Maurice Egan v. Minister of National Revenue, [1991] 1 CTC 2709, 91 DTC 797

Beaubier, T.C.J. [Orally]:—This matter was heard in Vancouver, B.C., on January 30, 1991.

This is an appeal respecting the appellant's 1980, 1981 and 1982 taxation years.

Mr. Egan was born February 3, 1924.

At the beginning of the periods in question Mr. Egan, who has three university degrees including Master of Social Work, was employed by the City of Vancouver as the head of the Department of Social Planning, which he had come to Vancouver to establish in 1968 and at which employment he remained until leaving voluntarily in 1980.

During that time he was one of the top five civil servants of the City of Vancouver and was customarily in contact with the Mayor and leading officials of the City in the course of employment. He had previously enjoyed a distinguished career in his employment and public service in Ontario and particularly in the City of Ottawa where he served two terms as alderman.

Mr. Egan was a credible witness.

Mr. Egan stated that he had a career path of changing jobs approximately every ten years, and his record verifies this. He also stated that in 1980 he wanted to go into private business, and his subsequent record also verifies this.

As a private businessman he is now retained or employed in many tasks under his proprietorship and/or in a corporate capacity, all of which are in the financial planning field. In this capacity he is presently chairman of the Granville Island Trust in Vancouver. He has equally distinguished positions in the Sechelt area of British Columbia and holds retainers respecting many other important and not so important financial planning duties. All of these were obtained as part of entering into and carrying on business in the financial planning field.

The first matter in appeal relates to the fact that Mr. Egan was employed by the City of Vancouver to go to Central America as a management and engineering related consultant from December 30, 1980 until February 1982, concerning matters respecting Canadian International Development Agency. He resided outside of Canada for that period excepting that time when he returned to Canada as a consequence of contracting hepatitis A. He recuperated from hepatitis A in Canada from June 7, 1981 until September 29 or 30, 1981.

Mr. Egan sought to deduct an amount of $27,076.03 for 1981 pursuant to subsection 8(10) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

c. 63) (the"Act") respecting the entire period on account of employment by the City of Vancouver outside of Canada. It is the Court's view that all of the criteria respecting the subsection are fulfilled except in relation to whether or not within the introductory portion of subparagraph 8(10)(b)(i) he was employed “in connection with a contract under which the specified employer carried on business in such country or countries other than Canada. . .”.

The City of Vancouver can carry on business or an adventure in the nature of trade. However, such requires the City to have a profit motive for itself so that the City may reap profits from the activity itself. Thus while enterprises situated in the City might have reaped profits from Mr. Egan's tasks, there is no evidence that the City itself ever obtained a profit or intended to obtain a profit therefrom. As a consequence, the requirements of subsection 8(10) are not fulfilled and the appeal respecting this matter is dismissed.

The second matter under appeal relates to Mr. Egan's claims for business losses, which he limited to the sums disbursed by him in the years in question of $5,100 each relating to the purchase of agreements from Vancouver Taxsavers Planning Services as a licensor to Mr. Egan as licensee respecting the following:

An advertisement exhibited as R-1 identified by Mr. Egan's friend and witness, Mr. Purdy, who similarly purchased contracts in the Montreal and Toronto areas neighbouring Mr. Egan's contracted territories shows the contracts advertised as requesting $5,100 each in return for an income tax deduction of $20,000. Mr. Egan claimed the $20,000 deduction in respect to each contract until the opening of trial, when the claim was reduced to $5,100 each. Each claim was for a business loss.

Counsel for Mr. Egan argued that the contracts should be dealt with “in block”. Having regard to the service aspect of the business and the geography of these business claims the Court cannot accept this argument. Thus each licensing contract will be dealt with individually but in view of the evidence they can be grouped geographically by province.

In respect to the deductions claimed relating to Exhibits A-2 and A-3, there is no evidence that Mr. Egan or any person representing him ever did anything to obtain income from these contracts once they were entered into. The Court finds that Mr. Egan did not carry on business respecting these contracts and these appeals are dismissed.

In respect to the deductions claimed relating to Exhibits A-4 and A-5 the evidence is that the licensor installed an accountant in one of the territories for both territories who sold two contracts (not described or contracted for in A-4 or A-5) for which Mr. Egan was entitled to remuneration. Mr. Egan obtained a judgment for that entitlement to remuneration. However, Mr. Egan never contacted the accountant in the territories for any purpose at any time up to and including the date of trial, nor did he go to the territories or do anything an ordinary businessman would do respecting a business operation. The Court finds that he did not carry on business. The appeals respecting these contracts are dismissed.

Respecting the deduction claimed relating to Exhibit A-6 dated September 29, 1981, regarding the suffix 885 in Sechelt, British Columbia, the evidence is substantially different. Like the other contracts paragraph 1 of Exhibit A-6 grants to Mr. Egan "the right to engage in business making use of the licensor's financial planning systems and tax preparation systems for clients from within the territory".

This phraseology in the licensor's form contract appears to leave it open to do business from the territory and to deal with clients from the territory. Mr. Egan did both. He set up premises and a sign in the spring of 1982 in Sechelt, British Columbia and did some tax returns, but he found that financial planning was his forte. He operated under the name" Egan and Associates Financial Planning Services", advertised and contacted people.

From the beginning until the licensor ceased carrying on business in late 1982 or in 1983, he used the services and, advice of the licensor. He succeeded remarkably in the financial planning field, always operating out of the Sechelt office. He continues in that business to this day. Counsel for the Minister argued that the words in the quote "financial planning systems and tax preparation systems” must be construed to mean a defined, system of forms or programs.

Mr. Egan testified that he received a very full armload of literature and proved that the licensor had the materials he wished and qualified people available to him in Vancouver to advise and help him in this new business and that he used this advice and help and further that this was the reason he dealt with the licensor.

In the service field, as in other fields of business, to survive you must evolve, and Mr. Egan was in fact in business respecting Exhibit A-6. This appeal is therefore allowed. The $5,000 paid as a management fee and the $100 licence fee paid in 1981 respecting this contract are business expenses and disbursements and the Minister is instructed to reconsider and to reassess accordingly. No costs are ordered.

Appeal allowed in part.