The taxpayer, in 1959, purchased 200 acres of property in the Calabogie area of Lanark, as a holiday property for himself and his family. In 1961 it became their principal residence. He worked in Ottawa, both at that time and in the subsequent years; initially he commuted between the Lanark property and his Ottawa job on a daily basis. In the early 1970s he began living in Ottawa during the week and commuting home to the property only on weekends. When the property was first purchased, there was an old brick house on it which was not suitable as a residence for the family. A new house (referred to in the evidence as the D.V.A. house) was built; the family moved into it. It is clear that the family's lifestyle was such as to enjoy the rural location.
In 1974 the taxpayer decided to turn part of the property into a campground; 8 serviced campsites and approximately 12 unserviced sites were created for this purpose. There was as well room for at least 10 other unserviced campsites more or less immediately available and potential for expansion to a much larger number (e.g., 100). Outhouses were built; a trout pond constructed; and the requisite service roads installed. The tax treatment of the expenses incurred with respect to this construction is not part of the dispute in this case.
After these initiatives had been taken, sometime towards the end of 1975 or the beginning of 1976, the taxpayer sought the advice of a consultant with the Ontario Ministry of Tourism, a Mr. Bingham. The advice sought was with respect to the possibility of developing the campground and obtaining a business loan for this purpose. The taxpayer had applied in early 1975 for a loan and was turned down in September of that year.
The taxpayer's consultations with Mr. Bingham in the later half of 1975 and beginning of 1976 led to suggestions for the development of the campsite through the construction of additional facilities: additional serviced sites; proper toilets; laundry facilities; a store on the property; a swimming pool; an activities building which might be used by the campers in bad weather. The taxpayer's accountant, Mr. McCoy, in early 1976 prepared projections as to the proposed profitability of the venture if the proposed development took place. These projections showed losses in the first year (1976-77) but a profit thereafter. The projections were based on information given to Mr. McCoy by the taxpayer and they envisaged the obtaining of a $280,000 loan. The taxpayer applied to the Eastern Ontario Development Corporation, in 1979, for a loan ($45,000, not $280,000). Mr. Bingham was asked to evaluate the loan application from the Department of Tourism's point of view. He was asked to consider: whether the taxpayer had the management capability to effect and operate the proposed development; whether there would be any negative effects on competitors in the area if the development took place; whether the taxpayer's marketing plans looked reasonable. Mr. Bingham's evaluation did not involve any financial analysis of the application. Mr. Bingham recommended that the loan application go forward for the next step, evaluation by the Eastern Ontario Development Corporation. The taxpayer was unable to obtain the loan, because the Eastern Ontario Development Corporation's funds are new money for new projects.
The taxpayer purchased a "prefab" house for $40,000 which was constructed across the road from the D.V.A. house. The family moved into that house in January of 1980. The taxpayer contends that he had decided to proceed with the plans for the development of the campsite by turning the D.V.A. house into the general activities building envisaged in the projected development. He states that he planned to add laundry facilities, toilets, etc., thereto. During 1980, the taxpayer rented the D.V.A. house to his daughter for $100 per month. This was not sufficient to cover the mortgage costs of the property. In May 1980 the taxpayer had a massive heart attack. He was incapacitated until at least September of that year. The taxpayer continued to charge the mortgage expenses of the property as a business expense.
The profit and loss record of the taxpayer's business never showed a profit from the first year of its operation, in 1975 to 1985. The taxpayer has consistently reported losses for the years 1977 to 1983 as follows:
1977.....................$ 7,985.54
1978.....................$ 8,676.84
1979.....................$ 8,383.37
1980.....................$14,491.57
1981.....................$24,414.44
1982.....................$14,350.77
1983.....................$14,508.35
The gross income for the campground itself for the years 1977 to 1980 was:
1977........................$ 86
1978........................$ 134
1979........................$258
1980........................$520
After 1980, the campground income was reported in a combined fashion with that received from the cottage and farmhouse property; therefore, it cannot be separately identified. The evidence is sketchy with respect to the renting of the cottage, the farmhouse and the D.V.A. house. That which exists does not show a vigorous and concerted effort to run a business. The D.V.A. house, as well as being rented to the taxpayer's daughter for $100 per month in 1980, was rented during a few of the winter months in 1981-82 to some loggers and for approximately six months in 1984 to some miners who were prospecting in the area.
Camp Coup land was listed in a Government of Ontario camping brochure published for the 1981 season and the taxpayer had had some calling cards made with Camp Coup land, the address, a map and rates listed thereon. No expenses for advertising of the Camp were included in his 1975-1985 tax returns.
REQUIRED
Determine whether expenses incurred by the taxpayer during the 1980 and 1981 taxation years are business expenses that are deductible for tax purposes.