilson in which she, (the Appellant) described herself as a landlord. Tab 17 was a chronology of events with respect to this property prepared by the Appellant on July 16, 1998. Tab 18 was a letter from Dingle, Charlebois & Swybrous, Barristers and Solicitors, to the Appellant regarding the completion of the sale of the property. It was dated November 6, 1998. It also enclosed a Statement of Adjustments. The sale price was $175,000. The Appellant said that a house of less value sold for $185,000 but she was forced to sell her property for less.

[16]          Tab 19 was a Statement of Business Activities prepared by the Appellant, taken from her 1996 income tax return. She said that all of these expenses were paid. Her purpose was to complete the foreclosure and sale. Tab 20 was a Statement of Business Activities for the period from March 1, 1996 to December 31, 1996.

[17]          Tab 21 was a Private Child Care Agreement between the daughter, Barbara Chiasson, and the Appellant who was to be the caregiver. This was to be effective March 3, 1996.

[18]          The witness said that they used Apartment No. 1 in the house for childcare purposes. She would not have incurred these expenses unless she had thought that she was going to earn income from the activity. She had to look at some way to make money from Apartment No. 1 while she was renovating it. The property was not suitable at that time to rent out. Apartment No. 2 was close to being ready to rent out.

[19]          She said that Apartment No. 1 had "lots of work that had to be done on it". She projected what repairs had to be done. This was one way of earning some money from it. She stayed there with the children in Apartment No. 1. She determined how much room and board she had to charge and it was $300 a month for two children for a total of $600 a month. The mother of the child offered this amount and the Appellant felt that it would be workable.

[20]          The circumstances changed immediately. The Appellant realised that she would have to be with the children all of the time. Her daughter's accommodations were limited. Her daughter was sharing her accommodations with someone else who had four male children. She could not ensure that they would go to school.

[21]          She was asked why she was not paid all of the money that she was owed and she said that her daughter could not pay her. A Court Order for maintenance was not honoured. Her daughter paid what she could.

[22]          Tab 22 was a Private Placement Agreement for her niece Jennifer, dated September 27, 1996.

[23]          Tab 23 was a Statement of Business Activities showing projected income for Apartment No. 1, where the care giving was done. She said that all of the money received was to keep up the apartment and ultimately to enable the foreclosure to proceed.

[24]          Tab 24 was a Statement of Business Activities for the rental of Apartment No. 2.

[25]          In 1996, she received no care giving amounts with respect to Apartment No. 1.

[26]          In cross-examination, she said that the childcare arrangement related mostly to her two grandchildren as a result of the agreement set out at Tab 21. The Appellant decided to do it so that she could earn additional income and to use a space which would not be used and which was creating an expense. The daughter was to pay the amount set out therein. She was asked why the daughter did not pay the money that she was required to and the Appellant said that she did not know what her daughter earned. Her daughter was not on family assistance after January 1, 1996.

[27]          Her daughter paid her some money in 1996 when she could. She was supposed to pay $600 a month. She received no moneys for the niece. The Appellant chose to have the additional income and to provide the service.

[28]          The witness was referred to the Statement of Business Activities which showed that she was supposed to receive $6,840 for child care expenses for the care for her granddaughter and her niece, but she received only $1,700, which was paid in cash. She said that she really expected to get it back and that she considers that she has a bad debt receivable in the amount of $5,140. She asked her daughter to pursue the Court Order.

[29]          In cross-examination with respect to the use of the property, she said that she acquired the property with the intent of selling it at a profit. The money that she took in was an attempt to offset the cost of caring for the property until it was sold. Her second mortgage was for $15,008.95 at a rate of interest of 10 percent. There were to be no payments on this mortgage until the property was sold. She did not know if she paid the $15,008.95 for the second mortgage but she said that she had a valid mortgage.

[30]          She was asked as to the purpose of her taking title to the property and she responded that it was to enable her to receive back the second mortgage amount, her costs, some interest and to have some money left over. She gave the tenants the option to stay there but they had to pay rental until it was sold.

[31]          She received title in November of 1997. In 1996, the property was in the name of her daughter and her daughter's husband. She was given fiduciary responsibility to look after the property and her legal advice was that she was able to take it over and to proceed with the sale.

[32]          She paid the expenses referred to at Tab 19. It was pointed out to her that she was not the owner but then she said that her daughter and her daughter's husband were absolved of the duties because of the foreclosure proceedings.

[33]          The Respondent called Martina Urbanek who was an appeal's officer. She was involved in this case. She received the Notice of Objection. She reviewed the return and indicated that the return was accepted as filed.

[34]          She was told by the Appellant that she had just filed an estimated return, that that was what she wanted to do. She said that more information would be filed.

[35]          The witness requested a proper return with statements and documentation. The Appellant submitted her returns and much information. She was claiming rental from two apartments. This witness started from the proposition that there were three business activities which were at the beginning stage and there were no expenses which could be claimed. There was also a T4A submitted and another showing care giving services. This witness concluded that there was no reasonable expectation of profit on the basis that the calculations showed that the amount to be paid was no more than $10 per day per child. It was not reasonable to expect a profit with this amount of income.

[36]          The witness reviewed the mother's file and she indicated that she earned only T4 income of $2,706 and assistance of $2,000 for a total of $5,030 in the year in question.

[37]          The witness questioned how the daughter could pay $6,000 for childcare and only earn $5,030. She concluded that the Appellant would have to claim income from this source if it was actually received by her, but it was not.

[38]          The witness wanted to remove the income from the return. She allowed the expenses to the extent of her alleged income. With respect to the alleged rental business, she said that Apartment No. 2 was a very small apartment and contained only 37.3 percent of the house space. It was rented to an unrelated person. The witness accepted it as a rental operation and allowed 37.3 percent of the expenses for Apartment No. 2.

[39]          With respect to Apartment No. 1, 63 percent of this apartment was used by Ms. Wilson and the children and the Appellant said that she received no rental from it. The witness did not accept that as a business and allowed no expenses.

[40]          With respect to child care expenses, the witness removed the $2,100 of alleged income, since it was not actually received. She allowed all the expenses, except the automobile expenses and the office expenses. The Appellant was already living in Apartment No. 1 and did not have to travel to collect rent, so she was not allowed the expenses.

[41]          The witness found that the office expenses were not related to the rental income. She did allow some office expenses in the home and some automobile expenses. The automobile expenses were allowed up to the extent of her income reported but not received. The Appellant was assessed a late filing penalty of $2,884.32, which was reduced by her to $1,982.88, based upon her removal of the income from the return which was not received by the Appellant.

[42]          Exhibit R-1 was admitted by consent. This was a Statement of Real Estate Rentals for the Appellant for the year 1996.

[43]          In cross-examination the witness was asked what were the possible revenues that she considered in the care giving expense venture and she said that the agreement provided for $300 a month per child or $10 per day.

[44]          With respect to the alleged rental losses, she was asked what sources of income were considered for Apartment No. 1 and she said that there was no rental income considered because it was used for looking after the children.

Argument on behalf of the Appellant

[45]          In argument, counsel for the Appellant said that the Court must consider all the facts as presented and not just the facts presented during the viva voce evidence at trial. He said that the re-characterization as presented by the Appellant during her testimony of businesses one, two and three were all part of an adventure in the nature of trade. That adventure was made up of the acquisition of the property to sell it as quickly as possible for a profit. Following that, the Appellant had new activities which were additional and which had the effect of mitigating the operating costs of keeping the house until it was sold.

[46]          After the Appellant started the adventure, it did not materialise, so she kept the dream alive by starting the other activities. This adventure continued for about 18 months until the property was sold. During that period of time, it was a business and the Appellant is entitled to the losses that she claimed if they are reasonable.

[47]          On the issue of whether or not this was an adventure in the nature of trade, the Appellant referred to the case of Minister of National Revenue v. James A. Taylor, 56 DTC 1125 (Ex.Ct.), and particularly at pages 18 to 20. He said that, based on the reasoning in that case, the Appellant here was involved in an adventure in the nature of trade and all the expenses were deductible as relative to that adventure. If it was not an adventure in the nature of trade, then the Court should consider whether or not there was a reasonable expectation of profit. If there was, then the expenses that were reasonable should be deductible.

[48]          In considering the question of whether or not this was an adventure in the nature of trade, the Court should consider whether or not this was similar to those businesses that traders would trade-in. This is what traders do. They seek out opportunities where the property is undervalued, they are bargain purchasers. The Appellant here did not seek it out, but that does not matter. What the Appellant did here is exactly what traders do. They seek to sell at the same time they buy. The motivation is to sell.

[49]          In the case at bar, the Appellant's overriding concern was to turn the property over. He referred to Interpretation Bulletin IT-218R, and particularly at paragraph 5, which discusses the primary and secondary intentions. In the case at bar, the evidence indicated that the primary and secondary intentions were to turn the property over. The feasibility of the taxpayer's intention and the extent to which her purpose was carried out were very high. This was not just a hope or a dream because the Appellant had legal advice with respect to her actions. Unfortunately, she sold the property just a little too late, but as quickly as the property deal could close. It was not significant that the money that she was operating on was borrowed money, but in any event that works in her favour.

[50]          Counsel asked the question, to what extent does the nature of the property exclude it from being on account of capital? In the case at bar, it could have had a holding purpose or a flip purpose. Here, it was a unique property because the Appellant could do nothing else but sell it because she could not survive the holding period and she had to sell it.

[51]          Counsel submitted that the business was the acquisition and the sale of the property. The Appellant expected and projected a profit. It was reasonable for her to do so. The change in circumstances such as the non-transfer of the title quickly created a problem and the Appellant responded as reasonably and quickly as she could under the circumstances. The appeal should be allowed with costs.

[52]          Counsel agreed, at this time, that the recalculation of medical expenses should be done by the Minister, based upon presentation of appropriate receipts.

Argument on behalf of the Respondent

[53]          Counsel for the Respondent argued that the Court must look at the whole operation. If this were to be considered to be an adventure in the nature of trade, the real estate would have to become part of the inventory. It would have to be valued at its cost. The Appellant could not have acquired title to the property in 1996 for the purpose of an adventure in the nature of trade, because she did not acquire title to the property until November of 1997. The property could not go into inventory and its value calculated in accordance with section 10 of the Income Tax Act ("Act"), at the price for which it was obtained because the Appellant did not acquire it in 1996.

[54]          The Appellant clearly did not acquire the property as an adventure in the nature of trade or she would have treated it in accordance with subsection 10(1)(1.01) of the Act and it would have been valued at the cost at which the taxpayer acquired the property. This was not done in the present case because it was not intended to acquire this property as an adventure in the nature of trade.

[55]          Counsel referred to the case of Jake Friesen v. The Queen, 95 DTC 5551 (S.C.C.) in support of her position that the evidence in this case indicates that the intention of the Appellant when she acquired the property was questionable. The best evidence shows that she wanted to recuperate her losses. There was no scheme in place for profit making. It is not merely enough to state that that was her intention at the time of trial.

[56]          In that case, the Court indicated that:

The first requirement for an adventure in the nature of trade is that it involve[s] a "scheme for profit making". The taxpayer must have a legitimate intention of gaining a profit from the transaction. ...

[57]          The Court went on to refer to Interpretation Bulletin IT-459 as the factors that have to be considered when deciding whether or not a transaction involving real estate is an adventure in the nature of trade creating business income or a capital transaction involving the sale of an investment.

[58]          In any event, the evidence in the present case dictates that these conditions were not fulfilled in the case at bar.

[59]          On the issue of reasonable expectation of profit and the child care operation, counsel argued that what occurred in the present case was merely the fact that the Appellant's daughter was having trouble and she asked her mother to look after the children in their house, near her school. She was not able to do so. She did not work out any plan. She received very little from her daughter. What was involved here was completely of a personal nature.

[60]          Counsel referred to the case of Kaye v. R., a decision of Bowman T.C.J., from Carswell TaxPartner Cases 2001-Release 4, at page two, where the learned trial judge indicated that:

Ultimately, it boils down to a common sense appreciation of all of the factors, in which each is assigned its appropriate weight in the overall context. ...

[61]          Earlier, in the same case, he indicated that:

One cannot view the reasonableness of the expectation of profit in isolation. One must ask "Would a reasonable person, looking at a particular activity and applying ordinary standards of commercial common sense, say 'yes, this is a business'?"

[62]          Further, counsel referred to the case of Clogg v. R., Carswell TaxPartner Cases, 2001-Release 4, where the Court said that one has to pay close attention to the personal element as referred to in Tonn et al. v. The Queen, 96 DTC 6001 (F.C.A.), where at page 6013:

... However, where circumstances suggest that a personal or other-than-business motivation existed, or where the expectation of profit was so unreasonable as to raise a suspicion, the taxpayer will be called upon to justify objectively that the operation was in fact a business. Suspicious circumstances, therefore, will more often lead to closer scrutiny than those that are in no way suspect.

[63]          In the case at bar, the Appellant was allowed the expenses that reduced any amount of income to nil. These are all of the expenses to which she was entitled.

[64]          All of the expenses claimed could not be deducted because the sub-operations were not operations which a person purchasing this property for a quick turn-over would have been involved in.

[65]          The appeal should be allowed and the matter referred back to the Minister for reassessment and reconsideration only with respect to a reconsideration by the Minister of medical expenses if proper receipts are presented.

[66]          In all other respects, the appeal should be dismissed.

Rebuttal

[67]          In rebuttal, counsel for the Appellant argued that the evidence did not support a conclusion that the activities here were based upon personal objectives. The transactions were consistent with her contracts that she entered into.

[68]          With respect to the matter of an adventure in the nature of trade, counsel argued that the title to the real estate is not a significant factor. The adventure does not commence when the property is acquired, but immediately at the outset of the profit making activity. The Appellant did not expect to get title to the property for months. The Minister has acknowledged the fiduciary interest of the Appellant in 1996. He did allow some expenses.

[69]          With respect to the reasonable expectation of profit, testimony here shows that the amount expected to be realised from the adventure was based upon the Appellant's reasons as indicated.

Analysis and Decision

[70]          In argument before this Court, counsel for the Appellant took the position that, irrespective of how the Appellant may have reported her income on the basis of being involved in a "business" or "businesses", what is important is the nature of the evidence given at trial. It was his position that the Appellant is entitled to argue at this stage that she was involved in an "adventure in the nature of trade" and that, consequently, all expenses that she incurred, of whatever nature, related to the purchase of the property in issue, should be capable of being deducted for income tax purposes. Initially, in argument, counsel was prepared to concede that if the Court should find that the Appellant was not involved in "an adventure in the nature of trade", then the Appellant was out of Court and she could not succeed on the basis that there was a "business" in existence, and that the expenses that she claimed are reasonable under the circumstances.

[71]          At the end of the day, however, he was prepared to argue that the Appellant might be entitled to succeed on both of these arguments, although his prime position was that the Appellant was involved in an adventure in the nature of trade when she obtained the right to deal with the property of her daughter and son-in-law. She always expected that she was going to make a profit from that property and, consequently, that all the expenses that she incurred were deductible.

[72]          There can be no doubt from a review of the income tax returns filed by the Appellant and all the supporting documentation that the Minister could only reasonably conclude that what the Appellant was reporting were business activities and that the way that the Minister dealt with these, set out in paragraphs 17 to 20 of the Reply to the Notice of Appeal, is the only reasonable way that the Minister could have interpreted the returns. In essence, the Minister concluded that in computing income for the 1996 taxation year, the Appellant reported net rental income in the amount of $3,000 and net business income in the amount of $6,300 and claimed a non-refundable tax credit for allowable medical expenses in the amount of $386.

[73]          Martina Urbanek, a witness called on behalf of the Respondent, testified that the returns filed by the Appellant were accepted as filed, and then the Appellant told her that this was only an estimated return and that is what the Appellant wanted. The Appellant said that more information would be filed and she was told that proper returns with statements and documents had to be filed.

[74]          These returns were submitted, with much information, and it was only reasonable that the Minister would have concluded that she was involved in a number of different enterprises and was seeking to deduct the expenses from carrying on these enterprises. The evidence given by this witness satisfies the Court that the Minister showed great patience in trying to figure out just what was being reported and how the returns could be treated in such a way that the Appellant received the best advantage. Indeed, her evidence indicated that the Appellant's returns were treated sympathetically and reasonably, and even where income had been reported, but was not earned, the Minister attempted to remove that income from her returns, give her credit for it and then, at the end of the day, allowed expenses to the extent of her alleged income.

[75]          The Court is satisfied that the Minister could not have treated the return in any other way than she did because there was no indication from the return that the Appellant was involved in an adventure in the nature of trade. Indeed, it is clear from the way that she filed the returns, that this was not contemplated by her at that time and if she believed that she was involved in an adventure in the nature of trade, this conclusion was reached sometime after she had filed the return and before the trial took place.

[76]          This certainly calls into question the argument that the Appellant believed that she was involved in an adventure in the nature of trade from the very beginning, that it was always her intention to make a profit from the purchase and sale of the home and that the other activities which she reported were merely sidelines related to the main adventure and operated solely for the purpose of enabling her to reduce her expenses while she held the property for the ultimate purpose of selling it.

[77]          Counsel for the Appellant argued that the characterisation by the Appellant of businesses one, two and three were all part of an adventure in the nature of trade when one considers all of the facts as presented and not just the facts presented at trial.

[78]          The Court does not accept the argument that when the Appellant took over control of the property in question, that she was taking it over as an adventure in the nature of trade with the intention of turning it over quickly and making a profit, then realised that this could not be done, although she kept the dream alive by starting the other activities in order to reduce her expenses. That is completely inconsistent with the way she filed her returns, with the way that she claimed the expenses, with the way that she reported the alleged income and with the documentation that she filed in support of her claim for the deductions.

[79]          In filing her return, she claimed income that she had not earned, she claimed the expenses as they were incurred to offset them against her income allegedly earned in the year in question, and this would suggest that she believed that she was involved in a business and could offset any income earned in the year against the expenses incurred in that year as one would normally do in carrying on a business activity.

[80]          If the Appellant believed that she was involved in an adventure in the nature of trade, she would have reported her activity differently. She would have been required to take the property in as part of her inventory under the provisions of subsection 10(1)(1.01) of the Act, which reads as follows:

        (1.01) Adventures in the nature of trade. For the purpose of computing a taxpayer's income from a business that is an adventure or concern in the nature of trade, property described in an inventory shall be valued at the cost at which the taxpayer acquired the property.

Further, if the Appellant was claiming she was involved in an adventure in the nature of trade with respect to this property, one would normally expect that the expenses would be deducted when the property was sold, not in the year in which the expenses were incurred, as the Appellant was seeking to do in the case at bar.

[81]          The term "adventure in the nature of trade" as indicated in Jake Friesen, supra, sets out the first requirement as involving "a scheme for profit making". A taxpayer must have a legitimate intention of gaining a profit from the transaction. In that same case, the Court referred to some of the factors which should be considered in deciding whether or not there was "an adventure or concern in the nature of trade", such as:

(i) The taxpayer's intention with respect to the real estate at the time of purchase and the feasibility of that intention and the extent to which it was carried out. An intention to sell the property for a profit will make it more likely to be characterized as an adventure in the nature of trade.

(ii) The nature of the business, profession, calling or trade of the taxpayer and associates. The more closely a taxpayer's business or occupation is related to real estate transactions, the more likely it is that the income will be considered business income rather than capital gain.

(iii) The nature of the property and the use made of it by the taxpayer.

(iv) The extent to which borrowed money was used to finance the transaction and the length of time that the real estate was held by the taxpayer. Transactions involving borrowed money and rapid resale are more likely to be adventures in the nature of trade.

[82]          When the Court applies the facts in this case as established by the evidence to those criteria, it becomes evident that the Appellant was not involved in an "adventure in the nature of trade". This transaction bore none of the earmarks of such an adventure.

[83]          From the very beginning, the Appellant's intention was to hold the property long enough to be able to sell it and recover the amount of the second mortgage. Everything that followed thereafter was in pursuance of this intention. Further, there was no evidence that the Appellant had a plan or a scheme in place which would entitle her to reasonably believe that at the end of the day, she would make a profit therefrom. Indeed, as the evidence disclosed, she was at the mercy of market forces and any conclusion drawn by her that at the end of the day, she would be able to dispose of the property at a profit were based merely upon speculation and wishful thinking rather than upon anything more concrete. All of the figures that she presented before the Court were merely estimates, beliefs or her own unsubstantiated projections, which were not based upon any valid real estate information.

[84]          This whole matter was further complicated by the fact that the Appellant had a huge personal interest in this matter in attempting to help out her daughter, to look after her daughter's children, and at the end, even to look after her niece. All of these decisions had nothing whatsoever to do with an adventure in the nature of trade, but were calculated to assist her daughter and grandchildren in their time of trouble.

[85]          The Court is satisfied that the Appellant was not involved in an adventure in the nature of trade when she acquired a right to deal with this property. However, even if she were, any of the amounts that she claimed as expenses would have to be reasonable, would have to be added on to the cost of inventory, and would have to have been claimed at the time the property was sold, not in the year in question here.

[86]          The Appellant's argument on this point fails.

[87]          The second argument, although not put forward forcefully by counsel for the Appellant, is that all of the expenses can be deducted as business expenses and that they are reasonable under the circumstances. The Court is satisfied that there was no "business" in effect in the year in question and that the Appellant is not entitled to claim the disallowed expenses. The evidence is overwhelming that there was no reasonable expectation of profit from these enterprises in the year in question.

[88]          The evidence presented by the witness called on behalf of the Respondent made it clear that, based upon the Appellant's calculations for the amount of room and board that was to be received for looking after the children, it would be impossible for there to be a profit, even if all the moneys were received and very little of this money was received. This witness calculated that the amount of room of board would have been $10 a day and the Court accepts her conclusion that it would have been impossible to even pay for the expenses of the upkeep of those roomers and boarders at that rate, let alone to show a profit.

[89]          Further, on the issue of the rental of the apartments in the property, there is no evidence which would indicate that one could reasonably expect to make a profit from such an operation which would entitle her to claim all the expenses that she did. The Minister accepted a rental operation as being in effect for Apartment No. 2 and allowed 37.3 percent of the expenses. Under the circumstances, this is more than reasonable. With respect to the second apartment, 63 percent of it was used by Ms. Wilson and the children. She received no rental from it. Consequently, it was impossible that any profit could have been earned from that property and the Minister was right in not allowing any expenses to be claimed with respect to that apartment.

[90]          With respect to the childcare expenses, the Minister deducted the $2,100 which was alleged income as it had not been received and allowed all expenses except the automobile expenses and office expenses. The arguments that she advanced were that the Appellant was already living in one apartment and did not have to travel to collect rent. Her conclusion was that the office expenses were not related to the rental income. This was not unreasonable. The Appellant was allowed to deduct office expenses in the home and automobile expenses up to the extent of her income, which was reported but not received.

[91]          The Appellant was assessed a late filing penalty. This was not questioned by counsel for the Appellant.

[92]          On the second issue of reasonable expectation of profit, the Court finds that the Appellant has not met the burden in that regard and the Court finds that there was no reasonable expectation of profit from any of the activities in the year in question and that the Appellant was entitled to no further deductions other than those allowed by the Minister in the assessment.

[93]          In the appeal with respect to allowable medical expenses, the Minister is directed to reconsider any proper receipts in support of this claim when they are presented. In all other respects, the appeal is dismissed and the Minister's assessment is confirmed.

Signed at Ottawa, Canada, this 10th day of September 2001.

"T.E. Margeson"

J.T.C.C.

COURT FILE NO.:                                                 2000-1349(IT)I

STYLE OF CAUSE:                                               Evelyn Ellen Wilson and The Queen

PLACE OF HEARING:                                         Toronto, Ontario

DATE OF HEARING:                                           May 11, 2001

REASONS FOR JUDGMENT BY:      The Hon. Judge T.E. Margeson

DATE OF JUDGMENT:                                       September 10, 2001

APPEARANCES:

Counsel for the Appellant: John David Buote

Counsel for the Respondent:              Meghan Castle

COUNSEL OF RECORD:

For the Appellant:                

Name:                                John David Buote

Firm:                  John David Buote, Barrister & Solicitor

                                                                                                Brampton, Ontario

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2000-1349(IT)I

BETWEEN:

EVELYN ELLEN WILSON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on May 11, 2001 at Toronto, Ontario, by

the Honourable Judge T.E. Margeson

Appearances

Counsel for the Appellant:                                       John David Buote

Counsel for the Respondent:                                   Meghan Castle

JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 1996 taxation year is allowed and referred back to the Minister of National Revenue for reconsideration and reassessment in order for the Minister to reconsider any proper receipts in support of any allowable medical expenses in support of this claim when they are presented.

In all other respects, the appeal is dismissed and the Minister's assessment is confirmed, in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 10th day of September 2001.

"T.E. Margeson"

J.T.C.C.