Citation: 2006TCC272
Date: 20060505
Docket: 2005-3966(IT)I
BETWEEN:
YANN DAVIES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre J.
[1] The appellant is appealing the assessment for the 2003 taxation year disallowing, pursuant to paragraph 20(1)(bb) of the Income Tax Act ("Act"), an amount of $2,341.93 claimed by him as fees paid to Fryan Inc. The appellant is also appealing the part of the assessment that disallowed, pursuant to subsections 127(9) and 127.1(2) of the Act, an amount of $298.62 claimed by the appellant as a refundable investment tax credit.
[2] With respect to the amount of $2,341.93 allegedly paid to Fryan Inc., it relates to expenses billed by Fryan Inc. to the appellant mainly for the purchase of various publications ($1,900.93), but also with respect to bank charges, materials, rental of a post office box and internet registration (Exhibits A-4 and A-5). Those expenses were incurred by Fryan Inc. on behalf of the appellant. Fryan Inc. was incorporated on December 11, 1978, under the Canada Business Corporations Act (Exhibit A-7). Its only shareholder and director is Françoise Demarque Davies, the appellant's spouse. In the Declaration of Registration dated February 20, 2003, filed with the Inspecteur général des institutions financières, it is stated that Fryan Inc.'s main activity is trade and consulting (Exhibit A-8). According to the appellant's testimony, Ms. Demarque is an artist and has little, if any, involvement in Fryan Inc. The appellant filed as Exhibit A-3 a contractual agreement between Fryan Inc. and himself that 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
[3] In fact, all the investment research work was done by the appellant himself (an example of this work was filed as Exhibit A-12), who was not paid by Fryan Inc. for this. Fryan Inc. invoiced the appellant on December 28, 2003, for an amount of $2,341.93 with respect to the expenses incurred on his behalf (Exhibits A-4 and A-5). There was no charge for services in respect of the administration or management of shares or securities of the appellant or for advice as to the advisability of purchasing or selling specific shares or securities of the appellant. Nor was there any charge in respect of counselling fees or for analysis reports.
[4] Furthermore, the appellant said that he did the investment research work mostly for himself, but also did some on a spare-time basis for his spouse and his daughter. Fryan Inc. did not provide advice or render any services to any other investors. Finally, Mr. Danny Turcotte, the auditor for the Canada Customs and Revenue Agency, testified that Fryan Inc. did not declare any income from the above-mentioned activities.
[5] Paragraph 20(1)(bb) of the Act reads as follows :
SECTION 20: Deductions permitted in computing income from business or property.
(1) 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:
20(1)(bb)
(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.
[6] I am of the view that the appellant here has not shown that Fryan Inc. operated a business as investment counsel in 2003. It did not declare any income from any such activity. It did not pay the appellant for services rendered under the contractual agreement. It had no clients other than the appellant and his immediate family. It did not invoice the appellant for counselling him or for giving advice within the meaning of paragraph 20(1)(bb). Furthermore, the invoice was mainly for the purchase of publications or other materials. Such an expense does not constitute "an amount . . . paid . . . to a person . . . for advice as to the advisability of purchasing or selling a specific share or security of the taxpayer". To be deductible, the amount must be paid for the advice itself and not for subscriptions to publications (see Vatcha v. M.N.R., 1991 CarswellNat 432 (TCC), at paragraph 10).
[7] For these reasons and pursuant to paragraph 20(1)(bb) of the Act, the amount of $2,341.93 is not deductible by the appellant from his income.
[8] With respect to the amount of $298.62 disallowed as a refundable investment tax credit, it is clear from Form T5013 (Exhibit I-1) and Form T2038 (Exhibit I-2, second page) that the amount of $9,953.28 was a Canadian exploration expense that qualified for a non-refundable investment tax credit of $1,492.99[1] and not for a refundable investment tax credit within the meaning of subsection 127.1(2) of the Act. As the amount of $1,492.99 was a non-refundable credit, the appellant made a mistake in claiming an investment tax credit refund of $298.62 (40% of $1,493.09: Exhibit A-1, page 21[2]) to which he was not entitled.
[9] For these reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 5th day of May 2006.
"Lucie Lamarre"
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