Leslie v. R., [1998] 1 CTC 3296

Bowie T.C.J. .

The subject matter of this appeal is the Appellant’s claim that she is entitled to what she in her notice of appeal calls “an interest expense deduction”, in the computation of her income for tax purposes for the year 1995.

Specifically, she claims to be entitled to deduct interest paid upon her student loans incurred while she was a student attending the University of Toronto.

It is not disputed that as a student she availed herself of the Canada student loans program, and a similar program of the government of Ontario, borrowing some $30,000 in total, which was expended towards her fees and other educational expenses, and which she is now repaying from the salary she earns as an employee of a charitable institution for which she works as a development manager.

Her salary before she graduated from the University of Toronto was between $20,000 and $30,000 per annum. Now, with the benefit of a Bachelor of Arts degree, she earns in excess of $40,000 per annum. She attributes this difference entirely to the fact that she has obtained a Bachelor of Arts degree, and for the purposes of this appeal, I shall accept that as an accurate statement.

Ms. Leslie claims the deduction on the basis that the proceeds of her student loan were expended to achieve for her an education, and specifically the Bachelor of Arts degree. This, she says, is an investment, and the money she now earns is income produced by that investment, thus bringing the interest within the provisions of paragraph 20(1)(c) of the Income Tax Act (the Act) as interest on “borrowed money used for the purpose of earning income from a business or property”.

The Minister’s position, shortly stated, is that Ms. Leslie does not earn income from a business or property, that the tuition fees and other costs of her education were personal or living expenses, and that interest paid upon money borrowed to pay those personal or living expenses is also a personal or living expense, whose deduction is precluded by paragraph 18(l)(/i) of the Act.

In support of her position, Ms. Leslie argued that she is a business, as are all gainfully employed persons, and that her expenditure on education is an investment in the business. As such, it brings the interest which she is now paying on the borrowed funds within paragraph 20(1)(c) of the Act. This argument is supported by reference to numerous newspaper articles including a report of a recent statement made by the Minister of Finance extolling the virtues of investment in education. She also relies on dictionary definitions which suggest that any work or occupation is a business.

In the world of commerce there is a distinct difference between the employment of individuals by other individuals, or by business concerns, for wages or salary, on the one hand, and the conduct of a business for profit on the other. This fundamental difference is recognized repeatedly throughout the Income Tax Act.

Ms. Leslie herself is not a business, nor does she operate a business. She works for a not-for-profit organization, for a salary. I should add that the fact that her employer is a not-for-profit organization, is not material to the result. My conclusion, and the reasons for it, would be the same if she worked as a salaried employee of a profit making corporation.

As is so often the case with words, in both of our official languages, one of the many definitions to be found in dictionaries suits the Appellant’s case, but this does not mean that all of the other definitions must be cast aside. In the context of the taxation of income, business and employment are distinct concepts, with distinct treatment. It is true that the practitioners of the soft sciences speak frequently of expenditures on education as an investment in the future. It is, however, a colloquial usage. Within the realm of commerce, and in the taxation of income, investment is a much more precise concept, which pertains to the acquisition of income producing assets which may be reflected on the balance sheet of an enterprise. Education is an asset in the colloquial sense only. The Appellant’s Bachelor of Arts degree may persuade an employer to pay her a higher salary for her services, but it is not an “income producing property”.

I am of the view that these expenses are in the nature of personal or living expenses. While that is sufficient to dispose of this appeal, I would not wish to leave the impression that the result is governed by the fact that the Appellant works on salary for a non-profit organization. It is true that there are decisions of the courts in various contexts which have permitted the deduction of expenses associated with education as business expenses in the context of an ongoing business. However, absent an ongoing business with a reasonable expectation of profit against which the expenses might be set, I am of the view that the expenses of gaining an education, and interest paid upon money borrowed for the purpose of paying those expenses, would likewise be personal or living expenses.

The appeal is dismissed.

Appeal dismissed.