Citation: 2007TCC503
Date: 20070910
Docket: 2007-1617(IT)I
BETWEEN:
YANN DAVIES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bédard J.
[1] The appellant is
appealing an assessment for the 2002 taxation year disallowing, pursuant to
paragraph 20(1)(bb) of the Income Tax Act (the “Act”), an
amount of $2,000 claimed by him as fees paid to Fryan Inc.
[2] The appellant is an
engineer. Fryan Inc. was incorporated on December 11, 1978 (Exhibit A-1).
Its only shareholder and director is Françoise Demarque Davies, the appellant’s
spouse. According to the appellant’s testimony, Ms. Demarque is an artist
and has little involvement in Fryan Inc. The appellant filed as part of
Exhibit A-1 a contractual agreement (“the 2003 Agreement”) for the year
2003 between Fryan Inc. and him. That agreement provides as follows:
Entente contractuelle
Entre Fryan
Inc.
B.P.
98 Station H
Montréal
H3G 2K5
Et Yann Davies
893 Vallée
Sutton J0E 2K0
1.
FRYAN Inc. fournira à M. Yann Davies les services
suivants dans le domaine des finances et du placement.
1.1
achat et fourniture d’un nombre utile de
publications mensuelles, hebdomadaires, quotidiennes et occasionnelles
1.2
rédaction et fourniture de rapports occasionnels
sur des informations et analyses provenant ou non de ces documents
1.3
facturation de toutes ses dépenses au coût incluant
les taxes (qui sont déjà incluses) et ce en fin de chaque année
2.
M. Yann Davies apportera son soutien et
contribution généralement à la fourniture de services
2.1
il facilitera l’obtention des documents
2.2
il participera à l’analyse des informations et à la
rédaction des rapports
2.3
il payera les factures promptement
3. 3.1 Cette
entente est valide pour l’année 2003
3.2 Elle est extensionée annuellement à moins d’avis
d’interruption par un des partis [sic].
4. Fait
à Montréal ce 5 janvier 2003
signé Fryan
Inc. : (signature) par Françoise Demarque
Yann
Davies (signature) par Yann Davies
According
to the appellant’s testimony, the terms of the agreement concluded verbally in
2002 between Fryan Inc. and him, were to the same effect as those of the 2003
Agreement. Fryan Inc. invoiced the appellant for an amount of $2,000 (Exhibit
A-1) on December 26, 2002 for the following services:
Pour
frais de recherche, achat de documents, rapports d’experts et de publications
spécialisées, travaux d’analyse et émission de conclusions
The
appellant testified that most of the $2,000 in fees was for advice as to the advisability
of purchasing or selling specific shares. It is worth mentioning that the appellant
did not file any documentary evidence to support his testimony nor could he
remember what specific shares he was advised to sell or buy in 2002.
[3] Ms. Jeannette Allard, an auditor for the
Revenue Agency, testified that Fryan Inc. did not declare any income from the
above-mentioned activities. The appellant testified that Fryan did not file an
income tax return for its 2002 taxation year because he was convinced that a
corporation does not have an obligation to file a return when expenses exceed
gross revenue. The appellant added that Fryan Inc.'s only income for the 2002
taxation year was the $2,000 in fees paid by him. He also testified that Fryan
Inc.'s expenses amounted to $2,600 in 2002 and that those expenses were essentially
related to subscription fees for financial magazines and newspapers, rental of a
post office box and internet registration. The appellant also testified that
Fryan Inc did the investment research work mostly for him but also for his
spouse and family. He also said that he himself did all the Fryan Inc.'s investment
research work and that he was not paid for this by Fryan Inc. Furthermore,
Fryan Inc. did not provide advice nor render any services to any other
investors.
[4] Paragraph 20(1)(bb) of the Act reads as
follows:
(1)
Deductions permitted in computing income from business or property —
Notwithstanding paragraphs 18(1)(a), (b) and (h), in
computing a taxpayer's income for a taxation year from a business or property, there may be deducted such
of the following amounts as are wholly applicable to that source or such part
of the following amounts as may reasonably be regarded as applicable thereto:
[. . .]
(bb)
Fees paid to investment counsel — an amount other than a commission paid by the taxpayer in the year to a person
(i) for advice as to the advisability of purchasing
or selling a specific share or security of the taxpayer, or
(ii) for services in respect of the administration
or management of shares or securities of the taxpayer,
if
that person's principal business
(iii) is
advising others as to the advisability of purchasing or selling specific shares
or securities, or
(iv) includes
the provision of services in respect of the administration or management of
shares or securities.
[5] Paragraph 20(1)(bb) of the Act is an
exception to the general rule that expenses on capital account are not
deductible. As an exception it has to be interpreted narrowly. Paragraph 20(1)(bb)
of the Act expressly permits a taxpayer to deduct fees paid for advice
on buying and selling a specific share, provided the fees are paid to a person
whose principal business either is advising others on purchasing and selling
specific shares or securities or includes the provision of administration or
management services with respect to shares. Fees paid for other types of
activities, such as general financial counselling or planning, are not
deductible. Subscription fees paid for financial magazines and newspapers, or
for investment publications are also not deductible.
[6] I am of the view that the appellant has shown that
Fryan Inc. existed as a person in 2002. But I am also of the view that the
appellant has not shown that Fryan Inc.'s principal business was advising
others on purchasing and selling specific shares or securities. Moreover, I am
of the opinion that Fryan Inc. was not even operating a business of any kind in
2002.
[7] Furthermore, even if my conclusion regarding Fryan
Inc.'s business or principal business is wrong, I would point out that in order
to be deductible the fees in question must have been paid for advice on buying
and selling a specific share. In this case, the appellant did not convince me
that any of the services for which he was billed in 2002 were related to advice
on purchasing or selling a specific share. I point out to the fact that in the
2002 verbal agreement between the appellant and Fryan Inc. the latter agreed to
render many other kinds of services to the appellant. I also point out to the
fact that the 2002 invoice shows that the appellant was billed for different
kinds of services. In fact, the appellant was unable to show what part of the
$2,000 in fees, if any, was related to advice on purchasing or selling shares.
The appellant was also unable to produce any documentary evidence of advice
provided regarding selling or buying a specific share in 2002. Indeed, the
appellant was not even able to remember the shares he was advised by
Fryan Inc. to sell or buy that year.
[8] For these reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 10th day of September 2007.
"Paul Bédard"
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