Lussier v. The Queen, docket 1999-4438-IT-I (Informal Procedure)

Date: 20001115

Docket: 1999-4438-IT-I

BETWEEN:

LIONEL-AIMÉ LUSSIER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Archambault, J.T.C.C.

[1]            Lionel-Aimé Lussier is appealing from notices of income tax assessment issued by the Minister of National Revenue (Minister) for the 1995, 1996 and 1997 taxation years (relevant period). The assessments raise two quite separate but similar issues for each of those years. The Minister disallowed the deduction of rental losses on a property located in Racine (Racine house), a municipality situated near Valcourt in the Eastern Townships. The Minister also disallowed the deduction of losses incurred in the business that Mr. Lussier claims to have carried on during the relevant period. In both cases, the Minister's position is that Mr. Lussier had no reasonable expectation of profit from either of those sources of income.

Facts

[2]            To better delineate the facts relevant to each of the two issues, I will recount them separately for each issue even though some of them are relevant to both. I will begin with the facts relating to the rental losses and then set out those relating to the business losses.

Rental losses

[3]            Mr. Lussier and his wife live in Valcourt, and both of them work at Bombardier Inc. (Bombardier). Mr. Lussier has been an employee of that company for about 40 years. During the relevant period, he generally worked days as a maintenance foreman, while Mrs. Lussier worked evenings on the assembly line. They have two children, Sylvain and Benoît, who also worked for Bombardier, the former, generally evenings, and the latter, nights.

[4]            In 1979, Sylvain was living with his de facto spouse in a house (Valcourt house) that he had built in Valcourt on land owned by his parents. He had apparently obtained a $15,000 personal loan from a credit union for that purpose. Because he was unemployed from 1981 to 1983, Sylvain had trouble repaying the loan. Since they had sold their own home, Sylvain's parents offered to take his house and repay his loan. In 1983, Sylvain had two daughters and had been separated from his de facto spouse since 1982. When she moved to Western Canada in 1986, Sylvain was given custody of his daughters.

[5]            On May 8, 1987, Sylvain married a former childhood friend, Carole Boissonneault. A few days before the wedding, on April 23, 1987, Mr. Lussier purchased the Racine house for $38,000. The purchase was financed through a $31,000 loan obtained from the Caisse populaire de Valcourt at an interest rate of 9.25 percent. That house was opposite an elementary school that was rumoured to be closing. The school had around 10 classrooms on the ground floor and a large room upstairs. According to Mr. Lussier, he entertained plans of purchasing the school with 10 other investors in order to convert it into a residence for seniors who could live independently.

[6]            Mr. Lussier also testified that his goal in purchasing the Racine house was to set up the administrative office of the residence there on the ground floor. He wanted to convert the three upstairs bedrooms into a small three-and-a-half room apartment.

[7]            In her testimony, Mrs. Lussier also stated that the Racine house was to be used as the administrative office for the seniors' residence. However, she made no reference at all to putting in a three-and-a-half room apartment on the upper floor. She said, moreover, that Mr. Lussier was to purchase the elementary school by himself. She had no knowledge of the other 10 investors who were supposed to join with her husband.

[8]            The Minister's auditor said that Mrs. Lussier told him during a telephone conversation on March 23, 1994, that the Racine house had been purchased by Mr. Lussier to give his son Sylvain somewhere to live following his marriage to Ms. Boissonneault. In his audit report, the auditor stated: [TRANSLATION] "She [Mrs. Lussier] explained that, to help get Sylvain's second union off to a good start, she and the taxpayer purchased the house for Sylvain and his spouse to help him out financially". In her testimony, Mrs. Lussier strongly denied this assertion by the auditor. She claimed that he had distorted what she said and mixed up the purchase of the Racine house with the construction of the Valcourt house.

[9]            Mr. Lussier personally signed the Answer filed in response to the Reply to the Notice of Appeal and admitted therein that his son Sylvain had lived with his spouse in the Racine house from May 1987 to February 1990. At the time it was purchased, the Racine house was not fit to live in—there was no toilet, among other things—and renovations were quickly begun to make it habitable, starting with the installation of a bathroom. Mrs. Lussier confirmed that Sylvain preferred to live in the Racine house with his two daughters and his wife even though, as can be imagined, the renovation work created a great deal of dust. According to one version given by Mrs. Lussier, Sylvain's family did not begin living in the Racine house until August 1987; according to another, the family began living there in May 1987.

[10]          Mr. Lussier said that, when he learned a year later that the school board had given up its plan to sell the school, he decided to renovate the Racine house with a view to renting it out and, six months later, he even tried to resell it. However, he could only have obtained the ridiculously low price of $16,000. According to Mrs. Lussier, the house remained for sale during all those years and a for sale notice was posted on the bulletin board at Bombardier. In 1991 or 1992, an offer of $60,000 was apparently made, but it was refused because it was well below the cost of the house, which Mr. Lussier estimated at about $110,000.

[11]          Sylvain Lussier's former de facto spouse returned in early 1990, and it was apparently at that time that he separated from Ms. Boissonneault. She moved out of the Racine house with all the furniture in April 1990. After the separation, Sylvain had to pay his wife $75 a week in support.

[12]          Mr. Lussier, with his son Sylvain's help, continued renovating the Racine house between February 1990 and July 1, 1991. The repair work done in 1990 included the replacement of the former stone foundations with concrete foundations.

[13]          Starting on July 1, 1991, the house was rented by a couple unrelated to Mr. Lussier. The rent was $360 a month. The lease was not renewed, and Sylvain's spouse, Ms. Boissonneault, came back to live in the house on July 1, 1992. She stayed there until June 30, 1996, with her son, who had been born in 1988 of her marriage to Sylvain. The rent paid by Ms. Boissonneault was $500[1] a month until June 30, 1995, and $525 for the last year of her lease. From June 1996 until 2000, the Racine house was rented to persons not related to the family.

[14]          According to Mr. Lussier, the renovation work on the Racine house cost about $50,000, including $17,000 for a dual energy heating system (heat pump and propane gas), $7,000 for two bathrooms (one on the ground floor and the other upstairs), $8,000 for new windows and $3,500 for new cladding on the outside walls. Around 1991, a garage was also built at a cost of about $22,000. The garage was to be used as a repair shop, and one car could be parked in it. A few years later, in 1997 or 1998, Sylvain put in a three-and-a-half room bachelor apartment above the garage. He allegedly invested at least $10,000 in that apartment.

[15]          Mr. Lussier reported rental losses from 1987 to 1998, a period of 12 years, and a slight profit for 1999, as shown in the following table:

Year	Gross income	Loss reported
1987	$ 2,352	($ 2,447)
1988	$ 4,032	($ 5)
1989	$ 4,116	($ 4,732)
1990	$ 4,260	($ 2,718)
1991	$ 2,160	($ 5,864)
1992	$ 5,160	($ 9,335)
1993	$ 6,000	($ 1,178)
1994	$ 7,200	($ 2,144)
1995	$ 6,000	($ 1,454)
1996	$ 6,300	($ 2,100)
1997	$ 9,600	($ 3,946)
1998	$ 8,250	($ 497)
1999[2]	$ 6,800	$ 42.30

[16]          Mr. Lussier's agent, an accountant, testified that the Racine house generated a profit in 1999 if the principal repayments made by Sylvain on the loan he obtained to put in the apartment above the garage are added to the rent paid by the tenant (who was unrelated to Mr. Lussier). The accountant also said that the 1999 rent on the Racine house amounted to $620 per month; the rent paid by Sylvain was therefore $1,840 [6,800 - (8 x 620) = $1,840], or $230 a month [1,840 ÷ 8 = 230].

Business losses

[17]          Mrs. Lussier described her husband as an extremely active person. She said that he always needs to be busy doing something. In 1986, he purchased a small $12,000 tractor that he used to clean up a woodlot he owned, to drain his land and to transport crushed stone. At that time, he also owned a pickup truck that he had purchased in 1984 for about $10,000.

[18]          In 1989, while visiting an exhibition, Mr. Lussier let a vendor talk him into buying a mini-excavator for $38,000. He did not even check whether his banker would agree to finance such a purchase. According to Mrs. Lussier, the vendor had promised to send him customers and not to sell similar equipment to purchasers in the Valcourt area. Mr. Lussier said that a neighbour who ran a construction business and used heavy equipment had also encouraged him to purchase a mini-excavator. There were in the area no businesses with such equipment at that time. However, Mrs. Lussier said that she was against her husband's making that purchase.

[19]          Mr. Lussier wanted to supplement his income by means of the mini-excavator and to get his children involved in that business (excavation business). The partnership between Mr. Lussier and his two children was registered on August 8, 1989, at the firm name office under the name "Mini-excavation Lussier et fils enregistré". However, a few months later, when the time came to invest additional money, the two children decided to get out of the business. The firm name was cancelled on May 8, 1991, and Mr. Lussier continued operating the business alone after that.

[20]          Mini-excavation Lussier provided such services as installing drains around houses, planting cedar hedges and digging graves in the cemetery. The hourly rate for the use of the mini-excavator was $38 in 1989 and went up to $45 starting in 1991.

[21]          To publicize his services, Mr. Lussier purchased advertising once a year in a special section of the local newspaper. He also advertised in the parish flyer and put up signs along a snowmobile trail. His business card was also on the bulletin board at Bombardier. However, Mr. Lussier's firm name was not in the yellow pages of the phone book. According to Mrs. Lussier, it did not have to be since Mr. Lussier was very well known in the area.

[22]          Although he ran his business alone, Mr. Lussier continued using his son Sylvain's services to operate the mini-excavator and perform excavation work. His other son, Benoît, also helped occasionally. Neither of Mr. Lussier's children was paid any wages for his services. Sylvain was available to operate the mini-excavator during the day on weekdays and also on weekends. As well, Mr. Lussier was able to operate it in the evenings and help his son with the excavation work on weekends. Mr. Lussier admitted that he had no experience using that type of equipment before purchasing the mini-excavator.

[23]          According to Mrs. Lussier and to Mr. Lussier's accountant, the vehicles and heavy equipment used in the business consisted solely of the mini-excavator purchased in 1989, a single-axle truck subsequently purchased for $3,000 to transport the sand and crushed stone needed for customers' jobs and a trailer that Mr. Lussier had made himself. However, Mr. Lussier admitted that he used the small tractor in his excavation business. In addition to that heavy equipment, there were small tools, such as a welder, that fall under Class 8 of depreciable property.

[24]          From 1989 to 1997, Mr. Lussier did nothing but incur losses in operating the excavation business. The figures are as follows:

Year	Gross income	Loss reported
1989	$ 2,105	($ 987)
1990	$ 4,415	($ 5,894)
1991	$ 19,044	( $ 9,527)
1992	$ 16,531	( $ 6,293)
1993	$ 11,413	($ 12,081)
1994	$ 13,018	( $ 2,413)
1995	$ 4,720	( $ 2,563)
1996	$ 3,800	( $ 7,903)
1997	0	($ 37,062)

[25]          The accountant testified that the significant increase in gross income in 1991 and 1992 was due to the sale of scrap metal that Mr. Lussier purchased from Bombardier. Because of neighbours' complaints about that activity being carried on at his home, Mr. Lussier had to reconcile himself to giving it up.

[26]          Mr. Lussier explained his losses as follows. First of all, the vendor broke his promise and sold similar mini-excavators to other people in the Valcourt area, and Mr. Lussier ended up with more competitors than expected. As well, the high level of the prevailing interest rates and, more generally, the difficult economic situation at the time account for the decrease in construction work in the area.

[27]          It must be added that the single-axle truck turned out to be a very bad purchase. According to Mr. Lussier, it always broke down after two trips. A great deal had to be spent on repairs.

[28]          His financial losses, added to the fact that the Minister had decided to disallow the deduction of those losses, led him to put an end to his excavation business. The single-axle truck was sold in 1995 for $3,500 and the mini-excavator in 1997 for about $12,000. Mr. Lussier had to do repairs before he could make the latter sale. In 1996, he replaced the tracks at a cost of $1,200 each and small engines that drove them at a price of $1,800 each, for a total cost of about $6,000. At the end of 1997, Mr. Lussier still owned the trailer but it no longer had any value, and it still sits rusting on his land.

[29]          The amount of the loss for which a deduction was claimed in 1997 represents a terminal loss resulting largely from the disposition of the mini-excavator in 1997 and the single-axle truck in 1995.

Analysis

[30]          This Court is regularly called upon to decide whether a taxpayer who incurs rental or business losses has a reasonable expectation of profit. The approach that must be taken by this Court has been clearly established, and I explained it in Pierre-Yvan Aubé v. The Queen, T.C.C., No. 97-2118(IT)G, March 17, 1999 (99 DTC 811), in paragraphs 16-22, which I reproduce here:

[16] As the Supreme Court of Canada held in Moldowan v. The Queen, [1978] 1 S.C.R. 480, it is essential that there be a source of income in order for a taxpayer to be able to deduct business losses. For the purposes of determining whether there is a source of income, a business exists only if an activity is profitable or is carried on with a reasonable expectation of profit.

[17] Some of the analytical factors used in making an objective determination as to whether a taxpayer has a reasonable expectation of profit are stated in a number of decisions, including Moldowan, supra, and Landry v. The Queen, 94 D.T.C. 6624. In Moldowan, Dickson J. described these factors as follows at page 486:

In my view, whether a taxpayer has a reasonable expectation of profit is an objective determination to be made from all of the facts. The following criteria should be considered: the profit and loss experience in past years, the taxpayer's training, the taxpayer's intended course of action, the capability of the venture as capitalized to show a profit after charging capital cost allowance. The list is not intended to be exhaustive. The factors will differ with the nature and extent of the undertaking: The Queen v. Matthews [(1974), 74 D.T.C. 6193].

[My emphasis.]

[18] In Landry, Décary J.A. proposed the following factors at page 6626:

Apart from the tests set out by Mr. Justice Dickson, the tests that have been applied in the case law to date in order to determine whether there was a reasonable expectation of profit include the following: the time required to make an activity of this nature profitable, the presence of the necessary ingredients for profits ultimately to be earned, the profit and loss situation for the years subsequent to the years in issue, the number of consecutive years during which losses were incurred, the increase in expenses and decrease in income in the course of the relevant periods, the persistence of the factors causing the losses, the absence of planning, and failure to adjust. Moreover, it is apparent from these decisions that the taxpayer's good faith and reputation, the quality of the results obtained and the time and energy devoted are not in themselves sufficient to turn the activity carried on into a business.

[19] In Tonn v. Canada, [1996] 2 F.C. 73, at page 105, Linden J.A., like Dickson J. in Moldowan, notes that this list is not exhaustive:

These quotations suggest that the list of relevant factors is growing and that it may continue to grow. What this indicates is that a detailed look at the business in the context of its operations is what is required, and that reasonableness is to be assessed on the basis of all the relevant factors, both the already listed ones and any new ones that may be helpful.

                                                                                                                                                

[20] In assessing these factors, it is important that the courts use common sense and that taxpayers not be penalized retroactively when their business proves to be less profitable than expected. Linden J.A. stated the following in Tonn at pages 95 and 96:

The tax system has every interest in investigating the bona fides of a taxpayer's dealings in certain situations, but it should not discourage, or penalize, honest but erroneous business decisions. The tax system does not tax on the basis of a taxpayer's business acumen, with deductions extended to the wise and withheld from the foolish. Rather, the Act taxes on the basis of the economic situation of the taxpayer—as it is in fact, and not as it should be, subject to what is said below.                                                                    

. . .                                                                                                                                                       

Consequently, when the circumstances do not admit of any suspicion that a business loss was made for a personal or non-business motive, the test should be applied sparingly and with a latitude favouring the taxpayer, whose business judgment may have been less than competent.

[My emphasis.]

[21] In Mastri v. Canada (Attorney General), [1998] 1 F.C. 66, the Federal Court of Appeal had an opportunity to clarify its thinking on this approach, at page 75:

                In other words, the term "sparingly" was meant to convey the understanding that in cases, for example, where there is no personal element the judge should apply the reasonable expectation of profit test less assiduously than he or she might do if such a factor were present. It is in this sense that the Court in Tonn cautioned against "second-guessing" the business decisions of taxpayers.

[My emphasis.]

[22] The case law is full of examples in which activities carried on by taxpayers represent a source of personal benefit. This is the case, for example, with the city dweller who loves horseback riding and purchases a farm to engage in horse breeding. Being able to deduct certain farming expenses might enable him to finance a secondary residence and the indulgence in an enjoyable sport at least in part out of tax savings. Similarly, there is a source of personal benefit when a taxpayer purchases a building and leases a portion of it to members of his family at a below-market rent.

Rental losses

[31]          One of the important questions to be looked at in analysing the rental losses incurred by Mr. Lussier is whether a personal element exists. The existence of such an element may be determined by considering the time at which the property was acquired and also the period during which it was used. Here, Mr. and Mrs. Lussier argued that Mr. Lussier had purchased the Racine house to set up the administrative office of a seniors' residence there. They maintained that they never intended to purchase the property to benefit members of their family. Their testimony was obviously intended to demolish the fact on which the Minister had relied in making his assessment, namely that the Racine house had been purchased to give their son Sylvain somewhere to live and help him out financially following his marriage to Ms. Boissonneault on May 8, 1987.

[32]          According to well-settled case law, the burden of proof in that regard was on Mr. Lussier. Unfortunately, I am not satisfied that Mr. Lussier purchased the property in connection with a business of operating a seniors' residence. Not only were there a number of inconsistencies and contradictions in the testimony of Mr. and Mrs. Lussier, but their version of the facts also strikes me as highly implausible in the circumstances.

[33]          First of all, there is the assertion that Mr. Lussier wanted to buy the elementary school with 10 other investors, whereas Mrs. Lussier said that her husband was to purchase it by himself. If Mr. Lussier wanted to buy the school in partnership with 10 other investors, why would he have acted alone in purchasing the Racine house to set up the administrative office of the seniors' residence there?

[34]          Moreover, it seems quite improbable to me that an administrative office had to be set up in the Racine house, on the other side of the street, to operate the seniors' residence. Mr. Lussier spoke of putting in that school a residence for a dozen seniors who were to live independently. I have a great deal of difficulty imagining that such a residence would require an 810-square-foot administrative office. Even if that were the case, I find it hard to believe that that space could not have been found inside the school building itself. That building had 10 or so classrooms on the ground floor and a large room upstairs. There was space in the basement as well.

[35]          It is also very odd that Mr. Lussier embarked on such a venture by purchasing the Racine house by himself before even contacting the school board and without there having been any serious negotiations among the 11 investors. None of those investors testified to corroborate what Mr. Lussier said.

[36]          The fact that Mr. Lussier's son moved into the Racine house a few days after it was purchased on April 23, 1987, shortly after his wedding, and that he remained there until February 1990 makes the version of the facts given by Mrs. Lussier to the Minister's auditor and reported by the latter the more credible one. That version seems to me to be much more plausible than the one given by Mr. and Mrs. Lussier at the hearing.

[37]          Moreover, it was not the first time that the Lussiers had helped out their children financially, especially their son Sylvain. A few years earlier, Sylvain had built the Valcourt house on land owned by his parents. They had to come to his rescue because of the precariousness of his financial situation at the time: he was unemployed for three years and was obliged to pay support to his former spouse for his two daughters. Mr. and Mrs. Lussier had to take possession of the house and repay the personal loan that Sylvain had taken out to finance its construction.

[38]          What counts is not just the intention when the Racine house was purchased, but also the use that has been made of it. It is important to note that the house has been occupied by strangers for only five of the fourteen years that Mr. Lussier has owned it. It must be said that, for three of those five years, Sylvain lived in an apartment above the garage located near the house. Thus, the property in question has been used exclusively by non-family for just two years.

[39]          It should also be noted that the first year the Racine house was rented to a stranger, namely from July 1, 1991, to June 30, 1992, it was so rented because Sylvain and his spouse had separated in February 1990. From February 1990 to June 1991, the property was vacant and additional renovation work was done. From July 1992 to June 1996, the property was occupied again by Ms. Boissonneault, who is the mother of Sylvain's son and to whom he is required to pay support.

[40]          I conclude that the property was purchased to give Mr. Lussier's son somewhere to live. That use was obviously for personal purposes. In such a context, the Court must apply the reasonable expectation of profit test more assiduously. Here, the property never generated a profit prior to 1999, and it must be pointed out that that profit was only $42.50 and was moreover calculated in a very strange way by the accountant: he included in the rent part of the repayment of a loan taken out by Sylvain to put in his bachelor apartment. No evidence was adduced to establish that a lease existed between Sylvain and his parents.

[41]          In Moldowan, supra, Dickson J. stated that capital cost allowance has to be taken into account in determining whether an activity constituted a source of income and whether there was a reasonable expectation of profit. Here, the loss amounts were determined before capital cost allowance. Mr. Lussier has therefore not proved that his investment was capable of generating a profit. For these reasons, I conclude that the Minister rightly disallowed the deduction of the rental losses for the relevant period.

Business losses

[42]          Did the purchase of the mini-excavator and single-axle truck involve a personal element similar to the one that was present in the purchase of the Racine house? In my opinion, the situation is very different. In making his assessments, the Minister assumed that Mr. Lussier had carried on the activities in question for pleasure and to be able to keep busy when he retired.

[43]          I do not know what Mr. Lussier's wages were in 1989 when he purchased the mini-excavator. However, in 1995, he reported income of about $40,000. I do not think that a person earning that kind of income can afford to purchase for recreational purposes two toys costing in excess of $41,000. I am satisfied that Mr. Lussier wanted to carry on a business when he purchased the mini-excavator.

[44]          Moreover, evidence was adduced that Mr. Lussier did not use the mini-excavator and single-axle truck for personal purposes. When he provided services to members of his family, he billed them at the same hourly rate he charged his other customers, which apparently led to strained relations between him and his family members.

[45]          It is true, it seems to me, that Mr. Lussier did not act prudently when he got involved in that business. Even his wife disagreed with the decision. As Linden J.A. stated in Tonn, supra, the tax system should not penalize taxpayers' honest but erroneous business decisions.

[46]          Although Mr. Lussier had a full-time day job as a foreman at Bombardier, he could count on the help of his son Sylvain, who, as indicated above, benefited from his parents' generosity. Sylvain worked at Bombardier evenings only and was therefore free to work during the day. He was also available to work on weekends.

[47]          In 1991, the gross income of Mr. Lussier's business increased substantially, going from $4,415 in 1990 to $19,044 in 1991. It is true that part of those gross receipts was from the sale of scrap metal. However, it must be noted that it was no doubt thanks to his vehicles and other equipment that he was able to transport and handle the scrap metal.

[48]          In analysing the losses, the difficult context in which the business had to be carried on must also be noted. The economic recession certainly made things difficult from 1989 to 1995. If the more favourable economic conditions that currently prevail had existed at that time, Mr. Lussier could probably have made a profit from his excavation business. Another problem he was faced with was that of greater competition because his supplier sold similar equipment to other people in the area.

[49]          Obviously, a person cannot go on incurring losses year after year. There comes a time when it is necessary to face facts and admit that a business does not have what it takes to succeed. Mr. Lussier reached that conclusion in 1996 and 1997. After repairing his mini-excavator and selling it in 1997, he ceased operating his business.

[50]          In the circumstances of this appeal, I consider it reasonable to conclude that Mr. Lussier was carrying on a business during the relevant period and that he had a reasonable expectation of profit.

[51]          Counsel for the respondent argued in the alternative that Mr. Lussier could not claim a deduction for business losses for 1997 because two items of Class 10 property remained, namely his pickup truck and the trailer. Subsection 20(16) of the Income Tax Act (Act) states the following:

(16) Terminal loss — Notwithstanding paragraphs 18(1)(a), (b) and (h), where at the end of a taxation year,

(a) the total of all amounts used to determine A to D in the definition "undepreciated capital cost" in subsection 13(21) in respect of a taxpayer's depreciable property of a particular class exceeds the total of all amounts used to determine E to J in that definition in respect of that property, and

(b) the taxpayer no longer owns any property of that class,

in computing the taxpayer's income for the year

(c) there shall be deducted the amount of the excess determined under paragraph (a), and

(d) no amount shall be deducted for the year under paragraph (1)(a) in respect of property of that class.

                                                                                                [Emphasis added.]

[52]          In his Reply to the Notice of Appeal, the only explanation given by the Minister for disallowing the deduction of the losses is that there was no reasonable expectation of profit. No reasons were given for disallowing the deduction of the terminal loss claimed by Mr. Lussier for 1997.

[53]          Because the Minister did not make his assessment on the basis that Mr. Lussier still owned property in Class 8 or 10 at the end of 1997, the burden was on him to prove that fact. For the same reason, not all of the legal arguments that it would have been appropriate to make were advanced before me. However, a number of factors seem to me, at first glance, to militate against the alternative position of counsel for the respondent. Even if the pickup truck were to be considered to be part of the property used by Mr. Lussier in carrying on his business and thus to be Class 10 depreciable property, it was no longer such at the end of 1997 because Mr. Lussier had ceased carrying on his business and had started using the pickup solely for personal purposes. Under the change of use rules set out in paragraph 13(7)(a) of the Act, Mr. Lussier was deemed to have disposed of the pickup truck. It could therefore no longer be depreciable property, since it was no longer being used in connection with a business.

[54]          The same reasoning applies to the trailer and all the other property of the business that was not sold before the end of 1997. With regard to the trailer, there is another reason that could be relied on if necessary: in interpretation bulletin IT-460, the Minister recognizes that a disposition occurs when a capital property is abandoned and beyond reasonable expectation of recovery. In my opinion, the trailer, which sits rusting on Mr. Lussier's land, meets the conditions stated by the Minister in his interpretation bulletin.

[55]          For these reasons, Mr. Lussier's appeals are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that, in computing his income, Mr. Lussier is entitled to deduct $2,563 for 1995, $7,903 for 1996 and $37,062 for 1997.

Signed at Ottawa, Canada, this 15th day of November 2000.

"Pierre Archambault"

J.T.C.C.

Translation certified true on this 16th day of January 2002.

[OFFICIAL ENGLISH TRANSLATION]

Erich Klein, Revisor

[OFFICIAL ENGLISH TRANSLATION]

1999-4438(IT)I

BETWEEN:

LIONEL-AIMÉ LUSSIER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on May 23 and 24, 2000, at Sherbrooke, Quebec, by

the Honourable Judge Pierre Archambault

Appearances

Agent for the Appellant:                                 Bernard Brosseau

Counsel for the Respondent:                         Simon Petit

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1995, 1996 and 1997 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant, in computing his income, is entitled to deduct $2,563 for 1995, $7,903 for 1996 and $37,062 for 1997.

Signed at Ottawa, Canada, this 15th day of November 2000.

"Pierre Archambault"

J.T.C.C.

Translation certified true

on this 16th day of January 2002.

Erich Klein, Revisor

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