Date: 20000803
Docket: 98-862-IT-I
BETWEEN:
JEAN D. BRASSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Bowman, A.C.J.
[1]
These appeals were instituted against assessments made for the
appellant's 1993 and 1994 taxation years. In making the
assessments, the Minister disallowed the deduction of losses
which the appellant claimed in computing his income for the two
years.
[2]
The appellant is a chartered accountant who carried on his
profession in Sault Ste. Marie, Ontario. In addition, the
appellant and his wife were co-proprietors of the business
Brassard Larouche Distributing Agencies, which distributed Amway
products ("the Amway business"). The appellant claimed
a loss from the operation of the Amway business but the Minister
disallowed the deduction.
[3]
Paragraphs 3 to 7 of the Reply to the Notice of Appeal
outline the problem quite clearly, as follows:
[TRANSLATION]
3.
In computing his total income for the 1993 and 1994 taxation
years, the appellant included the following amounts:
1993
1994
Net losses from AMWAY
business
($11,593)
($12,714)
Net professional
income
30,424
37,539
Total
income
$18,831
$24,825
4.
By notices of assessment dated June 2, 1994 and May 18,
1995, the Minister of National Revenue (the "Minister")
initially assessed the appellant for the 1993 and 1994 taxation
years respectively.
5.
By notices of reassessment dated April 8, 1997, the Minister
disallowed the said net AMWAY business losses for the years in
issue.
6.
In making the reassessments, the Minister assumed the following
facts in particular:
(a)
since at least 1987, the appellant and his wife,
Marie-Claude Larouche Brassard, have distributed AMWAY
products under the name Brassard, Larouche Distributing Agencies
(the "Activity");
(b)
for the 1987 to 1994 taxation years inclusive, the appellant
reported the gross income and his share of net losses from the
Activity indicated in Schedule A hereto;
(c)
the appellant is a self-employed chartered accountant who carries
on his profession from two different locations: his residence at
77 Princess Crescent, Sault Ste. Marie, Ontario, and his
office in Dubreuilville, Ontario;
(d)
the carrying on of his accounting profession is a business
separate from the Activity;
(e)
since January 1, 1993, the appellant's wife has had a
severe and prolonged physical impairment markedly restricting her
ability to walk;
(f)
the appellant had four dependent children during the years in
issue;
(g)
the time which the appellant can devote to the Activity is very
limited;
(h)
from 1990 to 1994, the Activity allocated the following
remuneration to the appellant's wife:
1990: $14,000
1991: $14,000
1992: $18,000
1993: $20,000
1994: $26,000
(i)
the Activity could not be profitable as carried on during the
1993 and 1994 taxation years;
(j)
the appellant's main reason for carrying on the Activity was
not to make a profit from it;
(k)
the appellant had no reasonable expectation of making a profit
from the Activity during the 1993 and 1994 taxation years;
and
(l)
the Activity did not constitute a source of income for the
appellant during the years in issue.
B.
POINTS AT ISSUE
7.
The points for determination are:
(a)
whether the appellant's accounting profession was a business
separate from the Activity; and
(b)
whether the appellant had a reasonable expectation of earning a
profit from the Activity during the 1993 and 1994 taxation years
and, consequently, whether the appellant was entitled to deduct
the net business losses from the Activity of $11,593 and $12,714
for those years respectively.
[4]
This case demonstrates once again the tendency of Revenue Canada
employees to intone the ritual incantation "no reasonable
expectation of profit" ("NREOP") whenever a
taxpayer reports a loss. From the moment they find themselves in
a position to chant this mantra, they cease to examine the
problem. NREOP becomes a substitute for rational analysis.
[5]
In the instant case, NREOP has nothing to do with the two
businesses. Mr. Brassard operated an accounting business
and, together with his wife, another business, which consisted in
the distribution of Amway products. He employed his wife in his
chartered accounting business as a receptionist, stenographer,
documentalist and utility person, particularly when he was
absent, as was quite frequently the case since his practice
covered a large portion of northern Ontario. For reasons that
remain a mystery to me, he decided to deduct his wife's
salary in computing the profit from the Amway business. As she
was co-proprietor of that business, she was not entitled to a
salary in any case. However, she was entitled to a salary in
consideration of the services she provided to the accounting
business.
[6]
What happened here is that Mrs. Brassard's salary was
incorrectly charged to the Amway business, when it should have
been charged to the accounting business. If the appellant had
charged his wife's salary to the accounting business, as was
appropriate and as is required under subsection 4(1) of the
Income Tax Act, he would have obtained the same result,
except that the Amway business would have made a profit and the
profit from the accounting business would have been reduced
accordingly.
[7]
The appeals are therefore allowed and the assessments are
referred back to the Minister of National Revenue for
reconsideration and reassessment in accordance with these reasons
on the basis that the salary of the appellant's wife is to be
charged against the income of the accounting business and not
that of the Amway business.
Signed at Ottawa, Canada, this 3rd day of August 2000.
"D.G.H. Bowman"
A.C.J.
Translation certified true on this 12th day of October
2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
98-862(IT)I
BETWEEN:
JEAN D. BRASSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on July 14, 2000, at Sudbury,
Ontario, by
the Honourable Associate Chief Judge D.G.H.
Bowman
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Cathy Chalifour
JUDGMENT
The
appeals from the assessments made under the Income Tax Act
for the 1993 and 1994 taxation years are allowed and the
assessments are referred back to the Minister of National Revenue
for reconsideration and reassessment in accordance with the
attached Reasons for Judgment.
The
appellant is entitled to his costs, if any.
Signed at Ottawa, Canada, this 3rd day of August 2000.
A.C.J.
Translation certified true
on this 12th day of October 2001.
Erich Klein, Revisor
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