Bowie T.C.J.:
1 These appeals arise out of the Appellant's contention that in computing his income in accordance with section 3 of the Income Tax Act (the Act) for the taxation years 1992, 1993, and 1994 he was entitled to take into account what he characterizes as certain business losses. In August, 1995 the Minister of National Revenue (the Minister) reassessed him for those three years, taking the position that the Appellant had no reasonable expectation of deriving profit from the alleged business, and that it is therefore not a business at all. I should note at this point that the Minister did allow to the Appellant his losses sustained in the 1992 taxation year in connection with an ill-fated salmon farming enterprise.
2 Mr. Prince retired in 1993, following a career in the public service of Nova Scotia. His wife retired not long after from her position at the Dartmouth Public Library. Prior to retirement they turned their minds to what they might do to enhance their combined retirement income through some sort of business activity. In 1992 Mr. Prince registered the business name “Principality Marketing” pursuant to the laws of Nova Scotia, although he was still uncertain at that time what sort of business he might carry on under that name. He considered a number of possibilities, including a boat charter business, and the manufacture of custom canes for the disabled. In the end he decided to try his hand at the manufacture and sale of knitted goods.
3 In furtherance of this, he created a few knitting patterns, and his wife, for whom knitting was a long-time hobby, turned them into prototypes. Some of these were sold through local craft shows, but neither the level of production nor of sales ever reached what could be called a commercial scale. Mr. Prince, in his evidence, attributed this to the fact that he could not recruit people to do either the knitting or the selling for him at what he considered to be suitable rates of pay. In fact, only one person, other than Mrs. Prince, ever did some knitting for him, and the extent of that seems to have been minimal. His daughter and two other people did try to do some selling for him, but they did not have great success.
4 The Appellant had virtually no capital invested in the business, and there were no employees other than his wife. He himself had no background or training to suit him for this type of venture. He had nothing that could properly be described as a business plan. I do not believe that he even put much of his own time and effort into the so-called business. As he put it in his evidence, he was merely the proprietor - he did not knit.
5 For her part, Mrs. Prince bought the yarn and knitted the prototypes. She did not intend to become one of the knitters. Her job was to recruit the knitting and sales personnel, and to manage the operation. Her recruiting efforts went unrewarded, because the prospective employees could see that there was no significant amount of money to be made by them. Mr. Prince lacked the capital to purchase knitting machines, or to advertise. In total, the sales amounted to about 20 items in 1992, and about 19 in 1993. Mostly they were sweaters, hats and gloves.
6 I find that this activity had no real commercial aspect to it, and that it certainly had no reasonable prospect of making a profit. It was not, and could never have become, a business. The history of revenues and expenses reported, and of the losses claimed, amply demonstrates that there was not only no reasonable expectation of profit here, but that the Minister had good reason to view the Appellant's claim as a case of fiscal abuse.
| 1992 | 1993 | 1994 | |
|---|
| Revenues | $ 680 | $ 818 | $343 |
| Expenses | $12,297{1} | $9,446 | $992 |
| Losses | $11,617 | $8,628 | $649 |
Notes:
7 The total expenses reported by the Appellant for the three years amount to $22,735, of which $19,150 is for the use of his own house ($1,800) and automobile ($1,657), and for the salary paid to his wife ($15,693).
8 Mr. Prince attempted, in giving his evidence, to lend some credibility to this supposed business by tying it to a totally different venture relating to the raising of salmon for market. In the fall of 1991, he purchased 4,000 young salmon (4 units of 1,000 fish each) part of the inventory of a salmon farm at Mahone Bay, under an arrangement whereby the vendor would raise them to market size and then sell them for him. For this service he agreed to pay a monthly fee of $100 per unit of 1,000 salmon. He expected that when the salmon were sold, after 11/2or 2 years, he would receive a return of 100% over and above his initial investment of $12,000. In fact, the fish were all lost as the result of a storm, and his investment was lost with them. The Appellant argued that this venture was part of the business of Principality Marketing, and that if that business were viewed in its entirety there was a reasonable expectation that it would produce a profit.
9 This argument has no merit. The salmon farming and the knitting were completely separate and unrelated activities. If they had both produced profits, which of course they did not, they would have been separate businesses, and separate sources of income.[FN1: <p><em>Hickman Motors Ltd. v. R.</em>, [1997] 2 S.C.R. 336 (S.C.C.), per L'Heureux-Dubé J. at 361-62 and per Iacobucci J. at 393.</p>] In reassessing the Appellant, the Minister accepted that his fish farming investment was a business with a reasonable expectation of profit, and permitted him to offset the losses from it against his other income. Whatever the prospect of profit from the fish farming might have been, it could not turn the knitting activity into a business with a potential for profit.
10 The appeals are dismissed.
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