Date: 20010820
Docket: 2000-3222-IT-I
BETWEEN:
HAYDEN ADORE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Miller, J.T.C.C.
[1]
Mr. Hayden Adore appeals by way of Informal Procedure the
Minister's assessment of his 1995 and 1996 taxation years.
Mr. Adore claimed business losses of $10,982.37 and $17,267.42
respectively in those years, from a purported magazine publishing
business. The Minister maintains there never was a business; even
if there was, the Minister contends the expenses claimed were not
incurred for the purpose of producing income and in any event
were not reasonable. I need not delve into the alternative
arguments as I find there was not a business.
[2]
Mr. Adore gave extensive evidence regarding his efforts in
connection with the business he claimed to have run. His
testimony was at times contradictory, his recollection of certain
events sketchy and his explanation of timing of occurrences
confusing.
[3]
In 1995 Mr. Adore was a police officer working in a community
oriented position in a school. He identified a need to empower
students and considered delivering this through the use of a
magazine; as he described it, a magazine for youth by youth. He
indicated he went about contacting business people and forming an
advisory board and working committee. Mr. Adore produced a
mock-up of the magazine which illustrated the format, but
did not actually contain any articles. The magazine referred to a
management group as well as an advisory committee. Mr. Adore did
not produce any of these individuals, although the Respondent did
call evidence from two of them. One, Mr. John Lashway,
an executive in the Toronto Raptors organization, had never heard
of the magazine, had not been asked to sit on a board, had never
met any other members and did nothing at all in connection with
the magazine. The other, Ron Boyce, a friend and colleague of Mr.
Adore's, was shown as vice president but indicated he at no
time acted as a vice president of the magazine. He and
Mr. Adore took a magazine publishing course together, and
Mr. Boyce was accommodating Mr. Adore's requirements for the
course by letting his name show on the mock-up as a vice
president. When asked about the other business names shown on the
mock-up it became clear that many had not been asked and
none were actually involved other than in a peripheral manner.
For example, a Mr. Peter White was one of the instructors of the
course that Mr. Adore and Mr. Boyce took at Ryerson College.
The business people Mr. Adore might have contacted in the early
stages were contacted more on the basis of a preliminary
investigation than any serious involvement. Mr. Adore did make
contact with the Toronto Raptors organization but there was no
evidence from Mr. Lashway that this was in connection with a
magazine seeking Raptors' support. Mr. Adore also met with
the Ontario Minister of Education, his local Member of
Parliament, who he believes supported his project. Mr. Adore
maintained that the change of the Minister significantly
diminished government support and was a major factor in deciding
not to proceed by early 1996. The Minister however did not
actually lose the education portfolio until late 1997.
[4]
Mr. Adore presented his idea of the youth magazine to a Mr.
Warren Oster who apparently had some expertise in the magazine
industry. Two of Mr. Oster's staff provided written feedback
to Mr. Adore, in mid-November, 1995 suggesting the project was
"far fetched". Mr. Adore relied on this dose of
financial realism as the second reason why he ultimately did not
proceed.
[5]
It was apparent to Mr. Adore he would have to seek corporate
sponsorship to make the project financially viable. While he
suggested he contacted some potential corporate sponsors, there
was no evidence of any written communication to or from any
proposed sponsors. He also maintained he contacted school boards
for support. Mr. Adore described these efforts as his research
and development.
[6]
In the fall of 1995 Mr. Adore enrolled in a course at Ryerson on
magazine publishing. He had to submit a business plan as part of
this course. Though he denied he had to submit the mock-up. Mr.
Adore submitted in evidence a copy of the business plan, some
financial projections and a copy of the mock-up. There were some
inconsistencies between the plan and the financial information,
which Mr. Adore put down to the project being an evolving
process, and perhaps he had later amended drafts of these
documents. One example of the confusion was the projected start
up of the magazine. He indicated that the first issue initially
was set for September 1996 but this was moved up to January 1996.
Having received some negative financial feedback in November
1995, moving up the start date appears at odds with this
advice.
[7]
There is no evidence that Mr. Adore registered a name, and again
there was some confusion as to whether the project was called
"Front and Center" or "Leaders Publishing
Inc." or "Adelon Communications Inc.", a name
which appeared on some of the financial information. He presented
evidence of the incorporation of Leaders Publishing Inc., which
was dated July 1996 several months after he said he abandoned the
project.
[8]
Mr. Adore maintained he visited publishing production facilities
in Ottawa, Windsor and Hamilton and provided a copy of the
magazine whose facilities he toured. This was an American
magazine called Mentor. The magazine gave no indication of having
Canadian production facilities and Mr. Adore could not recall
exactly where in Ottawa he went.
[9]
There was some considerable cross-examination on Mr. Adore's
actual expenditures, especially as there was little documentation
and support. Mr. Adore indicated the records were stolen
from his father's home in March 1998, and provided a
police report evidencing the reporting of the burglary. The
report did not indicate the taking of any business records.
[10] In 1995
and 1996 Mr. Adore reported business income of $2,500.00 and
$4,200.00 respectively on his tax returns. Against this he
deducted significant expenses. He acknowledged that he had given
up on the project by February or March of 1996. There was
detailed questioning of the 1996 expenses and it was clear that
some of the expenses pertained to Raptors tickets for 1997.
Travel expenses included a trip to Bermuda as well as $4,790 for
a trip to Windsor, Hamilton and Ottawa. Given my finding I need
not explore the make-up of these expenses any further.
[11] For Mr.
Adore to deduct the expenses disallowed in 1995 and 1996 he must
prove that there was a business constituting a source of income
to which the expenses relate. The familiar line of cases which
shape this principle, starting with Moldowan v.Her Majesty the
Queen, 77 DTC 5213, lead me to ask the inevitable critical
question. Did Mr. Adore have a business? If indeed there are
sufficient indices of commerciality it is then necessary to
determine if that business had a reasonable expectation of
profit, as only such a business is a source of income as
contemplated by section 3 of the Income Tax Act (the
"Act"); and subject to further application of
the provisions of the Act as they pertain to eligible
deductible expenses.
[12] In this
case I need not look beyond the first question, as I find
Mr.Adore was not engaged in a business. However laudable his
objectives may have been in pursuing a project to establish a
magazine for youth, the steps he took to attempt to meet those
objectives, which were not ultimately met, are not sufficiently
of a commercial nature to constitute a business.
[13] There are
several factors to consider in answering
Associate Chief Judge Bowman's question, as
posed in Kaye v. Her Majesty the Queen 1998
CarswellNat 575, 98 DTC 1659, [1998] 3 C.T.C. 2248:
Would a reasonable person, looking at a particular activity
and applying ordinary standards of commercial common sense, say
'yes, this is a business'?
[14] Some of
the factors are the time spent, the capital invested, the
preparation and implementation of a plan, the records maintained,
the financial statements issued, bank accounts, stationary,
cards, business phone numbers, advertising, promotion, business
premises and the behaviour of the taxpayer as a business person
versus for personal benefit. This list is not exhaustive and each
situation must be assessed with a view to determining if the
operation as a whole looks like and acts like a business. In this
case it does not.
[15] Mr.
Adore's activities in its best light can be described as a
preliminary investigation into the viability of starting a small
business. It was not the operation of a small business itself.
Mr. Adore did take some early measures to assess the feasibility
of the magazine. He did contact some organizations, including the
Toronto Raptors. He also had an already established business
critique his idea. Further, he enrolled in a course about
publishing a magazine. The results of these few steps led Mr.
Adore to the very sensible conclusion that he should not get into
business. Throughout this time Mr. Adore was a full-time police
officer. He also testified he earned some extra income by
painting for friends. The time spent on the proposed magazine was
limited and was primarily in connection with the course which he
took at Ryerson. Very little time apart from that, and little
capital were invested in the project. While he submitted a plan,
it was clear this was a requirement of the course he took. I put
little weight on this factor as supporting an actual commercial
enterprise. Few if any steps were taken to implement the plan.
Mr. Adore's evidence regarding the management and advisory
committees added to the evidence of Mr. Lashway and Mr. Boyce,
left the clear impression that no management or advisory
committee ever functioned as such. These were simply names of
people Mr. Adore hoped would be involved if the magazine ever got
off the ground. There was no evidence of actual financial
statements, just projected numbers attached to the plan. There
was no evidence of ledgers or books of account. Any records, such
as invoices, were alleged by Mr. Adore to have been stolen,
though I am not satisfied he successfully proved that point.
There were no business cards, no separate bank accounts, no
separate business premises, no corporate sponsors and no
financing. Mr. Adore acted less like a businessman and more like
someone with an idea that simply never went anywhere. That is not
a business, no business, no losses. I dismiss the appeal.
Signed at Ottawa, Canada this 20th day of August, 2001.
"C. J. Miller"
J.T.C.C.COURT FILE
NO.:
2000-3222(IT)I
STYLE OF
CAUSE:
Adore Hayden and The
Queen
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
August 1, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge C. J. Miller
DATE OF
JUDGMENT:
August 20, 2001
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
James Gorham
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-3222(IT)I
BETWEEN:
HAYDEN ADORE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on August 1, 2001 at Toronto,
Ontario
by the Honourable Judge C. J. Miller
Appearances
For the
Appellant:
The Appellant himself
Counsel for the Respondent: James
Gorham
JUDGMENT
The
appeals from the assessments made under the Income Tax Act
for the 1995 and 1996 taxation years are dismissed in accordance
with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 20th day of August, 2001.
J.T.C.C.
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