REASONS
FOR JUDGMENT
(Revised
version of the transcript of the Reasons for Judgment delivered from the bench
at Montréal, Quebec, on December 13, 2007.)
JUSTICE
JORRÉ:
[1] This appeal pertains to the 2002
taxation year. The Appellant has asked for the informal procedure to apply.
[2] There are two issues:
Can the Appellant deduct the amount of $12,253 as a seminar
expense? This amount was deducted as a travel and conference expense.
Secondly, can the Appellant deduct an additional amount of $1,601
on account of telephone expenses?
[3] The Appellant, his wife and the
Respondent's appeals officer testified.
The
seminar
Facts
[4] The Appellant Gaston Leduc is a
certified financial consultant. The great majority of his income consists of
commissions from insurance companies. He also receives commissions from mortgage
companies. In addition, he advises his clients.
[5] Johanne Bray, the Appellant's
wife, is a massage therapist, and reported business income. She also worked for
Mr. Leduc's business part-time from ten (10) to twenty (20) hours a week. She
answered the telephone and looked after the accounting. She developed an
interest in the field.
[6] The business belonged to
Mr. Leduc, and Ms. Bray was not remunerated for her work.
[7] In 2002, the gross income of the
business was $57,000.
[8] At one point, Mr. Leduc
determined that it might be desirable to be able to advise his customers regarding
off-shore investments. He decided that he needed to learn more, and that a certain
seminar would be a good way to enhance his knowledge. He was convinced that the
seminar would be of very good quality and was worth its very high price. The
seminar was held in Cancun, Mexico in November. The total cost, including
travel, was $12,253.
[9] The seminar was in English. Mr.
Leduc testified that, unlike his wife, he did not possess a very good knowledge
of English; consequently, it was Ms. Bray who attended the seminar. Ms. Bray
hoped not only to learn about off‑shore investments, but also to make
contacts that would be helpful in the event that she and her husband decided to
advise clients about this type of investment. She tendered her notes from the
seminar as Exhibit A‑1.
[10] The seminar lasted three or three
and a half days. Madame Bray arrived in Cancun on the day before the first day
of the seminar, and left Cancun on the day after the last day of the seminar.
Mr. Leduc did not go to Cancun. After Ms. Bray returned, she
spoke with her husband about what she learned, and they concluded that it would
be preferable not to add off-shore investments to their business's areas of
activity.
[11] They reached this conclusion for
the following reasons, among others: they were concerned about the risks and
that there would sometimes be laundered money involved in certain transactions;
and they did not believe that they had enough knowledge. Generally, they got
the impression that the off‑shore field was not on sufficiently solid
ground.
Analysis
[12] Since the trip lasted only for the
duration of the seminar and the time necessary to get to Cancun and return to
Canada, it was obviously not in the nature of a vacation.
[13] Furthermore, I should note that
Ms. Bray only stayed in Cancun for four or five nights and that someone wanting
a vacation in Cancun can have a very nice trip for well under $6,000, which is
much less than what would be left over after the tax on $12,253 in income. To avoid
any misunderstanding, I want to emphasize that the Respondent was not suggesting
that the trip was a vacation.
[14] The Respondent's position is that
the Appellant does not meet the conditions of subsection 20(10) of the Income
Tax Act. Inter alia, the Respondent argued as follows:
(a) Ms. Bray was not an employee; she did not have the necessary training
in the field.
(b) The conference was not related to the business. Mr. Leduc could
not have sold off-shore products; at most, he could have advised his clients
about such investments.
(c) The seminar's organizer was not a business or professional
organization within the meaning of subsection 20(10) of the Income Tax
Act.
(d) It was an unreasonable expense, and the Appellant should have
deducted any personal part.
[15] Although these arguments were
raised in the context of subsection 20(10), they deserve to be considered
in a broader context because one must assess whether or not the expenses are
allowed under paragraphs 18(1)(a) and 18(1)(b) of the Income
Tax Act. I will come back to the arguments raised by the Respondent later.
[16] The purpose of this expense was to
consider the possibility of broadening the scope of the business's activities.
Thus, the expense was for the purpose of gaining or producing income from a
business, and is therefore permitted under paragraph 18(1)(a).
[17] Since the potential field of
activities was not that different from what the business was already doing, it
cannot be characterized as an expense incurred for the purpose of starting a
new business.
[18] Having read Ms. Bray's notes
(Exhibit A-1) and Exhibit A-2, I do not see how it could be concluded that
attendance at this seminar would provide a lasting advantage that would cause
the expense to be of a capital nature within the meaning of paragraph 18(1)(b).
[19] Since the expense does not
contravene paragraphs 18(1)(a) or (b), it is unnecessary to
assess whether it is permitted under subsection 20(10).
[20] I will now consider the arguments raised
by the Respondent and referred to above. The fact that Ms. Bray is not
paid as an employee and has no specific training does not, in and of itself,
have any bearing on deductibility. In a family context, a member of a family
might not be paid for his or her work, but might nonetheless benefit indirectly
from the business income. The important thing is that Ms. Bray worked for
the business.
[21] As for her lack of specific
training, I am satisfied, on the specific facts of the case at bar, that Ms. Bray
had the ability to replace her husband and provide him with the details
necessary to enable the business to use the information obtained at the
seminar.
[22] Was the seminar related to the
business? I have already concluded that the potential field of activity was not
different enough to constitute a new business.
[23] I would add that, even though the
Appellant decided not to pursue this field of activities, he can provide his
clients with an overview of off‑shore investing. In light of the conclusions
that the Appellant and Ms. Bray jointly reached, the Appellant can
also warn his clients that one must be very careful before making off-shore
investments, and he can explain why. Such information can constitute a
valuable service to his clients.
[24] Since it is unnecessary to
consider subsection 20(10), I do not need to consider whether the
organizer of the seminar was a business or professional organization within the
meaning of that subsection.
[25] It remains to be seen whether the
expense was "reasonable in the circumstances" within the meaning of
section 67 of the Income Tax Act. It is true that the expense was large
and that Mr. Leduc ultimately decided not to broaden the scope of the
business's activities. With hindsight, the expense might be characterized as
avoidable, but this does not show that Mr. Leduc could have known in
advance that the expense would not yield all the benefits that he hoped to
derive from it. In fact, one should not underestimate the benefits of learning
that one should not pursue a field of activity.
[26] Under the specific circumstances
of this case, the expense was not unreasonable.
[27] The $12,253 seminar expense is
deductible.
The telephone expenses
[28] In 2002, Mr. Leduc's office was in
his home. He provided little evidence in support of his telephone expenses. He
testified that he no longer had the bills.
[29] Mr. Leduc had two mobile phones: one
with Bell Mobility and one with Rogers. He also had a home phone line. The Bell
Mobility package also included Ms. Bray's mobile phone. He kept the Rogers
phone so that he could keep the number, which could not be transferred to
another mobile phone at the time.
[30] Ms. Thériault, the appeals officer
in this case, testified that Mr. Leduc sent her all the mobile and home
telephone expenses. She allocated these expenses either to business or personal
use.
[31] The Appellant has not shown
that the various telephones in his or Ms. Bray's possession were never
used for personal purposes. He has not shown that a different allocation of the
telephone expenses between personal and business uses would be appropriate.
[32] Consequently, this aspect of the
assessment should not be changed.
Conclusion
[33] The
appeal is allowed without costs, and the assessment is referred back to the
Minister of National Revenue for reconsideration and reassessment on the basis
that the Appellant is entitled to deduct the amount of $12,253 in connection
with the seminar.
Thank
you.
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