Date: 19990121
Docket: 96-2228-IT-I
BETWEEN:
ALEXANDRE AMPRIMOZ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on November 2, 1998, at St. Catharines, Ontario,
by the Honourable Judge E.A. Bowie
Reasons for judgment
BOWIE J.T.C.C.
[1] The Appellant holds a full-time appointment as a tenured
professor of French at Brock University in St. Catharines,
Ontario. In computing his income pursuant to section 3 of the
Income Tax Act (the Act) for the taxation years
1992, 1993, and 1994, he claimed to be entitled to take into
account certain losses which he claimed to have incurred in
connection with activities carried on by him which he regarded as
being the practice of a profession, and therefore a business.[1] The Minister of
National Revenue (the Minister) in assessing him took the
position that the Appellant had no reasonable expectation of
producing a profit from these activities, and that they therefore
did not constitute a business, with the result that the losses
were not available to be deducted. In filing his return for the
year 1995, the Appellant described his professional activity as
“professional writer”. The question at issue,
therefore, is whether the losses arose from a business, as that
word has been used in the considerable jurisprudence which
surrounds this subject.[2]
[2] There is no doubt that the Appellant has had a very
distinguished academic career in the humanities. His education
began in Rome in 1953. He achieved three degrees in Mathematics
in France between 1966 and 1968. He came to Canada, and pursued
studies in French language and Literature, obtaining an M.A. from
the University of Windsor in 1970 and a Ph.D. from the University
of Western Ontario in 1978. He taught at the University of
Manitoba from 1978 to 1985. In 1985, he joined the faculty of
Brock University, where he remains today. He became a full
professor in 1983, at the age of 35.
[3] Between 1978 and 1995, the Appellant published several
hundred short stories, papers, book reviews, poems and learned
articles, in English, French, Italian and Spanish. In 1965, he
published seven articles on mathematical and scientific topics.
Between 1988 and 1995, he published two articles on
computer-related subjects, and he prepared materials for a
number of computer training courses and workshops in connection
with his work at Brock University. His curriculum vitae is
57 pages long.
[4] Schedule B to the Reply to the Notice of Appeal summarizes
the gross income and the net losses claimed by the Appellant in
connection with his professional writing between the years 1978
and 1995. In Schedule A his expenses for the years from 1990 to
1994 are broken down. The total of the losses claimed by him
during this 18-year period is slightly more than $160,000.00. The
only year in which he showed a profit was 1989, and that profit
was $7.00. In the last six of those years the losses claimed
average more than $23,000.00 annually. It is beyond doubt that
the Appellant did not, during the years under appeal, have even a
remote prospect of profit from his writing activities. Certainly,
it was not a business within the ordinary meaning of that
ordinary word.
[5] That does not end the matter, however. The Notice of
Appeal, drawn by counsel, alleges that the Appellant was, during
the years under appeal, carrying on a "writing
business". I quote paragraphs 3 to 9:
3. The Appellant has been, since the early 1970's,
involved in considerable writing and has published numerous
articles.
4. In the 1992, 1993 and 1994 taxation years the Appellant
expended sums of $23,984.00 in 1992, $32,107.00 in 1993, and
$22,564.00 in 1994. The expenditures were made to gain or produce
income from the Appellant's writing business.
5. Throughout those taxation years the Appellant continued his
writing activities in both literature and computer science.
6. The expenditures incurred by the Appellant were to further
his business in writing and in earning profits in the computer
field.
7. The Appellant states that all of the expenditures incurred
were for business purposes and were not for personal use.
8. The Appellant states that he has a reasonable expectation
of profit in his writing business.
9. The Appellant states that the expenditures have directly
resulted in increased income of the Appellant from writing,
part-time teaching and other business activities. The Appellant
also states that these expenditures will lead to future income
from business activities in years after the years under
objection.
[6] In argument, however, counsel took the position that the
Appellant was, by 1992, in a new business of computer consulting,
including software development and manual writing.
[7] The Appellant has had an interest in computers for a
number of years. His first writing on the subject was in 1988. He
had apparently taught himself programming, and the use of the
Unix operating system, during the 1980s. By 1990, he was working
on a project to develop a computerized testing system to be used
in the academic world. His second project, starting in December
1992, was to develop a movie database. The third project that he
undertook was for the University, and involved the development
and direction of a multi-media laboratory. This project came to
an end when the University sold the laboratory in 1995. In 1995,
he also worked on the development of computer-assisted distance
education, a mathematics tutoring program, and a university
registration system. All of these were, in one way or another,
carried out under the auspices of Brock University.
[8] The Appellant described his financial arrangement with the
University. He said that it was understood between them that if
any of the projects became commercially successful then he, and
the other staff members involved in the work on them, would have
shared in the proceeds, along with the University. There was not,
apparently, any written agreement, or even a precise oral one, to
that effect. Exactly how they would have shared in the proceeds
was not specified. As it turned out, there never were proceeds to
be shared. These projects were no doubt good experience for the
Appellant, but I do not think that they can be viewed as even the
beginning of a computer-consulting business.
[9] By the late 1980s the Appellant had concluded that,
however personally satisfying his creative and literary writing
might be, the potential for profit lay not there, but in
computers. He had some considerable experience in this field, and
he had confidence in his own ability to be able to turn it to
account. What he lacked, however, was the credentials that would
enable him to obtain contract work from which to derive income
over and above his teaching salary. He said in his evidence, and
I accept this as being correct, that it was necessary to have a
degree in computer science in order to have credibility with
potential employers, and thereby obtain consulting contracts.
That this is so, is demonstrated by the fact that he sent
hundreds of resumés to potential clients in the early
1990s without obtaining a single contract.
[10] To overcome this problem, in 1992 the Appellant enrolled
in an undergraduate course in computer science at Brock. Between
September 1992 and the spring of 1995 he completed the course
requirements and obtained a degree. Almost immediately,
consulting work in this new field became available to him.
[11] The Appellant in his evidence tried to characterize his
early projects for the University as demonstrating that he was,
as early as 1990 or 1991, qualified as a computer consultant. He
argued, too, that his first contract, which was with
Andrès Wines, came to him as a result of these projects. I
do not accept that. Certainly he did have discussions with
Andrès Wines as early as 1993, and the scope of the
contract was agreed to in general terms during 1994, but he did
not start to work for that company as a consultant until after he
had obtained his computer science degree in the spring of 1995.
Although he did have a good deal of self-taught knowledge before
1995, he did not have a marketable expertise in the field prior
to obtaining his degree in 1995.
[12] Once he had obtained his degree, however, he quickly was
able to obtain lucrative work. In 1995, he had a small income
from consulting; in 1996 his gross income from consulting was
$38,765.00. In 1997, it was $109,000.00, and for the first 10
months of 1998, it was about $80,000.00.
[13] It is well settled that a person setting out in business
can expect some losses during the start-up period, and that the
fact of these losses does not prevent the enterprise from being,
for purposes of section 3 the Act, a source of income, the
losses from which may be taken into account. There is, however,
an important distinction between a business which has not come
into existence, and one which is experiencing losses in the
start-up period. In Knight v.M.N.R.,[3] Mogan J. held that the Appellant, a
teacher, although he had devoted much of his spare time and a
great deal of money to his attempts to develop a computer system
to control machine tools, did not have a business, because
throughout that time he did not have a product that he could
sell. In my opinion, the Appellant in this case, for the same
reason, did not have a computer consulting and software
business.
[14] In order to have a personal service consulting business a
person must be able to deliver a marketable service. During the
years under appeal, the Appellant may have had skill and
knowledge in the computer field that could have been useful to
others, but on his own evidence it only became marketable when he
obtained his degree in computer science from Brock in 1995. The
years 1992 to 1994 were not start-up years. They were years
during which the Appellant, whose writing had never approached
profitability, prepared himself for a different spare-time career
by furthering his education to achieve the necessary
qualification. His expenditures on computer hardware, software,
and reference materials during this period were personal
expenses.
[15] Counsel for the Appellant relies on the decision in
Zolis v. M.N.R.,[4] where Couture C.J. found that the Appellant, a
mathematics teacher, and his three colleagues with whom he
collaborated in the writing of a text book, had a reasonable
expectation of profit, saying:[5]
In my opinion, they embarked on this undertaking with
assurance, because of their experience as teachers, that their
project was capable of being profitable. The fact that they were
engaging in a field of activity in which they were particularly
qualified together with the knowledge of a readily available
market for their finished products are, for me, sufficient
reasons to inject the "confident belief" referred to by
Lacourcière J. that a profit was objectively
anticipated.
This Appellant finds himself in a much different position. He
was not qualified until he received his degree in computer
science in 1995, and until that time he most certainly did not
have a readily available market.
[16] I find that the Appellant was not engaged in a business
during the years under appeal. It was pleaded by the Respondent,
in the alternative, that the expenses claimed were unreasonable.
In view of my conclusion that they were personal expenses, it is
not necessary to deal with this argument.
[17] The appeals are dismissed.
Signed at Ottawa, Canada, this 21st day of January, 1999.
"E.A Bowie"
J.T.C.C.
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