Alan a Brown v. Minister of National Revenue, [1984] CTC 2087, 84 DTC 1057

Bonner, TCJ:—The appellant appeals from assessments of income tax for the 1973 to 1977 taxation years.

In assessing tax for the 1974 to 1977 taxation years the Minister denied deductions claimed under paragraph 110(l)(a) of the Income Tax Act in respect of moneys which the appellant asserted were donated by him to the University of Windsor. The Minister’s position was, in effect, that the donations in question were made not to the University of Windsor* [1] but, rather, to two learned societies, neither of which was a qualified recipient under paragraph 110(l)(a). The societies in question were the International Honor Society in Economics and the Association for Comparative Economics Studies (hereinafter respectively called “O.D.E.” and “A.C.E.S.”). The appellant’s contention that the gifts were made to the University is inconsistent with the facts disclosed by the evidence.

The appellant is a Professor of Economics at the University of Windsor. He joined the university in 1971. At that time the president of the University and the head of the Economics Department and quite possibly others hoped to see the establishment at the University of a graduate programme in economics. It was felt that the assumption by the appellant of executive reponsibilities in A.C.E.S. and O.D.E. might enhance the University’s stature in the field of academic economic studies and assist in the establishment of the graduate studies programme. The appointments sought for the appellant, namely, executive secretary of A.C.E.S. and secretary-treasurer of O.D.E. would, it was thought, for all practical purposes place the central office of each organization at the University of Windsor. Thus, the president of the University and the head of the economics department between the titles do not appear to have meant much. Both positions involved the appellant in the performance of the functions of chief executive officer.

To assist the appellant in discharging the duties which he undertook, the University cut his teaching load by one-third and provided office space, equipment and help. Furthermore, the university set up an internal account for each of the societies. It accepted deposits of funds paid to the societies and disbursed funds from the accounts as required by the societies.

The appellant testified that the accounts of both societies went into deficit from time to time. He made the contributions now in issue in order to relieve the deficits. He did so by cheque payable to the University, but he designated the account to which the funds were to be applied.

J. F. Leddy, former president of the University, testified that “. . . for all practical purposes we had subsumed and partially assimilated these two societies at the University of Windsor .. This happened, he said, . . because we. regarded the work of the societies as supplementary to supportive of our own activities in the Department of Economics . . .”.

Dr. Leddy was not prepared, however, to say that either society ceased to have an existence independent of the University of Windsor. The appellant testified that he ws but one member of the executive committees which governed the affairs of the societies. There was evidence that membership fees and other funds generated by the societies flowed into the accounts maintained by the University for them. Further, when the appellant ceased to hold the executive offices the funds held by the University for each of the societies were transferred to the appellant’s successors in office. Thus, it is quite clear that the University, in maintaining accounts for the societies, acted as agent or custodian only. The contributions in question here, while made by cheque payable to the University, were earmarked as contributions to the accounts maintained by the University for A.C.E.S. and O.D.E. and thus were contributions made not to the University which was a mere custodian but, rather, were contributions to the societies. This branch of the appeals fails.

I turn next to a second issue which relates only to the assessments for 1973 and 1974. It arises from the disallowance of losses in respect of what the appellant said was the business of a conference organizer and editor of proceedings. The Minister’s position was that the appellant did not carry on any such business and that, in any event, the activity was not a business. The money-making scheme described by the appellant in evidence involved the organization of a conference at which prominent economists would be invited to deliver papers. The appellant would then secure copyrights, edit transcripts of the papers delivered, arrange for their publication and collect royalties. The appellant asserted that he had engaged in a venture of this type in 1966 prior to his arrival in Canada at the University of Windsor. The appellant said further that he earned revenues of $15,000 as co-editor of and contributor to a book called “Perspective in Economics”. This venture did not involve the organization of a conference.

The losses here in question stem from a venture upon which the appellant embarked in 1972. It led ultimately to the holding of a conference at the University late that year. The topic discussed at the conference was “Urban and Social Economies in Market and Planned Economies”. In connection with the scheme the appellant entered into an agreement with the Crown in Right of Canada represented by the Minister of State for Urban Affairs. Under that agreement the Crown was to pay $9,550 as a “co-sponsorship of the conference” and the appellant in turn agreed to organize and implement a research conference and to prepare a volume of papers tentatively entitled “Comparative Urban Economics and Development: Models, Issues, Policies”. A draft agreement was made between the appellant and a publisher for the publication of papers to be delivered at the conference. Unfortunately, however, the publisher backed out of the deal either at the time of or shortly after the conference.

The position of the respondent appears to have been founded in part upon doubt that the appellant was the person who in fact carried on the business. The evidence of the appellant was that a part of the scheme involved the formation of an organization called the “Committee on Comparative Urban Economics”. Letterhead with the appropriate title was printed and on it were listed the names of persons who agreed to serve as members of an “Advisory Board” and of a “Planning Committee”. That letterhead appears to have suggested the existence of some sort of a more substantial body than that which actually existed. The members of the Advisory Board and Planning Committee had no proprietary interest in and they undertook no responsibility for the fulfillment of the obligations entered into by the appellant operating under the name and style of the Committee on Comparative Urban Economics.

Following the withdrawal of the publisher the appellant proceeded to make new arrangements for publication. He did this, he said, because he had a reputation to uphold and because he had promised to publish the conference proceedings. It is the losses incurred by the appellant in carrying on with the scheme under the new arrangements that are in question in the 1973 and 1974 appeals.

The new arrangement was a contract made with the University of Windsor Press whereby the appellant gave up the right to royalties from the publication of the papers in return for funding to a maximum of $2,500 of the cost of preparing a camera-ready copy of the manuscript. The evidence suggests that at the time this contract was formed all hope of earning a profit had disappeared

Counsel for the respondent conceded that if the appellant was entitled to deduct any losses at all the amount deductible in each of the years was the amount claimed. He argued that the appellant’s activity was not a business and that the expenditures made in carrying on that activity were therefore not made for the purpose of gaining or producing income from a business with the result that the deductions were prohibited by paragraph 18(l)(a) of the Act.

In my view the evidence supports conclusions that:

(a) the activity in question was one conducted by the appellant; and

(b) that activity was an adventure in the nature of trade and thus a business within the extended meaning of the word “business” to be found in section 248 of the Income Tax Act.

The unchallenged evidence of the appellant with regard to the composition of the committee on comparative urban economics and with regard to the role of the various persons named on the letterhead plainly supports the first conclusion.

The second conclusion is one which I reach despite the strange manner in which the appellant gave his evidence. After some hesitation I have concluded that the appellant’s vague and discursive answers reflected his habits of speech and not a desire to conceal inconvenient facts. I therefore accept the evidence that the appellant entered into the venture with the intention of carrying out the scheme for profit-making previously described which scheme was similar in general nature to prior undertakings. This branch of the appeals therefore succeeds.

In the result the appeals from assessments for the 1973 and 1974 taxation years will be allowed and the assessments referred back to the respondent for reconsideration and reassessment on the basis that the appellant is entitled to the deduction of the business losses in issue. The appellant is entitled to no further relief.

Appeal allowed in part.