Docket: 2007-516(IT)I
BETWEEN:
DANIEL ROCHELEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
____________________________________________________________________
Appeal heard on February 6, 2008, at
Shawinigan, Quebec
Before: The Honourable Justice
Gaston Jorré
Appearances:
|
For the Appellant:
|
The Appellant himself
|
|
|
|
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Counsel for the Respondent:
|
Marie-Claude Landry
|
____________________________________________________________________
JUDGMENT
The appeal from the reassessment under the
Income Tax Act for the 2002 taxation year is allowed, without costs, in
accordance with the attached Reasons for Judgment, and the matter is referred
back to the Minister of National Revenue for reconsideration and reassessment
on the basis that the amount of the capital loss is $25,500, not $25,000.
The Court orders the reimbursement of the $100 filing fee to the Appellant.
Signed at Ottawa, Canada, this 2nd day of October 2009.
"Gaston Jorré"
Translation certified
true
on this 17th day
of November 2009.
Brian McCordick,
Translator
Citation: 2009 TCC 484
Date: 20091002
Docket: 2007-516(IT)I
BETWEEN:
DANIEL ROCHELEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Jorré J.
[1]
In August 1999, the
Appellant signed two contracts with Canada Russia Lottery Inc. (see Exhibits A-1
and A-2).
[2]
The first contract
states that the Appellant [TRANSLATION] ". . . purchases
from the Vendor a lottery operator's licence . . . "
in St. Petersburg, Russian Federation, for $12,750 in cash. However,
when the clauses of the contract are examined, it can be seen that, for a
period of 10 years, the Appellant is to receive 5.5% of the gross revenues from
a lottery terminal, to be installed in a place in St. Petersburg
designated by the company. The company is to look after the complete
installation, operation and financing. The Appellant pays only $12,750.
[3]
The second contract,
attached to the first, states that the Appellant [TRANSLATION] ". . . purchases
from the Vendor a guaranteed location for his terminal or licence inside
a booth set up in a subway station ..." in St. Petersburg for the sum of
$12,750.
[4]
The Appellant paid
$25,500 in August 1999. This payment was his only contribution.
[5]
He received reports
from time to time and four payments of $100 from the company. The entire
project failed in 2002.
[6]
In his 2002 tax return,
the Appellant claimed a $25,000 business loss on his contracts.
[7]
The Minister of
National Revenue disagreed and disallowed the business loss, but did allow a $12,500
deductible capital loss.
[8]
The issue, then, is
whether the loss was a business loss or a capital loss.
[9]
The Appellant claims
that he acquired a licence that constitutes Class 14 depreciable property
according to Schedule II of the Income Tax Regulations.
Class 14 applies to "a patent, franchise, concession or licence for a
limited period in respect of property, except ..." The Appellant also
claims to be entitled, accordingly, to a terminal loss under
subsection 20(16) of the Income Tax Act ("the ITA").
[10]
In the alternative, the
Appellant claims that the loss was an eligible capital loss.
[11]
In French, Class 14
refers to "... un brevet, une concession ou un permis de durée limitée à
l'égard des biens, sauf ..."
[12]
The parties cited
Interpretation Bulletin IT-477 and, in particular, paragraph 11 thereof:
11. The words "franchise, concession or licence", are not
capable of easy definition. Generally, they must be given the meaning or sense
in which they are normally employed by businessmen on his continent and they
extend, not only to certain kinds of rights, privileges or monopolies conferred
by or pursuant to legislation or by governmental authority, but also to
analogous rights, privileges or authorities created by contract between private
parties. Again, generally, these words are used to refer to some right,
privilege or monopoly that enables the holder to carry on his
business or earn income from property, or that facilitates the carrying on of
his business or the earning of income from property. These words do not extend
to a contract under which a person is entitled to remuneration for the
performance of specified services, nor to a covenant not to compete for a
limited period.
[Emphasis added.]
[13]
What is involved here?
The fact that the first contract describes the purchase transaction as a [TRANSLATION]
"lottery operator's licence" does not determine the nature of the
contract. We must look at the parties' obligations under the contract.
[14]
The second contract,
concerning the guaranteed location, must be considered at the same time because
the two contracts form a whole.
[15]
It is clear, on a
comprehensive analysis, that the Appellant is not carrying on any business. Under
these contracts, the Appellant makes a total contribution of $25,500, in
consideration of which Canada Russia Lottery Inc. must pay the Appellant 5.5%
of the gross revenue from the operation of a lottery terminal in
St. Petersburg for 10 years. It is the company that must operate the terminal.
This is not the acquisition of a concession or licence to carry on a
business. The Appellant simply obtained the right to receive potential
income.
[16]
Nor is this a right
that enables the Appellant to earn income from property, though it would be
such a right if, for example, he were the owner of the terminal and paid the
City of St. Petersburg for the right to operate the terminal. In fact,
these contracts simply provide for remuneration in exchange for financing.
[17]
This is neither a
patent, a franchise, a concession,
nor a licence.,
[18]
As for the alternative
argument, one of the conditions precedent to an eligible capital expense is
that it be incurred to earn income from a business.
[19]
Here, however, since
the Appellant merely made a capital contribution, the income cannot be business
income. It is income from property.
[20]
That cannot be an
eligible capital expense.
[21]
I regret that the substance
of the appeal cannot succeed.
[22]
However, the appeal is
allowed to the extent of a minor correction. Although the Minister was
correct in characterizing the loss in question as a capital loss, the amount
must be changed from $25,000 to $25,500.
Signed at Ottawa, Canada, this 2nd day of October 2009.
"Gaston Jorré"
Translation
certified true
on this 17th day
of November 2009.
Brian McCordick,
Translator
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