André Dumont v. Minister of National Revenue, [1993] 1 CTC 2643, 93 DTC 1167

Garon, T.C.C.J. (orally):—These appeals are from assessments relating to the 1982, 1983 and 1984 taxation years. By these assessments, the Minister of National Revenue disallowed the deduction of the following amounts for the years indicated:

The appellant claimed deductions for these amounts as business losses.

The essential facts may be summarized very briefly. For several years, and in particular during the years in issue, the appellant was employed full-time as a mechanic. At the same time as holding this employment, the evidence indicated that starting in 1969 or 1970 the appellant spent a lot of time selling and distributing a line of beauty products. The nature of his involvement in these activities, selling and distributing beauty products, varied significantly over the years. In particular, there were major changes in his supply methods during that period, which started over 20 years ago.

For the purposes of these appeals, it is not important to describe the three major stages in the development of the appellant's activities over this period. There is no doubt that during the years in question the appellant devoted considerable time, energy and financial resources, in relation to his modest income, to his activities distributing or selling these beauty products.

It also emerged from the evidence that a couple of years ago the appellant's activities in this area ceased for all practical purposes. These activities might resume if circumstances were favourable and the appellant could then use the material and facilities now in his possession.

For the purposes of these appeals, the activities relating to the beauty products at no time showed a return or a profit. The appellant has never, from 1969 or 1970 to date, drawn a profit or a net income in any year during this entire period. According to the evidence, the appellant does not even seem to have approached the break-even point.

On this point, it is interesting to consider the following financial data with respect to the appellant's activities during the years in issue, which data are set out in paragraph 6(a) of the "amended reply to the notice of appeal" dated March 18, 1992. Paragraph 6(a) reads as follows:

The appellant provided the following data in his tax returns for the years in issue, with respect to the beauty product manufacturing and sales business in respect of which he claimed deductions for business losses:

	1982		1983	1984
Gross income (sales)	$2,209.27	$ 1,563.27		$2,530.34
Gross profits (sales)	$1,104.65	$	360.68	$1,265.17

Operating expenses	$8,586.37	$10,622.26	$8,371.79
Car expenses	$ 315	$ 233.01	$ 501.33
Losses	($7,796.72)	($10,494.59)	($7,607.95)
			[Translation.]

If we examine this table we find, inter alia, that the volume of sales of beauty products did not even reach the $3,000 figure during the years in issue.

From the evidence as a whole, it is clear that these activities relating to the sale of beauty products could not constitute a source of income. The appellant could not have had any reasonable expectation of profit in carrying on this sort of activity.

In coming to this conclusion, I have in mind the principles laid down by the Supreme Court of Canada in the famous case Moldowan v. The Queen, [1978] 1 S.C.R. 480, [1977] C.T.C. 310, 77 D.T.C. 5213. Dickson, J. of the Supreme Court of Canada, later Chief Justice of Canada, noted in this decision, inter alia, that in order for there to be a source of income the taxpayer must anticipate a profit or a reasonable expectation of profit. He added that in his opinion "whether a taxpayer has a reasonable expectation of profit is an objective determination to be made from all of the facts" (S.C.R. 485-86, C.T.C. 313, D.T.C. 5215).

The principles set out in Moldowan, which related to a farming business, have been applied to a great number of other activities. In Coupland v. The Queen, [1988] 1 C.T.C. 414, 88 D.T.C. 6252, Madam Justice Reed of the Federal Court-Trial Division indicated that Moldowan applies to all categories of businesses and activities.

With respect to the question of a reasonable expectation of profit, counsel for the respondent also drew my attention to my decision in Huot v. M.N.R., [1990] 2 C.T.C. 2364, 90 D.T.C. 1814.

I am therefore of the opinion that the expenses which resulted in the losses in issue are not deductible because they were not made or incurred by the appellant for the purpose of gaining income. These losses cannot be connected to a source of income, within the meaning of the decision in Moldowan. Deduction of the losses is therefore prohibited by paragraph 18(1)(a) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

For these reasons, the appeals are dismissed.

Appeals dismissed.