O’Connor T.C.J.:
These appeals were heard at Toronto, Ontario on September 30, 1998.
The Appellant claimed business losses in the years 1992, 1993, 1994 and 1995 and these were disallowed by the Minister of National Revenue (“Minister”).
The Appellant is an engineer engaged in an engineering consulting business which he commenced in 1988. It was operated as a sole proprietorship under the name Surcom.
The Appellant had also claimed losses from the same business in 1989, 1990 and 1991 and by a judgment dated February 12, 1997, the Honourable C.H. McArthur of this Court reduced the expenses claimed to what he considered reasonable amounts and allowed certain losses for the 1989 and 1990 years. The expenses allowed for 1991 equalled the income in that year so there was no loss.
The Appellant described some of his main customers. His initial project in the early years was an attempt to establish a training centre in Saudi Arabia. That project eventually ended in 1992.
The appellant’s basic work consisted in consulting in certain areas with his customers such as Sperry, Thompson C.S.F. He would add certain input into the submissions that these companies would make to various customers. He cited at least one example which resulted in a proposal for the Navy, both Canadian and the U.S. The navies apparently liked the overall proposal but the business went elsewhere. He also was consulted by Revenue Canada with respect to Research and Development claims.
The Appellant had very small amounts of gross revenue in the years in question. He did the work and submitted his proposals, however, the proposals did not result in decent revenues because customers either chose not to accept the proposals or to go to competitors.
During the years in question the Appellant was an engineer at Northern Telecom and reported employment income as follows, 1992, $71,139; 1993, $73,299; 1994, $74,424; and 1995, $75,938.
The Appellant’s testimony, although credible, left much to be desired in the way of detail. Furthermore, his income tax returns for the years in question were shown to contain several inconsistencies. The Appellant’s submissions to the Court failed to explain some of these inconsistencies. One main reason for this was that the Appellant could not provide any supporting documentation, stating that he had not brought any such documentation to Court.
Analysis and Decision (L10/R3844/T0/BT0) test_linespace (272>256.00) 1.021 0433_6717_6883
Notwithstanding the Appellant’s lack of detail and the inconsistencies referred to above, I find that the Appellant did have a business in the years in question and a business with a reasonable expectation of profit. This would appear to have been the same conclusion as that of McArthur, J. in his judgment allowing certain business expenses in 1989, 1990 and 1991.
Consequently, I allow the appeals for the years in question provided however that the losses shall be calculated as follows. Firstly, for 1992 the allowable loss shall be in the amount claimed, namely $14,642. Secondly, for 1993 the loss claimed of $38,819 shall be reduced to the actual amount shown in the detailed statement of the Appellant’s business income in his 1993 return, namely $19,200. Thirdly, for 1994, the loss claimed, namely $44,062 is to be reduced by $14,829.45, representing a motor vehicle ex- pense which the Appellant, based upon his 1994 return, claimed twice. The interest expense claimed is also to be reduced from $17,000 as claimed by $2,797 to $14,203 which I consider to be a more reasonable amount and will equal the amount I am allowing for 1995. Consequently the amount of the allowable loss for 1994 shall be $26,435.55 (i.e., $44,062 - ($14,829.45 + $2,797). For 1995 the interest expense claimed of $27,805 is to be reduced to $14,203 which is the amount shown on the detailed statement filed with the 1995 returns and labelled “short term debt interest/bank charges” which, in my opinion, was the correct amount of interest expense attributable to the business. Consequently, the amount of the allowable loss for 1995 Shall be $23,381 (i.e., loss claimed - $36,983 - non allowable interest - $13,602).
The matter is referred back to the Minister of National Revenue for reconsideration and reassessment on this basis.
Appeal allowed.
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