[OFFICIAL ENGLISH TRANSLATION]
Date: 20011221
Docket: 1999-4820(IT)I
BETWEEN:
ARMAND DESROCHES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: Alain Gareau
____________________________________________________________________
REASONS FOR JUDGMENT
(delivered orally from the bench
on September 26, 2001, at Québec, Quebec)
Garon, C.J.T.C.C.
[1] These are appeals from income tax assessments for the 1995, 1996 and 1997 taxation years. By those assessments, the Minister of National Revenue disallowed deduction of the amounts of $14,716, $16,459 and $12,502 claimed by the appellant in computing his income from his activity as a writer for the three years in issue.
[2] In proceeding with the assessments in appeal, the Minister of National Revenue relied on the allegations of fact stated in paragraph 4 of the Reply to the Notice of Appeal. That paragraph reads as follows:
[TRANSLATION]
4. In making the assessments in issue, the Minister of National Revenue made, in particular, the following assumptions of fact:
(a) The appellant worked for Hydro-Québec as an electronics technician until he retired in 1992;
(b) The appellant has engaged in his activity as a writer since May 1992;
(c) The appellant has reported no income from that activity since 1992;
(d) During the 1992, 1993, 1994, 1995, 1996 and 1997 taxation years, the appellant deducted the following losses in respect of his writing activity:
1992: $11,956
1993: $15,453
1994: $13,649
1995: $14,716
1996: $16,459
1997: $12,502
(e) A significant portion of the expenses claimed during those years related to home office expenses, the renovation of the appellant's residence and expenses relating to his car;
(f) During the taxation years in issue, the appellant developed no specific plan to make his writings profitable;
(g) During the years in issue and during the previous years, the appellant was not represented by any publisher or agent for the promotion and commercialization of his work;
(h) Furthermore, the appellant's writings have not been published to date and have not been the subject of any public or private launch;
(i) The nature of the expenses incurred and the other circumstances described above in subparagraphs 4(a) to (h) of this reply to the notice of appeal show that the appellant's literary activity constitutes more a personal interest than the operation of a business in a genuine commercial and economic context;
(j) The appellant did not show that the expenses giving rise to the business losses claimed were made or incurred during the taxation years in issue for the purpose of gaining business income within the meaning of paragraph 18(1)(a) of the Income Tax Act;
(k) During the years in issue, the appellant had no reasonable expectation of earning a profit from his writing activity.
[3] The appellant admitted the allegations in subparagraphs (a) to (f) inclusive and subparagraph (h) of paragraph 4 of the Reply to the Notice of Appeal. He denied the allegations involved in subparagraphs (g), (i), (j) and (k) of the same paragraph.
[4] The appellant testified that he began his writing activity on a part-time basis in 1989. At the time, he was an electronics technician with Hydro-Québec. He continued that writing activity on a full-time basis starting in May 1992, having stopped working for Hydro-Québec at that time.
[5] During his testimony, the appellant insisted that the expenses for which he was claiming a deduction were actual expenses relating in large part to the renovation of the house where he had fitted up a work place. He stated that no invoice was false.
[6] As to the business plan, he said that a plan for such a small business exists in an individual's mind. He added that a business plan is normally prepared for presentation to the banks and recalled, in his case, that he had financed his plan out of money from his "retirement fund".
[7] On the subject of the allegation in subparagraph 4(g) of the Reply to the Notice of Appeal that the appellant was not represented by any publisher or agent for the promotion and marketing of his work, the appellant referred to a document signed by Louise Courteau from a publishing firm in which she mentioned the many efforts made by the appellant. That document confirms that she had spent at least 50 hours making [TRANSLATION] "language corrections" before deciding not to publish the work because, the appellant said, Ms. Courteau's [TRANSLATION] "spiritual conscience" no longer supported [TRANSLATION] "the new psychological principles advanced by the appellant". The appellant made other attempts to interest publishing firms by sending them copies of the manuscript for review.
[8] The appellant also testified that he had established his own publishing firm in May 1993. That firm published no books from 1993 to 1999. The first book the firm published was in 2000. He added that, in October 2000, Québecor World St-Jean had printed 2,000 copies of his tenth book entitled "Bonne fête Carolanne", a compilation of nine manuscripts. That publication had required the services of a professional computer graphics designer at a cost of $1,800. The cost to have the book printed by Québecor had amounted to $25,000. The appellant also explained that, during all the years preceding the publication of his work, he had continually revised his manuscripts.
[9] In his testimony, the appellant described his passion for writing in the field of psychology. He said that, at one point, he had allowed himself to be "swept away" by that passion. In cross-examination, he noted on the subject [TRANSLATION]: "I sort of fell into a writer's passion for psychology."
[10] Statements of expenses incurred by the appellant during the three years in issue were filed in evidence.
[11] The appellant also stated that he had studied psychology on a part-time basis at the Université du Québec à Rimouski for 10 years. He holds no degree and, more particularly, did not earn a bachelor's degree. He appears to attribute this situation to the fact that some professors did not appreciate the fact that he had not accepted traditional psychology. He also said that he was [TRANSLATION] "incapable of learning texts, of understanding what was being put forward, as is done in traditional psychology".
[12] The appellant testified that he had given a few lectures to a limited number of persons whom he himself had invited. Those few lectures involved new concepts in psychology. He published no article on psychology during the period in issue in these reasons.
[13] The appellant also provided therapy to a number of persons, without remuneration in most cases.
Analysis
[14] In view of this evidence, I must determine whether the appellant is entitled to deduct the expenses involved in the three years in issue. To answer this question, I must decide whether the appellant operated a business. For there to be a business, a taxpayer must at least have a reasonable expectation of profit by carrying on a specific activity. This approach was particularly well described in the decision by the Supreme Court of Canada in Moldowan v. The Queen, 77 DTC 5213.
[15] The most important facts in making this determination are as follows.
The appellant devoted all his energy to writing books on psychology for nearly 10 years having begun this writing occupation on a full-time basis in May 1992. As noted above, he had previously engaged in this occupation on a part-time basis for three years.
[16] It was not until October 2000 that he had a book published, which was a synthesis of nine manuscripts. And yet he himself had founded a publishing firm in 1993.
[17] Since 1992, the appellant has earned no income from this writing activity in the field of psychology. During that entire period of nearly 10 years, he signed no contract with a publishing house for the promotion and sale of his writings.
[18] As the appellant clearly stated in his testimony, he had a passion for writing in the field of psychology. He noted that he had allowed himself to be swept away by that passion. According to the appellant, he developed revolutionary concepts relative to traditional psychology.
[19] I unreservedly accept the appellant's testimony on his reasons for carrying on this profession. I am persuaded by his testimony that, in the years in issue, the appellant was not motivated by considerations of profit, by a commercial end, but rather by the desire to develop new psychological concepts. He did not hesitate in so doing to incur relatively large expenses to achieve that goal.
[20] The appellant brought no evidence of the kinds of activity and efforts that might result in a profit, as Judge McArthur of this Court decided in Jacquot v. Canada, [1999] T.C.J. No. 838. The appellant's situation more closely resembles the one in Lobban v. Canada, [1992] T.C.J. No. 564, a decision by my colleague Judge Margeson. I find that the appellant was a dilettante in his work in psychology.
[21] I conclude from the whole of the evidence that it was mainly for his own personal satisfaction that the appellant carried on the writing activities in which he engaged during the three years in issue and during the preceding and following years. The appellant, who had the burden of proof, did not show that he had a reasonable expectation of profit in carrying on his activities.
[22] For these reasons, the appeals from the three assessments in issue are dismissed and the assessments are confirmed.
Signed at Ottawa, Canada, this 21st day of December 2001.
|
"Alban Garon" |
C.J.T.C.C.
Translation certified true
on this 27th day of March 2003.
Sophie Debbané, Revisor