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Citation: 2003TCC337
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Date: 20030514
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Docket: 2000-4846(IT)I
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BETWEEN:
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BRUCE MORRIS,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Bowie, J.
[1] These appeals are from assessments
for income tax for the years 1996, 1997 and 1998. During those
years, Mr. Morris was employed on a full-time basis by
BC Rail Ltd., where he worked a four-day, 40-hour week. He
also carried on an activity as a fishing guide under the name
First Cast Guiding. I use the noun activity, because the issue I
must decide is whether that activity can properly be called a
business, and therefore qualify as a source of income for the
purposes of section 3 of the Income Tax Act
("Act"). The Appellant's position throughout
has been that First Cast is a business and a source of income,
that its considerable losses have been accurately computed and
reported in each of the three years under appeal, and that he is
entitled to deduct those amounts from his income from other
sources in order to arrive at his income under section 3 for
each year. Those losses, as reported by him, are:
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1996
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1997
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1998
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Gross revenue
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$
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$ 300.00
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$ 770.00
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Expenses
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$7,090.00
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$12,921.58
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$13,997.89
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Loss
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$7,090.00
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$12,621.58
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$13,227.89
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[2] In assessing Mr. Morris, the
Minister of National Revenue ("Minister") took the
position that his activity as a fishing guide offered no
reasonable expectation of profit in the foreseeable future, and
that it therefore could not qualify as a source of income for
purposes of section 3. He therefore ignored these losses in
assessing Mr. Morris for the years in question. An appeal to
this Court failed. All this took place prior to the Supreme Court
of Canada's watershed decision in Stewart v.
The Queen,[1] applying the pre-Stewart jurisprudence.
After the decision in Stewart was released, the Federal
Court of Appeal heard Mr. Morris' appeal from this Court and
set aside the judgment, remitting the matter for a new trial.
That new trial took place before me at Prince George, B.C.
under the Court's informal procedure. The Appellant was the
only witness.
[3] The Appellant, in his words, began
to fish almost as soon as he could walk. He has been an ardent
fisherman since then for most of his life, although there was one
period of about eight years during which he did not fish,
apparently for reasons related to marital difficulties that he
was going through at that time. Apart from that period, he
habitually went fishing two or three times per month for the best
part of 40 years. He has lived in Prince George for the
last 20 of those years, which include the period during
which he did not fish. For some 10 years or more, however,
he has fished the lakes and rivers around Prince George,
sometimes alone, and sometimes with friends.
[4] Mr. Morris said in his
evidence that he had some concern that BC Rail was
downsizing its work force, and that he might find himself
laid off before he reached retirement age. He saw the
possibility of developing a guiding business as a potential
alternate livelihood should that happen. He did not bring any
training in business or financial matters to this endeavour, nor
did he make any serious investigation of the market for his
services. He did have some earlier experience in business, he
said, as a cabinet-maker in Richmond, B.C.; that apparently
ended prior to his move to Prince George.
[5] In 1996, he decided to obtain a
fishing guide's licence from the province of
British Columbia, with a view to developing a clientele that
would pay him on a fee basis for his services as a fishing guide,
not at a lodge, but in more spartan surroundings in the
wilderness, without frills. Between 1996 and 1999, he replaced
his Toyota truck with a larger, 1998 extended cab
Dodge 4x4 truck, and he purchased a 1995 21-foot aluminium
jet boat powered by a 350 horsepower
Berkley Jet Motor that he insured for $20,000. He also
kept the much smaller 12-foot aluminium boat and
9.5-horsepower outboard motor that he was accustomed to
fishing in. He obtained a guide licence from the provincial
government, and he obtained insurance on the hull of the jet
boat, and on his truck, on the basis that they were for use in a
business, as well as personal liability insurance on the same
basis.
[6] The Appellant did not have what
could properly be called a business plan, although in
May 1996 he completed a B.C. government form called an
"Angling Guide Operating Plan". This is a one-page form
that appears to be concerned more with the likely impact of the
would-be guide's operations on fish stocks than the possible
viability of the enterprise. It requires information as to the
number of boats and vehicles to be used, the waters to be fished,
the number of angler days projected, and the species of fish
intended to be caught. In January 1998, he completed a second of
these forms, adding five additional lakes to his intended
territory. While it is not totally clear, it appears that these
forms were a pre-requisite to obtaining a guide's
licence: see Exhibit A-3. On the first form, in
May 1996, in the space to describe "future plans"
the Appellant simply wrote:
"To expand business - bigger boat to accommodate handicap
clientele"
[7] The Appellant said in his evidence
that his initial projection of his future revenues was based on
60 angler days per year, at a fee of $150 per day, to
produce total revenues of $9,000. This is consistent with his
forecast of angler days on his initial licence application;
however there was nothing in his evidence, oral or documentary,
to explain how the expectation of 60 angler days was arrived
at. Nor did his evidence reveal any sort of plan by which this
projection might have been achieved. He expressed an intention to
provide a service that was previously unavailable to handicapped
persons who might want to pursue recreational fishing in
wilderness areas. This, he said, was the reason that he bought
the jet boat. It was capable of carrying two wheelchairs.
However, there was no evidence at all that Mr. Morris had
made any attempt to market his services to handicapped people. In
fact, he made little or no serious effort to market his services
at all until after the three years under appeal. In 1996, there
was no expense for advertising claimed, in 1997 it was $178 and
in 1998 it was $88. He could not recall what was purchased for
those amounts, other than some fishing hats to give to clients.
In 1999 or 2000, he bought an advertisement in a travel guide
published by Tourism Prince George, and a small space on an
advertising billboard in the parking lot of the Prince George
Tourist Information Centre. He also started an internet website
at about that time. The advertisement and the website both refer
cryptically to "Limited access for handicap clients".
Mr. Morris described in his evidence how the location where
he had thought to have handicapped clients access fishing waters
had proved to be quite impassable by a person in a wheelchair or
on crutches. Fortunately, no handicapped person ever seems to
have shown any interest at all in using his services.
[8] On cross-examination it emerged
that Mr. Morris' losses continued unabated through 2001. He
claimed the following losses for the next three years:
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1999
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2000
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2001
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Gross revenue
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$ 400.00
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$ 1,000.00
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$ 1,250.00
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Expenses
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17,735.92
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18,611.92
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28,877.43
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Losses
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$17,335.92
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$17,611.92
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$27,627.43
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In short, the annual revenues increased in six years from 0 to
$1,250, while expenses climbed from $7,090 to $28,877.43.
[9] Excerpts from the Appellant's
diaries for 1997 and 1998 show that in 1997, he went fishing nine
times, and in 1998 some 15 times or more. On only two or three
occasions he was accompanied by a client. Mr. Brent had bought a
day of guided fishing donated by the Appellant to a charity
auction, and gave him a $20 tip at the end of the day. On another
day, he took a trip of 130 kilometres, and the notation
reads "banking $250". It is not at all clear that
fishing was involved at all on that day. Otherwise, his only
paying client in the three years seems to have been someone
called Zigmond, who paid $300 for two days fishing in 1997, and
another $200 in June 1998. The Appellant sent Zigmond a $150 gift
certificate at Christmas, 1997. In 1998, he used the gift
certificate, paid $150 for the second day, and gave the Appellant
a tip of $50. The Appellant could not recall any other client who
had fished with him, and I think it likely that his other revenue
of $550 in 1998 came from work that he did for the R.C.M.P. and
the Prince George Search and Rescue Unit. He gave no evidence as
to the specific source of his revenues in 1999, 2000 and 2001,
nor the names of any clients other than Zigmond and Mr.
Brent.
[10] Questions directed to the nature of the
expenses that the Appellant claimed also elicited virtually no
information. Exhibit A-18 is a bundle of loose and disorganized
papers, some of which are receipts for insurance, the
advertisements, licence and land use fees, and what appears to be
provincial tax on the purchase of the jet boat in April 1998.
None of the other claimed expenses are established by receipts.
He did not keep any books, records or financial statements of any
kind in connection with this activity.
[11] The Appellant provided no breakdown
between business use and pleasure use of either the boats or the
vehicle. His position was that whenever he used the boat it was
for business. If he had no client along, which was almost all the
time, it was nevertheless business use because he was
investigating waters to which he would be able later to take
clients. Each trip was, in other words, to gain knowledge of the
area and its waters that was to be used later to earn income.
[12] In Stewart, the Supreme Court
has mandated a new, two-stage approach to determining whether
activities of this sort can qualify as a source of income for the
purposes of section 3 of the Act, even though they produce
losses on a recurring basis. The first matter to be considered is
whether "... there is some hobby or personal element to the
activity ...".[2]
[13] I find that Mr. Morris' activities
in relation to providing guide services to people wishing to go
fishing in the wilderness has a very substantial personal element
to it. I infer this from the fact that he is a very enthusiastic
angler, and has been for most of the past 40 years. He is also,
according to his own evidence, a very accomplished boatsman. He
described, with some apparent satisfaction, his ability to
navigate his boat in difficult waters where others could not. The
boating and fishing excursions which gave rise to the greatest
part of the claimed expenses were an extension of his long-time
hobby. It is necessary, then, to proceed to the second part of
the inquiry. The question that must be asked and answered is:
"[did] the taxpayer intend to carry on [the] activity for
profit and is there evidence to support that intention?"[3] This in turn
requires that I consider whether the taxpayer's predominant
intention was to make a profit as a fishing guide - a subjective
analysis - and also whether he has conducted the activity
" ... in accordance with the objective standards of
businesslike behaviour".[4]
[14] I am inclined to accept Mr. Morris'
evidence that, in the beginning, he embarked on this activity
having in mind the prospect of providing himself with a hedge
against the possibility of a layoff from his work at BC Rail, and
also as a prospective retirement business. I do not believe that
this remained his intention throughout, however. It must have
been obvious to him, at least once a year when he signed his
income tax returns, that without some drastic change in his way
of operating he would never see a profit. His losses increased
dramatically between 1996 and 2001. One reason for this was his
decision, in the spring of 1998, to buy the jet boat at a cost of
almost $16,000.[5]
His expressed reason for doing this was to be able to accommodate
the handicapped, and yet he had no handicapped clients, and had
not at that time made any attempt to attract them.
[15] It is obvious from the facts I have
recited that Mr. Morris did not take a businesslike approach to
this activity. Certainly, there were some superficial things done
that are consistent with carrying on a business, such as
registering a name, obtaining a licence and a land use permit,
and purchasing business insurance coverage for the vehicle, the
boats and the activities. However, there are far more things
normal to any business that he simply ignored. He made no serious
attempt to advertise in any meaningful way until 2001. Even then
he had only the small sign at the tourist bureau, one small
advertisement, and the website. He kept no books and records, and
even his collection of receipts falls far short of justifying his
claimed expenditures. He had no knowledge, when asked, about the
nature of the expenses he claimed, although he was the only
person involved in his activity. He took long and costly trips to
fish the waters around Prince George at a time when he had no
clients other than Zigmond, and no revenues in prospect. He spent
almost $16,000 for a boat to accommodate handicapped anglers
without apparently having made any attempt to see if there was a
market among handicapped people. He bought an expensive Dodge
extended cab truck, he said, because it was more convenient than
his Toyota truck to take Zigmond and his grandson in, although
their whole trip was for only two days and it produced only $200
of revenue. Most significantly, he embarked upon the whole
venture with no more plan or investigation of the market than a
casual conversation with the one person in the Prince George area
who would be his competition.
[16] The Supreme Court has acknowledged in
Stewart that the potential of the activity to show a
profit in the future, and such specifics as the taxpayer's
training and intended course of future action to stem the tide of
losses are relevant, although not determinative, in the
consideration of whether an activity that has a significant
personal element is nevertheless a source of income for purposes
of section 3. Mr. Morris is no doubt an excellent person with
whom to go fishing: however, the evidence does not suggest that
he had any experience, training or talent to enable him to run a
business. He had insufficient capital, it would seem, and no idea
of how to market himself. Viewed objectively, there was little
about this activity that was businesslike. After incurring losses
aggregating more than $90,000 in six years, he had apparently
made no attempt to modify his way of operating. There was nothing
in his evidence to suggest that he was even considering ways to
do so.
[17] Mr. Morris seemed to take the view that
this must be a business, because he paid money to get licences,
permits and insurance based on business use of the boat and
truck. I disagree. The actual cost of these items was relatively
small in comparison to his claims for capital cost allowance,
interest payments, and maintenance and repairs. The benefit of
deducting the losses that these produced from his employment
income through their contribution to "business losses"
claimed under section 3 far outweighed these additional costs.
They were, in effect, a small price to pay for the benefit of
carrying out his fishing and his boating on a tax-deductible
basis. He was not engaged in an activity that could seriously be
described as businesslike. The appeals must be dismissed.
[18] I have not addressed the alternative
argument of the Respondent that the expenses claimed have simply
not been proven. Only a few receipts were produced in evidence by
the Appellant. His accountant, or tax preparer, who prepared his
statements of claimed losses did not testify. Mr. Morris himself
could shed no light at all on the nature of the claimed expenses.
In these circumstances, even if it were to be established that
the Appellant did have a business as opposed to a hobby, I would
not allow him to deduct any expenses other than those for which
there are actual receipts included in the exhibits.
[19] The appeals are dismissed.
Signed at Ottawa, Canada, this 14th day of May, 2003.
J.T.C.C.
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