Loucks v. R., [1999] 4 CTC 2210 (Informal Procedure)

Beaubier T.C.J.:

This appeal pursuant to the Informal Procedure was heard at Ottawa, Ontario on July 29 and 30, 1999. The Appellant testified. The Respondent called Jeff Johnson, C.A., Revenue Canada’s auditor on the file.

The appeal is respecting reassessments for the Appellant’s 1990, 1991, 1993, 1994 and 1995 taxation years. The Appellant testified that he filed his income tax returns for these years and for 1989 all together in July, 1996, after he had filed a T1 special return for 1992 (Exhibit R-l) which described his address as in New York State. After assessment, he did not file a Notice of Objection for 1992 so the purported appeal for that year is quashed.

The Appellant claimed business losses for the years on appeal which were disallowed on the following bases:

1. The alleged business activity of tilling and sharpening was commenced in 1991, not 1990.

2. There was no reasonable expectation of profit from the alleged activity.

3. The expenses claimed were not incurred for the purpose of gaining income from a business or property.

Schedule “B” in the Reply to the Notice of Appeal sets out the financial history of the activity. It reads:

Schedule “B”

Douglas Ashton Loucks v. Her Majesty The Queen

Combined Statement of Income and Loss Sharpening of Tools Activity & Tilling of Gardens Activity

DESCRIPTION		1990		1991		1992		1993		1994	1995
Income
Sharpening Tools	$	95.07	$	256.10	$	352.00	$	990.53	$	644.79	$ 1,095.95
Tilling Gardens		0.00		140.00		335.00		140.40		215.00	230.00
Other		0.00		18.80		300.00		0.00		0.00	35.00
Total Income	$	95.07	$	414.90	$	987.00	$ 1,130.93			859.79	$ 1,360.95
Expenses
Building Supplies	$	833.39	$		$		$		$		$
Tools		452.21		44.57		654.50		1,154.78		321.73	119.10
Tool Repairs		25.00		25.57		65.99				2.59
Equipment Rentals		144.27				165.72
Vehicle Fuel		853.24		739.46		479.51		455.29		521.01	446.00
Vehicle Repairs		724.81		1,479.76		1,171.65		2,336.34		1,155.38	443.57
Hydro Telephone		637.01		1,126.12		614.12		470.94		652.95	528.49
Advertisement		4.00				180.49		18.60			8.56
Publications		35.95		133.92		27.45		40.73		19.26	26.75
Insurance		470.04		470.04		470.04		429.67		467.64	467.64
Travel Expenses		9.70		12.50		24.65		12.21		40.55	195.81
Rent		1,820.00		2,256.45		2,073.00		2,284.85		2,210.00	2,122.50
Office Expenses		30.35		222.22		160.23		503.02		57.85	147.91
Shop Supplies		185.11		574.37		1,176.52		2,003.06		3,172.67	1,306.12
Interest Bank Charges		667.59		696.28		823.75		3,957.34		2,168.32	2,044.78
Legal, Parking, Etc.				145.33		162.19		110.43		116.27	97.90
Other		667.59									45.00
Capital Cost Allowance		6,454.39		8,710.26	10,301.81			8,569.78		7,387.31	5,753.99

DESCRIPTION	1990	1991	1992	1993	1994	1995
Total expenses	$14,014.65	$16,636.85	$18,551.62	$22,347.04	$18,293.53	$13,754.12
Net Loss	$13,919.58) ($16,221.95) $17,564.62) 621,216.11) $17,433.74) $12,393.17)

The Appellant testified in chief and described the following dates respecting the alleged Activities that:

1. He carried on business as “D.A. Loucks Construction” and finished a siding contract in May, 1990. He stated that he was paid a final payment of $1,500 in 1990, but that he reported it as income in 1989.

2. He planned to go into cabinet making as “Dalgar Enterprises” during the years in question. However, there is no evidence of any income whatsoever from this alleged enterprise or any work done respecting it during the years in appeal.

3, He began the tilling and sharpening activity in May, 1993. He

stated that this is verified by his purchase of sharpening equipment from Robert Van Allen in February, March, April and May, 1993 (see Exhibits A-58, 59, 61 and 63). He also purchased business cards for this activity in July 1993 in the name of “Dundas Sharpening Service” (Exhibit A-52). However, his income tax return stated that this alleged enterprise began in 1990.

There is no evidence of any income from the alleged cabinet making activity. The Appellant had been in construction, but not cabinet making, in previous years. He stated that he terminated the construction activity in May, 1990 after he lost money in successive years in the late 1980s. There is no evidence that he solicited or advertised his alleged construction or cabinet making activities during the years in question. On his own testimony, he was not in the construction business after May, 1990. On the evidence, he never entered the cabinet making business. He merely toyed with the idea of entering into it. The Appellant admitted that he was not in the cabinet making business during the period in question.

For these reasons, the appeal for 1991 is dismissed. The Appellant was not in any business in that year. As a result, a question which remains for the Court is whether he was carrying on the sharpening business as “Dundas Sharpening Service” for 1993, 1994 and 1995 with a reasonable expectation of profit. The Appellant testified that he did not begin the activity of Dundas Sharpening Service until 1993.

With respect to 1990, he testified that he finished his construction business in that year and stored his equipment after terminating that business. However, the credibility of the Appellant is in serious question concerning his alleged business activities for a number of reasons. Among the major reasons to question the Appellant’s testimony that he carried on various activities as businesses or that he carried them on at all are the following:

1. He was employed full time as a commissionnaire during all of the years appealed to the Court.

2. Except for the strange income tax return (R-1) that he filed for 1992, he first filed income tax returns for all of the years, including 1992, in July, 1996. Except for 1992 he never even reported his commissionnaire income before July, 1996. These are not the practises of a genuine businessman.

3, His testimony conflicts with his income tax returns on the following major aspects:

(a) He testified that he was last in the construction business in 1990, not 1989. His counsel argued that, based on this testimony, the Appellant should be allowed 1990 and 1991 business losses to terminate the alleged construction activity.

(b) He testified that he began Dundas Sharpening Service in 1993, not 1990, as he filed. Therefore his counsel argued that he should be allowed 1993, 1994 and 1995 losses claimed as Start-up losses.

(c) The Appellant did not prepare or maintain any ordinary ledgers or records or even a scribbler describing payments received and amounts paid out during all the years in question even though he testified that he was in the construction business for several years before 1990.

Most important of all, the Appellant’s sworn testimony is not believed. He is not a credible witness. During hours of testimony in support of his appeal and the expenses described in Schedule B the Appellant presented ledger sheets that he says he prepared in 1996 and then innumerable receipts respecting a few of the headings in Schedule B. He admitted in examination in chief that some of the receipts supporting the ledger sheets were not paid for business purposes. However, major items of expenses for which receipts were filed did not bear out inclusion in Schedule B. These are.

1. “Rent” - Allison trailer rent at approximately $35.00 per week

This was claimed and was presented as a storage item when the Appellant terminated his construction activity and stored woodworking equipment. However, it first appears in January, 1990 when, on the basis of the Appellant’s testimony, storage was not necessary. Given obviously spurious claims for expenses by the Appellant such as receipts for house wares, a candy bar, a local newspaper subscription, cement that was clearly used to build a pad for his new home that he never finished, eaves trough parts that appeared to have been for his own home, soap and household cleaning goods, the Allison claims for expenses are not accepted without substantiation by way of independent testimony.

2. “Vehicle Fuel” and “Vehicle Repairs”

The Appellant was employed as a Commissionaire. The fuel and vehicle expenses he claimed in January, 1990 totalled $105.00 respecting a siding contract. In 1991 he deducted similar fuel expenses throughout the year when he was doing nothing by way of alleged business. But he remained employed as a Commissionaire. He used a truck. His wife had a car. While he alleged the truck was used for business, in many months there was no business. The alleged sharpening business was not particularized respecting the alleged expenses. On the evidence, Mr. Loucks used the truck for all his driving. He was employed at Nestle’s Canada Ltd. in Chesterville while his business was conducted from his home and garage in Winchester, Ontario. Many of the fuel receipts were from Chesterville. He was not in any business in 1991 and yet testified that his fuel bills in 1991 were for business. This testimony is incredible.

3. “Hydro & Telephone”

For the same reason and on the same basis that the fuel and vehicle expenses were denied, the Appellant’s claims for telephone expenses are denied. With respect to the telephone bill claims, the Appellant cut them by 50% on July 29 and then on July 30, When he testified in chief respecting 1994 and 1995, he withdrew most long distance charges. By contrast, he filed claims for 100% of his telephone bills. The telephone was his home phone.

Because the Appellant’s testimony is not believed, the Court finds that he was not in any business in 1990. His original income tax returns filed in 1996 state in hindsight that he was not in business in 1990. In both 1990 and 1991 he did not file income tax returns. These dates are simultaneous with the alleged construction business activity. He did not keep any ledgers or records, a failure which does not accord with the practice an experienced business which the Appellant states he was in 1989 and 1990. He testified that in 1990 he received $1,500 for the completion of a 1989 construction contract. But his income tax returns prepared in 1996 do not verify that. He submitted a bank statement showing a $1,500 deposit in 1990. That deposit could have come from anywhere. The, at best, ambiguous evidence of the Appellant fails to meet his onus of proof and his overall lack of credibility simply destroys any testimony he gave respecting 1990. His appeal for 1990 is dismissed.

The Appellant testified that, contrary to his 1992 and 1993 T-1 General income tax returns filed in July, 1996, he began his tilling and sharpening activity in 1993. This was supported by a business plan he submitted to The Toronto-Dominion Bank in 1993 under the Ontario Ventures programme when he applied for a $15,000 loan. The Toronto-Dominion Bank gave him that loan. However, in his first interview with Jeff Johnson, Revenue Canada’s auditor, Mr. Loucks said that 73 of the $15,000 was spent on personal items and not for business. At that time he also said that his payments to Mr. Van Allen in 1993 were for personal purposes. In his testimony in Court Mr. Loucks stated that the entire loan was spent for business purposes and that he purchased sharpening equipment from Mr. Van Allen. No bill of sale, registration or list of the alleged sharpening equipment was placed in evidence. Mr. Johnson is believed and Mr. Loucks is not.

The Appellant testified that he started the sharpening and tilling business in 1993. His business plan’s projections which he presented to The Toronto-Dominion Bank were as follows:

He testified that his plan could not be carried out because he was unable to build a new home and business premises due to municipal permit delays. When the permit was finally granted, he could not obtain financing for the building. A second cause for his failure was his heart stoppage on June 1, 1994 which resulted in the installation of his pacemaker. The Appellant was born in 1938. Appellant’s counsel argued that these impediments should permit the Appellant to have a start up period for 1993 through 1995.

However the evidence is clear that many of the deductions he claimed are personal, including vehicle fuel and repairs, “hydro telephone”, and “rent”. No evidence was tendered respecting “insurance” but some exhibits described it as personal insurance and no basis for its deduction was submitted. The “office expenses” were not explained. The various bank charges were admitted to be personal in part and no explicit detail was submitted of the bank charges respecting the $15,000 loan which was alleged to be for the sharpening activity. The capital cost claimed was not supported by detailed evidence. Based on the Appellant’s actions, it may have been personal or for alleged construction or cabinet making activities and, or, for the sharpening and tilling activities.

None of his testimony as to the 1993 start-up was supported by the T-l Generals filed. They were filed in 1996 when he had both foresight and hindsight. The Appellant’s tilling and sharpening income which was finally reported in 1996 was from a hobby, not a business. That is the way he treated it during those years and the evidence accepted indicates that he admitted that /3 of the $15,000 loan was not used for business purposes. Whether the plan submitted to The Toronto-Dominion Bank was genuine or not at the time was not established. But it was not carried out by the Appellant. He testified that the Bank did not care so long as the payments were made. He made the payments.

In summary, the Appellant has, by his actions, presented three stories respecting his alleged businesses:

1. By not filing any timely income tax returns, by his first 1992 income tax return and by his lack of records, there were no businesses from 1990 to 1995 inclusive.

2. By his income tax returns filed in 1996 the construction business terminated in 1989, and the sharpening and tilling business began in 1990.

3. He testified that the construction business terminated in 1990 and the sharpening and tilling business began in 1993.

By these conflicting stories, his conflicting and incredible testimony and his conflicting documents, the Appellant has failed to upset the assessment and assumptions 1 1(b), (e), (f), (g), (h), (i), (j), (k), (1) and (m). The Court does not accept the Appellant’s claims that he was engaged in any business in 1990, 1991, 1993, 1994 and 1995.

The appeals are dismissed.

Appeal dismissed.