Krepp v. R., [1998] 1 CTC 3151

Bowie 1.C.J.:

The Appellant appeals from his reassessment for income tax for the year 1979. In that year he claimed to be entitled to take into account in computing his income a loss sustained by him in connection with the business of distributing a speed reading course called “The Advanced Reading Course” (the course).

The Appellant is a salesman who has operated in territories which include the lower mainland of British Columbia, Vancouver Island and parts of Ontario. Through a company called Cannon Business Systems Inc. he entered into an agreement to purchase from a company called St. John International Ltd. a license to distribute the course in a territory in Lethbridge, Alberta having a population of approximately 52,000 people. Under the agreement he was required to pay St. John International Ltd. a $100.00 license fee and a $25,000.00 advance royalty. At the same time he entered into an agreement with Raesan Development & Management Corporation whereby Raesan would market the course for him in his territory, paying him $35.00 for each course sold. To guarantee performance Raesan put up a bond in the amount of $18,750.00. The result of these transactions was that the Appellant paid $6,250.00 of his own money, and for that he obtained the rights to sell the course in his territory and, but for the reassessment now under appeal, he would have obtained a tax deferral in an amount substantially more than his $6,250.00 outlay.

I conclude from the evidence that the Appellant entered into these transactions both because he considered the product to be a marketable one which could produce profits for him, and also for the benefit of the tax deferral which he stood to obtain.

The Appellant, unfortunately, made no investigation of the people with whom he was doing business. He sought no record of their past sales performance. Nor did he see any marketing plan that Raesan had created. He knew nothing of its sales force, or of any sales activity in his territory. He has never had any financial returns or reports of any kind from either Cannon or Raesan. In fact he has no knowledge whether there was even an inventory in existence to be sold. He said in his evidence that he was told that there would be television and direct mail advertising in his territory, but he could not say whether that actually took place or not.

In reassessing the Appellant the Minister made the following two assumptions of fact, among others.

1) The Appellant in taking part in the arrangements hereinbefore described, did not, at any relevant time, either by himself or through others acting for him or on his behalf, carry on business;

2) Raesan did not have a viable marketing program in place nor were there sufficient employees to carry out a marketing and distributing business.

These assumptions of fact not only stand unrebutted, but the evidence at trial tends to confirm them. I find as a fact that there was no business activity carried out either by the Appellant himself or by Raesan on his behalf. As Judge Bonner stated in La Liberté v. Z?. [1] , “a business is a commercial activity and is not constituted by desire alone”. It is trite to say that without any business there cannot be a business loss. [2]

The appeal is dismissed.

Appeal dismissed.