Breton v. The Queen

[OFFICIAL ENGLISH TRANSLATION]

98-61(IT)I

BETWEEN:

FRANÇOIS BRETON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on October 6, 1998, at Sherbrooke, Quebec, by

the Honourable Deputy Judge D.R. Watson

Appearances

Counsel for the Appellant: H. Lacroix

Counsel for the Respondent: S. Morin

JUDGMENT

The appeal from the assessments made under the Income Tax Act for the 1992 and 1993 taxation years is dismissed in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 16th day of October 1998.

"D.R. Watson"

D.J.T.C.C.

Translation certified true

on this 9^th day of July 2003.

Sophie Debbané, Revisor

[OFFICIAL ENGLISH TRANSLATION]

Date: 19981016

Docket: 98-61(IT)I

BETWEEN:

FRANÇOIS BRETON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Watson, D.J.T.C.C.

[1] This appeal was heard pursuant to the Informal Procedure at Sherbrooke, Quebec, on October 6, 1998.

[2] In computing his income for the 1992 and 1993 taxation years, the appellant deducted $13,836 and $11,032, respectively, as business losses.

[3] By notices of reassessment dated September 13, 1995, for the 1992 and 1993 taxation years, the Minister of National Revenue ("the Minister") disallowed $15,872 and $12,317, respectively, as business expenses. By notices of reassessment dated November 12, 1996, the Minister, in response to the appellant's notice of objection for the 1992 and 1993 taxation years, adjusted the previously assessed net business income to nil.

[4] In making the reassessments, the Minister assumed, inter alia, the following allegations of fact:

[TRANSLATION]

(a) during the years at issue, the appellant reported employment income from L. Breton Transport Ltée;

(b) the appellant claimed to be operating as "F. Breton Enr." with respect to the activities of a sewing business;

(c) the alleged sewing income reported by the appellant during the years at issue came exclusively from Louise Jacques, who carried on her business as "Les Confections Louise Jacques Enr.";

(d) the alleged sewing income reported by the appellant during the years at issue amounted to $2,035 and $1,284, respectively;

(e) the appellant began operating his alleged business in 1992, at which time he had no expertise in the field;

(f) Linda Fortin and the appellant are the parents of a child born in November 1992;

(g) during the years at issue, the appellant paid so-called wages to just one person, Linda Fortin;

(h) the so-called wages paid by the appellant to Linda Fortin during the years at issue amounted to $9,668 and $10,383, respectively;

(i) the so-called wages paid by the appellant to Linda Fortin were paid yearly over an unbroken period of employment of 14 consecutive weeks;

(j) Linda Fortin allegedly worked 744 hours during the 14 weeks of her period of employment from June 16 to September 28, 1992;

(k) Linda Fortin allegedly worked 763 hours during the 14 weeks of her period of employment from May 17 to August 17, 1993;

(l) the sewing machine was owned by the worker, Linda Fortin;

(m) the sewing work was done in the dwelling of the worker, Linda Fortin, and the appellant paid her $1,800 for the use of the said dwelling each year;

(n) the motor vehicle expenses claimed by the appellant were considered to be unwarranted because it was Louise Jacques who was in charge of picking up, delivering and returning the materials;

(o) the appellant has not shown that there was a reasonable expectation of profit from the sewing activities for the 1992 and 1993 taxation years;

(p) the so-called wages paid to the appellant during the years at issue are unreasonable having regard to the income generated;

(q) the hours allegedly worked by Linda Fortin are unreasonable having regard to the sewing work performed.

[5] At the hearing, the appellant admitted the facts alleged in subparagraphs (a) to (k) and (m) and denied the facts alleged in subparagraphs (l) and (n) to (q).

[6] During those two years, did the appellant incur the expenses that were claimed each year with respect to the sewing activities for the purpose of gaining or producing income from a property or business? Did the appellant have a reasonable expectation of profit?

[7] The burden is on the appellant to prove on the balance of evidence that the notices of reassessment dated November 12, 1996, are unfounded in fact and in law.

[8] The appellant and Linda Fortin testified during the hearing of the appeal. No documentary evidence was provided by the appellant in support of his testimony, which was based instead on his vague memory of the essential details of what occurred in 1992 and 1993.

[9] In this kind of appeal, there is well-established case law for determining whether an objectively reasonable activity exists.

[10] Moldowan v. The Queen, [1978] 1 S.C.R. 480, sets out the following factors:

The following criteria should be considered: the profit and loss experience in past years, the taxpayer's training, the taxpayer's intended course of action, the capability of the venture as capitalized to show a profit after charging capital cost allowance. The list is not intended to be exhaustive.

[11] In Sipley (P.D.) v. Canada [1995] 2 C.T.C. 2073, Judge Hamlyn of this Court stated the following at page 2075:

The objective test includes an examination of profit and loss experience over past years, also an examination of the operational plan and the background to the implementation of the operational plan including a planned course of action. The test further includes an examination of the time spent in the activity as well as the background of the taxpayer and the education and experience of the taxpayer.

[12] The evidence showed that there is also a personal element in this case given the great majority of the business' operating expenses, including the wages paid to Ms. Fortin, the mother of his child born on November 16, 1992, and the rent paid to her for the use of her dwelling.