Date: 20031127
Docket: A-582-02
PELLETIER J.A.
MALONE J.A.
BETWEEN:
DANIEL NADORYK
Applicant
and
HER MAJESTY THE QUEEN,
represented by
THE ATTORNEY GENERAL OF CANADA
Respondent
Heard at Winnipeg, Manitoba, on November 27, 2003.
Judgment delivered from the Bench at Winnipeg, Manitoba, on November 27, 2003.
REASONS FOR JUDGMENT BY: SEXTON J.A.
Date: 20031127
Docket: A-582-02
MALONE J.A.
BETWEEN:
DANIEL NADORYK
Applicant
and
HER MAJESTY THE QUEEN,
represented by
THE ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT
(Delivered from the Bench at Winnipeg, Manitoba on November 27, 2003)
[1] The Applicant seeks Judicial Review of two decisions of the Tax Court. The first decision dismissed his appeals from assessments under the Income Tax Act which denied his claim for business losses in the 1996 and 1997 tax years. The second decision dismissed his appeal from an assessment under the Excise Tax Act which denied his claims for input tax credits for the same time period. These reasons will apply to both appeals.
[2] The Applicant had for some years been in the salvage business which evolved from metal salvage of munitions in 1977 to automobile wrecking in later years. By the time of the tax years in question he claimed to be in the used automobile sales business.
[3] He claimed to run this business from a property on which he also had a residence in which he lived. He claimed all of the expenses having to do with this property as business expense including the residence.
[4] In connection with the used car business he had a few vehicles some of which he used personally but he claimed all the vehicle expenses as business expenses.
[5] During the years in question he was employed full time working 54 hours per week for someone else. Although he claimed also to be working in his auto sales business, the Tax Court Judge found his evidence lacked credibility.
[6] The Applicant sustained losses which he claimed as business losses every year from 1988 to 2000. The Applicant claimed loses of $18,007.00 in 1996 and $25,236.00 in 1997.
[7] In 1997 he only had one sale of 16 wrecks but this was done through his employer. This sale realized only $1400.00. In 1996 there were only three auto sales.
[8] The Applicant did not advertise his business and had no sign on his property.
[9] The Tax Court Judge found the Applicant received a "material personal benefit from the expenses giving rise to the loses". He further found that the Applicant's business "cannot be rationalized as a genuine undertaking, credibly being pursued to produce anything but a tax shelter for his employment income".
[10] The Tax Court Judge applied the test of reasonable expectation of profit. He said
While the reasonable expectation of profit test should only be applied assiduously to avoid letting the CCRA or a court apply its own business judgment to an activity, and while it should not be applied where there is a genuine commercial activity carried on in a bona fide business-like manner, with a bona fide hope of profit, the test does exist and can be applied where the activity affords the taxpayer a material personal benefit from the expenses giving rise to the losses.
[11] The Applicant argues that the Tax Court Judge erred in applying the test of reasonable expectation of profit, and relies on the Supreme Court of Canada case of Stewart v. Canada [2002] S.C.C. 46.
[12] The Tax Court Judge rendered judgment before the Supreme Court of Canada decided the Stewart case. Nevertheless, in our opinion the reasons of the Tax Court Judge do not conflict with those of the Stewart case.
[13] The Stewart case did not abolish the test of reasonable expectation of profit but rather confined its application to cases where there is some personal element to the activity in question. The Tax Court Judge found as a fact that there was such a personal element in the present case.
[14] The Tax Court Judge found that
Ultimately, I have found difficulty in accepting that there was, in the subject years, a genuine commercial enterprise that reasonably embraced all of the aspects that the appellant sought to include as part of that enterprise.
And he further said
The structure of the appellant's business", taken as a whole, and the necessary costs it included, as operated with the expenses he attributed to it, is not a rational structure for the activity undertaken.
In the result, this seems to us to say in a similar way what the Supreme Court of Canada said in the Stewart case to the effect that the taxpayer did not carry out his business in accordance with objective standards of business like behaviour.
[15] We are unable to conclude that the Tax Court erred in the decision under the Income Tax Act.
[16] There is a legislated "reasonable expectation of profit" test in the Excise Tax Act and the factual findings of the Tax Court Judge clearly justify dismissal of the Applicant's appeal.
[17] These applications will be dismissed with costs limited to the disbursements incurred by the Respondent.
"J. Edgar Sexton"
J.A.
Winnipeg, Manitoba
November 27, 2003
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-582-02
STYLE OF CAUSE: Daniel Nadoryk v. Her Majesty the Queen represented by The Attorney General of Canada
PLACE OF HEARING: Winnipeg, Manitoba
DATE OF HEARING: November 27, 2003
REASONS FOR JUDGMENT OF THE COURT: SEXTON J.A., PELLETIERJ.A., MALONE J.A.
DELIVERED FROM THE BENCH BY: SEXTON J.A.
APPEARANCES:
|
Daniel Nadoryk |
ON HIS OWN BEHALF |
|
Perry Derksen Department of Justice 301 - 310 Broadway Winnipeg, MB R3C 0S6 |
FOR THE RESPONDENT |
SOLICITORS OF RECORD:
|
Daniel Nadoryk |
ON HIS OWN BEHALF |
|
Morris Rosenberg Deputy Attorney General of Canada |
FOR THE RESPONDENT |