[OFFICIAL ENGLISH TRANSLATION]
Date: 20011221
Docket: 1999-4820(IT)I
BETWEEN:
ARMAND DESROCHES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: Alain Gareau
____________________________________________________________________
REASONS FOR JUDGMENT
(delivered orally from the bench
on September 26, 2001, at Québec,
Quebec)
Garon, C.J.T.C.C.
[1] These are appeals from income tax
assessments for the 1995, 1996 and 1997 taxation years. By those
assessments, the Minister of National Revenue disallowed
deduction of the amounts of $14,716, $16,459 and $12,502 claimed
by the appellant in computing his income from his activity as a
writer for the three years in issue.
[2] In proceeding with the assessments
in appeal, the Minister of National Revenue relied on the
allegations of fact stated in paragraph 4 of the Reply to
the Notice of Appeal. That paragraph reads as follows:
[TRANSLATION]
4. In making
the assessments in issue, the Minister of National Revenue made,
in particular, the following assumptions of fact:
(a) The appellant
worked for Hydro-Québec as an electronics technician until
he retired in 1992;
(b) The appellant
has engaged in his activity as a writer since May 1992;
(c) The appellant
has reported no income from that activity since 1992;
(d) During the 1992,
1993, 1994, 1995, 1996 and 1997 taxation years, the appellant
deducted the following losses in respect of his writing
activity:
1992:
$11,956
1993:
$15,453
1994:
$13,649
1995:
$14,716
1996:
$16,459
1997:
$12,502
(e) A significant
portion of the expenses claimed during those years related to
home office expenses, the renovation of the appellant's
residence and expenses relating to his car;
(f) During the
taxation years in issue, the appellant developed no specific plan
to make his writings profitable;
(g) During the years
in issue and during the previous years, the appellant was not
represented by any publisher or agent for the promotion and
commercialization of his work;
(h) Furthermore, the
appellant's writings have not been published to date and have
not been the subject of any public or private launch;
(i) The nature
of the expenses incurred and the other circumstances described
above in subparagraphs 4(a) to (h) of this reply to the
notice of appeal show that the appellant's literary activity
constitutes more a personal interest than the operation of a
business in a genuine commercial and economic context;
(j) The
appellant did not show that the expenses giving rise to the
business losses claimed were made or incurred during the taxation
years in issue for the purpose of gaining business income within
the meaning of paragraph 18(1)(a) of the Income
Tax Act;
(k) During the years in issue,
the appellant had no reasonable expectation of earning a profit
from his writing activity.
[3] The appellant admitted the
allegations in subparagraphs (a) to (f) inclusive and
subparagraph (h) of paragraph 4 of the Reply to the
Notice of Appeal. He denied the allegations involved in
subparagraphs (g), (i), (j) and (k) of the same
paragraph.
[4] The appellant testified that he
began his writing activity on a part-time basis in 1989. At the
time, he was an electronics technician with Hydro-Québec.
He continued that writing activity on a full-time basis starting
in May 1992, having stopped working for Hydro-Québec at
that time.
[5] During his testimony, the
appellant insisted that the expenses for which he was claiming a
deduction were actual expenses relating in large part to the
renovation of the house where he had fitted up a work place. He
stated that no invoice was false.
[6] As to the business plan, he said
that a plan for such a small business exists in an
individual's mind. He added that a business plan is normally
prepared for presentation to the banks and recalled, in his case,
that he had financed his plan out of money from his
"retirement fund".
[7] On the subject of the allegation
in subparagraph 4(g) of the Reply to the Notice of Appeal
that the appellant was not represented by any publisher or agent
for the promotion and marketing of his work, the appellant
referred to a document signed by Louise Courteau from a
publishing firm in which she mentioned the many efforts made by
the appellant. That document confirms that she had spent at least
50 hours making [TRANSLATION] "language
corrections" before deciding not to publish the work
because, the appellant said, Ms. Courteau's
[TRANSLATION] "spiritual conscience" no longer
supported [TRANSLATION] "the new psychological principles
advanced by the appellant". The appellant made other
attempts to interest publishing firms by sending them copies of
the manuscript for review.
[8] The appellant also testified that
he had established his own publishing firm in May 1993. That firm
published no books from 1993 to 1999. The first book the firm
published was in 2000. He added that, in October 2000,
Québecor World St-Jean had printed 2,000 copies
of his tenth book entitled "Bonne fête
Carolanne", a compilation of nine manuscripts. That
publication had required the services of a professional computer
graphics designer at a cost of $1,800. The cost to have the book
printed by Québecor had amounted to $25,000. The appellant
also explained that, during all the years preceding the
publication of his work, he had continually revised his
manuscripts.
[9] In his testimony, the appellant
described his passion for writing in the field of psychology. He
said that, at one point, he had allowed himself to be "swept
away" by that passion. In cross-examination, he noted on the
subject [TRANSLATION]: "I sort of fell into a writer's
passion for psychology."
[10] Statements of expenses incurred by the
appellant during the three years in issue were filed in
evidence.
[11] The appellant also stated that he had
studied psychology on a part-time basis at the Université
du Québec à Rimouski for 10 years. He holds no
degree and, more particularly, did not earn a bachelor's
degree. He appears to attribute this situation to the fact that
some professors did not appreciate the fact that he had not
accepted traditional psychology. He also said that he was
[TRANSLATION] "incapable of learning texts, of understanding
what was being put forward, as is done in traditional
psychology".
[12] The appellant testified that he had
given a few lectures to a limited number of persons whom he
himself had invited. Those few lectures involved new concepts in
psychology. He published no article on psychology during the
period in issue in these reasons.
[13] The appellant also provided therapy to
a number of persons, without remuneration in most cases.
Analysis
[14] In view of this evidence, I must
determine whether the appellant is entitled to deduct the
expenses involved in the three years in issue. To answer
this question, I must decide whether the appellant operated a
business. For there to be a business, a taxpayer must at least
have a reasonable expectation of profit by carrying on a specific
activity. This approach was particularly well described in the
decision by the Supreme Court of Canada in Moldowan v.
The Queen, 77 DTC 5213.
[15] The most important facts in making this
determination are as follows.
The appellant devoted all his energy to writing books on
psychology for nearly 10 years having begun this writing
occupation on a full-time basis in May 1992. As noted above, he
had previously engaged in this occupation on a part-time basis
for three years.
[16] It was not until October 2000 that he
had a book published, which was a synthesis of nine manuscripts.
And yet he himself had founded a publishing firm in 1993.
[17] Since 1992, the appellant has earned no
income from this writing activity in the field of psychology.
During that entire period of nearly 10 years, he signed no
contract with a publishing house for the promotion and sale of
his writings.
[18] As the appellant clearly stated in his
testimony, he had a passion for writing in the field of
psychology. He noted that he had allowed himself to be swept away
by that passion. According to the appellant, he developed
revolutionary concepts relative to traditional psychology.
[19] I unreservedly accept the
appellant's testimony on his reasons for carrying on this
profession. I am persuaded by his testimony that, in the years in
issue, the appellant was not motivated by considerations of
profit, by a commercial end, but rather by the desire to develop
new psychological concepts. He did not hesitate in so doing to
incur relatively large expenses to achieve that goal.
[20] The appellant brought no evidence of
the kinds of activity and efforts that might result in a profit,
as Judge McArthur of this Court decided in
Jacquot v. Canada, [1999] T.C.J. No. 838. The
appellant's situation more closely resembles the one in
Lobban v. Canada, [1992] T.C.J. No. 564, a
decision by my colleague Judge Margeson. I find that the
appellant was a dilettante in his work in psychology.
[21] I conclude from the whole of the
evidence that it was mainly for his own personal satisfaction
that the appellant carried on the writing activities in which he
engaged during the three years in issue and during the preceding
and following years. The appellant, who had the burden of proof,
did not show that he had a reasonable expectation of profit in
carrying on his activities.
[22] For these reasons, the appeals from the
three assessments in issue are dismissed and the assessments are
confirmed.
Signed at Ottawa, Canada, this 21st day of December 2001.
C.J.T.C.C.
Translation certified true
on this 27th day of March 2003.
Sophie Debbané, Revisor
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