Consumers Software Inc. v. The Queen, 95 DTC 518, [1993] 2 CTC 3129 (TCC)

St-Onge, T.C.C.J.:—The appeal of Mr. Claude Roy was heard on April 30, 1993, in the City of Montreal, in the province of Quebec. The issue is whether the expenses claimed by the appellant were incurred for the purpose of gaining income from a business during the 1989 and 1990 taxation years.

The respondent contended that they were not, and asserted the following; paragraphs 2 to 9 inclusive of the amended reply form part of my judgment:

2. However, the respondent notes the fact that the appellant admits that he cannot claim a capital cost allowance.

3. In computing his income for the 1989 taxation year, the appellant deducted $15,883 as a business loss.

4. When the Minister of National Revenue (the "Minister") gave notice of a reassessment for the 1989 taxation year on March 25, 1991, he revised the business loss to $4,540.

5. When the Minister gave notice of another reassessment for the 1989 taxation year on March 4, 1989, he refused to allow the appellant to deduct the $4,540, and this reduced the business loss to zero.

6. In computing his income for the 1990 taxation year, the appellant deducted $4,442 as a business loss.

7. When the Minister gave a notice of reassessment for the 1990 taxation year on December 6, 1991, he refused to allow the appellant the deduction of $4,442.

8. In making these reassessments, the Minister assumed the following facts, inter alia :

(a) the appellant is an accountant and is a member of the Corporation Profes- sionelle des Comptables Généraux licenciés du Québec;

(b) the appellant is semi-retired and reported gross professional income of $2,860 for the 1989 taxation year and $3,245 for the 1990 taxation year;

(c) the appellant's total income, as reported, included the following amounts:

	1989	1990
— employment income:	65 ,829.58
— pension income:	10,646.06	34,290.85
— investment income:	1,027.17	3,022.98
— retiring allowance:	281.30	14,116.08
— net business income:	(15,883.00)	(4,442.00)
— net professional income:	234.00	200.00
Total income reported	$62,135.11	$47,187.91

(d) in August 1989, the appellant purchased a 34-foot 1989 "Coachman" motor home in Florida for $71,500;

(e) in September 1989, the appellant placed a classified advertisement in three local newspapers to sell his motor home for $90,000, "wishing, according to the appellant's own words, to make a quick profit with the intention of returning to the United States and purchasing another vehicle";

(f) Alliance Caravane Inc. confirmed in a letter dated April 16, 1990, that the appellant had placed his vehicle with them to be rented or sold for the period from August 15, 1989 to December 26, 1989;

(g) the appellant did not declare any rental income for the vehicle during the 1989 taxation year and had claimed a business loss of $15,883;

(h) the $15,883 business loss breaks down as follows:

— $964 which represents the expenses of a trip made to Florida in order to purchase a house for rental purposes. The house was never purchased;

— $14,919 which represents expenses related to the motor home;

(i) during the 1990 taxation year the appellant rented his vehicle on two occasions for a period of three weeks each time. The income of $5,918 derived from these rentals was reported by the appellant as income from business;

(j) the appellant invested very little capital in this rental activity since he claimed $11,172 as interest expenses during the 1990 taxation year on a purchase of $71,500;

(k) the expenses incurred by the appellant were not incurred for the purpose of gaining or producing income from property or from a business, but rather were the appellant’s personal expenses or living expenses.

9. The issue is whether the expenses in excess of the amount allowed by the Minister were incurred by the appellant during the 1989 and 1990 taxation years for the purpose of gaining or producing income from property or from a business.

[Translation.]

At the hearing, the appellant admitted paragraphs 2 to 7 of the amended reply and subparagraphs 8(a) to 8(h) inclusive. He denied subparagraphs 8(i),

(j) and (k), but counsel for the respondent proved them through her questions and the documents she introduced.

As well, she introduced exhibits I-2 and 1-3 to demonstrate the nature of the expenses incurred, and those Exhibits 1-2 and 1-3 form part of my judgment.

The Court is of the opinion that the appellant has not discharged the burden of proof, for the following reasons:

1. He did no planning before he took a trip to Florida to purchase a house for rental purposes, which house he never purchased;

2. On the contrary, he mortgaged his house in Canada for $75,000, in order to purchase a motor home for $71,500, which was used largely to enable him to spend several months in Florida each winter;

3. He did no planning before starting up his motor home rental business in order to determine whether there was a reasonable expectation of making a profit;

4, His rental income of the motor home was nil in 1989 and 1991 and was insignificant in comparison to the expenses incurred in 1990 and 1992;

5. A motor home depreciates much more rapidly than a house, which often increases in value. Accordingly, a depreciation expense greatly increases a loss;

6. The conduct of the appellant, an accountant, is not such as would convince the Court that he acted with the genuine intention of making a profit;

7. Moreover, on examining the expenses, it appears that they are much more in the nature of personal expenses than of expenses for the purpose of gaining income. For all these reasons, the appeal is dismissed.

Appeal dismissed