1999-2434(IT)I
BETWEEN:
JOHN DINN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on November 3, 1999, at St. John's, Newfoundland, by
the Honourable Judge C.H. McArthur
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Louis Williams
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1994, 1995 and 1996 taxation years are dismissed.
Signed at Ottawa, Canada, this 26th day of November 1999.
|
"C.H. McArthur" |
J.T.C.C.
Date: 19991126
Docket: 1999-2434(IT)I
BETWEEN:
JOHN DINN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
McArthur, J.T.C.C.
[1] The Appellant appeals the reassessment of the Minister of National Revenue disallowing business losses of $33,743, $15,418 and $20,769 for the 1994, 1995 and 1996 taxation years, respectively.
[2] The Appellant is a retired school teacher and now is an elected counsellor with the City of St. John's, Newfoundland. The Minister disallowed the losses claimed in the taxation years in issue with respect to a landscaping business on the basis that it had ceased operations in December 1992 and did not exist in the relevant years. The Appellant stated that while the business ceased operation in 1992, expenses from that business arose in 1994, 1995 and 1996.
[3] The Appellant acknowledged that some expenditures claimed had been previously included in his 1991 and 1992 taxation years. He was claiming them twice. At trial, he reduced the amounts he was claiming to approximately:
1994 taxation year - $13,600
1995 taxation year - $ 6,000
1996 taxation year - $ 7,500
These losses were for the most part from the landscaping business and were largely comprised of amounts paid under the Excise Tax Act legislation for goods and services tax and mortgage principal and interest paid on a 12-acre parcel of land. The GST was tax paid after his teacher's pension and City counsellor's salary were garnisheed.
[4] The mortgage was on a vacant parcel of land the Appellant purchased for approximately $48,000. He intended using the land for topsoil and sod. After the landscaping business was disposed of he no longer had use for the land yet continued to make mortgage payments. The land is retained by his son and has a present-day value of approximately $60,000. The mortgage is also now paid off.
[5] Counsel for the Respondent referred to the case of Potulicki v. The Queen,[1] wherein Justice Joyal of the Federal Court, Trial Division disallowed deductions of losses because the taxpayer's business had ceased to operate. Justice Joyal concluded there can be no reasonable expectation of profit when a business has ceased operating.
[6] In the present case, I have tried to find in favour of the Appellant but cannot. The Appellant pleaded his own case and while he has the Court's sympathy, I cannot provide relief within the provisions of the Income Tax Act. To be deductible, the expenses must have been incurred for the purpose of gaining or producing income from a business pursuant to paragraph 18(1)(a) of the Act. Mortgage interest paid for the land may well have been a deductible expense when the business was operating but it is not an expense incurred for earning income after the business was sold in December 1992. The expense was incurred to retain the land presumably for resale in a favourable market. It was not an expense in 1994 of the landscaping business which the Appellant sold in 1992.
[7] The following remarks of Cullen J. in Emerson v. The Queen,[2] apply equally to the present case:
Thus an interest expense is deductible under the Income Tax Act only as an expense of earning or producing income, and if the source of those earnings, be it business or property, no longer exists, the exemption disappears.
...
An essential requirement, therefore, of any deduction on account of interest pursuant to 20(1)(c) is the existence of the source to which the expense relates and if the source has been terminated, as is the case here, the interest expense is no longer deductible. The continuing obligation to meet the interest costs of an outstanding loan, after the source has been extinguished, is not relevant.
I do not believe the GST payment was a business loss in 1992 let alone 1994, 1995 and 1996. Presumably, the debt was unremitted GST collected during the Appellant's operation of the landscaping business. Under the Excise Tax Act the amount collected, subject to input tax credits, is considered to be held in trust for the Minister. It was not the Appellant's money and not an expenditure incurred to earn income. Further, I agree with counsel for the Minister that there was no source of income in 1994, 1995 and 1996 from which the payment could be deducted.
[8] The Appellant further sought to deduct the sum of $1,066 being an arbitrary allocation of one monthly mortgage payment on his home, which home he states was used for his business. While an expense for use of his home may be reasonable for the strawberry business, there was insufficient information to make such a determination. The appeals are dismissed.
Signed at Ottawa, Canada, this 26th day of November 1999.
|
"C.H. McArthur" |
J.T.C.C.
COURT FILE NO.: 1999-2434(IT)I
STYLE OF CAUSE: John Dinn v. The Queen
PLACE OF HEARING: St. John's, Newfoundland
DATE OF HEARING: November 3, 1999
REASONS FOR JUDGMENT BY: The Honourable C.H. McArthur
DATE OF JUDGMENT: November 26, 1999
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Louis Williams
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada