Herbert L Wisebrod v. Minister of National Revenue, [1978] CTC 2782, [1978] DTC 1581

Delmer E Taylor:—This is an appeal against an income tax assessment in which the Minister of National Revenue disallowed an amount of $9,530.41 described as a promotion expense and claimed by the appellant for the taxation year 1974. The appellant relied upon paragraph 18(1)(a) and the respondent relied, inter alia, upon section 3, paragraphs 18(1)(a) and (h) and subsection 248(1) of the Income Tax Act, SC 1970-71-72, c 63.

Facts

The appellant is a solicitor practising his profession with the firm of Gambin, Bratty, Chiappetta, Morassutti, Caruso, Barristers & Solicitors, Downsview, Ontario. In the year 1974 he was an unsuccessful candidate in a local municipal election.

Contentions

The notice of appeal reads as follows:

. . . that promotion expenses of $9,530.41 claimed as a deduction from income were outlays or expenses incurred by the undersigned for the purpose of gaining or producing income . . .

The position of the respondent was that:

—the said expenses were not an outlay or expense made by the appellant for the purpose of gaining or producing income from a business or property;

—the said expenses were personal or living expenses of the appellant.

Evidence

As described by the appellant, his particular interest was municipal and development law, and his reasons for offering himself as a candidate were twofold—to engage in public service and to promote himself in the community. This form of advertising (resulting from the election campaign) was one of the few methods available in his profession and he took it, even though he recognized his chance of being successful was very slight. It was his opinion that at least two and possibly three clients later provided business to the law firm as a result of this public exposure. One of the clients’ required services in connection with a municipal rezoning application, another the registration of a condominium building. He did agree that there were hundreds of clients files in the law firm and that some of the individuals connected with the above two groups (rezoning and registration) had been clients before his effort at entering municipal politics. Although the gross fees from the two clients exceeded the promotion expense that he is claiming in this appeal, his own share of the fees (as one of the partners in the law firm) would have been less, although it is very difficult to calculate or to apportion exactly. The appellant also stated for the record that he had joined the law firm in 1968; that the relevant municipal elections were held in December of 1974; and that the gross fees of the firm had been $1,166,365 in 1973, increasing to $2,198,986 in 1974, while his own share of the net income rose during the same period from $2,780 to $50,129.

Argument

Essentially the argument of counsel for the appellant was that this particular type of expense was not disallowed under the Act and that the effort was directly related to his work as a municipal and development solicitor. Counsel expressed the opinion that this taxpayer was in an unique position because of his particular legal interests, and that a similar expense (as a political candidate) might not be available as a deduction to other taxpayers—doctors or dentists, for example. Comparing the expenditure to regular advertising of a commercial product, the appellant’s product was his services, related directly to the municipal and development field of law. In referring to the case of Marc E Decelles v MNR, [1978] CTC 2018; 78 DTC 1019, counsel urged upon the Board that the lesson to be taken from that decision was that had the appellant Decelles been in business rather than employed, his election expenses would have been deductible as indicated at pages 2018 and 1020 respectively: “Consequently the appellant, as an employee, cannot deduct the expenses incurred during his electoral campaign . . ,,

Counsel for the respondent in reply suggested that no such wide meaning could be attached to the Decelles decision (supra); and that this appellant’s case failed on two grounds—first, that there had been no reasonable expectation of income from the expense incurred (any income which might be attributed thereto could only be seen as having the remotest possible connection); and second, that if the expense had any business merit, it was only as a capital and not as a Current expenditure.

The point put forward by counsel for the appellant that the expense should be allowed to this taxpayer but denied to others (such as doctors or dentists) did not impress counsel and he considered its admission practically fatal to the appellant’s case. The characteristics of the expenditure which indicated it was of capital rather than current nature, were that it was foreign to the appellant’s business, it was non-recurring, made to obtain an office, and contained some element of the development or enhancement of personal goodwill. The Board’s attention was directed to Hart J Levin v MNR, [1971] CTC 66; 71 DTC 5047.

Findings

With reference to the two cases cited by opposing counsel, it is my opinion that Decelles (supra) cannot be extended to cover by implication the matter before the Board: and that on the essential points at issue, Levin (supra) should be regarded as providing the general parameters for reviewing this appeal. This appellant demonstrated little, if any, relationship between the promotion expense and alleged income. In the Levin case (supra) the learned Judge, before dismissing the appeal, set out at pages 70 and 5050 respectively, certain elements of that appeal which are not even to be found in the same favourable light in this appeal:

On the evidence I am satisfied that the appellant took the course at New York University in 1964 not only to keep up to date with advances in knowledge and developments in his profession of dentistry and to improve his skill and competence in treating patients, but chiefly to become and be recognized as a specialist in prosthodontics, and, as a consequence to advance his earning capacity. I am also satisfied that he increased his professional knowledge and charged higher fees in 1964 and in subsequent years as a result of his attending the course. Having regard to the length of. the course and its purposes, it is distinguishable from the more common refresher courses, seminars and meetings that professional persons attend from time to time to keep up-to-date in their profession. (Italics mine)

Any relationship between this expense and alleged income is not only remote (as asserted by counsel for the respondent), it is almost impossible to establish, in a gross fee situation for the law firm exceeding two million dollars in 1974. It would be difficult indeed to attribute with any certainty one amount of income subsequent to 1974 amounting to a few thousand dollars, as directly resulting from a particular expenditure.

A further and major difficulty in the contention of the appellant appears to me to be in the very attempt to demonstrate that the promotional expense resulted in income to the appellant as a lawyer. The obligation facing the appellant is to show that the expenditure claimed was for the purpose of gaining or producing income. There is little latitude in that phrase from the Act to allow a deduction simply because the result of an expenditure might have been additional income, or because one of the subsidiary or ancillary considerations was that it might produce income. The purpose (and it might be argued the only or at least the major purpose) for which the expenditure was incurred must have been to gain or produce income, if it is to be deductible. While this appellant’s personal motives and reasons as a public spirited citizen may well have been commendable, I cannot conclude that there was any prime recognition, at the level dictated by the Act, on his part, that the law firm or the electors in the community, that the purpose of his campaign election expenses was to gain additional income from his profession as a solicitor.

Decision

The appeal is dismissed.

Appeal dismissed.