Boles – Tax Court of Canada finds that a mistaken judgment that the taxpayers’ activities were a business was not a s. 152(4)(a)(i) misrepresentation

Sommerfeldt J found that the activities of the taxpayers (a couple) in raising, breeding and showing dogs and engaging in dog-show judging were a hobby rather than a business, so that they should not have deducted their substantial losses in computing their income. However, he found that their taking the position in returns which were now statute-barred that they were carrying on a business was not a “misrepresentation” for the purposes of s. 152(4)(a)(i), stating:

[I]n Ver, Justice Bowman indicated that the question of whether an expenditure was made for a business or a personal purpose is a matter of judgment, and not the subject of a misrepresentation within the meaning of subparagraph 152(4)(a)(i) … . I adopt that view, except to the extent that either of the Appellants has acknowledged, or it is patently obvious, that a particular expenditure was incurred for a personal purpose … .

He went on to find that, even if there had been a misrepresentation, there was no neglect or carelessness, given that the taxpayers had “thoughtfully and carefully considered the nature of the Dog Activities, and, in consultation with their accountants, concluded that those activities were a business” – although there was carelessness in deducting those of the expenses which clearly were personal. Accordingly, the assessments for those years were reversed, except with regard to the clearly personal expenses.

The taxpayers were not subject to repeated-failure-to-file penalties under s. 162(2) since there was no evidence that a demand for the relevant returns had been made, nor that the Minister had already assessed a failure-to-file penalty for the relevant prior year’s return.

Neal Armstrong. Summaries of Boles v. The King, 2024 TCC 167 under s. 152(4)(a)(i), s. 3(a) – business, and s. 162(2).