Date: 1980127
Docket: 97-1264-IT-I
BETWEEN:
ANDRZEJ PAWLIKOWSKI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Beaubier, J.T.C.C.
[1]
This appeal pursuant to the Informal Procedure was heard at
Vancouver, British Columbia, on January 7, 1997. The Appellant
was the only witness.
[2]
The Appellant claimed to deduct business losses for 1992, 1993
and 1994. They were denied. He appealed.
[3]
The Appellant immigrated to Canada with his wife 12 years ago
from Poland and Nigeria. He was a professor in Poland. By the
years in question he had become a teacher at a private school
(St. Thomas Aquinas) in Vancouver. He became aware of a business
opportunity respecting Japanese Christian students associated
with Nazan Association for International Cultural Exchange
("Nazan") in Nagoya, Japan. In cross-examination he
agreed that he began receiving these students on the basis that,
for a fee, he would provide:
1. A Christian atmosphere,
2. Teenage company of the same sex,
3. A bedroom and bath, private to the Japanese student,
4. Touring around Vancouver and British Columbia,
5. Help with the English language,
6. Attendance in church,
7. No drinking or smoking, and
8. A curfew.
[4]
The Appellant moved with his wife and son to an apartment which
had a separate private bedroom and bath for such a student. He
took the first student in 1991 and others in 1992, 1993 and 1994.
These were all for a duration of a week or two. He toured them
extensively and carried out his other duties. He lost money.
There were the following reasons for this:
1. The touring was too expensive in the short term.
2. He did not have enough student referrals.
3. The students were not staying long enough.
[5]
In 1995 and thereafter he received more referrals and the
students stayed for several months. He has shown a profit since
1995.
[6]
In other words, the Appellant had start-up losses and amended his
business plan so that he now makes a profit. On this basis the
Minister of National Revenue now agrees that the Appellant had a
reasonable expectation of profit from the beginning and the Court
finds that as well.
[7]
However, the Minister of National Revenue takes the position that
the Appellant's losses in 1992, 1993 and 1994 are restricted
as to deductibility by reason of subsection 18(12) which reads as
follows:
Notwithstanding any other provision of this Act, in computing
an individual's income from a business for a taxation
year,
(a) no amount shall be deducted in respect of an
otherwise deductible amount for any part (in this subsection
referred to as the 'work space') of a self-contained
domestic establishment in which the individual resides, except to
the extent that the work space is either
(i) the individual's principal place of business, or
(ii) used exclusively for the purpose of earning income from
business and used on a regular and continuous basis for meeting
clients, customers or patients of the individual in respect of
the business;
(b) where the conditions set out in subparagraph
(a)(i) or (ii) are met, the amount for the work space that
is deductible in computing the individual's income from the
business for a taxation year shall not exceed the
individual's income from the business for the year, computed
without reference to the amount; and
(c) any amount not deductible by reason only of
paragraph (b) in computing the individual's income
from the business for the immediately preceding taxation year
shall be deemed to be an amount otherwise deductible that,
subject to paragraphs (a) and (b), may be deducted
for the year for the work space in respect of the
business."
[7]
Thus subsection 18(1) restricts the Appellant's deduction
- in respect of an amount for
any part of a self-contained domestic establishment, and that
deduction
- shall not exceed the
individual's income from the business for the year.
The Appellant agreed that the details of the losses claimed
are as follows:
1992
1993
1994
Revenue
$ 925.00 $ 775.00 $ 950.00
Accounting
60.00
60.00 60.00
Meals & Entertainment
280.00 308.00 377.00
Motor Vehicle 350.00
401.00 489.00
Housing &
Food
2,320.00 1,540.00 1,879.00
Net income
(loss)
$(2,085.00)
$(1,534.00)
$(1,855.00)
Less:
Personal portion
of
entertainment (20%) $
56.00
$ 62.00 $ 189.99
Total
$(2,029.00)
$(1,427.00)
$(1,666.00)
[8]
The figures for "Housing & Food" expenses were not
broken down individually by the appellant in his income tax
returns or in evidence. However, Accounting, Meals, Entertainment
and Motor Vehicle do not relate to the work space and they are
separately deductible, since the Appellant had a reasonable
expectation of profit from the business in the years in
question.
[9]
As a result the Appellant is entitled to a deduction in addition
to that already allowed by the Minister of National Revenue, for
the years in question which is calculated as follows:
1992
1993
1994
Accounting
$ 60.00 $ 60.00 $ 60.00
Meals & Entertainment
280.00 308.00 377.00
Motor Vehicle 350.00
401.00 489.00
Subtotal:
$(690.00)
$(769.00)
$(926.00)
Less:
Personal portion of
entertainment (20%) $
56.00
$ 62.00 $ 189.00
Net: $
636.00 $ 707.00 $
737.00
[10] The loss
allowed pursuant to subsection 18(12) and the amount of loss
which he is entitled to carry forward pursuant to paragraph
18(12)(c) is calculated as follows:
1992
1993
1994
Housing & Food
$2,320.00
$1,540.00
$1,879.00
Less: Revenue
925.00
775.00 950.00
18(12)(c) Amount:
$1,405.00
$ 765.00 $ 929.00
[11] The
appeal is allowed on the foregoing basis.
[12] The
appeal is referred to the Minister of National Revenue for
reconsideration and reassessment accordingly.
Signed at Ottawa, Canada this 27th day of January 1998.
"D.W. Beaubier"
J.T.C.C.
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