Tkachuk v. R., [1999] 3 CTC 2711

Beaubier T.C.J.:

These appeals pursuant to the Informal Procedure were heard at Victoria, British Columbia on February 19, 1999. The Appellant was the only witness.

Mr. Tkachuk was reassessed for his 1994, 1995 and 1996 taxation years and the losses which he claimed respecting motocross racing were disallowed. He appealed. Paragraphs 3 to 7 of the Reply read:

3. In computing income for the 1994, 1995 and 1996 taxation years, the Appellant deducted the amounts of $8,317, $11,126 and $8,034 respectively as business losses (the “Losses”).

4. The Minister of National Revenue (the “Minister”) initially assessed the Appellant for the 1994, 1995 and 1996 taxation years by Notices dated April 19, 1995, April 29, 1996, and April 24, 1997, respectively.

5. By Notices dated December 15, 1997 the Minister reassessed the Appellant to disallow the deduction of the Losses.

6. In so reassessing the Appellant, the Minister relied on, inter alia, the following assumptions:

a) the Appellant began a motorcycle racing activity (the “Activity”) in 1989;

b) the Activity is undercapitalized;

C) at all material times the Appellant was earning full time employment income from a printing shop;

d) before starting the Activity, the Appellant prepared no business plan to determine if it would be profitable;

e) the Appellant did not advertise the Activity;

f) the Activity was not a purely commercial venture;

g) the Appellant participated in only 10, 12 and 6 events for the Activity in his 1994, 1995 and 1996 taxation years, respectively;

h) the income from the Activity is derived from event winnings;

i) the Appellant receives some sponsorship but that is in the form of discount from a local bike shop;

j) from 1989 to 1996 the Appellant reported the following income (losses) from the Activity:

Taxation Year		Gross
		Income	Expenses	Net Income
				(Loss)
1989		750	5,561	(4,811)
1990		0	11,455	(11,455)
199]		847	9,333	(8,486)
1992		1,115	12,487	(11,372)
1993		788	9,903	(9,115)
1994		483	8,800*	(8,317)
1995		372	11,498*	(11,126)
1996		580	8,614*	(8,034)
Notes:
*	Expenses detailed in Schedule I

k) the Appellant did not have a reasonable expectation of profit from the Activity during the 1994, 1995 and 1996 taxation years;

l) the Appellant failed to substantiate the expenses with respect to the Activity; and

m) the expenses claimed in relation to the Activity were personal or living expenses of the Appellant.

B. Issues to be Decided

7. The issue is whether the Appellant is entitled to deduct the Losses in the 1994, 1995 and 1996 taxation years.

	Scott Tkachuk Analysis of		Schedule I
	Income/Loss for the 1994,
	1995 and 1996 taxation years
	1994	1995	1996
Revenue	483.00	372.00	580.00
Less:
Cost of Goods Sold	2,557.00	-	1,496.00
Gross Profit	(2,074,00)	372.00	( 916.00)
Less:
Expenses
Automobile Expenses	2,707.00	4,771.00	4,373.00
Capital Cost Allow-	1,327.00	1,319.00	1,522.00
ance
Dues		200.00	-
	-	200.00
Entry Fees	-	599.00	-
Fuel Costs	-	590.00	-
Insurance	-	-	112.00
Interest	408.00		-
		-
Maintenance and Re-
pairs	-	1999.00	-
Membership	620.00	-	-
Travel	1,181.00	2,020.00	685.00
Office Expenses	-	-	426.00
Total Expenses	6,243.00	11,498.00	7,118.00
Net Income/(Loss)	(8,317.00)	(11,126.00)	(8,034.00)

Where not referred to, the assumptions in paragraph 6 are true. The corrections, by subparagraph follow:

(a) The Appellant stated that he was racing for sport in the first two years, namely, 1989 and 1990. However, he deducted his losses in 1989 and 1990 as business losses. The Court finds that subparagraph (a) is true.

(d), (e) and (f) The Appellant was a successful racer in the 3 month week-end racing seasons during which he raced in British Columbia, Alberta and Washington state. He did not race in more distant competitions because of costs and job restrictions. He solicited sponsors but only received discounts on equipment prices. Success would have resulted from winning races and obtaining sponsorships from manufacturers along with a salary and full expenses. That was his business plan.

(g) The Appellant also raced a few times in 1997 and claimed a business loss then as well.

(h) Income is derived from winning events but profit comes from sponsorships.

Simply put, the Appellant started up in 1989 and suffered losses continuously through 1997. He trained himself and relied on his father and his father’s accountant for business advice. His income tax returns for 1994, 1995 and 1996 are Exhibits. They were not signed and do not contain his accountant’s name; they reflect the accounting practices in this case. He persisted in the same course of action throughout, which resulted in continuous and proportionately heavy losses. He never got any manufacturer to sponsor him at any time.

He had 5 years of losses in the business before 1994 and simply followed the same course as before during the years in question. He had sufficient start-up time before 1994 and yet did not succeed. He did not change anything in any of the years. On the basis of his experience, plans and actions during 1994, 1995 and 1996 he had no reasonable expectation of profit in those years. He was not in business in 1994, 1995 and 1996.

The appeal is dismissed.

Appeal dismissed.