Date: 19991203
Docket: 98-1995-IT-I
BETWEEN:
MARTINE JACQUOT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
McArthur, J.T.C.C.
[1] These appeals concern the 1992, 1993, 1994 and 1995 taxation years. The point at issue is whether the appellant had a reasonable expectation of profit from her writing (the "Activity") during the taxation years in issue.
[2] The appellant is a francophone poet and novelist residing in Nova Scotia. In computing her income for the 1990 to 1995 taxation years, she reported the following gross income and deducted the following net losses in respect of the Activity:
|
Taxation year |
Gross income |
Expenses |
Net losses |
|||
|
1990 |
$ 80 |
$ 889 |
$ 809 |
|||
|
1991 |
4,014 |
4,014 |
0 |
|||
|
1992 |
285 |
3,767 |
3,482 |
|||
|
1993 |
437 |
13,396 |
12,959 |
|||
|
1994 |
340 |
16,065 |
15,725 |
|||
|
1995 |
2,625 |
4,614 |
1,989 |
|||
[3] Since the 1990 taxation year at least, the appellant has carried on the Activity without ever reporting a net profit. The appellant's gross income for the 1992, 1993 and 1994 taxation years consisted entirely of award money paid to the appellant by the Canada Council and the Public Lending Right Commission. The expenses deducted by the appellant in respect of the Activity for the 1990, 1991, 1992, 1993 and 1994 taxation years consisted of legal and accounting expenses, insurance, interest and bank charges, meals and entertainment expenses, motor vehicle expenses including capital cost allowance, office expenses, travelling expenses and supplies. While some of these expenses seem high to me, I cannot review them to determine whether they were reasonable within the meaning of section 67 of the Income Tax Act (the Act) because this argument was not raised.
[4] The appellant was persistent in carrying on her profession. She wrote her first book in 1982, a second in 1988, a third in 1989, three in 1991, one in 1994 and another in 1995 for a total of eight books published. Following many years of research, she is now writing a romance novel. The eight books she has published include books of poetry, one children's book and a collection of short stories as well as two essays and a novel. She sold no books in 1992, 1993 or 1994.
[5] During the years in issue, the promotion and marketing of the appellant's books was the responsibility of the publisher, Les Éditions Grand Pré, which is run by the appellant's spouse, Henri D. Paratte.
[6] During most of the period in issue, the appellant taught French on a part-time basis.
[7] The appellant is a determined and industrious writer as well as a university lecturer. She has two children under 10 years of age. Her spouse was also the person responsible for publishing her writings. His evidence, while damaging to the appellant, was sincere and credible. He stated that the appellant was a gifted writer and explained the difficulties a francophone writer in the Maritimes must overcome. However, the appellant's market was not limited to the Maritimes; she marketed her books in Quebec and elsewhere. The appellant filed documents which provided corroboration with respect to her energetic and ambitious marketing plans. On the basis of the publicity resulting from the publication of her books, she was invited to give a number of talks in the Maritimes, Quebec and Ottawa, for which she was paid. I therefore cannot accept the respondent's argument that there was no planning by the appellant. I believe she altered her marketing approach after realizing that she was not achieving the success she desired.
[8] I have omitted many details pertaining to the effort the appellant devoted to writing, publishing and selling her works. Her lack of success to date would have discouraged most people, but she perseveres. The appellant and her two witnesses said that most writers who are currently successful also experienced this usual type of rejection early on in their careers. Perseverance is an asset if one is to succeed in this type of profession.
[9] The respondent's position is as follows: (i) the Activity did not constitute a source of income as defined in sections 3 and 4 of the Act; (ii) the losses were not losses from a business or property within the meaning of subsection 9(2) of the Act; (iii) the expenses deducted were not incurred for the purpose of gaining or producing income from a business. The amount of the expenses is not in issue, however.
[10] Did the appellant have a source of income within the meaning of sections 3 and 4 of the Act? Did the appellant's losses stem from that source (subsection 9(2)) and were the expenses incurred for the purpose of gaining or producing income from a business? The main question is, did the appellant operate a business? I have no problem in answering this question in the affirmative. The uncontradicted testimony of the appellant's two witnesses, whom I believe might be characterized as experts in the field of literature, was that Ms. Jacquot operated a business involving the writing, publication and marketing of her books. She proceeded in the same way as certain authors who have become rich and famous have done.
[11] In addition, she is currently working on a book which she hopes will be successful. Perhaps it will, perhaps it will not, but she is operating in a professional manner. This type of business can be very lucrative. The appellant is at the present time involved in talks to have one of her books made into a television or film production. If it is successful, the Department of National Revenue will certainly be there to share in her profits.
[12] Success in her profession is not achieved without effort. It takes months and even years of effort, research, travel and trial and error. Effort often does not produce results. We are nonetheless dealing here with a business, a source of income, and there are expenses that may be incurred in the context of that business. It is not merely a pastime for the appellant. During the years in question, she had two children in addition to a teaching position. It is hard to believe that she spent so many hours doing research and writing, publishing and promoting her books just for her personal gratification. Even though she enjoys her work, her objective is to sell her books and make a profit. Five hundred copies of a number of her books had been published. Relying on Knight v. The Queen, 93 DTC 1255, the respondent argued that, since there was a limited number of items to sell, the appellant could not have had a reasonable expectation of profit. I cannot accept this argument because in any business there is a limited number of products. In my view, this is a business that comes within the definition of "business" set out in subsection 248(1) of the Act since the expression "undertaking of any kind whatever" includes the appellant's Activity. Subsection 248(1) defines "business" as follows:
"business" includes a profession, calling, trade, manufacture or undertaking of any kind whatever and, except for the purposes of paragraph 18(2)(c), section 54.2, subsection 95(1) and paragraph 110.6(14)f), an adventure or concern in the nature of trade but does not include an office or employment.
[13] The appellant's Activity clearly falls within this definition. She had no profit from the Activity, but did have a reasonable expectation of profit. Furthermore, in Knight, Judge Mogan wrote at pp. 1259-60:
I return to the above quoted words from Moldowan. To have a source of income, a taxpayer must have a profit or a reasonable expectation of profit. Source of income, therefore, is an equivalent term to business. If a taxpayer does not have a profit or a reasonable expectation of profit, then he does not have a source of income. And if he does not have a source of income, he does not have a business. The Appellant did not have a business in 1986 or 1987. Therefore, he was not carrying on any business in 1986 or 1987 in respect of which he could incur a loss which would be deductible in computing income for purposes of the Income Tax Act. Having concluded that the Appellant did not have a business in 1986, it is not necessary for me to determine which machines he purported to transfer from his hobby to his business in July 1986 or the fair market value of those machines at that time.
[14] Counsel for the Crown adopted the above reasoning. However, it is the Court's view that the situation here may be distinguished from that addressed by Judge Mogan. In the instant case, Ms. Jacquot did not merely conduct research, experimentation and development; some of her books were published and she is continuing her efforts to promote them. She was operating a business; she therefore had a source of income and, by virtue of that fact, a reasonable expectation of profit.
[15] For the above reasons, the appeals are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment. The appellant is entitled to costs in accordance with the tariff.
Signed at Ottawa, Canada, this 3rd day of December 2000.
"C. H. McArthur"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 11th day of August 2000.
Erich Klein, Revisor