Citation: 2011 TCC 153
Date: 20110310
Docket: 2010-2350(IT)I
BETWEEN:
MARILYN I. DICKSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
This is an informal
appeal heard in Toronto in respect of denied business losses. Ms. Dickson
is a retired elementary school teacher and teachers’ association official. In
the years in question she drew a pension from those activities. The years in
question are 2005 through 2007. Ms. Dickson is now over 65 years old.
[2]
Ms. Dickson
represented herself and was her only witness. She produced detailed written
records in support of her position including detailed calendars and expense
summaries. She acknowledged that the “invoices” she had prepared for her
organist work were not delivered to those for whom she played the organ.
[3]
Ms. Dickson
engaged in flight instruction, church organist and book‑writing
activities and endeavours in respect of which she claimed losses in the years
in question. The Canada Revenue Agency (“CRA”) reassessed her to deny the
deduction of those losses. The issue in these appeals is which if any of those
activities constituted a business activity of hers in these particular years.
[4]
At the opening of the
hearing the Crown brought a motion to strike her 2007 appeal to this Court on
the basis that she had not brought it in time. She had filed an objection to her
initial 2007 reassessment in timely fashion. However, when that year was further
reassessed thereafter, she did not file an appeal to this Court within the
90 days permitted by section 169. The further one‑year period
in which to bring a request for late‑filing of such an appeal has long
since expired.
[5]
The taxpayer,
representing herself, also complained that the audit had also focused on her
2004 taxation year. She said this wasted her time and the CRA’s since it was
not reassessed following the audit. She had claimed losses in 2004 and several
prior years from some of these activities. These years are statute‑barred
and not before this Court, the CRA having decided following the audit that her
claiming of losses in prior years did not amount to a negligent, reckless or
wilful understatement of her income.
[6]
In circumstances such
as Ms. Dickson’s, I must first decide whether any or all of these
activities constitute a business pursued for profit in a commercial manner
during the years in question, or whether they were personal endeavours, such as
hobbies or the like. This approach is mandated by the Supreme Court of Canada’s
2002 decision in Stewart v. Canada, 2002 SCC 46, 2002 DTC 6969. In Stewart, the Supreme Court of
Canada highlights some of the criteria, indicia of commerciality and badges of
trade that should be considered.
[7]
A related legal
question in circumstances where someone seeks to convert a personal interest or
hobby into a commercial business activity is to determine at what time the
person’s pursuit with a view to starting up a business gives rise to the
existence of a business. The approach to determine that question is guided by
the approach taken by this Court in such earlier cases as Gartry v. The Queen, 94 DTC 1947,
and Kaye v. The Queen, 98 DTC 1659.
[8]
In Kaye, former
Chief Justice Bowman described the test to be applied simply as “Is there or is
there not truly a business?” Of this he went on to write:
5 . . . One must ask
“Would a reasonable person, looking at a particular activity and applying
ordinary standards of commercial common sense, say ‘yes, this is a business’?”
In answering this question the hypothetical reasonable person would look at
such things as capitalization, knowledge of the participant and time spent. He
or she would also consider whether the person claiming to be in business has
gone about it in an orderly, businesslike way and in the way that a business
person would normally be expected to do.
. . .
7 Ultimately, it boils down to a common sense appreciation of all
of the factors, in which each is assigned its appropriate weight in the overall
context. One must of course not discount entrepreneurial vision and
imagination, but they are hard to evaluate at the outset. Simply put, if you
want to be treated as carrying on a business, you should act like a
businessman.
[9]
As a general rule, in
the case of a personal endeavour, pursuit or hobby which is intended to be
converted into a business, the business does not necessarily begin when that
decision is taken or when the pursuit is commenced but only once it is being pursued
in a sufficiently commercial manner. Similarly, once converted into a business,
it may later cease to be pursued in a commercial manner and revert to being a
hobby or personal endeavour.
I. Flight Instruction Activity
[10]
In her business
questionnaire submitted to the CRA as part of the audit, Ms. Dickson
wrote:
“Flight instructing is not considered by pilots to be a money‑making
occupation. For most instructors it is an entry‑level position in which
they slowly build hours until they have enough experience to apply for the
“real job”. I have been a teacher for most of my life, first teaching
children and then adults. My gratification comes from sharing knowledge and skills
with others, for example, in seeing students fly their first solo and knowing
that I taught them to that degree of competence. My short‑term goal
was to share my love of flying with others.
Initially my long‑term goal was to build more hours and
experience myself so that I would become a more competent pilot in order
to start a “Fear of Flying” consultancy, to help people who had to fly for
business purposes overcome their fear of flying. I felt that building
hours and experience as an instructor would give me more credibility and
experience in this consultancy.”
[11]
Ms. Dickson
confirmed in her testimony that flight instruction of itself is generally not a
profitable activity given the high costs associated with obtaining and
maintaining a commercial pilot licence and a flight instructor licence along
with related instrumentation and multi‑engine credentials.
[12]
It was clear from
Ms. Dickson’s evidence that she has yet to commence, or even decide
definitively to commence, a “Fear of Flying” consulting business.
[13]
In her testimony,
consistent with her comments in her business questionnaire, Ms. Dickson
spoke generally of pilots with commercial and flight instruction credentials not
being able to engage in flight instruction on a profitable basis but doing
flight instruction to build their credentials for a commercial pilot job. She
spoke in generalities however, given her particulars, she was unable to make
that particular case for herself. However, she assured the Court that she had
many years of work ahead of her and yet to decide whether or not to open a
“Fear of Flying” consultancy, or perhaps even write a book on the topic.
[14]
It was also her
testimony that, given her book‑writing emphasis in the years in question,
she was unable to devote as much time as usual to her flight instruction
activities and that explained the increased losses.
[15]
Ms. Dickson
reported losses throughout the period from 1998 through 2007 except for the year
2002 in which she reported a modest net income of $2,200. Her losses ranged
from $800 to $11,500. In the six years prior to the years in question, her
reported losses from her flight instruction activities exceeded $40,000. Her
flight instruction activities have not been profitable since the years in
question either.
[16]
There is no doubt that
in the years in question, the taxpayer was devoting little time to her flight
instruction activities. She did not subcontract her former clients and flight
schools to others. She did very little to look for more clients whether flight
schools or private students. She did limited advertising beyond making herself
available and promoting herself in conversation with others interested in
flying. While she testified that the circumstances of 9/11 changed people’s
flight habits and their attitudes and anxiety towards flying or towards learning
to become a pilot, there was no evidence that her approach changed to
developing, marketing or pursuing her flight instruction activities after 9/11.
[17]
She was entirely unable
to explain how her flight instruction activities would be able to become
profitable within her remaining working career nor was there any evidence that
she was building up a valuable business for sale upon retirement. In the years
in question, its connection to a possible “Fear of Flying” pursuit, whether
consultancy or book, still remained a mere possibility.
[18]
I can only find
that Ms. Dickson’s aviation pursuits were not being pursued in a
commercial manner or business‑like fashion in the years in question.
[19]
I can add that
some of her expense categories, such as rallies, while they may relate to the
business of other commercial pilots, appear to have been personal to her. Even
if Ms. Dickson had commenced to convert her aviation pursuits into a
commercial activity, I am not satisfied that her expenses were reasonable
to the extent they exceeded her revenues from those activities.
II. Church Organist
[20]
In the years in
question, Ms. Dickson was also a church organist. She did that at a church
near her second home in Durham approximately 160 kilometres from her
Toronto home. She was paid $50 for each service. She claimed losses in her
1998, 1999 and 2000 years of approximately $2,000 in the aggregate. In the 2005
year, she claimed a loss of $700 and in 2006, a loss of approximately $1,300.
In 2007, she reported net revenue of approximately $65. Her annual revenues in
the years in question range from $650 to $1,550. She played at the one church half
the time, that is approximately 26 Sunday services a year. In addition she
played at a number of local funerals, either at that church, at the local
funeral home that she became familiar with from funerals at that church, or at
other churches where that funeral home was involved.
[21]
In her business
questionnaire, Ms. Dickson says that she partly sees her church organist
activities as an opportunity to provide service to bereaved families.
[22]
The majority of her
expenses consisted of her commute from her Toronto home to her Durham home.
[23]
There is no doubt in
the circumstances that her church organist activities, while they may have
generated some additional revenues for her to fund her related musical and
travel expenses, in much the same way as her flight instruction revenues
reduced her costs of maintaining her commercial pilot licence and related
credentials, were not at any time in the years in question being pursued in a
commercial or business‑like manner. There was no evidence that she did
any advertising of her availability. There was no evidence she had any other
plans nor that she made any effort to find any other clients with a view to
making this activity a business carried on in a commercial‑like manner.
[24]
Again, even if her
church organist activity were to be considered a business, her expenses claimed
could not in any way be considered reasonable to the extent they exceeded her
modest revenues from her activities.
III. Book‑writing
[25]
It has been recognized
by this Court that, in the case of creative artists such as painters, authors,
musicians and sculptors, a broader range of criteria and a broader contextual
view reflective of the reality of the particular industry may be needed than
might be in more traditional commercial pursuits when trying to establish whether
a taxpayer has yet commenced to carry on his or her planned creative business.
See, for example, Harrison v. The Queen, 2007 TCC 19,
2007 DTC 377 (book publishing), Malltezi v. The Queen,
2009 TCC 149, [2009] T.C.J. No. 104 (QL) (product development), Li
v. The Queen, 2008 TCC 175, 2008 DTC 3039 (product
development), Janitsch v. The Queen, 2004 TCC 378, [2004]
G.S.T.C. 70 (artist), Arseneault v. The Queen, 2006 TCC 42, 2008
DTC 2224 (film production), Cossette v. R., [2003]
1 C.T.C. 2359 (visual artist) and Tramble v. R.,
[2001] 4 C.T.C. 2160 (painter). This is also recognized by the CRA
in its Interpretation Bulletin IT‑504 on “Visual Artists and Writers”.
[26]
Ms. Dickson set
out beginning in 2003 to write a biography on Vi Milstead Warren, an early
female aviation pioneer who delivered military planes during World War II and
was also one of Canada first female bush pilots. Ms. Dickson has taken
courses on writing as well as on getting published.
[27]
Between 2003 and 2007,
the taxpayer claimed losses exceeding $16,000 on her book‑writing
activity. In 2006, she received a US$6,000 grant to conduct some of the
research into her book which she did not record as revenue but simply used to
offset expenses. How she accounted for the grant would not have affected her
2006 loss number. She has continued to claim losses each year since 2007.
[28]
It is now 2011 and
there is still no book. It is not written yet. She has not yet made a
submission to any publisher. She has completed an outline. When pushed, she
indicated that by the end of the period in question most of the research had
been done and about one‑quarter of the book had been written in a first
draft. By now, when pushed, she would estimate the book to exist in its first
draft to the extent of about three‑quarters. Her first draft, to the
extent it exists, is approximately 160 pages long. She has been pursuing
this for almost eight years. That is a pace of approximately 20 pages of
initial draft per year.
[29]
I do not in the
least doubt Ms. Dickson’s sincere intention to write a book about
something of interest to her and perhaps to many similarly minded Canadians,
and in doing so to bring this Canadian woman’s role to light. She chose a topic
tied into her flying interest, a person whom she became aware of and got to
know as part of her flying interest, and a person about whom there had been
little already written. She has promoted the recognition of this woman and of
her book and has published local newspaper articles on the topic.
[30]
In her testimony
Ms. Dickson said she hopes to make a profit from her book‑writing
activity but acknowledges that was not what she had set out to do. In her
business questionnaire, Ms. Dickson says she considers “writing [this]
biography to be making a contribution to preserving a small but important part
of Canada’s history.”
[31]
She did not know what a
book of this nature would sell for but guessed that it would perhaps be in the
$20 to $25 range. She said that since she began her writing, she found out that
authors only receive about 10% of sales. This would be about $2 a book. She is
unable to estimate how many thousand or tens of thousands of books she would
have to sell based on her ‘guesstimates’ to make this a profitable venture. (Similarly,
she was unable to estimate how much flight instruction she would need to
provide or how many church services and funerals at which she would need to be
the organist, in order for those pursuits to become profitable.)
[32]
Even after having
regard to the unique and more liberal approach to be taken when considering art‑related
businesses and creative pursuits, the evidence does not support
Ms. Dickson’s position that her book‑writing activity had in the
years in question or since been pursued in a reasonably commercial manner
sufficient to be a business activity.
[33]
My overall assessment
of the evidence and Ms. Dickson’s testimony was influenced somewhat by the
fact that she was very guarded in giving her answers, was not always readily
forthcoming in her answers to questions on key issues, and tried to avoid
responding to some at all. For example, she would only answer how flight
instruction could lead to a profitable related aviation business in the context
of pilots generally. I had to ask her to focus on her particular
circumstances and how it would lead to profitability within her remaining
working lifetime. She would not provide any estimate of how many pages of her
book had been written in the years in question or to date until I took her
back to the question previously asked. It is also noteworthy that her testimony
differed significantly in some respects from the business questionnaire she had
previously completed for the CRA at the audit stage.
[34]
The appeals are
dismissed. In the circumstances, the Crown’s motion regarding 2007 not being
properly before the Court does not need to be decided.
Signed at Ottawa,
Canada, this 10th day of March 2011.
"Patrick Boyle"
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