Bowman,
T.C.J.:—
This
is
an
appeal
from
a
determination
of
a
loss
claimed
by
the
appellant
in
its
1985
taxation
year.
The
loss
arises
from
the
appellant's
deduction
in
computing
its
income
of
$17,180.14
consisting
of
$15,000
described
as
“territorial
fees"
and
$2,180.14
office
and
travel
expenses.
The
appellant
claims
that
these
expenses
are
deductible
as
ordinary
business
expenses
in
computing
its
income
as
loss.
The
appellant
had
no
revenues
in
that
year
and
has
had
no
revenues
or
expenses
since
that
time.
The
respondent
denies
the
deduction
on
three
alternative
bases:
(a)
that
they
were
not
laid
out
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property
within
the
meaning
of
paragraph
18(1)(a)
of
the
Income
Tax
Act.
(b)
that
they
were
personal
or
living
expenses
within
the
meaning
of
paragraph
18(1)(h)
within
the
extended
meaning
given
that
term
in
section
248;
(c)
that
they
were
in
any
event
payments
on
account
of
capital
within
the
meaning
of
paragraph
18(1)(b).
The
only
witness
called
was
Barry
English,
a
director
and
shareholder
of
the
appellant.
His
evidence
was
that
in
December
1984
he
had
completed
24
years
with
the
Canadian
Armed
Forces.
During
that
service
he
earned
a
degree
in
business
administration.
He
saw
an
advertisement
in
the
newspaper
placed
by
WGL
Productions
International
Ltd.
("WGL")
inviting
applicants
to
participate
in
the
business
of
putting
on
seminars
on
a
wide
variety
of
topics
in
which
it
was
felt
there
would
be
a
public
interest.
In
January
1985,
he
met
with
a
representative
of
WGL
in
Toronto
and
was
evidently
persuaded
that
there
was
potential
to
earn
a
good
profit
from
organizing
seminars
and
decided
to
participate
in
the
program.
He
entered
into
an
agreement
in
his
own
name
with
WGL
on
January
21,
1985
and
paid
WGL
$15,000
which
was
described
as
a
"once
only
management
fee”.
The
arrangement
was
that
WGL
would
provide
to
"the
Associate”
(Mr.
English)
"a
minimum
of
fifty-two
tested
seminars,
workshops
or
events
in
every
twelve
(12)
month
period
complete
with
a
qualified
speaker
and
with
any
advance
material
required
for
promotional
purposes
.
.
.”.
The
Associate
was
required
to
accept
and
to
present
not
less
than
45
such
seminars,
workshops
or
events
within
that
12-month
period.
His
exclusive
territory
was
said
to
be
Ottawa.
On
February
11,
1985,
the
appellant
was
incorporated.
Although
Mr.
English
testified
on
cross-examination
that
the
agreement
with
WGL
was
assigned
to
the
appellant,
no
other
evidence
of
such
assignment
was
adduced
and
it
was
not
established
that
the
appellant
paid
anything,
either
by
way
of
cash
or
the
issuance
of
shares
or
debt.
Mr.
English
testified
that
his
understanding
was
that
WGL
had
about
eight
or
nine
associates
and
that
there
was
an
administration
manager,
a
research
consultant,
and
an
operations
manager.
He
also
testified
that
he
set
up
an
office
in
Ottawa.
Later
that
spring
he
attended
a
seminar
in
Toronto
and
found
that
the
attendance
was
so
low
that
the
project
was
uneconomic.
In
April
1985,
he
received
a
letter
from
WGL
stating
in
essence
that
the
project
as
conceived
was
not
successful
and
offering
to
“buy
back
your
territory
for
your
original
investment”,
or,
alternatively
to
establish
a
new
business
arrangement
with
WGL's
sister
company
of
selling
franchises.
Mr.
English
not
surprisingly
asked
for
his
money
back
but
notwithstanding
repeated
efforts—including
considering
legal
action—nothing
was
forthcoming
and
by
June
WGL's
telephone
was
disconnected.
It
soon
became
obvious
that
the
project
was
dead
and
the
money
that
Mr.
English
had
invested
was
irrevocably
lost.
I
feel
great
sympathy
for
Mr.
English.
He
resigned
his
commission
in
the
armed
forces
and
invested
his
savings
in
an
ill-conceived
scheme
propounded
by
persons
who
were
at
best
hopelessly
incompetent
visionaries
and.
at
worst
fly-by-night
charlatans.
The
Dun
&
Bradstreet
report
on
WGL
indicated
that
it
was
incorporated
in
September
1984,
and
commenced
business
in
October
1984.
There
was
no
evidence
that
this
company,
of
doubtful
provenance
and
more
doubtful
prospects,
had
the
facilities,
experience,
expertise,
staff
or
capital
to
carry
out
any
of
its
obligations
under
the
agreement.
By
June
1985,
it
disappeared,
leaving
Mr.
English
and
the
other
associates
empty-handed.
Mr.
English
has
been
victimized
and
although
he
is
to
some
extent
the
author
of
his
own
misfortunes
in
failing
to
examine
WGL
more
critically,
he
is
entitled
to
know
why
his
company
is
not
entitled
to
deduct
the
amounts
that
he
spent.
I
accept
that
the
money
was
spent
in
good
faith
in
the
hope
and
expectation
that
it
would
result
in
a
profitable
enterprise.
The
fact
that
Mr.
English
made
an
error
in
judgment
and
that
his
expectations
turned
out
to
be
wrong
is
not,
in
itself,
a
reason
for
denying
deductibility.
As
Cattanach,
J.
observed
in
a
somewhat
different
context
in
Gabco
Ltd.
v.
M.N.R.,
[1968]
C.T.C.
313;
68
D.T.C.
5210
it
is
not
the
place
of
this
Court
or
the
Minister
of
National
Revenue,
after
the
event,
to
second-guess
a
taxpayer's
business
acumen.
At
page
323
(D.T.C.
5216)
Cattanach,
J.
said:
It
is
not
a
question
of
the
Minister
or
this
Court
substituting
its
judgment
for
what
is
a
reasonable
amount
to
pay,
but
rather
a
case
of
the
Minister
or
the
Court
coming
to
the
conclusion
that
no
reasonable
business
man
would
have
contracted
to
pay
su
such
an
amount
having
only
the
business
consideration
of
the
appellant
in
mind.
.
.
.
Risky
enterprises
sometimes
succeed
and
become
taxable.
Where
they
fail
it
would
be
unconscionable
for
the
entrepreneur
to
be
penalized
because
the
Minister,
basing
his
decision
on
the
wisdom
of
hindsight,
concludes
that
the
project
was
not
commercially
viable.
I
do
not
accept
the
respondent's
contention
that
there
was
no
reasonable
expectation
of
profit.
In
Moldowan
v.
The
Queen,
[1977]
C.T.C.
310;
77
D.T.C.
5215,
a
decision
of
the
Supreme
Court
of
Canada
dealing
with
section
31
of
the
Income
Tax
Act,
Dixon,
J.
(as
he
then
was)
stated
at
page
313
(D.T.C.
5215):
There
is
a
vast
case
literature
on
what
reasonable
expectation
of
profit
means
and
it
is
by
no
means
entirely
consistent.
In
my
view,
whether
a
taxpayer
has
a
reasonable
expectation
of
profit
is
an
objective
determination
to
be
made
from
all
of
the
facts.
The
following
criteria
should
be
considered:
the
profit
and
loss
experience
in
past
years,
the
taxpayer's
training,
the
taxpayer's
intended
course
of
action,
the
capability
of
the
venture
as
capitalized
to
show
a
profit
after
charging
capital
cost
allowance.
The
list
is
not
intended
to
be
exhaustive.
The
factors
will
differ
with
the
nature
and
extent
of
the
undertaking:
The
Queen
v.
Matthews,
[1974]
C.T.C.
230;
74
D.T.C.
6193.
One
would
not
expect
a
farmer
who
purchased
a
productive
going
operation
to
suffer
the
same
start-up
losses
as
the
man
who
begins
a
tree
farm
on
raw
land.
Here
Mr.
English
left
his
position
with
the
armed
forces,
invested
$15,000
and
believed
in
good
faith
and
not
unreasonably
that
the
presentation
of
seminars
could
be
profitable.
Such
enterprises
frequently
are
highly
profitable
if
the
organization
under
whose
aegis
the
seminars
are
conducted
has
adequate
staff
and
expertise.
He
did
not
foresee
that
WGL
was
as
shaky
as
it
turned
out
to
be.
It
should
be
noted
that
the
statutory
provision
upon
which
the
Minister
relies,
paragraph
18(1)(h),
has
in
any
event
no
application.
The
expression
"personal
or
living
expense"
in
ordinary
parlance
does
not
encompass
a
payment
made
in
the
context
of
a
commercial
relationship
of
the
type
involved
here.
Section
248
extends
the
meaning
of
the
expression
to
include,
inter
alia:
(a)
the
expenses
of
properties
maintained
by
any
person
for
the
use
or
benefit
of
the
taxpayer
or
any
person
connected
with
the
taxpayer
by
blood
relationship,
marriage
or
adoption,
and
not
maintained
in
connection
with
a
business
carried
on
for
profit
or
with
a
reasonable
expectation
of
profit
The
words
following
"marriage
or
adoption"
are
clearly
conjunctive
with
the
preceding
words.
Accordingly,
the
statutory
underpinning
of
the
Minister's
position
on
this
point
is
lacking.
It
was
contended
as
well
that
the
money
was
not
laid
out
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property.
In
light
of
the
disposition
that
I
propose
to
make
of
this
case
I
shall
not
embark
on
a
lengthy
consideration
of
the
application
of
paragraph
18(1)(a)
of
the
Act
to
these
facts.
It
is
clear
that
the
purpose
of
Mr.
English
in
spending
the
money
was
to
earn
income
from
the
proposed
business
of
presenting
seminars.
As
Abbott,
J.
stated
in
British
Columbia
Electric
Railway
v.
M.N.R.,
[1958]
C.T.C.
21;
58
D.T.C.
1022
most
expenditures
made
in
a
business
context
are
made
for
the
purpose
of
gaining
or
producing
income
and
are
therefore
not
prohibited
by
paragraph
12(1)(a),
the
predecessor
of
paragraph
18(1)(a).
Once
that
determination
is
made,
it
is
necessary
to
consider
whether
they
are
prohibited
by
paragraph
18(1)(b)
(formerly
12(1)(b))
as
being
on
capital
account.
At
pages
31-32
(D.T.C.
1027)
Abbott,
J.
(with
whom
the
Chief
Justice
and
Fauteux,
J.
agreed)
stated:
Since
the
main
purpose
of
every
business
undertaking
is
presumably
to
make
a
profit,
any
expenditure
made
"for
the
purpose
of
gaining
or
producing
income"
comes
within
the
terms
of
Section
12(1)(a)
whether
it
be
classified
as
an
income
expense
or
as
a
Capital
outlay.
Once
it
is
determined
that
a
particular
expenditure
is
one
made
for
the
purpose
of
gaining
or
producing
income,
in
order
to
compute
income
tax
liability
it
must
next
be
ascertained
whether
such
disbursement
is
an
income
expense
or
a
capital
outlay.
The
principle
underlying
such
a
distinction
is,
of
course,
that
since
for
tax
purposes
income
is
determined
on
an
annual
basis,
an
income
expense
is
one
incurred
to
earn
the
income
of
the
particular
year
in
which
it
is
made
and
should
be
allowed
as
a
deduction
from
gross
income
in
that
year.
Most
capital
outlays
on
the
other
hand
may
be
amortized
or
written
off
over
a
period
of
years
depending
upon
whether
or
not
the
asset
in
respect
of
which
the
outlay
is
made
is
one
coming
within
the
capital
cost
allowance
regulations
made
under
Section
11
(1)(a)
of
the
Income
Tax
Act.
What
is
fatal
to
the
appellant's
case
is
that
at
the
time
Mr.
English
spent
the
money
neither
the
appellant
nor
the
business
existed.
Although
the
appellant
was
incorporated
on
February
11,
1985,
the
business
never
did
come
into
existence.
No
evidence
was
adduced
of
any
formal
assignment
to
the
appellant
of
the
contract
or,
if
there
was
one,
of
any
payment
to
Mr.
English
of
any
amount
by
the
appellant
for
such
assignment.
Nor
was
it
suggested
that
the
payment
was
made
as
agent
for
the
as
yet
non-existent
appellant,
assuming
such
a
relationship
can
exist
as
a
matter
of
law.
Even
if
that
evidentiary
hurdle
had
been
surmounted
I
would
still
have
been
obliged
to
dismiss
the
appeal
on
the
basis
that
the
payment
was
essentially
anterior
to
the
commencement
of
a
business
which,
as
it
turned
out,
never
did
commence.
(See
Daley
v.
M.N.R.,
[1950]
C.T.C.
254;
50
D.T.C.
877.)
At
best
such
a
payment
would
have
been
on
capital
account.
One
final
point
merits
comment.
This
Court
does
not
exist
for
the
purpose
of
determining
academic
questions.
The
loss
claimed
by
the
appellant
consisted
solely
of
the
payments
in
issue
here.
Had
I
concluded
that
the
expenses
had
been
incurred
by
the
appellant
and
that
they
were
deductible
as
business
expenses,
this
would
have
given
rise
to
a
non-capital
loss
that
could
be
carried
forward
under
section
111
of
the
Act
as
a
deduction
in
computing
taxable
income
for
later
years.
The
appellant
has
had
no
income
and
no
business
since
that
time
and
no
intention
or
prospect
of
having
any.
I
asked
the
appellant's
representative
what
purpose
was
served
in
appealing
from
the
Minister's
determination
of
loss
if
the
loss
was
expected
to
expire
in
any
event
by
the
end
of
1992.
I
was
informed
that
the
purpose
of
the
appeal
was
to
enable
Mr.
English,
if
he
wound
the
appellant
up,
to
claim
an
allowable
business
investment
loss
under
section
38
of
the
Act.
Mr.
English’s
entitlement
to
such
a
loss
should
be
determined
on
assessing
his
return
for
the
year
in
which
the
claim
is
made
or,
if
denied,
on
an
appeal
by
him.
I
do
not
think
that
it
is
appropriate,
in
an
appeal
by
this
appellant,
to
have
a
question
determined
that
is
of
interest
only
to
Mr.
English
and
that
will
never
have
any
practical
application
to
the
appellant.
It
might
be
noted,
however,
that
for
Mr.
English
to
claim
an
allowable
business
investment
loss
on
the
disposition
of
the
shares
of
the
appellant,
it
is
necessary
for
the
appellant
to
be
a
“small
business
corporation".
This
in
turn
requires
that
the
appellant
had
carried
on
an
active
business.
My
conclusion,
on
the
evidence
before
the
Court,
was
that
the
appellant
carried
on
no
business.
The
appeal
is
dismissed.
Appeal
dismissed.