Hugh Bingley Cree v. Minister of National Revenue, [1978] CTC 2472

Roland St-Onge:—The appeal of Hugh Bingley Cree came before me on June 17, 1977, at the City of Toronto, Ontario and it is with respect to a loss of some $11,600 that the appellant tried to deduct in 1974 as a business loss incurred in auto-racing activities in his 1973 taxation year.

The uncontradicted facts are as follows: the appellant at all relevant and material times during the 1974 taxation year was a full-time employee of Control Data Company Ltd. Neither during nor prior to the 1974 taxation year did the appellant have a commercial sponsor for his sporting activities. Prior to the 1974 taxation year the appellant, in filing his individual income tax returns, omitted the income earned and the losses from the auto-racing activities.

In re-assessing the appellant, the respondent stated that the appellant was not operating a business involving auto racing prior to or during the 1974 taxation year and consequently no portion of the expenses claimed by the appellant in the 1974 taxation years was made or incurred for the purpose of gaining or producing income from the business of auto racing. The amount claimed by the appellant constituted expense for his own amusement, and entertainment as a hobby.

Having regard to the total income received by the appellant during the 1974 taxation year and during the taxation years prior thereto, the expenses incurred by the appellant were unreasonable and consequently the auto-racing activities were merely a sporting venture and favourite pastime and not a business carried on for a profit or with a reasonable expectation of profit.

At the hearing the appellant testified that during the years 1968 to 1973 inclusive he was racing as an amateur. He became a professional racer in 1974 and drove nationally which means that he drove on the main racing circuits of the country. He owns a trailer, a van and a racing car. From 1968 to 1974 he owned the following racing cars: in 1968 and 1969, a Lotus 51 Formula A Ford; in 1970, a Lotus 61 A; in 1971 and 1972, a Lotus 69 Formula A Ford; in 1973 and 1974, a Brabham DT-35; in 1975 and 1976, a Chevron D-29 Formula Atlantic.

From 1971 to 1976 inclusive the activities, the expenses and the incomes of the appellant are as follows:

He also explained that he decided to claim his 1973 loss because of the decision in Ken Huband v MNR, [1974] CTC 2001; 74 DTC 1039, in which the taxpayer, an amateur racer with less experience, was allowed his expenses as business losses, that in 1974 he was sponsored for the sum of $1,500 worth of some racing car parts, that when he has to take time off to do his racing his employer allows him to take it with pay. He also stated that since he is a professional auto racer he enters five races per year, that the racing is very demanding in cost and in time, that all the other professional racers (58) have other occupations, with the exception of one who has his own financing, and finally he said that he enjoyed racing very much.

Mr William E Chapman, a publisher of Canada Auto Racing, testified that the appellant is a professional auto racer, that he has his FIA license and a professional car valued at $30,000. When asked if the auto racing was a paying proposition he answered that it was a lousy proposition. He went further and said:

I don’t know why they do it. There are fifty in Canada. They all have to work because they cannot make a living with auto racing.

The respondent called as his own witness Mr James Arthur Clayton who was involved with auto racing for a period of twenty years. He Stated that one of the best Canadian drivers won $40,000 in 1971 and. 1972 which was just enough to cover his expenses; that the auto racing was a very expensive sport; that the only full-time driver out of the fifty professionals that can devote seventy per cent of his time owns a dealership with his family. He also stated that the appellant was a professional driver and was in the highest class of racing in Canada. Assuming that the appellant was winning races by being in the first six, he would be able to make quite a good income from that racing within the next two years.

Counsel for the appellant argued that Mr Cree was a professional driver with an FIA license and has written a great number of letters to get a sponsor, that his employer has given him free time to race, which shows that he was not racing only in his spare time, that the case of the appellant was much better than that of Mr Huband who was not a professional auto racer and had fewer points, that the appellant received a sponsor in 1974 and that he travelled across Canada and even in the United States. He also stated that the appellant was not in auto racing just for the love of it, but because he had a reasonable expectation of profit. Counsel for the appellant referred the Board to Huband to say that the appellant’s case was much stronger.

Counsel for the respondent said that the Board must look at what the appellant had done, spent and earned from 1971 to 1976 inclusive to note if there could be any reasonable expectation of profit. The frequency of races, the time spent and the six years of consecutive losses showed that there is no hope to earn a net profit.

There is no doubt that Mr Cree is a better driver than Mr Huband, but with the evidence adduced, it is difficult to convince the Board that the appellant’s auto-driving activities can be done with a reasonable expectation of profit. As his own witness said, it was a “lousy proposition” and he could not understand why they do it. He also said that they all have to work because they cannot make a living from racing. The other witness, Mr Clayton, said that one of the best Canadian drivers won $40,000 within two years and this was just enough to cover his expenses. I am certain that my colleague who has rendered a decision in Huband did not have such strong statements against the auto-racing activities in Canada. In the course of the hearing, when the witnesses had to refer to the auto-racing activity, they all used the expression “sport” and no one used the word “business”. According to the evidence adduced, it appears that many years would elapse before this activity of auto racing in Canada becomes a business.

As to the case at bar, it is self-evident that the appellant cannot have any reasonable expectation of profit. In order to say that the appellant could possibly make a good profit in two years, Mr Clayton had to enumerate many conditions, namely that he wins and that he comes within the first six of fifty professional Canadian drivers. Having to take so many precautions before saying the appellant could have any profit seems too uncertain and consequently this statement cannot be taken too seriously.

The appellant’s activity before and after 1974 and the nature of the auto-racing activity in Canada at the present time does not show that this operation of car racing can be carried out with a reasonable expectation of profit.

For these reasons, the appeal is dismissed.

Appeal dismissed.