DR Patricia Goodhall-Gunn v. Minister of National Revenue, [1985] 2 CTC 2378, 85 DTC 663

Taylor, TC|:—This is an appeal heard in Toronto, Ontario, on September 24, 1985, against an income tax assessment for the year 1980, in which the Minister of National Revenue disallowed, as a deduction against her investment income, an amount of $230 paid for subscriptions to the "Money Reporter" and the "Investment Reporter" publications, which provided counsel and advice on such matters. Mrs Goodhall-Gunn contended:

... that the “Money Reporter'’ and the “Investment Reporter" are an “investment counsel service” within the meaning of paragraph 20(1)(bb) and further is an outlay for the purpose of earning income from property within the meaning of paragraph 18(1)(a) of the Act, in that:

(a) it is a reporting service issuing reports as pertinent information becomes available; and

(b) their principal undertakings are that of advising subscribers on the advisability of buying or selling specific shares or securities, bonds, term deposits and general advice on money management.

For the Minister the situation was that the amounts paid for the subscriptions:

. . . were not paid to investment counsel for advice as to the advisability of purchasing or selling a specific share or commodity of the taxpayer as required by paragraph 20(1)(bb) of the Income Tax Act.

. were not outlays for the purpose of gaining or producing income from a business or property as required by paragraph 18(1)(a) of the Income Tax Act.

. . . were outlays on account of capital within the meaning of paragraph 18(1)(b) of the Income Tax Act.

The testimony of the appellant made it clear that the services were used for the purpose of buying and selling investments (stocks, bonds, etc) with a view to holding in the portfolio those which would produce the greatest returns. It was logical to her that the cost of such "advice" should be deductible from the income results obtained. It was quickly established that the appellant was not in "business", and therefore any deduction claimed must find its roots in its relation to "property" (paragraph 18(1)(a) of the Income Tax Act, SC 1970-71-72, c 63, as amended). In addition the claim was not for a payment to a “person . . . for advice” and that paragraph 20(1)(bb) was of no assistance to the appellant. Counsel for the Minister argued that the payments made ($230) were in direct relation to the acquisition of the property itself — the stocks and bonds bought, sold, held, and exchanged, by the appellant, rather than in relation to the interest income itself. That is, the $230 at issue was an additional capital expense — an increase in the total cost of the appellant’s investment portfolio, and therefore really any investment income earned should be related to the larger “capital base", not merely to the precise cost of acquiring the assets themselves.

I am in agreement with the opinion of counsel for the Minister. The income is not earned from the investment program (that is the reviewing, handling, exchanging, buying, selling, and holding of various investments). The income is earned from the investments themselves — quite different. Clearly that income may be beneficially or adversely affected by decisions made in managing the investment portfolio — (synonymous with the investment program), but once a certain bond or stock is purchased, provid- ing it is held to dividend or interest date, the income therefrom is automatic and completely beyond the control or impact of the taxpayer. It is not and cannot be affected by further manipulation of the income stream — the investment portfolio held by Mrs Goodhall-Gunn. All that can be done with already owned stocks or bonds, is to hold them securely in a safety deposit box, as evidence of entitlement to dividend or interest when the correct time arrives. As far as I am aware provision is made on schedule 4 of the Income Tax Return (Schedule of Investment Income) to permit a deduction for “safe keeping”. Such matters as conversations with bankers or investment dealers, examination of financial statements and periodicals, review of advice, etc (in general that which was the activity related to the investment portfolio of this appellant), are part of the efforts to maintain and improve the capital base (the property) from which the interest and dividend income arises. As an example — if the capital asset base of a different taxpayer happened to be that he owned several apartment buildings, then publications (or other costs) such as those referenced in this appeal — directly related to buying, selling, or exchanging apartment buildings, should not be an operating expense, but it could be a capital expense. Conversely, such periodicals and other items which directly related to reducing or controlling operating cost of the apartment buildings, or of procedures for increasing the rents therefrom would be in all likelihood appropriately considered as costs on operating account.

I would make slight reference to some of the case law regarded as relevant, cited by counsel for the respondent:

Harry H Wilson v MNR, [1980] CTC 2431; 80 DTC 1379;

Robert C Hume v MNR, [1980] CTC 2645; 80 DTC 1542;

F Davida Beadle v MNR, [1979] CTC 2917; 79 DTC 775;

The Queen v Leonard R Young, 83 DTC 5408.

Wilson (supra) was allowed at the Tax Review Board level, reversed on appeal by the Federal Court.

Hume (supra) was dismissed, not appealed.

Beadle (supra) was dismissed, not appealed.

Young (supra) — I would quote from the critical paragraph, noted by the Federal Court in upholding the dismissal of the appeal at the Tax Review Board level:

After reviewing all the evidence, I am not satisfied the expenses paid out for the publications are deductible under paragraph 18(1)(a) of the Income Tax Act. Mr Bonner concluded that they were outlays on account of capital. I agree with his conclusion.

A brief comment was also made by counsel for the respondent with regard to Arthur E Chapman v MNR, [1985] 2 CTC 2268; 85 DTC 587 a judgment of the Tax Court, allowing the appeal. The point at issue in that appeal was the renting of premises, not regarded as a capital item by the judge. In addition, and probably most notably, there is no indication in Chapman (supra) that the case of Young (supra) was brough to the Court's attention.

In this matter, the Minister’s assessment is correct — the amount at issue $230 is not deductible as an expense from investment income. It is excluded from use as a deduction in computing the income of the taxpayer because of the restrictions under paragraph 18(1)(b) of the Act — capital outlay or loss.

The appeal is dismissed.

Appeal dismissed.