1999-3302(IT)I
BETWEEN:
MAURICE ARNOLD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of Judilee Arnold (1999-3296(IT)I) on April 20, 2000 at Toronto, Ontario, by
the Honourable Deputy Judge D.R. Watson
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Sherry Darvish
Shameem Rashid
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1994, 1995 and 1996 taxation years is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 2nd day of May 2000.
|
"D.R. Watson" |
D.J.T.C.C.
1999-3296(IT)I
BETWEEN:
JUDILEE ARNOLD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of Maurice Arnold (1999-3302(IT)I) on April 20, 2000 at Toronto, Ontario, by
the Honourable Deputy Judge D.R. Watson
Appearances
Agent for the Appellant: Maurice Arnold
Counsel for the Respondent: Sherry Darvish
Shameem Rashid
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1994, 1995 and 1996 taxation years is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 2nd day of May 2000.
|
"D.R. Watson" |
D.J.T.C.C.
Date: 20000502
Docket: 1999-3302(IT)I
BETWEEN:
MAURICE ARNOLD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Docket: 1999-3296(IT)I
JUDILEE ARNOLD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
WATSON, D.J.T.C.C.
[1] These appeals were heard in Toronto, Ontario on April 20, 2000, on common evidence under the Informal Procedure.
[2] In computing income for the 1994, 1995 and 1996 taxation years, the Appellants claimed rental losses in the amounts of $10,226.00, $12,142.00 and $2,731.00, divided equally in the amounts of $5,113.00, $6,071.00 and $1,365.00 respectively.
[3] By concurrent Notices of Reassessment dated April 29, 1999, the Minister of National Revenue (the "Minister") disallowed the Appellants' rental losses for the three taxation years.
[4] In reassessing the Appellants, the Minister made the following assumptions of fact in the file concerning Mr. Arnold:
"(a) in 1989, the Appellant and his spouse purchased a 35 foot, one bedroom mobile home at a cost of $47,000.00 (the "Trailer") which they kept at Lot 114, Key Largo Kampgrounds and Marina, 10155l Overseas Highway, Key Largo, Florida ("Kampgrounds");
(b) the purchase Trailer was financed by a mortgage of $25,213.00;
(c) at all material times, the Appellant paid a monthly fee to Kampgrounds for the routine maintenance and care of the Trailer;
(d) the Appellant undertook no organized method of advertising the rental of the Trailer beyond "word of mouth" and advising the management of Kampgrounds that the Trailer was available for rent;
(e) Kampgrounds charged the Appellant 35% of the gross rental fees received when rented to third parties;
(f) the Appellant began claiming rental losses in 1993, and from 1993 to 1996, the Appellant reported rental income and losses on the Trailer as follows:
Gross Income Net Loss
1993 $3,463.00 ($ 5,594.00)*
1994 $3,452.00 ($10,226.00)*
1995 $1,778.00 ($12,142.00)*
1996 $l,772.00 ($ 2,731.00)*
* - the Appellant claimed 50% of the total loss;
(g) in the 1994, 1995 and 1996 taxation years, the Appellant reported rental income, expenses and losses as per Schedule "A", below;
(h) during the 1994, 1995, 1996 taxation years, the Trailer was rented for approximately 35 weeks out of a possible 156 weeks, or 22% of the time;
(i) the Appellant had no reasonable expectation of profit from renting the Trailer during the 1994, 1995 and 1996 taxation years;
(j) the rental expenses were personal or living expenses of the Appellant;
(k) at all material times, the Trailer was used primarily for the personal use or enjoyment of the Appellant.
Schedule A to
Maurice Arnold
Reply to Notice of Appeal
Rental Income and Expenses
1994 1995 1996
Rental Income $ 6,094.62 $ 1,778.95 $ 3,545.36
Insurance $ 256.79 $ 258.06 $ 256.36
Property Taxes 1,459.34 1,487.95 1,314.71
Interest 2,807.43 2,642.16 2,539.15
Cable, Water, Park Maintenance 3,741.58 l,693.43 1,804.07
Bank Charges 196.69 230.60 Nil
Repairs and Maintenance 1,837.04 377.48 136.36
Hydro 442.55 576.51 Nil
Housekeeping 327.82 377.48
Professional Fees Nil Nil 80.25
Rental Expense Nil 822.03 145.91
Depreciation 6,062.00 5,455.80 Nil
Total Rental Expenses $17,131.24 $13,921.50 $6,276.81
Net Rental Income (Loss) ($10,226.62) ($12,142.55) ( $2,731.45)
Appellant's Share (50%) ($ 5,113.31) ($ 6,071,27) ($1,365.72)"
[5] At the hearing, Mr. Arnold admitted paragraphs (a) to (c) and (e) to (h) and denied paragraphs (d) and (i) to (k). Mrs. Judilee Arnold made the same admissions and denials for the similar assumptions of fact in her appeal.
[6] The burden of proof is on the Appellants; they must establish on a balance of probabilities that the Minister's reassessments were ill-founded in fact and in law. The sole issue before the Court was whether the Appellants had a reasonable expectation of profit from the trailer rental business for the 1994, 1995 and 1996 taxation years.
[7] The Appellants were the only witnesses at the hearing. They lived and worked in the Pickering, Ontario area; in 1989, they were married in Key Largo, Florida and purchased the trailer which they occupied once per year in 1989, 1990 and 1991. In 1992, they started renting the trailer when it was vacant, however, there were net losses every year since. In 1994 and 1995, they did not occupy the trailer, preferring to stay with friends in the Key Largo area; in 1996, they visited Mexico instead of Florida. They advertized the trailer for rent by word of mouth to friends and they relied on the management of the trailer park to find tenants in return for payment of 35% of the rents received. Over the 156-week period in issue, the trailer was rented out for only 35 weeks.
[8] When the trailer was purchased, it was as an investment that they could sell for a profit or live in themselves when they eventually retired. In August 1995, they listed the trailer for sale through a real estate company in Florida and took it off the market when the agreement expired in February 1997. They did not have previous experience in trailer renting in the Key Largo area, but relied on the advice from friends in Florida that it was a good investment. In 1992, 1997 and 1998 they did not report any income or net losses from the trailer rental; depreciation was claimed in 1994 and 1995, but not in 1996.
[9] I have reviewed the cases provided to me by counsel for the Respondent and they include Cheesemond (J.E.) v. Canada, [1995] 2 C.T.C. 2567D, Fish v. Canada, [1995] 2 C.T.C. 2755D #1, Godzisz v. R., 1998 CarswellNat 2401, Green v. R., [1997] 1 C.T.C. 2668, Landry (C.) v. Canada, [1995] 2 C.T.C. 3, Mastri v. R., 97 DTC 5420, Moldowan v. R. 77 DTC 5213, Stewart v. H.M.Q., [2000] A-337-98, and Tonn v. R., 191 N.R. 182.
[10] The case law on the subject of reasonable expectation of profit is extensive; a reasonable expectation of profit is an objective test and not just a "fanciful dream". The objective test includes the examination of profit and loss experienced in the past years; it also examines the operational plan and background to the implementation of this plan; other criteria include the time spent on the activity, the background education and experience of the taxpayer, the time required to establish the intended business, the presence or absence of ingredients leading to profits, the record of profits and losses, the cause of the losses and the flexibility of the taxpayer to make adjustments in the face of the losses.
[11] Taking into consideration all of the circumstances of these appeals, including the testimony of the Appellants, the admissions and the documentary evidence produced at the hearing, in the light of the well-established case law, I am satisfied that the Appellants have failed in their onus of establishing on a balance of probabilities that during the 1994, 1995 and 1996 taxation years, they had a reasonable expectation of profit in the trailer rental business in Key Largo, Florida.
[12] Accordingly, the appeals are dismissed.
Signed at Ottawa, Canada, this 2nd day of May 2000.
|
"D.R. Watson" |
D.J.T.C.C.
COURT FILE NO.: 1999-3302(IT)I
STYLE OF CAUSE: Maurice Arnold and H.M.Q.
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: April 20, 2000
REASONS FOR JUDGMENT BY: the Honourable Deputy Judge D.R. Watson
DATE OF JUDGMENT: May 2, 2000
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Sherry Darvish
Shameem Rashid
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE NO.: 1999-3296(IT)I
STYLE OF CAUSE: Judilee Arnold and H.M.Q.
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: April 20, 2000
REASONS FOR JUDGMENT BY: the Honourable Deputy Judge D.R. Watson
DATE OF JUDGMENT: May 2, 2000
APPEARANCES:
Agent for the Appellant: Maurice Arnold
Counsel for the Respondent: Sherry Darvish
Shameem Rashid
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada