Date: 20010820
Docket: 2000-3222-IT-I
BETWEEN:
HAYDEN ADORE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Miller, J.T.C.C.
[1] Mr. Hayden Adore appeals by way of Informal Procedure the Minister's assessment of his 1995 and 1996 taxation years. Mr. Adore claimed business losses of $10,982.37 and $17,267.42 respectively in those years, from a purported magazine publishing business. The Minister maintains there never was a business; even if there was, the Minister contends the expenses claimed were not incurred for the purpose of producing income and in any event were not reasonable. I need not delve into the alternative arguments as I find there was not a business.
[2] Mr. Adore gave extensive evidence regarding his efforts in connection with the business he claimed to have run. His testimony was at times contradictory, his recollection of certain events sketchy and his explanation of timing of occurrences confusing.
[3] In 1995 Mr. Adore was a police officer working in a community oriented position in a school. He identified a need to empower students and considered delivering this through the use of a magazine; as he described it, a magazine for youth by youth. He indicated he went about contacting business people and forming an advisory board and working committee. Mr. Adore produced a mock-up of the magazine which illustrated the format, but did not actually contain any articles. The magazine referred to a management group as well as an advisory committee. Mr. Adore did not produce any of these individuals, although the Respondent did call evidence from two of them. One, Mr. John Lashway, an executive in the Toronto Raptors organization, had never heard of the magazine, had not been asked to sit on a board, had never met any other members and did nothing at all in connection with the magazine. The other, Ron Boyce, a friend and colleague of Mr. Adore's, was shown as vice president but indicated he at no time acted as a vice president of the magazine. He and Mr. Adore took a magazine publishing course together, and Mr. Boyce was accommodating Mr. Adore's requirements for the course by letting his name show on the mock-up as a vice president. When asked about the other business names shown on the mock-up it became clear that many had not been asked and none were actually involved other than in a peripheral manner. For example, a Mr. Peter White was one of the instructors of the course that Mr. Adore and Mr. Boyce took at Ryerson College. The business people Mr. Adore might have contacted in the early stages were contacted more on the basis of a preliminary investigation than any serious involvement. Mr. Adore did make contact with the Toronto Raptors organization but there was no evidence from Mr. Lashway that this was in connection with a magazine seeking Raptors' support. Mr. Adore also met with the Ontario Minister of Education, his local Member of Parliament, who he believes supported his project. Mr. Adore maintained that the change of the Minister significantly diminished government support and was a major factor in deciding not to proceed by early 1996. The Minister however did not actually lose the education portfolio until late 1997.
[4] Mr. Adore presented his idea of the youth magazine to a Mr. Warren Oster who apparently had some expertise in the magazine industry. Two of Mr. Oster's staff provided written feedback to Mr. Adore, in mid-November, 1995 suggesting the project was "far fetched". Mr. Adore relied on this dose of financial realism as the second reason why he ultimately did not proceed.
[5] It was apparent to Mr. Adore he would have to seek corporate sponsorship to make the project financially viable. While he suggested he contacted some potential corporate sponsors, there was no evidence of any written communication to or from any proposed sponsors. He also maintained he contacted school boards for support. Mr. Adore described these efforts as his research and development.
[6] In the fall of 1995 Mr. Adore enrolled in a course at Ryerson on magazine publishing. He had to submit a business plan as part of this course. Though he denied he had to submit the mock-up. Mr. Adore submitted in evidence a copy of the business plan, some financial projections and a copy of the mock-up. There were some inconsistencies between the plan and the financial information, which Mr. Adore put down to the project being an evolving process, and perhaps he had later amended drafts of these documents. One example of the confusion was the projected start up of the magazine. He indicated that the first issue initially was set for September 1996 but this was moved up to January 1996. Having received some negative financial feedback in November 1995, moving up the start date appears at odds with this advice.
[7] There is no evidence that Mr. Adore registered a name, and again there was some confusion as to whether the project was called "Front and Center" or "Leaders Publishing Inc." or "Adelon Communications Inc.", a name which appeared on some of the financial information. He presented evidence of the incorporation of Leaders Publishing Inc., which was dated July 1996 several months after he said he abandoned the project.
[8] Mr. Adore maintained he visited publishing production facilities in Ottawa, Windsor and Hamilton and provided a copy of the magazine whose facilities he toured. This was an American magazine called Mentor. The magazine gave no indication of having Canadian production facilities and Mr. Adore could not recall exactly where in Ottawa he went.
[9] There was some considerable cross-examination on Mr. Adore's actual expenditures, especially as there was little documentation and support. Mr. Adore indicated the records were stolen from his father's home in March 1998, and provided a police report evidencing the reporting of the burglary. The report did not indicate the taking of any business records.
[10] In 1995 and 1996 Mr. Adore reported business income of $2,500.00 and $4,200.00 respectively on his tax returns. Against this he deducted significant expenses. He acknowledged that he had given up on the project by February or March of 1996. There was detailed questioning of the 1996 expenses and it was clear that some of the expenses pertained to Raptors tickets for 1997. Travel expenses included a trip to Bermuda as well as $4,790 for a trip to Windsor, Hamilton and Ottawa. Given my finding I need not explore the make-up of these expenses any further.
[11] For Mr. Adore to deduct the expenses disallowed in 1995 and 1996 he must prove that there was a business constituting a source of income to which the expenses relate. The familiar line of cases which shape this principle, starting with Moldowan v.Her Majesty the Queen, 77 DTC 5213, lead me to ask the inevitable critical question. Did Mr. Adore have a business? If indeed there are sufficient indices of commerciality it is then necessary to determine if that business had a reasonable expectation of profit, as only such a business is a source of income as contemplated by section 3 of the Income Tax Act (the "Act"); and subject to further application of the provisions of the Act as they pertain to eligible deductible expenses.
[12] In this case I need not look beyond the first question, as I find Mr.Adore was not engaged in a business. However laudable his objectives may have been in pursuing a project to establish a magazine for youth, the steps he took to attempt to meet those objectives, which were not ultimately met, are not sufficiently of a commercial nature to constitute a business.
[13] There are several factors to consider in answering Associate Chief Judge Bowman's question, as posed in Kaye v. Her Majesty the Queen 1998 CarswellNat 575, 98 DTC 1659, [1998] 3 C.T.C. 2248:
Would a reasonable person, looking at a particular activity and applying ordinary standards of commercial common sense, say 'yes, this is a business'?
[14] Some of the factors are the time spent, the capital invested, the preparation and implementation of a plan, the records maintained, the financial statements issued, bank accounts, stationary, cards, business phone numbers, advertising, promotion, business premises and the behaviour of the taxpayer as a business person versus for personal benefit. This list is not exhaustive and each situation must be assessed with a view to determining if the operation as a whole looks like and acts like a business. In this case it does not.
[15] Mr. Adore's activities in its best light can be described as a preliminary investigation into the viability of starting a small business. It was not the operation of a small business itself. Mr. Adore did take some early measures to assess the feasibility of the magazine. He did contact some organizations, including the Toronto Raptors. He also had an already established business critique his idea. Further, he enrolled in a course about publishing a magazine. The results of these few steps led Mr. Adore to the very sensible conclusion that he should not get into business. Throughout this time Mr. Adore was a full-time police officer. He also testified he earned some extra income by painting for friends. The time spent on the proposed magazine was limited and was primarily in connection with the course which he took at Ryerson. Very little time apart from that, and little capital were invested in the project. While he submitted a plan, it was clear this was a requirement of the course he took. I put little weight on this factor as supporting an actual commercial enterprise. Few if any steps were taken to implement the plan. Mr. Adore's evidence regarding the management and advisory committees added to the evidence of Mr. Lashway and Mr. Boyce, left the clear impression that no management or advisory committee ever functioned as such. These were simply names of people Mr. Adore hoped would be involved if the magazine ever got off the ground. There was no evidence of actual financial statements, just projected numbers attached to the plan. There was no evidence of ledgers or books of account. Any records, such as invoices, were alleged by Mr. Adore to have been stolen, though I am not satisfied he successfully proved that point. There were no business cards, no separate bank accounts, no separate business premises, no corporate sponsors and no financing. Mr. Adore acted less like a businessman and more like someone with an idea that simply never went anywhere. That is not a business, no business, no losses. I dismiss the appeal.
Signed at Ottawa, Canada this 20th day of August, 2001.
"C. J. Miller"
J.T.C.C.COURT FILE NO.: 2000-3222(IT)I
STYLE OF CAUSE: Adore Hayden and The Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: August 1, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge C. J. Miller
DATE OF JUDGMENT: August 20, 2001
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: James Gorham
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-3222(IT)I
BETWEEN:
HAYDEN ADORE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on August 1, 2001 at Toronto, Ontario
by the Honourable Judge C. J. Miller
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: James Gorham
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1995 and 1996 taxation years are dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 20th day of August, 2001.
|
"C. J. Miller" |
J.T.C.C.