Citation: 2008 TCC 580
Date: 20081022
Docket: 2008-710(IT)I
BETWEEN:
EDDIE GRAHAM,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle, J.
[1] The business losses claimed by Mr. Graham
in the years 2003 through 2005 from his musical performance and disc jockey
business have been denied by the Canada Revenue Agency on the basis that his
musical activities and pursuits did not constitute a business.
I. Facts
[2] Mr. Graham was a full-time employee of
a major Canadian bank in the years in question.
[3] Mr. Graham has a long background in
music and had played in a large and successful, and occasionally modestly
profitable, band in the 80’s and 90’s. When that band broke up, he decided to
start a solo musical performance career involving both disc jockey work and
performing. He testified that between 1998 and 2002, after the band broke up
and before beginning his solo endeavours, he had taken a break from his musical
pursuits. For the years in question, he registered his business as a sole
proprietorship, obtained a business licence, had a business phone and business
cards. He wanted to market himself to the numerous Legion halls so he attended
at a couple of them and even joined one Legion.
[4] In each of the years 2003, 2004 and 2005
Mr. Graham reported net losses from his business. His modest revenues
declined each year reflecting his declining number of performances from five
gigs to no more than two performances. He said he stopped pursuing his music
business, even though his intention and expectation was that it would become
profitable, once it was challenged by Revenue Canada.
He explained this was because he was discouraged and frustrated and viewed it
as pointless.
[5] Mr. Graham explained that his revenues
and fortunes were adversely affected by the SARS outbreak in Toronto that had an impact on the hospitality business. As
well, in 2004 he had injured a middle finger which required it to be in a
splint for six months such that he could neither play the guitar nor lug the
heavy sound equipment needed to perform.
[6] Some of the equipment, such as the sound
boards and similar mixing equipment and perhaps even the speakers, appear to be
of professional quality and, according to Mr. Graham, would not be
expected to be owned by people pursuing music on their own outside of a
business. Mr. Graham appears to have been a capable and qualified
performer who was accomplished and who rehearsed regularly throughout the
period in question.
[7] On the financial side, Mr. Graham said
the amount he received per performance was targeted to be in the $350 to $500
range, but could be as little as $200 per performance depending upon the
success of the performance and the venue. He did not track his profits and
losses personally. He did not ever consider how often he needed to perform in
order to break even financially; he said he did not look at his activities that
way.
[8] With respect to the expenses claimed by him
in calculating his losses, he had claimed approximately $12,000 in 2003,
$11,000 in 2004 and $9,000 in 2005 of business-related expenses in each of
those years. In his testimony, he acknowledged that upon reviewing the receipts
he had given to the CRA auditor, which should have been the same as the receipts
given to his accountant, only approximately $2,300 of expenses was incurred
each year. He said he did not know why his accountant would claim expenses that
could not properly be claimed. In fairness, the evidence on this point left me
unclear on whether only approximately $2,300 of expenses were evidenced by
receipts, or only $2,300 was deductible in any event
II. Analysis
[9] In circumstances such as these, I must
first decide whether Mr. Graham’s musical activity constituted a business
pursued for profit in a commercial manner or whether it was a personal
endeavour in the nature of a hobby or the like. This approach is mandated by
the Supreme Court’s 2002 decision in Stewart v. Her Majesty the Queen, 2002 D.T.C. 6969.
In Stewart, the Supreme Court highlights some of the criteria, indicia
of commerciality, and badges of trade that should be considered.
[10] In the circumstances, Mr. Graham has
been unable to provide sufficient credible evidence to establish on a balance
of probabilities that his musical pursuits were a business pursued for profit
in a commercial manner. My concerns with the evidence presented are:
(i)
he testified that
between 1998 and 2001 he took a break from his music business. However, in his
2007 letter to the Chief of Appeals, he describes himself expressly as carrying
on the music business in those years successfully and without incurring a loss.
He was unable to sensibly explain the difference between these positions;
(ii)
if Mr. Graham
intended to make a profit and believed that he could and would make a profit
from his musical pursuits, it does not make any sense that he would discontinue
his business when prior years’ losses were challenged by CRA. He could not
explain this sensibly either;
(iii)
there is insufficient
evidence of a business-like approach to pursuing performance contracts. The
only evidence was that he pursued several Legion halls. There was no evidence
that, when market conditions changed due to SARS, he adapted his marketing or
business strategy in order to keep it going in a successful direction;
(iv)
his solo musical
venture has never been profitable. His prior work with the band generated
losses in most years and very modest profits in a couple of years. Indeed, its
most successful year was 10 years prior to his solo pursuits and his
profits were in the $2,000 range. The profitable years were in the years 1989 to
1993;
(v)
while Mr. Graham
did own expensive equipment that may well have been beyond what an amateur
would be expected to own, his continued ownership of it in the years in
question was consistent with him having hung on to quality equipment previously
purchased for his band work in the years long before those in question;
(vi)
I am troubled by his
explanation that he never considered how many performances he needed to get in
order to be profitable and begin making money from the venture. It is one thing
not to have a formal written business plan in cases such as these; it is
another to maintain one both believed and intended the pursuits to be
profitable without ever considering the revenues needed to cover the expenses being
incurred; and
(vii)
I am not satisfied with
Mr. Graham’s explanation of how his accountant appeared to have claimed a
large number of expenses that should not have been claimed. I was not given
sufficient details to decide whether that explanation was reasonable or
credible.
[11] Mr. Graham’s appeal is dismissed.
Signed at Winnipeg, Manitoba,
this 22nd day of October 2008.
"Patrick Boyle"
CITATION: 2008 TCC 580
COURT FILE NO.: 2008-710(IT)I
STYLE OF CAUSE: EDDIE GRAHAM v. HER MAJESTY THE QUEEN
PLACE OF HEARING: Toronto,
Ontario
DATE OF HEARING: October 6, 2008
REASONS FOR JUDGMENT BY: The
Honourable Justice Patrick Boyle
DATE OF JUDGMENT: October 22nd, 2008
APPEARANCES:
|
For the
Appellant:
|
The Appellant himself
|
|
Counsel for the
Respondent:
|
Laurent Bartleman
Rishma Bhimji (Student-at-Law)
|
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the
Respondent: John H. Sims, Q.C.
Deputy
Attorney General of Canada
Ottawa,
Canada
Email this Content