Olson v. R., [1997] 3 C.T.C. 2872

Rowe D.J.T.C.:

1 HIS HONOUR: The Appellant appeals from an assessment of income tax for his 1990 and 1991 taxation years.

2 The Minister of National Revenue reassessed the Appellant for those taxation years and disallowed business losses claimed by him as deductions from his income for those years in the amounts of $27,062.70 and $14,485.19 respectively.

• He was employed full time as a commercial airline pilot for Air Canada during the years under appeal.

• Since 1981 the Appellant has maintained an entity named Adol Aero Explorations, which was involved in mineral exploration, and he operated this as a sole proprietorship.

• During the period in question there were no mining claims registered in the Appellant's name nor did he have any interest in such claims.

• At all material times he owned two aircraft, a Cessna 150 wheeled plane, and a Cessna 185 float plane, as well as two other motor vehicles, a Dodge pick-up truck and a Ford pick-up truck.

4 The income tax returns of the Appellant over a 13-year period indicate that there was never any income whatsoever from the prospecting or exploration, but there was in 1989 income in the sum of $1,176 which related to the rental of one of the aircraft. There were in each of those years losses running from $3,600 low in 1982 to a high of $27,000 in 1990.

5 As indicated earlier, the Appellant was employed full time as a pilot for Air Canada. He arranged his holidays in the summer and tended to utilize that time to fly his 185 aircraft on floats into the Northwest Territories to look for promising topography which he could then explore further.

6 In the 1990 year, the Cessna 185 was being overhauled and was fundamentally down for the entire summer, and the 150 aircraft was utilized by him to fundamentally commute to Nanaimo where the other aircraft was being repaired. He also had major overhaul done on the Cessna 150 aircraft.

7 Then, the years under appeal, there was not in my view any activity undertaken that would fall within the category of a business activity or that could, within the meaning of the Income Tax Act, constitute a source of income as required by the Act.

8 In any event, the assumptions of the Minister have not been displaced, and, in accordance with the jurisprudence, stemming from Moldowan v. R. (1977), 77 D.T.C. 5213 (S.C.C.), and thereafter as reviewed by the Federal Court of Appeal in Tonn v. R. (1995), 96 D.T.C. 6001 (Fed. C.A.), the principles contained in those two cases lead me to the conclusion that there was, in any event, no reasonable expectation of profit from that activity during the years under appeal.

9 It is not as though the Appellant was performing this activity purely out of a personal interest, inasmuch as he had a longstanding interest in this field, and as a bush pilot in the Northwest Territories had considerable experience with the geography and topography of that part of the world, together with substantial contact with individuals involved in mining, exploration and the conduct of geologic surveys. This is not the case of an individual who has an interest without having a substantial amount of personal experience and training in that field or a related field.

10 The difficulty here, purely and simply, for the years under appeal is that there was no business activity which was capable in any event of satisfying the test as to reasonable expectation of profit. Further, the expenses that were incurred were not related to the gaining of production of income from a business and, in any event, were not reasonable in the context of Section 67 of the Act. I can see no reason for two aircraft and one motor vehicle, especially in those particular years, and it is extremely expensive from the standpoint of a business operation to have all of those expenses chargeable to a fundamentally fledgling enterprise engaged in an incredibly speculative field.

11 Now that the Appellant is retired, it may well be that he is able to devote more time to it and is not so subject to the problems that can arise, as it did in 1991, when a fuel cache in the Northwest Territories disappeared and fundamentally reduced his activity to practically zero that short season.

12 Therefore, it is an instance where the Minister apparently allowed losses from 1981 to 1988 inclusive, and then in 1990 decided that notwithstanding some income having been reported from aircraft lease rental in 1989, that at this particular point in that year and in 1991, there was in fact no reasonable expectation of profit.

13 The assumptions made by the Minister, as I indicated earlier, have not been displaced, and, as a consequence, the Minister's position in issuing the assessments for the 1990 and 1991 taxation years is in fact correct. As a consequence, therefore, the appeal with respect to each of those taxation years is hereby dismissed.