Jabbour v. R., [1999] 2 CTC 2903, 99 DTC 589

Beaubier T.C.J. (orally):

These appeals pursuant to the General Procedure were heard together on common evidence at Edmonton, Alberta on March 29th, 1999. Deborah Jabbour and the auditor, Linda Harke, were the only witnesses.

Deborah Jabbour received “Nil” assessments for the years in question. Therefore, her appeal relies on the results of Chahine’s appeal insofar as it may affect the child tax credit.

Mr. Chahine Jabbour has appealed reassessments for the 1993, 1994 and 1995 tax years. The assumptions in paragraph 9 of the Reply read:

9. In so assessing the Appellant, the Minister relied on, inter alia, the following assumptions:

a) the facts admitted and stated herein;

b) during 1993, 1994 and 1995, the Appellant’s wife, Deborah Jabbour (“Deborah”), carried on entertainment activities under the name Playback Entertainment (“Playback”);

c) the Appellant supported Deborah’s Playback activities by giving her financial assistance;

d) in his Tl return of income for the following taxation years the Appellant reported the following:

	Gross Income	Net Income(Loss)
1990	$4,800	($5,296)
199]	6,100	(13,660)
1992	2,250	(26,383)
1993	3,500	(28,894)
1994	5,100	(30,812)
1995	4,000	(27,567)

e) the gross income and expenses declared by the Appellant in his 1993, 1994 and 1995 taxation years, in relation to the activities of Playback, are as set out in the attached Schedules A, B and C, respectively;

f) during his 1993, 1994 and 1995 taxation years the Appellant was employed full time by Petro Canada;

g) the Appellant reported employed income from Petro Canada in the amounts of $58,038.51, $70,543.97 and $60,061.75 for the 1993, 1994 and 1995 taxation years, respectively;

h) the Appellant has not made any study of reasonable revenue and income expectations in relation to conducting business in the entertainment industry;

i) the Appellant did not formulate a business plan for the activities of Playback before the 1993 taxation year;

j) the Appellant had no prior experience or qualifications which would have granted him the skills, knowledge and contacts necessary to turn the activities of Playback into a business with a view to making a profit;

k) in calculating his expenses for the activities of Playback, the Appellant deducted some expenses twice;

1) in calculating his expenses for the activities of Playback, the Appellant deducted some expenses that were also deducted by Deborah;

m) some expenses deducted by the Appellant were capital in nature;

n) the Appellant failed to provide the Minister with documentation to support the deduction of some expenses;

o) the aforesaid expenses were not incurred by the Appellant for the purpose of gaining or producing income from the activities of Playback, rather, these expenses were personal and living expenses of the Appellant;

p) the Appellant had no reasonable expectation of profit from the activities of Playback; and

q) the activities of Playback contained an element of personal satisfaction for the Appellant.

Subparagraphs c), d), e), f), g), h), i), m) and o) are true. Subparagraphs j), k) and n) were not dealt with during the hearing which was devoted to the question of whether the Appellant had a reasonable expectation of profit.

Mr. and Mrs. Jabbour filed their income tax returns for Playback on the basis that they were partners carrying on business in Edmonton. But they did so, as Mrs. Jabbour testified, “randomly”. The Alberta Partnership Act provides that where there is no agreement, they are to share profits and expenses equally and certainly not randomly. Their income tax returns allowed Mr. Jabbour the majority of Playback’s expenses.

The partnership’s losses are described in subparagraph 9 d). However, on the evidence, if they are claimable, they should be shared equally as should the partnership’s income. Mr. Jabbour deducted Playback’s losses from his employment income.

In Moldowan v. R. (1977), 77 D.T.C. 5213 (S.C.C.) Dickson, J. stated:

There is a vast case literature on what reasonable expectation of profit means and it is by no means entirely consistent. 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] C.T.C. 230, 74 D.T.C. 6103. One would not expect a farmer who purchased a productive going operation to suffer the same start-up losses as the man who begins a tree farm on raw land.

Using these criteria, the Court finds in this case:

1. The history of Playback and its predecessor (Mrs. Jabbour’s single act) is of losses. Before 1990 she was in a successful professional music trio with her brother and sister which played regular dates in Edmonton. It broke up because of her marriage to Mr. Jabbour in 1990.

2. The taxpayer’s training. There is no evidence that either of the Jabbours has any business training. Mrs. Jabbour had 16 years of musical experience in 1990. However, she did not bear the entire burden in the trio. She testified that the burden of conducting her single act was onerous by comparison with her trio duties. Mrs. Jabbour filled out the couples’ income tax returns and she had no training in that.

3. The taxpayer’s intended course of action. The history of this is that Mrs. Jabbour set up her single act on the Edmonton music and bar scene in 1990 and by 1992 it had failed. The losses were also claimed in part by Mr. Jabbour. In 1992 the Jabbours set up Playback which featured four of the five of Mrs. Jabbour’s daughters, at first in a show band format and then in an a cappella format. Some of the daughters were minors. The two youngest were born in 1985 and 1986. There was no evidence that they sought bookings or as to where they expected or projected Playback’s future income would come from. The income reported was from three sources:

1. Festival or Community “Days” prizes.

2. Amounts valued on the basis of work bartered, such as auto repair and re-upholstering by Mrs. Jabbour that had nothing to do with music.

3. Transcriptions or arrangements of music by Mrs. Jabbour to which she gave a notional value.

Thus, most of the “income” was imaginary.

Simultaneously the Jabbours deducted meals when they went out to places like MacDonalds to feed the children, pizzas, and many ordi- nary purchases of food; childrens’ clothes, fabric purchased, unlogged vehicle expenses for several vehicles, repairs to their home, trips to Mexico, Disneyland and elsewhere, allegedly for the purpose of picking up or teaching the girls musical tips. In fact, on the evidence, the use of Playback for the girls was to deduct the cost of feeding and clothing them and for raising and training and giving them lessons and educating them. (Mrs. Jabbour taught them on an unstructured basis in the family home.) That was the intended course of action of both Mr. and Mrs. Jabbour and they carried it out consistently until they were audited.

4. Needless to say the venture conducted with this intention never had a capability of showing a profit on any basis. The personal interests that Mr. Jabbour had in it was to deduct ordinary household expenses from his taxable income.

Mr. Jabbour’s appeal is dismissed. Mrs. Jabbour’s appeal is referred to the Minister of National Revenue for reconsideration and reassessment based on these reasons for judgment.

The Respondent is awarded a full set of party and party costs in respect to each appeal.

Appeal dismissed.