22 April 2008 External T.I. 2007-0245171E5 - Computation of income

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Taxability of profits from the sale of a book.

Position: General comments only.

Reasons: The law.

XXXXXXXXXX 							2007-024517
								Michael Cooke
April 22, 2008

Dear XXXXXXXXXX :

Re: Computation of Income

We are writing in response to your correspondence of April 30, 2007 that was forwarded to us by the Summerside Taxation Center and received on July 13, 2007. We apologize for the delay in our reply.

In your letter you ask whether profits from the sale of your book would be taxable where the Canada Revenue Agency ("CRA") had previously denied your claim to deduct losses from that particular activity in a prior tax year.

Losses from a business are deductible in computing income. The costs of a hobby or personal endeavour are not deductible. The Supreme Court of Canada has ruled in Stewart v. The Queen (2002 SCC 46) that "where the nature of a taxpayer's venture contains elements which suggest that it could be considered a hobby or other personal pursuit, but the venture is undertaken in a sufficiently commercial manner, the venture will be considered a source of income for the purposes of the Act." The Court decided that in evaluating commerciality, the reasonable expectation of profit of the venture was a significant factor.

You indicated in your letter that your 2002 loss claim from your book writing activities was disallowed. For a similar situation, please refer to a recent Tax Court of Canada decision called Gordon Harrison v. The Queen (2007 TCC 19), where the taxpayer's losses from failed attempts at marketing and distributing two self-published books were denied because there was no evidence that profits would ever result. In the court's view the taxpayer did not carry out the activities in a sufficiently commercial manner. In your situation, if you think that not all relevant factors were considered or that circumstances have changed, you should contact the Client Assistance Division of your local TSO.

We trust that these comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch