[OFFICIAL ENGLISH TRANSLATION]
Date: 20001110
Docket: 2000-2122(IT)I
BETWEEN:
JEAN PLOMTEUX,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal concerning the
1996, 1997 and 1998 taxation years.
[2] In assessing the appellant for
these three taxation years, the respondent relied in particular
on the following assumptions:
[translation]
(a) during the
taxation years at issue, the appellant operated a veterinary
clinic for dogs and cats; he did not treat farm animals outside
the clinic;
(b) during the
taxation years at issue, the appellant owned two non-working
foals and a horse;
(c) during the
taxation years at issue, the appellant did not own a farm; he
entered into contracts to house, maintain and train his horse and
two foals;
(d) the
appellant's activity consisted of entering his horse in
races;
(e) the appellant
spent very little time on his horses¾approximately one
hour per day;
(f) from 1992
to 1998, the appellant sustained the following losses from the
horse racing activity:
(i)
1992
$ 3,928
(ii)
1993
$ 9,643
(iii)
1994
$ 7,499
(iv)
1995
$ 10,589
(v)
1996
$ 12,106
(vi)
1997
$ 13,960
(vii)
1998
$ 13,424
(g) from 1992 to
1998, winnings and other income from the horse racing activity
were minimal, as follows:
(i)
1992
nil
(ii)
1993
nil
(iii)
1994
$ 1,000
(iv)
1995
$ 1,744
(v)
1996
$ 493
(vi)
1997
$ 1,965
(vii)
1998
$ 1,552
(h) the appellant
carried on this activity solely for recreational purposes;
(i) in
carrying on this activity, the appellant was simply engaging in a
hobby, with no reasonable expectation of profit;
(j) the
expenditures incurred each year for the racehorses were personal
or living expenditures of the appellant; he did not incur them in
order to earn income from a farming business operated by him.
[3] At issue is whether, during each
taxation year at issue, the appellant incurred the expenditures
on racehorses in order to earn farming income.
[4] The appellant alone testified in
support of his appeal. During the taxation years at issue,
the appellant, a veterinarian by profession, sustained losses,
which he deducted from his professional income. The losses
were from activities relating to horse racing.
[5] First, the appellant acknowledged
that it was unlikely that this activity would ultimately be
profitable or viable.
[6] The appellant went so far as to
say that this activity had about a five percent chance of
becoming successful. He explained that he spent very little
time maintaining his horses and having them run in races since
his profession as a veterinarian kept him quite busy. He
stated that he wanted to improve the chances of winning by using
a different and special method of training horses. He
provided very few details on this method; he acknowledged that
his horses had been trained using traditional methods.
[7] The burden of proof was on the
appellant. The evidence produced with respect to the odds
that a particular training method would increase the potential
for winning and objectively make that activity cost-effective was
not very convincing.
[8] The Court was unable to assess the
merits of this particular method since the appellant said very
little about it, much less objectively demonstrate its
advantages.
[9] Instead, it was established on the
balance of evidence that the appellant enjoyed racehorses and
entered them in various races, hoping that fortune would
eventually smile on him.
[10] While horse racing is a very
interesting activity, the odds of winning or possibly breaking
even are based more on dreams than on reason. According to
the appellant, horse racing was not a hobby for him at
all¾he did not spend enough time on it to justify
describing it as such.
[11] Dreaming takes no time and often
provides as much satisfaction for some individuals as do more
time-consuming activities, such as golfing, fishing, hunting,
sailing or skiing, for others.
[12] Essentially, the possibility of winning enough money to
break even and ultimately turn a profit was theoretical and based
on luck. The evidence has not established that the
appellant had a serious business plan or a valid, objective
strategy for making the activity minimally profitable.
[13] The Court also considers it important
to reproduce some excerpts from a July 5, 1999, letter sent by
the appellant to Revenue Canada, specifically, paragraphs 4, 10,
11, 12 and 17, as follows:
[translation]
...
4. Concerning
horse racing as an activity, I have never participated
professionally; I am a veterinarian by profession, not a trainer
or driver of racehorses.
...
10. Strictly speaking, for
me racehorses are certainly not a ''hobby''; as a
veterinarian I have little time to spend on an activity that is
not or will not ultimately be profitable.
I consider the time and money invested in racehorses a necessary
apprenticeship (or education) for learning about all aspects of
racing.
As well, I have always considered and hoped that the racehorses
would become a retirement project, generating additional income
for the time when I could no longer practice my profession.
I stated that I had to come to a decision (which is far from
being reached, however): either to give up the racehorses or,
better yet, to sell my business and invest the proceeds in a
racehorse training centre. This decision calls for a great
deal of time and thought but, I repeat, this decision is far from
being reached in the manner you indicate.
11. I spend approximately
one hour per day on the racehorse activity; since I am still a
veterinarian, I cannot spend more time on the racehorses.
12. The racehorses are
NEVER used as saddle horses. At this stable, there are
saddle horses for rent and racehorses that are trained for
racing; the two activities must not be mixed.
...
17. In my view, the
conclusion is based on criteria that have not been considered in
depth and on lack of knowledge of the horse racing industry.
Although I agree that horse racing is a risky business, there are
owners who, after losing money for years, make substantial
profits. This activity calls for a great deal of
patience.
When I began, I made some money almost instantly, which
encouraged me to stick with it. I consider that these years
have given me experience (like going to school) in an industry
that I did not know well, and I sincerely think that I can make
that experience profitable as soon as the conditions for more
logical training can be fulfilled.
...
[14] The preponderance of evidence produced
by the appellant has shown that he was interested in racehorses;
although this interest resulted in losses year after year, the
appellant spent very little time on this activity because he was
occupied mainly by his professional veterinary practice.
The activity's ultimate profitability or viability hinged on
luck or chance, two concepts that cannot serve as a basis for
planning or developing a genuine, money-generating
business. Hoping and wanting a business to be profitable is
not enough: a person must take objective, effective, and
realistic steps to reach that goal. The evidence in this
case does not show that this was done in any way.
[15] For these reasons, the appeal is
dismissed.
Signed at Ottawa, Canada, this 10th day of November
2000.
J.T.C.C.
Translation certified true
on this 24th day of September 2003.
Sophie Debbané, Revisor
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