DR Alan McGugan v. Minister of National Revenue, [1982] CTC 2458, 82 DTC 1459

The Chairman:—The appeal of Dr Alan McGugan is from reassessment with respect to the appellant’s 1977 and 1978 taxation years. The issue is whether the appellant, a geologist and stratigrapher, who in the pertinent taxation years was a full-time professor at the University of Calgary, carried on a business as a consulting geologist.

Facts

The appellant’s earnings as a professor at the University of Calgary were $30,952.26 in 1977 and $33,096,58 in 1978. In his 1977 tax return the appellant deducted from his employment earnings an amount of $2,280 claimed by him as a loss from his business of consulting geologist. No income from the said business was realized in 1977.

By letter of October 20, 1979, the appellant requested that the Minister of National Revenue adjust his 1978 tax return to allow the deduction from the appellant’s employment income unreported business expenses in the amount of $1,599 — there being no income from the appellant’s business in 1978.

By notice of reassessment dated March 7, 1980, the Minister of National Revenue disallowed the amount of $2,280 claimed as business expenses in the 1977 taxation year. By notice of reassessment of December 7, 1979, the Minister of National Revenue refused to make the requested adjustment and disallowed as business expenses the amount of $1,599.

Submissions

The appellant alleges that in the pertinent taxation years, he attempted to continue his consulting business by entertaining prospective clients, circulating to industry details of the services he could render, by attending meetings and discussions on geological matters and by publishing scientific papers. In his notice of appeal the appellant claimed that his efforts were producing income and referred to the fact that income was earned in 1980 and that in 1981 he had received a first cheque from Dome Petroleum for $455.

The respondent established that the appellant has been teaching at the University of Calgary since 1964 and has been a full-time professor of geology since 1976. In cross-examination, the appellant stated that his duties as a full-time professor consisted of:

(a) a teaching requirement;

(b) a research requirement;

(c) committee work in administration;

(d) a consulting comportment.

The appellant admitted that the University encouraged the professors to publish papers, to give conferences and talks on their professional specialties and to maintain contact with industries as a means of keeping students abreast of the current developments in geology.

The appellant did in fact publish articles in his specialty (Exhibits R-1 and R-2). However, these were published by the appellant as professor or geology and geophysics at the University of Alberta and not as a consultant as was the co-author of Exhibit R-1, June E Rapson. In reviewing the documentation attached to his notice of appeal, the printing of his own letterhead, the list of persons contacted or entertained, his curriculum vitae, his schedule of services and charges sent to various industries, etc, it becomes evident that the appellant was a qualified and competent professor of geology and his intention may well have been to either establish or continue a consulting business, independently of his employment as professor at the University of Calgary. The question is whether he succeeded in doing so in 1977 and 1978.

Lentin International Biostratigraphic Consultants Ltd, a potential client of the appellant, addressed its letter of November 23, 1980 to Dr A McGugan, Department of Geology and Geophysics, University of Calgary (Exhibit A- 1). At page 14 of Exhibit A-1 the appellant is referred to as Dr A McGugan, Professor of Geology at the University of Calgary with reference to his participation in the Biostratigraphic Interpretation of the Hibernia Area of the Grand Banks of Newfoundland. The first telephone number indicated on the appellant’s own letterhead is that of the University of Calgary.

The onus of establishing that he was in fact operating a consulting business in 1977 and 1978 lies squarely on the appellant. It is not clear from the evidence whether the papers which the appellant wrote or the technical meetings he attended were part of his duties as a professor or were, as he alleges, part of his consulting business. The evidence is that in 1975 the appellant earned approximately $2,000 and in 1976 he earned $10,850 as a consultant geologist. In 1977, 1978 and 1979 the appellant earned no income as a consultant. In 1980 he earned $120 and in 1981 he earned $1,765. There is, as indicated at page 14 of Exhibit A-1, the possibility of the appellant’s participation in a joint venture in the Hibernia area of the Grand Banks for which the appellant estimates his fee at $28,000.

In my view, while the appellant may occasionally have been awarded industrial contracts because of his accreditation and competence as a professor of geology, it does not follow that he is exercising a consulting business. Whether or not it is the appellant’s intention of going into the consulting business, the evidence does not indicate that he was so engaged in 1977 or 1978.

There was not, in my opinion, sufficient activity or continuity of effort on the part of the appellant in the pertinent taxation years to consider him as exercising an independent consulting business within the meaning of the Income Tax Act. Nor, in my view, could the appellant reasonably expect to earn a meaningful income from his consulting business with the limited time he gave to the exercise of his business and in the indirect manner in which he promoted it. In his notice of objection dated May 10, 1980 for 1977-1978, the appellant stated:

I have published papers, given talks, attended meetings of the Canadian Society of Petroleum Geologists, entertained prospective clients and generally attempted to obtain consulting work without success, presumably due to the requirements of the petroleum industry.

On balance of probabilities, the appellant was awarded contracts because of his association with the University of Calgary and because of the geological papers which were written by the appellant under the auspices of the University as part of his professional duties.

On the basis of the evidence, I must conclude that the amounts claimed by the appellant were not incurred to earn income from a business in 1977 and 1978, within the meaning of paragraph 18(1 )(a) and subsection 248(1) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

The appeal must therefore be dismissed.

Appeal dismissed.