Coulter v. R., [1997] 1 CTC 2389 (Informal Procedure)

Dubienski D.J.T.C.C.: — Without going too much into the facts of this case, it is sufficient to say that the Appellant, who is presently occupied in an income bearing employment that entitles him to a fairly good income, decided with his wife in 1988 to start up a business concerning the raising — breeding of horses. They purchased some property and proceeded to develop it. There is no indication before the court that any reference to this was made insofar as his income tax returns were made until, I am told, around 1990.

The matters in question refer to the returns of 1992 and 1993. The returns submitted by the taxpayer for 1990 and 1991 showed losses of which were apparently accepted by the Income Tax Department, losses that

- while not substantial — were certainly note worthy insofar as the taxpayer’s total income was concerned.

The two years in question indicate that there was no income in 1990, 1991 or 1992. In 1993 there was $5,500.00 income. In each of those years, as follows, the losses were ’90 — and I will just take them to the nearest figure - $5,300.00; ’91 — $14,000.00; ’92 — $16,000.00 and in ’93 - $9,000.00. The taxpayer says that he started the business fully intending to make a profit and to make it profitable. He has made, in the meantime, commencing in 1990 improvements spread over the years, mainly since the tax years in question, of about 30 to $40,000.00 having to do with clearing and fencing and the building of paddocks and accommodation for the horses.

The one aspect of this matter of this appeal that is causing me the gravest concern is the fact that while ascribing and accepting the taxpayer’s sincere assertion that he intended and intends to make a profit, that he is hopeful of making a profit and he expects to make a profit, has never — and his evidence does not disclose to me that he has at anytime ever really sat down and prepared a projection that would indicate to himself or to me that he has any reasonable basis for assuming that he will show a profit and that there is any reasonable expectation.

All of his assertions are on hearsay from other people and his mere assessment, somewhat anecdotal, that if certain things take place he is bound to make a profit. He, for instance, stated that he is bound to make a profit this year, in ’96, but there was no figures, no — nothing to show to me that I could anticipate that myself.

Now I have to say that, and emphasize the fact that we are dealing with the years 1992 and 1993. And the law is reasonably clear that I can look historically as to what happened before those dates and what happened after. And as I stated before there were losses previous to those dates and losses consistently after those dates.

The losses show that even if capital allowance was not taken into account there would be losses on the straight profit and loss statement. There doesn’t seem to be any real plan of any kind except that he has indicated that he has some thoughts now of going into boarding and that that should show some profit. But there again, there is no big — no breakdown, no anticipated or proforma evidence before me that would indicate that that was possible.

He says, I have to make money. But is it clear to me as to how he is going to do it? He says he thinks he can make something out of it. But there again, it is not positive, nothing to show me that he will.

I don’t know whether I would go so far as Mr. Justice Decary said in the Landry v. R., (sub nom. Landry v. Canada) [1995] 2 C.T.C. 3, case that was cited at 94 D.T.C. 6624 (F.C.A.), at page 6 (D.T.C. 6625) that:

...there comes a time in the life of any business operating in a deficit when the Minister must be able to determine objectively, after giving someone a head start for a number of years, as the case may be, that a reasonable expectation of profit has turned into an impossible dream.

But it is getting very close to that.

Now having said that, does that allow me - within the definitions and subsequent cases — to say that in spite of the losses that — historically that the losses in the years in question, ’92 and ’93, are losses that should be treated as those that would be restricted? The main argument being that it was start-up costs and that when one is dealing with farming property and things such as that, that there is allowable extended periods of times because of the — of that type of business that one does not start up a business and operate it as quickly as the one might a manufacturing business or something such as that.

As has been stated, the leading case that is followed in the Moldowan case. When one looks at the history in that case, these farming losses questioned was for ’68 and ’69 after the taxpayer had suffered consistent losses from 1960. At that time it was quite clear to the judge, he accepted it as a fact that this long period of time was certainly more than start-up. And taking all the matters into account, that was one of the factors that allowed him to say that this was not start-up and that these allowances would not be allowed.

I regret to say that if Mr. Coulter had come to me and said that he had made a great deal of investigation and was able to satisfy me that he had prepared himself for this business; that there was no question in his mind that he had made a lot of investigation and prepared proforma balance, anticipations, projections and was quite prepared to proceed and was showing some kind of plan, that I could then say to myself, yes this is start-up. But I get the feeling from what is before me that although quite honestly Mr. Coulter intended to turn this into a business and probably still might, that at that time he was ill prepared to set up any kind of a business and was obviously working under a great deal of difficulties having to earn his own living in the meantime and probably doing a lot of this work on his own.

But I am of the opinion that we are now into the third and fourth year of this business and it doesn’t show any promise at that time.

And even now there is no evidence before me that there is a reasonable expectation of profit. So I would have to disallow the appeal.

Appeal dismissed.