Citation:2006TCC412
Date: 20060728
Docket: 2005-4454(IT)I
BETWEEN:
JAMES W. LANG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the Informal Procedure was heard at Kelowna, B.C. on July 13, 2006. The Appellant testified. The Respondent called Tanya Ure, the office auditor on the file.
[2] The matters in dispute are set out in paragraph 7-12 inclusive of the Reply to the Notice of Appeal. They read:
7. By Notices dated August 2, 2005, the Minister reassessed the Appellant's 2002 and 2003 taxation years to disallow the business losses claimed of $12,928.26 and $10,527.93 (collectively, the "Amounts").
8. The Appellant objected to the reassessments of his 2002 and 2003 taxation years by serving on the Minister a Notice of Objection dated July 30, 2005. The Notice of Objection was received by the Minister on August 9, 2005.
9. By Notification of Confirmation dated November 1, 2005, the Minister confirmed the reassessment of the Appellant's 2002 and 2003 taxation years.
10. In reassessing the Appellant for the 2002 and 2003 taxation years and in confirming those years, the Minister assumed the same facts as follows:
a) the Appellant did not commence a business as an author or trader in collectibles;
b) the Appellant is not a member of a professional association relating to writers;
c) the Appellant has not produced any literary works for the period from 1998 to 2003;
d) the Appellant is a retired war veteran;
e) the Appellant is a member of numerous associations including the Canadian American Legion, Historical Arms BC, Korean War Vets for the US and Canada, Military Collections Club of Canada, AIT & Arms & Collectors Association, and is a member of the Board of Director of 2 museums;
f) the Appellant holds a personal interest in military artifacts and military events;
g) the Appellant is a collector of military paraphernalia such as medals and bayonets;
h) for the period from 1998 to 2003 the Appellant claimed losses with respect to his alleged business activity as follows:
Gross business income Net business income
1998 $3,414 $( 5,050)
1999 $6,128 $(11,308)
2000 $8,782 $(14,382)
2001 $ 680 $(16,170)
2002 $ 651 $(12,928)
2003 $1,697 $(10,527)
i) the Appellant does not have a marketing/promotional plan for any literary work, if and when it is complete;
j) gross revenues reported by the Appellant as business income for the 2002 and 2003 taxation years were derived from the sale of war items (artifacts) he collected over the past 50 years;
k) the Appellant's primary purpose of acquiring war items (artifacts) was to enhance his private collection and not to sell for profit;
l) the war items sold by the Appellant in 2002 and 2003 were duplicates he collected, or of no significant importance;
m) membership dues the Appellant incurred respecting the Legion and Genealogical Society were not incurred for the purposes of earning income from a business for the 2002 and 2003 taxation years;
n) the Appellant's newspaper subscription for the 2002 taxation year was not incurred for the purpose of earning income from a business;
o) expenditures incurred in 2002 and 2003 for the purchase of pins in respect of the Canadian Parachuting Association were not incurred for the purpose of earning income from a business but were personal expenses of the Appellant;
p) expenditures for meals and entertainment in 2002 and 2003 were not incurred for the purpose of earning income from a business but were personal expenses of the Appellant;
q) at all material times, the Appellant did not maintain a log of his travel by automobile;
r) expenditures claimed as office expenses in 2002 and 2003 included bookcases, display cases, a computer monitor, a photo printer and scanner that were personal expenditures of the Appellant and not incurred for the purpose of earning income from a business;
s) trips to attend guns shows in Texas, Kamloops, and Penticton in 2002 were not incurred by the Appellant for the purpose of earning income from a business;
t) international trips in 2003 to Louisville-Nashville, and Omaha in the USA, Argentina, Uruguay, and Greece were not incurred by the Appellant for the purpose of earning income from a business;
u) trips to Calgary, Edmonton and Burnaby in 2003 were not incurred by the Appellant for the purposes of earning income from a business;
v) the Appellant did not use any portion of his home in 2002 and 2003 to earn income from a business; and
w) the Appellant did not have a reasonable expectation of profit from his alleged business activity.
B. ISSUE TO BE DECIDED
11. The issue is whether the Minister properly disallowed the Amounts for the 2002 and 2003 taxation years.
C. STATUTORY PROVISIONS RELIED ON
12. He relies on sections 3, 46, 54, 67 and 67.1, subsections 9(2), 18(12) and 248(1), and paragraphs 18(1)(a), 18(1)(b), 18(1)(h) and 20(1)(a) of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended (the "Act").
[3] None of the assumptions were refuted. Respecting the following assumptions, it should be said:
10(c) The Appellant has begun visiting veterans in the Okanagan valley and writing one or two page memoranda of their experiences for their familes. The Appellant does this as a sentimental gesture, without any reward. It is personal to him.
10(f) This is the essence of what he said to Mrs. Ure during an interview about his sales.
10(o) The Appellant gave these pins away to people while on his travels as personal mementoes or souvenirs.
10(s) and (t)
The Appellant's trips were personal. On occasion he put up a display of his own memorabilia, but he made no attempt to sell them. Apparently he tried to trade items, but he never testified that he sold anything for profit at these shows or that he tried to sell anything for a profit.
10(u) The trips to Calgary and Edmontonincluded family visits. The Appellant and his wife stayed with family members.
[4] The Appellant has not yet drafted any chapters of his proposed book although he alleges that his proposed book is for the purpose of producing a book on medals issued or presented by all the countries involved in the Korean War.
[5] The Appellant is 75 years old. He retired in October 1996. He is a Korean veteran and he was a paratrooper in the Canadian Army. He is very strongly and personally interested in the military, military artifacts and medals in the Korean War and Korean veterans in Canadaand elsewhere. It verges on a mania to him.
[6] However, after deducting expenses respecting these personal pursuits, since 1998, he has not written a single chapter of his proposed book and from his testimony in Court, he has not yet arrived at a theme for the book - that is, a history of the Korean War; or a history of the Canadian forces in that war; or a history of his own regiment (the 187th) and its members in and since that war; or the various medals and awards granted by nations or the United Nations in that war; or the recipients or prominent recipients of such medals or awards; or an anthology of memories of the Canadian troops who were there; or any other definable theme. Nor, from the written material he submitted to the Court, is he as yet able to write suitably for such a purpose.
[7] It is similar respecting his alleged business in Korean War or military artifacts; he did not deny that he told Mrs. Ure that his sales in 2002 and 2003 were of duplicate or surplus artifacts and memorabilia that were no longer of use or interest to him. He did describe a display he created at one "show" he attended. But it was not for sales purposes; rather, it was to display his collection.
[8] Because of the intense personal interest element on all aspects of this case, the test of reasonable expectation of profit must be applied to the facts (Nadoryk v. R. (F.C.A.) 2003 D.T.C. 5744.) This test was laid out by Dickson J. in Moldowan v. R. [1978], S.C.R. 480. Using the elements described by Dickson, J. the Court finds:
1. Profit and loss experience in past years - The Appellant's experience is entirely of losses.
2. Taxpayer's training - The taxpayer is a Korean veteran. His education is not in evidence. He did not describe any writing training or experience such as newspaper or other professional writing. The written material that he presented in Court is replete with spelling, grammatical and punctuation mistakes. He provided no evidence of a trading or sales background or a background in the antique or military memorabilia business.
3. The Intended Course of Action - He now hopes that an accountant that he met will help him write his proposed book. He has spoken to two publishers recently and they encouraged him; but he did not supply any practical figures about this. In the Court's view the proposed book is not in a stage for any estimates of any kind. He did not give any evidence respecting proposed sales of, or of the development of a military artifact business.
4. The capability of the venture as capitalized to show a profit after charging the capital cost allowance - On the basis of the evidence before the Court, the venture of writing a book and/or of the sale of military artifacts has no capability of showing a profit. The alleged business "venture" is merely a conversation piece for the Appellant and a hobby for him.
[9] The Appellant was not in any business in 2002 or in 2003. There was no reasonable expectation of profit from any of his activities in those years. The Minister properly disallowed the amounts for the 2002 and 2003 taxation years.
[10] The appeal is dismissed.
Signed at Saskatoon, Saskatchewan this 28th day of July 2006.
"D.W. Beaubier"
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