William C Finch v. Minister of National Revenue, [1978] CTC 2138, 78 DTC 1106

Delmer E Taylor:—This is an appeal against assessments for the years 1972 and 1973 in which the Minister of National Revenue disallowed amounts of $1,824 and $2,027.45 respectively claimed by the appellant as net operating losses from a fishing camp for tourists. The respondent relied, inter alia, upon paragraph 18(1)(h) and subsection 248(1) of the Income Tax Act, SC 1970-71-72, chapter 63 and amendments thereto.

The property in question is known as Finch’s Place and is situated in Northern Ontario. It was purchased by the appellant in 1952 for $5,700 and has been held since that time in the name of his wife. It consists of 20 acres of lakeside property, one lodge and three cottages. The appellant purchased in 1968 a business in the Toronto area known as Jack A Frost Limited (hereinafter referred to as "Frost”), in which he has remained to date completely and fully occupied. The following statements of income and expenses were filed by the appellant with his income tax returns, in support of his claim. They were not challenged as to accuracy by the respondent.

WILLIAM C FINCH

Operating Finch’s Place (Commercial Camp) For the Year Ended December 31, 1972

INCOME			$ 165
EXPENSES
Camp licence	$	20
Realty taxes		83
Repairs		89
Propane gas		58
Gas and oil		51
General maintenance		165
Depreciation	1,523		1,989
NET LOSS			($1,824)

NOTE: Prepared from the records of the company and supplementary

information furnished without independent audit.

WILLIAM C FINCH

OPERATING FINCH'S PLACE (COMMERCIAL CAMP)

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1973

INCOME			$ 150
EXPENSES
Camp licence and registration fees	$	77
Realty taxes		106
Repairs		110
Propane gas .		23
Gas and oil		105
General maintenance		266
Depreciation	1,490		2,177
NET LOSS			($2,027)

NOTE: Prepared from the records of the company and supplementary

information furnished without independent audit.

Contentions

The appellant claimed he has been developing the camp and has spent a substantial amount of time, effort and moneys on it, and that it is being maintained for commercial purposes rather than for personal enjoyment.

The respondent asserted that:

—the appellant did not himself own the property for commercial purposes;

—if any expenses were incurred for commercial purposes, they were not incurred by the appellant for the purpose of gaining or producing income.

Evidence

No physical evidence was provided to the Board but on his own account, the appellant submitted that:

a) A license to operate a Tourist Establishment is issued yearly by the Province of Ontario.

b) The camp has a permit to collect retail sales tax for the Province of Ontario and collections of sales tax have been made and remitted to the Province of Ontario along with proper sales tax returns.

c) The camp pays realty taxes to the Board of Education of Espanola on the basis of being a business.

d) Hydro was brought into the area because the camp was considered to be a business rather than an individual cottage.

e) Substantial dock facilities were built to sustain the kind of traffic which is hoped will be in effect.

f) A pure water system and a running water system were set up and are maintained for the guests.

g) Several acres of grass must be continually cut and mainly for that purpose a tractor was purchased.

h) Mr Finch and his family have devoted a substantial amount of time to the care and maintenance of the camp and its guests.

i) The camp is composed of one main lodge and three cottages. One family does not require such extensive facilities for its own personal usage.

Under cross-examination Mr Finch agreed there had been no efforts to advertise the camp and that the business which did develop came from a roadside sign directing prospective users first to a government dock where further instructions could be obtained and a water-taxi ride some 3 miles up the lake arranged. He volunteered that his current income was about $50,000 per year, that he was now in a position financially to invest in and develop the camp, and that his son would in the near future take over Frost, and he then would be able to develop Finch’s Place.

Argument

The appellant reiterated his position on the appeal. Counsel for the respondent relied largely upon the decision in William Moldowan v Her Majesty the Queen, [1977] CTC 310; 77 DTC 5213, to support the Minister’s disallowance of the net amounts as deriving from the operation of a business with a reasonable expectation of profit. Counsel submitted particularly the following passage found at page 313 [5215] from Moldowan:

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.

Findings

First, the Board is impressed with the point made by counsel for the respondent that since the property was not that of the appellant, there is the presumption that any expense incurred would not be for his account. This was not vigorously pursued by counsel for the respondent, and indeed the Board recognizes that under questioning the appellant might have provided a better rationale for his claim to the operating losses than that available to the Board at this time. However, noting for the record that this factor might in itself have proven destructive to the appellant’s case, nevertheless the Board will examine the appeal on the merits of the evidence provided.

It appears to me that there are only three factors which would distinguish the financial information regarding Finch’s Place from similar information on the costs of operating an individual, private lakeside retreat for personal enjoyment and comfort. These are: (a) there was some income each year; (b) the licence to operate a tourist establishment; and (c) that the camp paid realty taxes on the basis of being a business. There is no other evidence whatsoever that the camp was operated as a commercial establishment or that it even could be so operated, given its remoteness and generally deteriorated condition. I am also mindful of the fact that the appellant in the years under review did not have the financial resources to establish the camp properly, and that apparently no one was at the camp to operate it on a consistent or scheduled basis. Finally, it should be noted that the appellant is now in his 59th year and although the funds to develop and operate the camp apparently are now available to him, there would be other considerations before he left his present office in Toronto to embark both financially and physically on such a venture.

Returning to the three points noted above, for these to form the foundation upon which the appellant could build his case against such overwhelmingly conflicting facts, it would be necessary in my view to show that the only reasonable explanation for them was indeed to operate the camp. I cannot conclude that the small revenue each year shows anything other than the most minimal external use on a purely haphazard basis. The total cost for the other two items (licence and taxes) was $103 in 1973 and $183 in 1974—small amounts which at least served the purpose of keeping the property listed and licensed as a camp against any future opportunity, possibly to be sold as such, or eventually operated without the requirement of having to re-license and re-zone it. There is no reason to assume from the evidence that the expenses in question were incurred in relation to, or the revenue indicated derived from the operation of the property as a camp during these years.

Decision

The appeal is dismissed.

Appeal dismissed.