Date: 20000803
Docket: 98-862-IT-I
BETWEEN:
JEAN D. BRASSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Bowman, A.C.J.
[1] These appeals were instituted against assessments made for the appellant's 1993 and 1994 taxation years. In making the assessments, the Minister disallowed the deduction of losses which the appellant claimed in computing his income for the two years.
[2] The appellant is a chartered accountant who carried on his profession in Sault Ste. Marie, Ontario. In addition, the appellant and his wife were co-proprietors of the business Brassard Larouche Distributing Agencies, which distributed Amway products ("the Amway business"). The appellant claimed a loss from the operation of the Amway business but the Minister disallowed the deduction.
[3] Paragraphs 3 to 7 of the Reply to the Notice of Appeal outline the problem quite clearly, as follows:
[TRANSLATION]
3. In computing his total income for the 1993 and 1994 taxation years, the appellant included the following amounts:
1993 1994
Net losses from AMWAY business ($11,593) ($12,714)
Net professional income 30,424 37,539
Total income $18,831 $24,825
4. By notices of assessment dated June 2, 1994 and May 18, 1995, the Minister of National Revenue (the "Minister") initially assessed the appellant for the 1993 and 1994 taxation years respectively.
5. By notices of reassessment dated April 8, 1997, the Minister disallowed the said net AMWAY business losses for the years in issue.
6. In making the reassessments, the Minister assumed the following facts in particular:
(a) since at least 1987, the appellant and his wife, Marie-Claude Larouche Brassard, have distributed AMWAY products under the name Brassard, Larouche Distributing Agencies (the "Activity");
(b) for the 1987 to 1994 taxation years inclusive, the appellant reported the gross income and his share of net losses from the Activity indicated in Schedule A hereto;
(c) the appellant is a self-employed chartered accountant who carries on his profession from two different locations: his residence at 77 Princess Crescent, Sault Ste. Marie, Ontario, and his office in Dubreuilville, Ontario;
(d) the carrying on of his accounting profession is a business separate from the Activity;
(e) since January 1, 1993, the appellant's wife has had a severe and prolonged physical impairment markedly restricting her ability to walk;
(f) the appellant had four dependent children during the years in issue;
(g) the time which the appellant can devote to the Activity is very limited;
(h) from 1990 to 1994, the Activity allocated the following remuneration to the appellant's wife:
1990: $14,000
1991: $14,000
1992: $18,000
1993: $20,000
1994: $26,000
(i) the Activity could not be profitable as carried on during the 1993 and 1994 taxation years;
(j) the appellant's main reason for carrying on the Activity was not to make a profit from it;
(k) the appellant had no reasonable expectation of making a profit from the Activity during the 1993 and 1994 taxation years; and
(l) the Activity did not constitute a source of income for the appellant during the years in issue.
B. POINTS AT ISSUE
7. The points for determination are:
(a) whether the appellant's accounting profession was a business separate from the Activity; and
(b) whether the appellant had a reasonable expectation of earning a profit from the Activity during the 1993 and 1994 taxation years and, consequently, whether the appellant was entitled to deduct the net business losses from the Activity of $11,593 and $12,714 for those years respectively.
[4] This case demonstrates once again the tendency of Revenue Canada employees to intone the ritual incantation "no reasonable expectation of profit" ("NREOP") whenever a taxpayer reports a loss. From the moment they find themselves in a position to chant this mantra, they cease to examine the problem. NREOP becomes a substitute for rational analysis.
[5] In the instant case, NREOP has nothing to do with the two businesses. Mr. Brassard operated an accounting business and, together with his wife, another business, which consisted in the distribution of Amway products. He employed his wife in his chartered accounting business as a receptionist, stenographer, documentalist and utility person, particularly when he was absent, as was quite frequently the case since his practice covered a large portion of northern Ontario. For reasons that remain a mystery to me, he decided to deduct his wife's salary in computing the profit from the Amway business. As she was co-proprietor of that business, she was not entitled to a salary in any case. However, she was entitled to a salary in consideration of the services she provided to the accounting business.
[6] What happened here is that Mrs. Brassard's salary was incorrectly charged to the Amway business, when it should have been charged to the accounting business. If the appellant had charged his wife's salary to the accounting business, as was appropriate and as is required under subsection 4(1) of the Income Tax Act, he would have obtained the same result, except that the Amway business would have made a profit and the profit from the accounting business would have been reduced accordingly.
[7] The appeals are therefore allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with these reasons on the basis that the salary of the appellant's wife is to be charged against the income of the accounting business and not that of the Amway business.
Signed at Ottawa, Canada, this 3rd day of August 2000.
"D.G.H. Bowman"
A.C.J.
Translation certified true on this 12th day of October 2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
98-862(IT)I
BETWEEN:
JEAN D. BRASSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on July 14, 2000, at Sudbury, Ontario, by
the Honourable Associate Chief Judge D.G.H. Bowman
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Cathy Chalifour
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1993 and 1994 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
The appellant is entitled to his costs, if any.
Signed at Ottawa, Canada, this 3rd day of August 2000.
|
"D.G.H. Bowman" |
A.C.J.
Translation certified true
on this 12th day of October 2001.
Erich Klein, Revisor