|
Citation: 2004TCC378
|
|
Date: 20040526
|
|
Docket: 2002-3892(GST)I
|
|
BETWEEN:
|
|
MARY ANN JANITSCH,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Teskey, J.
[1] The Appellant appeals her
reassessment for the period from January 1, 2000 to
December 31, 2000 (the "period") made
pursuant to the Excise Tax Act
(the "Act"), and in particular, provisions
thereafter referred to as the Goods and Services Tax Provisions
("GST").
[2] The Respondent admits that the
Appellant is a visual fine arts artist. She has supplied enough
financial information to the Respondent and they are satisfied
that her figures are correct.
[3] Thus, the only issue before the
Court is whether the Appellant is carrying on her artistic
profession in such a manner to qualify as a commercial activity,
for the purposes of claiming an input tax credit under the GST
provisions of the Act.
[4] Section 169(1), under the
general heading "Subdivision b - Input Tax
Credit", starts with the words "General rule for
[input tax] credits". The only portion that is pertinent
are the last two lines of this provision, which read: "...
for consumption, use of supply in the course of commercial
activities of the person."
[5] The Act defines
"commercial activity", in subsection 123(1), as
follows:
(a) a
business carried on by the person (other than a business carried
on without a reasonable expectation of profit) by an individual,
...
[6] Thus, the Act makes the
common law test of reasonable expectation of profit
("REOP"); the test to be used to determine if the
taxpayer is carrying on a commercial activity.
[7] The Supreme Court of Canada, in
Stewart v. Canada, [2002] 2 S.C.R. 645, did away with
the REOP test in income tax cases where there was no personal
element, however, because of the statutory definition, the
Stewart decision does not affect GST appeals.
[8] Justices Iacobucci and Bastarache,
in writing for the Court in the Stewart decision, referred
to the following paragraph of Dickson J's decision in
Moldowan v. Canada, [1978] 1 S.C.R. 480:
There is a vast case literature on what reasonable expectation
of profit means and it is by no means entirely consistent. In my
view, whether a taxpayer has a reasonable expectation of profit
is an objective determination to be made from all of the facts.
The following criteria should be considered: the profit and loss
experience in past years, the taxpayer's training, the
taxpayer's intended course of action, the capability of the
venture as capitalized to show a profit after charging capital
cost allowance. The list is not intended to be exhaustive. The
factors will differ with the nature and extent of the
undertaking: The Queen v. Matthews [(1974], 74 DTC 6193].
One would not expect a farmer who purchased a productive going
operation to suffer the same start-up losses as the man who
begins a tree farm on raw land.
[9] It is, of course, trite law that
the Appellant carries the burden of proving that she was engaged
in an activity with REOP.
[10] The parties entered as
Exhibit A-1, a Partial Agreed Statement of Facts,
which reads as follow:
|
YEAR
|
GROSS BUSINESS
INCOME
|
NET BUSINESS
INCOME
|
|
1990
|
0
|
- 23,104
|
|
1991
|
0
|
- 13,072
|
|
1992
|
0
|
0
|
|
1993
|
6,000
|
- 4,583
|
|
1994
|
0
|
- 13,338
|
|
1995
|
817
|
- 11,730
|
|
1996
|
130
|
- 14,631
|
|
1997
|
0
|
- 15,878
|
|
1998
|
0
|
- 33,127
|
|
1999
|
5
|
- 21,788
|
|
2000
|
8
|
- 25,784
|
|
2001
|
43
|
- 21,867
|
|
2002
|
0
|
- 22,476
|
[11] The Appellant identified the gross
business income of $6,000 for the 1993 year as one sale of
artwork to the National Gallery. She was unable to identify the
makeup of $817 in 1995, but said it was probably royalties from
the National Gallery as were and all other incomes.
[12] The Appellant brought to the Court a
large volume of her art. Since the Respondent accepted that the
Appellant was an artist, there was no need to make this large
volume as exhibits.
[13] The Appellant had her work shown in a
gallery in Ottawa until 1990 or 1991, when the proprietor thereof
died. Since that time, she has not had a gallery representing her
nor an agent.
[14] In the later 1980s, the Appellant did
receive grants from the Canadian Council Funding For Artists. She
applied for funding in 1990 and 1991 and was turned down both
times and has not applied since.
[15] The Appellant's art production is
the centre of her work activities. She is not employed in any
capacity by anyone.
[16] The Appellant, for approximately ten
years, lived and produced her work above a Canadian Imperial Bank
of Commerce ("CIBC") in Tweed, Ontario. She abandoned
this apartment in 1995. Since that time, she has paid no rent to
the CIBC. She claims that, in a locked room, there is a one
million dollars worth of her art. Since this is 2004, I cannot
accept that what is left in Tweed has any value, particularly
when, from 1996 to 2002, her total sales was zero. Thus, I can
only conclude that if there is artwork in Tweed, it is of no
commercial value.
[17] The Appellant claims that she now has a
total inventory of art worth 7 million dollars. What an item
is worth is what a willing purchaser will pay to a willing vendor
for the item. At this time, there are no willing purchasers ready
and willing to purchase the Appellant's artwork. I do not
accept the 7 million dollars claim as to the value of the
Appellant's inventory.
[18] The Appellant has some obvious
limitations as a result of an injury. A great deal of her
testimony is suspicious.
[19] Because of a head injury in 1999, she
stayed in her home in Toronto and did research with pigeons. She
believes that a newborn baby pigeon is born with memory and they
do things for people. She believes terrorists are killing
pigeons. She knows the dead pigeons are murdered and she takes
them to mass. When asked in cross-examination whether
pigeons are a large part of her work, she answered in the
negative and said that they assist her but are not part of her
work.
[20] She says that the Toronto art community
has shut her out and that most of the art curators who knew her
have all died. She considers herself as an old artist.
[21] When asked how she expects to market
her work in the future, there did not appear to be a sound basis
to market her work successfully. She has failed to convince me
that she will have any different sales results than she has
experienced in the last several years.
[22] The IT Bulletin - 504R2,
which of course is not law, paragraphs 5, 6 and 7 thereof,
read as follows:
5. Factors which will be considered by the Department in
determining whether or not an artist or writer has a reasonable
expectation of profit include:
(a) the amount of
time devoted to artistic or literary endeavours,
(b) the extent to
which an artist or writer has presented his or her own works in
public and private settings including, but not limited to,
exhibiting, publishing and reading as is appropriate to the
nature of the work,
(c) the extent to
which an artist is represented by an art dealer or agent and the
extent to which a writer is represented by a publisher or
agent,
(d) the amount of
time devoted to, and type of activity normally pursued in,
promoting and marketing the artist's or writer's own
works,
(e) the amount of
revenue received that is relevant to the artist's or
writer's own works including, but not limited to, revenue
from sales, commissions, royalties, fees, grants and awards which
may reasonably be included in business income,
(f) the
historical record, spanning a significant number of years, of
annual profits or losses relevant to the artist's or
writer's exploitation of his or her own works,
(g) a variation,
over a period of time, in the value or popularity of the
individual's artistic or literary works,
(h) the type of
expenditures claimed and their relevance to the endeavours (e.g.,
in the case of a writer there would be a positive indication of
business activity if a substantial portion of the expenditures
were incurred for research),
(I) the artist's
or writer's qualifications as an artist or writer,
respectively, as evidenced by education and also by public and
peer recognition received in the form of honours, awards, prizes
and/or critical appraisal,
(j) membership
in any professional association of artists or writers whose
membership or categories of membership are limited under
standards established by that association,
(k) the significance
of the amount of gross revenue derived by an artist or writer
from the exploitation of that individual's own works and the
growth of such gross revenue over time. In applying this factor,
external influences such as economic conditions, changes in the
public mood, etc., which may affect the sale of artistic or
literary works will be taken into consideration, and
(l) the nature
of the literary works undertaken by a writer. It is considered
that a literary work such as a novel, poem, short story or any
non-fictional prose composition that is written for general sale
or syndicated distribution would normally have a greater profit
potential than a work undertaken for restricted distribution.
6. No
particular factor described in par. 5 above is more
important than another and no one factor determines whether or
not an activity is a business carried on for profit or with a
reasonable expectation of profit. All relevant criteria are
considered together in making a determination and the
taxpayer's failure to meet any one particular factor will not
in itself preclude the taxpayer's artistic or literary
activities from qualifying as a business.
7. In the case of an artist or writer, it is possible that a
taxpayer may not realize a profit during his or her lifetime but
still have a reasonable expectation of profit. However, in order
to have this reasonable expectation of profit the artistic or
literary endeavours, as the case may be, of the artist or writer
must be carried on in a manner such that, based on the criteria
in par. 5 above, they may be considered for income tax
purposes to be the carrying on of a business rather than, for
example, a hobby.
[23] Without going into details, I have to
conclude that the Appellant herein fails in all of the above
enumerated factors.
[24] Exhibit A-1 speaks volumes.
Over the 13-year period, the Appellant has sustained net
business losses of approximately $221,300 with a total gross
income over the same period of $7,003.00, of which $6,000
represents one sale in 1993 to the Canadian National Gallery.
[25] I am satisfied that the centre of the
Appellant's work routine is that of an artist. However, this
fact does not make her artistic work a commercial activity once
the REOP test is applied to all the facts herein.
[26] The Federal Court of Appeal, in
Partridge v. The Queen, 2003 FCA 91, is the authority for
this proposition.
[27] Whether all, some or none of the
Appellant's artwork will ever be properly marketed, and
whether it has any value is purely speculative, perhaps some day
and maybe even after her demise.
[28] On all the evidence adduced by the
Appellant, she has failed to convince me that she was engaged in
a commercial activity within the meaning subscribed to the term
under the Act.
[29] For all the foregoing reasons, the
appeal is dismissed.
Signed at Ottawa, Canada, this 26th day of May, 2004.
Teskey, J.
Email this Content