Dick v. R., [1997] 1 CTC 2279 (Informal Procedure)

Rowe D.J.T.C.C.: — The appellant appeals from assessments of income tax for the 1991, 1992 and 1993 taxation years. In computing income for those taxation years the appellant deducted certain amounts as business losses which the Minister of National Revenue (the “Minister”) disallowed on the basis the appellant did not have a reasonable expectation of profit from the activity.

The appellant testified he is an instructor at the Northern Alberta Institute of Technology (NAIT) and during the years under appeal was employed full time and earned income ranging from $49,000 to $53,000. He reported business losses arising from an activity he carried out in respect to the construction and use of a cutting device known as an XY motion control table which produced products out of wood or acrylic. The appellant filed a Book of Exhibits, tabs 1-8, inclusive, as Exhibit A-l. He is a Professional Engineer with a Master degree in Electrical Engineering. While employed as an instructor at NAIT, he worked with sophisticated pieces of equipment involving elements of mechanical and electronic engineering. Some of the equipment included XY motion control tables which, while adequate for teaching purposes, were too small to perform the contract work he envisaged and he determined that he would have to construct a larger machine. He visited several sign shops in Edmonton and discovered there were very few machines of the type he wanted to build. He began gathering information from various periodicals and took a course designed for those persons wishing to become entrepreneurs. He held the view that a business plan was a document usually required to induce a financial institution into loaning start-up money and, since he was going to rely entirely on his own resources, he did not feel a written plan was necessary. He was aware that he would have to be resourceful in efforts to keep the costs of the machine to a reasonable amount. By July of 1990, he had completed the mechanical design of the machine. Between August and November, 1990, he undertook construction and in the process utilized used equipment and computer components. His employment as an instructor at NAIT allowed him to use the holiday months of July and August to work on this project. He also arranged to take a leave of absence until the end of December and was able to work full time on the development of the machine. In December he did some contract work on another project and, in January 1991, returned to his teaching job. He continued to work during evenings and weekends on finishing the machine. By the end of March 1991, the machine was operational. It was a 2- axis machine in which he used a software program — basically a motion control card - that he had purchased and then programmed code to meet his specific needs. Between April and June 1991, he began using the machine and discovered he was having problems with the software and considerable time and effort was expended before producing sample letters which were satisfactory. In July 1991, he began contacting sign companies in Edmonton with the idea that he would sell his services and product but soon realized that he was not skilled in the area of sales and promotion. Also, he learned that the sign business was slow in Edmonton and surrounding area and he became discouraged. In September, he decided to try some mail-out advertising to approximately 100 sign companies in Edmonton, enclosing an explanation of his process and a sample of his product, which was a letter of the alphabet created from Plexiglas. The mail-out occupied a lot of time because he first had to create a data base by poring over telephone directories and obtaining postal codes.

The response to his advertising effort was almost nil until December when he had an opportunity to quote on a couple of jobs which did not lead to any contracts. He mailed out samples of his product to local trophy shops in an effort to display the capability of his machine which could cut letters from various kinds of wood for use in creating plaques. Unfortunately, the response was negative and so in January of 1992 he decided to create routed decorations for installation on kitchen cabinet doors. He began to create several designs using a CAD software package and then produced sample doors with a particular design routed into them by the XY machine. The following month he hired a photographer — at a cost of more than $200 - to take photos of the sample doors which he used in a mail-out to various kitchen cabinet companies in Edmonton. Again, there was no immediate response.

In March he manufactured, from wood, some holders for 3 1/2 inch floppy disks and in April received some inquiries from manufacturers of kitchen cabinet doors, as a result of which he made up two sample doors for inspection and met with a representative from a computer retail store that had seen his floppy disk holders. He provided the store with some samples of the product but did not obtain an order.

The next month he had an inquiry from a trophy store which was interested in having him cut a material called Corian, expensive and resembling ivory, which was used for counter tops. He produced some samples and advised the store of the production costs but, other than one small job, it did not lead to further sales. He returned to the idea of selling the wooden disk holders and attempted, without success, to contact the main buyer of a national chain of computer retail stores. During the summer months of 1992, he modified his machine to introduce more control and precision to the process involving the vertical dimension. In effect, it was now a 3-axis machine. There was a belated response to his mail-out to the cabinet door manufacturers and he spent many hours creating samples for an interested party and made up a price list showing the cost of the router work for all of the various standard kitchen cabinet doors. However, although the individual was initially very enthusiastic about the appellant’s product, he later became non-committal and then impossible to contact. In September, he quoted on some jobs but his bids were not accepted. In October, he was contacted by the owner of a sign company who was willing to handle the numbers/letters made of wood or Plexiglas but only on a consignment basis. The appellant decided to give that a try and made up a complete set of letters from A-Z and numerals from 0 through 9. His wholesale price was $5.00 per number/letter.

After delivering the samples to the interested party, the appellant later discovered there was not much follow-up interest. Then, the appellant got the idea to produce decorative rosettes for use in mouldings around doors and windows in construction of new houses. He produced, at a cost of about $1.00 each, 100 rosettes for a contractor.

In December 1992, he obtained a job to decorate three kitchen cabinet doors for a new home. In January 1993, he contacted major retailers of decorative building supplies and showed samples of the various products he had produced on his machine but no orders were obtained. In July, he met with the sales manager of a major building supply wholesaler and showed him the rosettes and also advised that whatever the price quoted by the current supplier, the appellant would beat it. However, he did not obtain an order and later came to suspect that he had been used as a lever to force the current supplier to come in with a lower price. The next month he got a Job to decorate a kitchen cabinet door and then did not carry out much business activity from then until the end of the year. In January 1994, he decided to hire a salesman but did not have the money to pay a salary. He joined forces with a young man who was interested in a business venture and they developed a line of wood products that they believed would interest a typical consumer. The items were produced and then displayed at various local markets held between April and October. There were a few sales but not enough to make it worthwhile. In November, a new business opened in Sherwood Park, near to where his business associate lived, and his products were placed in that enterprise without the need to pay any sales commission. The only cost was rental of a booth which his associate operated and some sales were taking place. At this point the appellant was selling the products to his associate who was then marking them up and retailing them. However, the mark-up was not sufficient and the associate decided to quit so the appellant, in January, 1995, took over operating the booth at the shop and lowered the selling price of the 20 products he now had for sale, including a set of coasters with symbols of playing cards and CD holders. The store owner rented him space and the staff handled sales. By the summer of 1995 sales were such that he was not breaking even and he decided to quit. In Exhibit A-2, the material remitted to the Tax Court, containing, inter alia, his tax returns, the appellant stated that the sum of $2,247.00 reported as business income from the activity in 1991 was actually earned by him doing some contract engineering work and did not come from sales of any product or service associated with his business. In fact, there was no business revenue. In 1992, the business gross revenue was $369.68 and in 1993, $370.25, while expenses and resultant losses, without home office expenses, were as follows:

The appellant stated that his machine was not patentable but the commercial machines were available only at a cost of nearly US $150,000 and his advantage was the low cost of having created his own similar device which could do the same work. He stated that woodworking had been a hobby of his for many years and he had acquired tools and equipment which he used in the course of the business. He stated that the auditor from Revenue Canada did not query any of his claimed expense items during the years under appeal, including CCA expense.

In cross-examination, the appellant stated that he had done no calculations on the costs of producing the floppy disk holders or the letters that he produced and sold for $5.00. He did not undertake any calculations which would have permitted him to ascertain how many letters/numbers had to be sold in a given period in order to make a profit. He stated it took one hour to produce one disk holder and an order of 1,000 would occupy 1,000 hours. In 1991, he devoted all of his spare time to his business, including summer holidays. Thereafter, he spent a lot of time in attempting to promote the business and the reference to 4-5 hours per week was only for actual running time of the machine. His long-term goal was to create a modest part-time income which could lead to a full-time business. Some of the tools and equipment - other than the machine - were purchased by him as far back as 1981. As an example of the tools required to produce a disk holder, the appellant stated that he needed to use a table saw, jointer, disc sander, thickness planer for the blanks, bandsaw for rounder corners, tablemounted router to put a finishing edge on a product. Other handtools were needed to repair equipment and when he began to use these items in the business he placed what he believed to be fair market value on them. As a hobbyist he had made furniture and kitchen cabinets but had not sold any of them. He stated that, in 1992 and thereafter in Edmonton, the housebuilding industry was in decline and, with it, a large part of his potential market. He also looked into selling his type of machine but it was not as durable or fast as the ones available from manufacturers in the United States.

The appellant submitted that he did have a reasonable expectation of profit and that he operated without borrowed money and kept his expenses to a minimum. There were various reasons for the business losses but lack of effort on his part was not one of them and while he had made mistakes he was always concerned with gaining customers and building up the business.

Counsel for the respondent submitted that the 1991 income was not from the business and that there was a large personal component present because the appellant had been a person with a hobby in woodworking and most of the modest income earned came from jobbing out services by using the machine and not from sale of products. Further, counsel contended the appellant had no plan and there was never any concept of the cost of producing the items which were put up for sale.

In Tonn v. R., [1996] 1 C.T.C. 205, 96 D.T.C. 6001, the Federal Court of Appeal examined the concept of reasonable expectation of profit as it has evolved over the years since the judgment of the Supreme Court of Canada in Moldowan v. R., (sub nom. Moldowan v. Minister of National Revenue) [1978] 1 S.C.R. 480, [1977] C.T.C. 310, 77 D.T.C. 5213. Linden J.A., writing for the Court, undertook the analysis and, reproduced below, is a review of the case law commencing at page 220 (D.T.C. 6009) of the reasons of His Lordship:

A closer look at this jurisprudence will illustrate that this is the approach now taken in most of the cases. The cases in which the “reasonable expectation of profit” test is employed can be placed into two groups. One group is comprised of the cases where the impugned activity has a strong personal element. These are the personal benefit and hobby type cases where a taxpayer has invested money into an activity from which that taxpayer derives personal satisfaction or psychological benefit. Such activities have included horse farms, Hawaii and Florida condominium rentals, ski chalet rentals, yacht operations, dog kennel operations, and so forth. Though these activities may in some ways be operated as businesses, the cases have generally found the main goal to be personal. Any desire for profit in such contexts is no more than a “pious wish” or “fanciful dream”. It is only a secondary motive for having set out on the venture. What is really going on here is that the taxpayer is seeking a tax subsidy by deducting the cost of what, in reality, is a personal expenditure.

One such hobby case is McKay v. Minister of National Revenue where Brulé J.T.C.C., in deciding that an underwater diving instruction and photography operation did not comprise a business, stated:

Although the Appellant’s course of action demonstrated a dedication to the scuba diving field, this is not sufficient to take it beyond the character of a mere hobby. In my view, on the basis of all the evidence, the Appellant has failed to establish that he did possess a reasonable expectation of making a profit from an underwater diving instruction and photography business for the years under review.

It is not that the impugned activities in these cases are in themselves any more or less prone to being run like a business. Rather, it is the simple fact of how they are run which is decisive: though the taxpayer might well desire to profit from the activity, the profit motivation is not the main reason for the activity. Rather, the element of personal enjoyment is the dominant, motivating force.

In another hobby case, Escudero v. Minister of National Revenue, the applicant deducted losses arising from a dog-breeding operation. Though the operation was run ostensibly as a business, the taxpayer had an obvious personal interest in dogs, which was evidenced, among other things, by the fact that the appellant had purchased a mobile home for attending dog shows. In deciding that the deductions were correctly disallowed, Chairperson Cardin stated:

Although the appellant’s breeding kennel may be operated in a business-like manner, it lacks, in my opinion, the one essential ingredient to make it a business and that is a reasonable expectation of profit. On the basis of the evidence and particularly the financial statements for the years 1975 to 1980 inclusive, I do not believe the appellant can, in the foreseeable future, reasonably expect to realize the profit from the operation of his breeding kennel. For whatever reason the appellant may have engaged in the breeding of pure stock St. Bernard dogs, it was not, in my opinion, for the purpose of realizing a profit from the breeding operations.

A further case illustrating the personal benefit element in Huot v. Minister of National Revenue In this case, the taxpayer acquired certain properties from his parents and in turn rented one of them to his parents for a rental value far below the market rate. The applicant then attempted to deduct losses arising from this arrangement. The Tax Court Judge properly found that the applicant did not entertain a reasonable expectation of profit and dismissed the appeal.

Lastly, in Maloney v. Minister of National Revenue, a taxpayer rented a house she had purchased from her mother back to her for a low rent and attempted to deduct the losses incurred. In deciding that a motive of personal benefit predominated in these circumstances, the Tax Court Judge stated:

I do not doubt in any way the good faith of the Appellant. She presented her own appeal with sincerity and conviction. I find, however, that the plan for the mother to be self-supporting and thereby pay a reasonable rent which would permit the Appellant to derive income from the property is a plan that was not well thought out. The subjective, good faith, commercial hopes and dreams of an individual taxpayer do not confer upon his or her enterprise a reasonable expectation of profit if that enterprise does not meet the objective criteria of a prudent business in similar circumstances.

The other group of cases consists of situations where the taxpayer’s motive for the activity lacks any element of personal benefit, and where the activity cannot be classified as a hobby. The activity, in these cases, seems to be operated in a commercial fashion and not as a veiled form of personal recreation. Usually these deductions are not challenged by the Department, and, therefore, they do not get appealed and are not reported very often in the law reports. The Courts still have a role, however, in deciding whether there exist less apparent factors which might suggest a different conclusion in cases such as these. The Courts are less likely to disallow these expenses, but they do so in appropriate circumstances.

Thus, in Baker v. Minister of National Revenue, Couture C.J.T.C. found that the taxpayer conducted himself in a business-like manner and that it would not be appropriate to disallow the deductions he claimed:

In the present appeal, it appears to me that the Appellant conducted himself like a normal average investor, an investor who was not sophisticated because of lack of professional training, but who nonetheless had a working knowledge of the basic rules of the investment process. He knew the area where the property was located. He had received assurances from the real estate agent that there would not be any problem renting the property throughout the year and furthermore the agent had indicated the rent that could be obtained.... The fact that the rental projections did not materialize, which was the main and only cause of the failure of the venture certainly cannot be imputed to the Appellant. It was simply part of the risk related to the venture.

In a contrasting case, the taxpayer attempted to deduct rental losses on a property. While recognizing that it is inappropriate for the Minister or the Court to substitute its business judgment for that of taxpayer, Bowman J.T.C.C. found that the operation did not meet the Moldowan criteria:

Nonetheless, there must be sufficient of the indicia of commerciality to justify the conclusion that there is a real commercial enterprise being conducted. I do not find that the arrangements made by the appellant contain those indicia. The 100% financing, the payment of a 25% commission to Port Charlotte Homebuilders and the substantial expenses and consequent loss in comparison to the gross revenues and the overall cost of the property are among the factors that I find inconsistent with a genuine commercial operation.

This conclusion does not of course justify the automatic disallowance of losses in the early years of a genuine viable rental operation. There should be a reasonable period in which to permit the enterprise to become self-supporting. In the years under appeal, I do not think it had reached the stage where it can be called either a business or a viable rental operation.

Other cases utilize the Moldowan case in what appears to be regular commercial type situations exist. The facts, of course, arc always of importance in sorting out which cases will be placed on the other side of the line. Hence, where a commercial enterprise is operated at a loss in order to generate tax refunds or other such tax consequences, the Court will likely find that the enterprise is not a business under the Moldowan test. In other situations, the Court may decide that, though the taxpayer genuinely intended the pursuit of profit through a purely commercial activity, the intention was unrealistic, the expectation of profit unreasonable, and hence, the activity was not a business. This was the situation before this Court in Landry v. R. In deciding that a lawyer’s expectation to earn a profit from a rejuvenated legal practice, recommenced in his seventies, was not objectively reasonable, Décary J. stated:

It is possible for someone, with the best will in the world, to practise an activity that takes all his or her time and that activity may still not be a business for the purposes of the Income Tax Act.... There comes a time in the life of any business operating at a deficit when the Minister must be able to determine objectively, after giving someone a head start for a number of years, as the case may be, that a reasonable expectation of profit has turned into an impossible dream.

I might note for the record that the factual circumstances in Landry were not entirely free from suspicion. One significant source for the losses claimed in the case was part of the cost of the personal residence of the taxpayer from which the practice was run at least part of the time.

In another case, Engler v. R. a taxpayer attempted to deduct losses from a small business he formed to buy and sell various gift items such as brassware, watches, rings and household gadgets. The profits intended from this business were to supplement the taxpayer’s employment income. Though no personal element was apparent in how the taxpayer ran the business, and though the type of business suggested a bona fide commercial operation, the losses arising from it were held to be non-deductible because the venture lacked a reasonable expectation of profit. Even though the operation could not otherwise be impugned, the rather large losses claimed were too suspicious to be overlooked, thus suggesting that a non-commercial intention lay at their source. In deciding the matter, Joyal J. stated:

On the evidence, it might be said that the plaintiff originally brought the whole controversy upon himself by claiming expenses which could not by any stretch of the imagination be justified. In the face of this obvious disproportion between the resulting losses and the volume of business generated, or the capital committed, or the time and energy devoted to it, it was an easy slide from a determination of the unreasonableness of the expenses to an assumption that the venture, in any event, did not have a reasonable expectation of profit.

I also find the following words from earlier in the judgment instructive:

It is only when the taxpayer has other sources of income against which any such losses are claimed that Revenue Canada’s antennae start sending out signals which might become a source of concern to the taxpayer. Depending on the circumstances in each case, Revenue Canada will assume that the taxpayer is engaged in a business which objectively has no reasonable expectation of profit. The inference will be drawn that the taxpayer is merely engaged in a sport, hobby or some other self-satisfying endeavour, and if his losses are charged to his other sources of income, he is effectively reducing his tax exposure.

The difficulty the taxpayer could not overcome was the inference, derived from the unreasonable nature of the expenses, that the business was in fact not operated for business reasons.

When the cases are categorized into two groups as above, one cannot help observing that the hobby and personal benefit cases are rarely decided in the taxpayer’s favour. In contrast, where the activity is purely commercial, they rarely are challenged. If they are the Courts have been reluctant to second- guess the taxpayers, with the benefit of the doubt being given to them. I also note that in terms of sheer numbers, the hobby/personal-benefit cases vastly outnumber those of the commercial activity and variety, which are quite rare, indicating that taxpayers are challenged less often in such situations.

The primary use of Moldowan as an objective test, therefore, is the prevention of inappropriate reductions in tax; it is not intended as a vehicle for the wholesale judicial second-guessing of business judgments. A note of caution must be sounded for instances where the test is applied to commercial operations. Errors in business judgment, unless the Act stipulates otherwise, do not prohibit one from claiming deductions for losses arising from those errors. This point was stated strongly by Sheldon Silver:

It is submitted that it should not be the role of Revenue Canada to determine what businesses taxpayers should attempt to pursue. In fact, governments in Canada have often stated that new businesses and risktaking should be encouraged and have, from time to time, enacted legislation to encourage such activity. Canadian chartered banks have recently been seriously criticised by the press and government officials for not providing adequate lending facilities to small and new businesses. Clearly, Revenue Canada’s attempt to penalize taxpayers who are unsuccessful after taking these risks is inconsistent with the government’s promotion of private entrepreneurs.

This criticism was echoed by Bowman J.T.C.C. in Bélec v. R. where he stated:

It must be noted that these losses were incurred solely in a business context. There was no personal element, either in his purchase nor in his use of the building. The appellant is an experienced businessman. He took his decision in good faith on his best judgment and on the facts available to him at the time. It is not up to the Minister (or this Court) to substitute his business acumen for that of the taxpayer, with the benefit of hindsight. The question to be asked is not, “Knowing what I know now, would I have embarked upon this enterprise?” The answer is no doubt “No”, because the question only comes up when there are losses.

And finally, the same caution was reiterated in Nichol v. R.:

[Mr. Nichol] made what might, in retrospect, be seen as an error in judgment but it was a matter of business judgment and it was not one so patently unreasonable as to entitle this Court or the Minister of National Revenue to substitute its or his judgment for it, or penalize him for having made a judgment call that, with the benefit of 20-20 hindsight, that Monday morning quarterbacks always have, I or the Minister of National Revenue might not make today. We were, after all, not there in 1986.

Though I do not support the use in the Nichol case of the word “patently”, I otherwise agree that the Mo Ido wan test should be applied sparingly where a taxpayer’s “business judgment” is involved, where no personal element is in evidence, and where the extent of the deductions claimed are not on their face questionable. 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.

In the within appeal, the evidence does not lead me to conclude that the business was undertaken by the appellant so that he could indulge himself in a woodworking hobby or to further his desire to construct and experiment with a 2-axis machine capable of cutting, with a router, various shapes or designs of wood, Plexiglas or other material. The business activity undertaken by the appellant made use of his training and occupational skills as well as his accumulated tools and equipment which he had acquired over a period of more than a dozen years but that is a far cry from buying a yacht, ostensibly for charter purposes, a condominium in a sunny spot or deciding to breed dogs or guppies in order to add a patina of commercialism to what is truly a hobby. It is true that a portion of the expense charged to the operation of the appellant’s business came from calculation of Capital Cost Allowance, especially in 1993 when it accounted for $4,543.46 out of total expenses in the sum of $7,898.51 but the evidence supported the appellant’s contention the tools and equipment he had put into the business were necessary and that he had used fair market value in order to calculate value. However, unlike the taxpayers’ situation in Tonn, supra, there was a definite connection between the appellant’s hobby of woodworking, his expertise in the area of being able to construct and operate the 2-axis cutting machine, and the business activity he chose to pursue. That, however, is a two-edged sword. One would expect a fledgling entrepreneur to have some knowledge of a product, process or service that is about to be launched as a commercial venture. The nub of it, in my view, is to look at the extent to which the purported business is intertwined with the leisure or recreational pursuits of the taxpayer having regard to the passion and devotion attributable to a hobbyist or, in the true sense of the word, an amateur, as opposed to an activity that is undertaken outside the constraints of full-time employment in which a taxpayer can utilize previously acquired skills, tools, equipment or knowledge of a process.

I am satisfied that the appellant’s motive was to make profit and that his activities during the taxation years under appeal, though not successful, were carried out for that purpose. The difficulty is that the enterprise, from the outset, did not have the capacity to generate sales of the product about to be manufactured nor was it reasonable to expect sufficient revenue could be created by finding work for the machine on a contract basis. The appellant was producing products or inventing services that could be performed by his machine and then attempting to sell them without having any expertise in the field of marketing or knowing who his customers would be. A further serious deficiency was in not calculating the cost of production of a particular product at a given time in relation to sales, actual and/or projected, in order to arrive at an estimation where a profit position might lie within the context of a particular time frame. There is no doubt that the appellant put in a lot of effort over the course of three years. Despite questions put to the appellant by counsel for the respondent in cross-examination or, from time to time during the course of his testimony when I raised the subject of production costs, he was unable to appreciate the significance of the cost of production per unit of his various saleable items as it related to the issue of the existence, or otherwise, of a reasonable expectation of profit for his venture. The jurisprudence, even post-Tonn, does not call for an automatic granting of a grace period to a taxpayer during the period usually classified as the start-up phase of a new business venture unless it can be seen, on objective analysis, that the enterprise was structured at the outset with the capacity, at least, to participate in the struggle towards a profitable position in the future. If the business concept is flawed, ab initio, the tincture of time is not going to imbue an unworkable scheme with vitality. The appellant changed the products he was attempting to sell and refined the process by which he produced items and worked on making his machine more sophisticated and reliable but it did not change the nature of the problem he faced from the beginning namely, he did not have a marketplace to service. Therefore, while the appellant falls into the second category as referred to by Linden J.A. in reasons for judgment in Tonn, supra, the appellant still must demonstrate that the activity had a reasonable expectation of profit. In my opinion, it is not a matter of second-guessing the appellant. The key to his opportunity for success was in finding a market for products which he could then produce, having regard to the costs of production, marketing and all expenses in total, which could reasonably be expected to produce a profit within a definable time frame.

The appellant recognized early on that he was not a salesman and was receiving responses ranging from nil to almost nil in relation to his own marketing efforts. The most telling point is that if he had obtained an order for 1,000 letters/numbers fabricated from a particular material or for the floppy disk holders, he did not know whether such sale at the price quoted to the customer in the price list would be profitable, not only in the long run, but in the short term to cover immediate costs of production, delivery and marketing. At some point he would have had to hire labour in order to produce a large order which, even at minimum wage, would impact seriously on his profit picture. It is one thing to build a better mousetrap and to wait until consumers beat a path to your door but that presupposes, reasonably, I suggest, that people still purchase mousetraps and will pay a price which is greater than the cost of production. The evidence adduced by the appellant leads to the inference that if he had obtained substantial orders for his products at the prices quoted his losses may well have been greater.

As well, there was no evidence upon which to base a finding that it was reasonable for the appellant to expect to sell 8,000 decorative rosettes in any taxation year - at a dollar each — or to market sufficient quantities of the numbers/letters and other products or to decorate enough kitchen cabinet doors, especially in light of the lack of response to his initial marketing efforts, to produce a profit. The activity undertaken by the appellant was specific in its appeal to potential buyers within a particular limited wholesale market and required substantially more preparation than, for example, buying a rental property during a period of rising vacancy rates when real estate prices are increasing. In the latter case, an ordinary person not having expertise in the area of real estate, can still make a reasonably informed decision by relying on personal observations or reports in the media.

I am not satisfied that the appellant has demonstrated the assessments of the Minister for the years under appeal to have been incorrect. The appeal for all taxation years is dismissed.

Appeal dismissed.