Robinson – Tax Court of Canada finds that costs of investigating and developing opportunities for drop down to a corporation were capital expenditures

The taxpayer (with modest success) sought to follow a pattern of first developing assets (e.g., a patent portfolio) and then contributing them to a corporation (one for each such venture) for an equity interest therein. Monaghan J first indicated that these personal-level activities had “more of the hallmarks of seeking an investment opportunity to earn income from property than business” – but did not pursue this point, as the Crown had not suggested that the source was not a business.

In going on to find that the expenses that he directly incurred in this “business” prior to any such drop-down transaction were capital expenditures, Monaghan J stated:

Mr. Robinson’s circumstances are strikingly similar to the circumstances in the Neonex and Firestone cases. In other words, the expenses were not incurred in the course of the operation or running of a business, but as part of the process of creating, or acquiring the assets for a business, the objective of which was to acquire investments in entities engaged in innovation from which he might derive income.

Neal Armstrong. Summary of Robinson v. The Queen, 2019 TCC 181 under s. 18(1)(b) – start-up expenditures and s. 3(a).