1999-2434(IT)I
BETWEEN:
JOHN DINN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on November 3, 1999, at St.
John's, Newfoundland, by
the Honourable Judge C.H. McArthur
Appearances
For the
Appellant:
The Appellant himself
Counsel for the Respondent: Louis
Williams
JUDGMENT
The
appeals from the assessments made under the Income Tax Act
for the 1994, 1995 and 1996 taxation years are dismissed.
Signed at Ottawa, Canada, this 26th day of November 1999.
J.T.C.C.
Date: 19991126
Docket: 1999-2434(IT)I
BETWEEN:
JOHN DINN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
McArthur, J.T.C.C.
[1] The Appellant appeals the
reassessment of the Minister of National Revenue disallowing
business losses of $33,743, $15,418 and $20,769 for the 1994,
1995 and 1996 taxation years, respectively.
[2] The Appellant is a retired school
teacher and now is an elected counsellor with the City of St.
John's, Newfoundland. The Minister disallowed the losses
claimed in the taxation years in issue with respect to a
landscaping business on the basis that it had ceased operations
in December 1992 and did not exist in the relevant years. The
Appellant stated that while the business ceased operation in
1992, expenses from that business arose in 1994, 1995 and
1996.
[3] The Appellant acknowledged that
some expenditures claimed had been previously included in his
1991 and 1992 taxation years. He was claiming them twice. At
trial, he reduced the amounts he was claiming to
approximately:
1994 taxation
year
-
$13,600
1995 taxation
year
-
$ 6,000
1996 taxation
year
-
$ 7,500
These losses were for the most part from the landscaping
business and were largely comprised of amounts paid under the
Excise Tax Act legislation for goods and services tax and
mortgage principal and interest paid on a 12-acre parcel of land.
The GST was tax paid after his teacher's pension and City
counsellor's salary were garnisheed.
[4] The mortgage was on a vacant
parcel of land the Appellant purchased for approximately $48,000.
He intended using the land for topsoil and sod. After the
landscaping business was disposed of he no longer had use for the
land yet continued to make mortgage payments. The land is
retained by his son and has a present-day value of approximately
$60,000. The mortgage is also now paid off.
[5] Counsel for the Respondent
referred to the case of Potulicki v. The Queen,[1] wherein Justice Joyal
of the Federal Court, Trial Division disallowed deductions of
losses because the taxpayer's business had ceased to operate.
Justice Joyal concluded there can be no reasonable expectation of
profit when a business has ceased operating.
[6] In the present case, I have tried
to find in favour of the Appellant but cannot. The Appellant
pleaded his own case and while he has the Court's sympathy, I
cannot provide relief within the provisions of the Income Tax
Act. To be deductible, the expenses must have been incurred
for the purpose of gaining or producing income from a business
pursuant to paragraph 18(1)(a) of the Act. Mortgage
interest paid for the land may well have been a deductible
expense when the business was operating but it is not an expense
incurred for earning income after the business was sold in
December 1992. The expense was incurred to retain the land
presumably for resale in a favourable market. It was not an
expense in 1994 of the landscaping business which the Appellant
sold in 1992.
[7] The following remarks of Cullen J.
in Emerson v. The Queen,[2] apply equally to the present case:
Thus an interest expense is deductible under the Income Tax
Act only as an expense of earning or producing income, and if
the source of those earnings, be it business or property, no
longer exists, the exemption disappears.
...
An essential requirement, therefore, of any deduction on
account of interest pursuant to 20(1)(c) is the existence of the
source to which the expense relates and if the source has been
terminated, as is the case here, the interest expense is no
longer deductible. The continuing obligation to meet the interest
costs of an outstanding loan, after the source has been
extinguished, is not relevant.
I do not believe the GST payment was a business loss in 1992
let alone 1994, 1995 and 1996. Presumably, the debt was
unremitted GST collected during the Appellant's operation of
the landscaping business. Under the Excise Tax Act the
amount collected, subject to input tax credits, is considered to
be held in trust for the Minister. It was not the Appellant's
money and not an expenditure incurred to earn income. Further, I
agree with counsel for the Minister that there was no source of
income in 1994, 1995 and 1996 from which the payment could be
deducted.
[8] The Appellant further sought to
deduct the sum of $1,066 being an arbitrary allocation of one
monthly mortgage payment on his home, which home he states was
used for his business. While an expense for use of his home may
be reasonable for the strawberry business, there was insufficient
information to make such a determination. The appeals are
dismissed.
Signed at Ottawa, Canada, this 26th day of November 1999.
J.T.C.C.
COURT FILE
NO.:
1999-2434(IT)I
STYLE OF
CAUSE:
John Dinn v. The Queen
PLACE OF
HEARING:
St. John's, Newfoundland
DATE OF
HEARING:
November 3, 1999
REASONS FOR JUDGMENT BY: The Honourable C.H.
McArthur
DATE OF
JUDGMENT:
November 26, 1999
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the Respondent: Louis
Williams
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
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