McClelland v. The Queen, docket 98-2778(IT)G

Date: 20020527

Dockets: 98-2778-IT-G,

1999-3618-IT-G

BETWEEN:

BRENT GLYNN McCLELLAND,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Beaubier, J.T.C.C.

[1]      These appeals were heard together on common evidence at Calgary, Alberta on May 16, 2002. The Appellant testified and called Cynthia Freeland, Ph.D., who was qualified as an expert in the critical theory of art.

[2]      The Appellant has appealed assessments for the years 1988 to 1997 inclusive. The essence of both appeals was stated by Appellant's counsel to be whether the Appellant was in the business of being an artist during the years in question. There is no evidence that he produced or sold any work of art in those years. Evidence was led of a sampling of expenses proposed to be deducted for those years. Thus, the question which the Appellant's counsel put to the Court is whether the Appellant had a reasonable expectation of profit from his alleged work as an artist in the years 1988 to 1997 inclusive. That is the question the Court will decide.

[3]      Ms Freeland testified that "almost anything" can be regarded as a work of art today. In essence she stated that, to be a work of art, it must contain an idea, be original, communicate and be well crafted.

[4]      There is no evidence before the Court that the Appellant produced any work of art whatsoever during the years in questions, 1988 to 1997 inclusive.

[5]      The only work of art alleged to be produced by the Appellant is "Apothesis". The only evidence of the date that it was produced is that it was produced by the Appellant in March, 2002. (See Exhibit A-2)

[6]      The Appellant appears to be in his late 40's or early 50's. He testified that he received a degree in education at the University of Calgary and taught for a while. He has a daughter who was born in about 1984 and who he took to New York City in 1995. He had joint custody of her with her mother until she moved from Calgary to Vancouver, whereupon he began making trips of lengthy duration to Vancouver and Nanaimo, British Columbia. During some of the years in dispute he resided with his parents in Calgary. On cross-examination, he admitted that his only income for the years in question, either as an employee or as reported business income, was from a day-care operation. When he was examined as to the time he spent as an artist, or in the alleged business of art, he was evasive. He concluded that he spent time thinking about art and that in his view getting an artistic idea occurs just before waking up from sleep or immediately upon falling asleep. He did not testify as to how often this had occurred to him.

[7]      For the Appellant to establish that he was in business as an artist from 1988 through 1997, he must establish that he had a reasonable expectation of profit from his works of art at that time. The primary elements of the test for that were set out by Dickson, J., in William Moldowan v. The Queen (S.C.C.) 77 DTC 5213 at 5216 when he wrote:

Although originally disputed, it is now accepted that in order to have a "source of income" the taxpayer must have a profit or a reasonable expectation of profit. Source of income, thus, is an equivalent term to business: Dorfman v. M.N.R. [72 DTC 6131], [1972] C.T.C. 151. See also s. 139(1) (ae) of the Income Tax Act which includes as "personal and living expenses" and therefore not deductible for tax purposes, the expenses of properties maintained by the taxpayer for his own use and benefit, and not maintained in connection with a business carried on for profit or with a reasonable expectation of profit. If the taxpayer in operating his farm is merely indulging in a hobby, with no reasonable expectation of profit, he is disentitled to claim any deduction at all in respect of expenses incurred.

There is a vast case literature on what reasonable expectation of profit means and it is by no means entirely consistent. In my view, whether a taxpayer has a reasonable expectation of profit is an objective determination to be made from all of the facts. The following criteria should be considered: the profit and loss experience in past years, the taxpayer's training, the taxpayer's intended course of action, the capability of the venture as capitalized to show a profit after charging capital cost allowance. The list is not intended to be exhaustive. The factors will differ with the nature and extent of the undertaking: The Queen v. Matthews (1974), 74 DTC 6193. One would not expect a farmer who purchased a productive going operation to suffer the same start-up losses as the man who begins a tree farm on raw land.

[8]      Using these criteria as headings, the Court finds that in the Appellant's appeals:

1.        Profit and loss experience - There is no evidence of any profit or any loss by the Appellant respecting any work of art. There is no evidence that he produced any work of art during the years in question or before that or until March, 2002.

2.        Taxpayer's training - The Appellant has a degree in teaching. He testified that he taught art. There is no evidence that he has any training in art or in producing works of art. From his testimony it appears that he has read about art and artists, in visual and sculptured types of media. He testified that in about 1995 he and his daughter visited art galleries in New York City.

3.        The taxpayer's intended course of action - There is no evidence that the Appellant had any intended course of action during the years in question. In particular, there is no evidence that he had any intended course of action to produce a work of art or to produce works of art of any kind for profit in those years. His testimony respecting "Apothesis" is that he produced a total of 12 versions of it. He and his daughter "mummified them", blindfolded each other and buried them in the mountains. An odometer reading was taken of the distances to that area, yellow ropes were stretched, pictures were taken and he hopes or expects to sell these for $1,000,000 to someone who will then discover these 12 versions some time in the future. He also has an idea that he may write about this process and publish that. He has not displayed Apothesis to the public except insofar as Exhibit A-2 has been printed in just over 300 copies and apparently distributed, free, to a few people.

4.        Capability of the venture as capitalized to show a profit - For the years in question, there is no evidence of any capital investment by the Appellant in this alleged venture. There is no evidence of any business venture to produce a work of art during the years in question. There is no evidence that the Appellant tried to or intended to produce an actual work of art, or an actual work of art to sell for a profit during the years in question. When the Appellant was asked twice, during his examination-in-chief, how he expected to generate revenue from works of art, he was unable to answer the question. Instead he indulged in two long meandering discourses.

[9]      The question of a reasonable expectation of profit was further expanded upon in Enno Tonn et al v. The Queen (F.C.A.) 96 DTC 6001. Using the concepts contained in that judgment, the Court finds:

1.        The Appellant has a personal interest in art. Moreover his samples of expenses contained numerous proposed deductions for motel rooms and travel to visit his daughter in British Columbia. On the evidence it is clear that most, and perhaps all, of his proposed expenses relate to expenses he incurred in relation to his daughter or to personal visits to British Columbia.

2.        The Appellant had no plan during the years in question to produce a work of art, or what the medium or material might be, or to make a profit from a work of art. He testified that he was experimenting with materials. From his testimony he may have been thinking about art, reading about it or even looking for inspiration. But he had no plan by which he would produce art for a profit. Nor did he formulate such a plan in those years.

[10]     The Appellant had no reasonable expectation of profit from work as an artist during the years in question. He was not in that business in those years.

[11]     There are other questions raised by both parties in these appeals. However, the foregoing judgment by the Court dispenses with the appeals and it is not necessary to deal with any of the questions.

[12]     The appeals are dismissed. The Respondent is awarded a full set of party and party costs in respect to each appeal.

Signed at Vancouver, British Columbia, this 27th day of May, 2002.

"D.W. Beaubier"

J.T.C.C.

COURT FILE NO.:                             98-2778(IT)G and 1999-3618(IT)G

STYLE OF CAUSE:                           Brent Glynn McClelland v. The Queen

PLACE OF HEARING:                      Calgary, Alberta

DATE OF HEARING:                        May 16, 2002

REASONS FOR JUDGMENT BY:     The Honourable Judge D.W. Beaubier

DATE OF JUDGMENT:                     May 27, 2002

APPEARANCES:

Counsel for the Appellant:          Kerry McClelland

Counsel for the Respondent:      Belinda Schmid

COUNSEL OF RECORD:

For the Appellant:

Name:                 Kerry McClelland

Firm:                  Kerry McClelland, Barrister & Solicitor

                                                          Calgary, Alberta

For the Respondent:                  Morris Rosenberg

                                                Deputy Attorney General of Canada

                                                          Ottawa, Canada

98-2778(IT)G

1999-3618(IT)G

BETWEEN:

BRENT GLYNN McCLELLAND,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence on May 16, 2002

at Calgary, Alberta, by the Honourable Judge D.W. Beaubier

Appearances

Counsel for the Appellant:                             Kerry McClelland

Counsel for the Respondent:                         Belinda Schmid

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997 taxation years are dismissed in accordance with the attached Reasons for Judgment.

Signed at Vancouver, British Columbia, this 27th day of May, 2002.

"D.W. Beaubier"

J.T.C.C.