Vincent Grant Gough, Joyce Eleanor Gough v. Minister of National Revenue, [1980] CTC 2854, 80 DTC 1742

The Chairman:—By consent of both appellants and counsel for the respondent, the appeals of Vincent Grant Gough and Joyce Eleanor Gough from assessments in respect to the 1971, 1972, 1973 and 1974 taxation years were heard on common evidence.

The decision that I will now make is applicable to both Mr and Mrs Gough.

Earlier in the hearing, it was agreed that the 1971 taxation year which appears on the notices of appeal and in the reply to the notices of appeal, was not really an issue and that the Board would dismiss the appeal for the 1971 taxation year.

These appeals are largely an appreciation of the facts as they are presented to the Board, and the only way that we can arrive at a decision in the matter, is by analyzing all the facts as they have been presented. If I were to try to make a complete summary of the facts, it would be most difficult and I can only point out what I consider to have been the pertinent aspects of these appeals.

A I understood the evidence, both Mr and Mrs Gough operated a business in partnership under the name of Grant TV Sales and Services, and they started the business sometime in 1968 and if I recall correctly, I think later they moved their premises around 1971, 1972. In the pertinent taxation years, the business prospered considerably.

The business is operated from a local on East Hastings Street in Burnaby, British Columbia. In 1972, they purchased a 47 foot boat calle “WIND- OVER III” and allegedly it was purchased for charter. However, there was not very much evidence to the effect that it was actually used as such.

In 1973, they purchased a house on Pender Harbour and there again, the alleged purpose was to use it for rental purposes, although in the taxation years, no rent was derived from it. Nevertheless, in 1972, 1973 and 1974, the appellants claimed operating expenses; in 1972, of $4,366.91 and capital cost allowance in that year of $8,175. In 1973, operating expenses of $11,769.56, capital cost allowance of $10,835. In 1974, $10,222 operating expenses, capital cost allowance of $9,465.

The real issue in these appeals is whether or not the appellants were in fact operating a business with the purpose of earning income in the years 1972, 1973 and 1974. We heard the assessor, Mr Nikiforuk, and I am satisfied from the evidence that he gave and also from the calculations that he made and which appear on accompanying forms T/7W, that the assessor acted responsibly and that he did, in fact, reconstruct the financial statements of the appellants quite well.

There was in the appellant’s notice of objection, a statement which I think is very pertinent, not necessarily to this particular issue, but to the general idea of what we have to consider when we are talking of a business.

On page 2 of the notice of objection, it is stated:

In relation to the undeclared income, we feel that since the Department would not show us how they arrived at their figures, the cost of going through everything again would cost more in time and money to be able to seek out a small amount of it, we cannot dispute it.

Also, since the whole accounting system was in such confusion that no doubt taxes are owing on much of this which we accept, rental income from Westcoast Cablevision was not declared. But we feel there were enough expenses to more than cover this income, that is, percentage taxes, mortgage interests, electricity including electricity to power their equipment. Unfortunately, in the confusion, we neglected to document this in the interest of clearing up this long drawn-out process, we would like to proceed along these lines.

Now, I think that there is there, an indication that both appellants were quite aware of their responsibilities. One thing which they may not be completely aware of is that it is not up to the Department to show how they arrived at the figures and I am content and satisfied that the assessor was and did his job credibly.

The onus is on the appellants to show that the Minister’s assessment is wrong. That has to do with part of, not only the aspect of the unreported income, it also has to be the onus of the appellants to prove that what they were doing in the taxation years, 1972, 1973 and 1974 was in fact, carrying out a business and that the expenditures which they claimed were in fact made to earn income.

The section which is pertinent to this appeal is paragraph 18(1)(a) of the Income Tax Act, SC 1970-71-72, c 63, as amended, and it reads:

In computing the income of a taxpayer from a business or property no deduction shall be made in respect of an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property.

Now, what I have to do is to decide on the basis of the facts that I have before me and which were understandable, whether or not, what the appellants did in 1972, 1973 and 1974, was in fact actually carrying out a business.

In order to be able to arrive at that kind of a decision, it is not merely a question of saying well, look, licensing, does not make any difference or the fact that the appellants did not keep a log is of no importance or on the mat- ter of insurance, the appellants had good excuses for not wanting to pay the insurance because charter insurance is much more costly. It is not on any one of those items that anyone can make a determination as to whether or not it is a business.

What one must look at is the whole conglomeration of the facts which would, I think, clearly set out whether or not someone is engaged in a business. Apart from the intentions which were clearly stated by both Mr and Mrs Gough, their intention of some day moving out to Pender Harbour and to sort of marry their TV business with a charter business, there is no evidence that at that time there was any action taken in that respect.

I agree that one does not start a business and expect on that day to derive a revenue and I know that in order to get into a business that you have to learn by trial and error, and there usually are more errors than otherwise and that it is costly. But in most cases when there is really a business, there are certain signs and very definite earmarks on which we can say there is not a doubt in the world, the man in fact carrying out a business and he expended money for that purpose.

In this case, there is nothing at all that can add up to justifying a conclusion that the appellants were in the charter or rental business. The income from this was, I think, $150 in 1972 and $150 in 1973 and nothing in 1974. Whereas the deductions that were asked for amount to an incredible amount and that is a fact—it is not a question of throwing statistics around, that is a definite fact that no one can deny.

There was no real attempt in the years 1972, 1973 and 1974 and perhaps because both Mr and Mrs Gough were very busy with the TV business, that may be possible, but the fact is that there was very little attention being paid to what was supposed to have been a business of chartering a boat or renting the Pender Harbour property.

To the point where there was advertising and very little attempt made to gain income from the property, going out and weeding the property may be something, but no one can conclude from that that they were very seriously occupied on earning money from that particular operation. And certainly not to the extent of deducting a substantial amount of expenditures for that purpose.

I can understand the dream, or the purpose of both appellants at some future time, to combine their activities into one business in Pender Harbour. Even though it should not be allowed as valid evidence, Mrs Gough mentioned that Mr Gough is going to take a real estate course, he is going to pass it, he is going to do some real estate, he is going to sell TV’s, he is going to charter a boat and that is all part of a future plan. But I cannot come to the determination that in 1972, 1973 and 1974, that he was in fact engaged in any of these activities in Pender Harbour.

I think the case law has proven on many occasions that there is not any one criteria which will allow someone to decide whether or not it is a business. It is the whole atmosphere, not only intention, but activities of the appellants that can determine whether or not it was an active business or whether they were seriously preoccupied with earning money.

And in this case, although they may have dreamed of doing so, they did not do so in 1972, 1973 and 1974, and although I can understand their position, the law would not as I see it, and as I interpret the facts, permit me to allow the appeals and I have no alternatie but to dismiss the appeals.

Appeals dismissed.