Citation: 2008TCC227
Date: 20080418
Docket: 2007-3913(IT)I
BETWEEN:
CRAIG FRASER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1] These appeals are from reassessments made
under the Income Tax Act for the 2002 and 2003 taxation years. The
issues are whether the Appellant is entitled to deduct various amounts for
travel expenses, research and professional expenses, and business use of home expenses.
TRAVEL EXPENSES
[2] The Appellant has worked in the media and
entertainment industry as a self-employed performer since 1991. All of his
income in 2002 and 2003 was earned from his work as a performer. In these years
the Appellant took several trips during which he had videos of himself filmed.
In reporting his income for 2002 and 2003, the Appellant deducted the expenses
incurred on these trips as a business expense. The Minister of National
Revenue (“Minister”) found that the Appellant had two separate businesses – one
as a performer and another as a producer of documentaries. The Minister
capitalized all of the travel expenses except those incurred on the trip to
Whistler. He found that the travel expenses formed part of the cost of producing
the videos and assigned these costs to Class 10(s). The Minister then found
that since the Appellant had not earned any income in 2002 and 2003 from his
business as a producer he was not allowed to deduct capital cost allowance (“CCA”)
for those years. The Minister disallowed the travel expenses claimed in 2003
for the trip to Whistler on the basis that the trip was personal and the Appellant
did not produce a video in Whistler.
[3] In 2002 the Appellant and his wife
travelled to Thailand, Parry Sound in Ontario, San Juan Island in Washington, and Florida.
They incurred expenses in the amount of $5,408. In 2003 the Appellant and his
wife travelled to Whistler, Florida and Costa Rica. They incurred expenses in the amount of $5,616. At the audit stage,
the Appellant submitted statements to the Canada Revenue Agency (“CRA”) to
support that the travel expenses were business expenses. In his written
statements to the CRA the Appellant stated that the purpose for these trips was
to film adventure travel documentaries and to film footage for his website,
Escape-TV.com. The expenses he sought to deduct for each trip included his
expenses and those of his wife. The Appellant stated that his wife was the
co-host and the co-videographer for the films that were produced from these
trips. His statements were corroborated by the documentaries on his website
from each of the trips except the trip to Whistler. At the time of the audit
and while the CRA was processing the Appellant’s Notice of Objection, there was
no documentary on Escape-TV.com from the Appellant’s trip to Whistler. However,
at the hearing of the appeal the Appellant tendered as evidence a DVD with
footage from his Whistler trip.
[4] It is the Appellant’s position that he has
only one business – the media and entertainment business - and the travel
expenses were incurred to earn income from that business. He also contends that
the travel expenses were current expenses.
[5] At the hearing the Appellant altered the
position he had previously taken with CRA. He stated that there were two
business purposes for his trips. One of the purposes was to create a series of
travel documentaries highlighting himself as a performer in various roles. He
hoped to market these documentaries as an adventure series for television. His
second purpose was to acquire films that he could incorporate into various demo
reels to promote himself as a performer. The Appellant stated that his attempts
to sell his adventure series documentaries were unsuccessful.
[6] The Appellant stated when he is applying
for work as a performer it is critical that he demonstrate that he has
specialized training, skills, abilities and/or experience in the specific type
of performance that is being sought. He has prepared marketing materials for
each category of performer work that he does. As an example, he stated that
when he applies for a contract as a Host he has to provide the following
marketing materials:
- an 8x10 photograph which makes him
look like a Host;
- a detailed
Host-specific resume outlining his work experience, training and special
skills;
- a short video
presentation or demo reel showing a series of video clips from previous hosting
related work.
He noted that as Toronto and Los Angeles are the centers for hiring in this category, the demo reel is the
primary marketing tool used in making an application for this type of
performance contract. His demo reels included footage from the trips he made in
2002 and 2003.
[7] The Appellant further stated much of the
work which he was able to get since 2002 was as a result of the high quality
marketing materials that he has prepared for each of the fields in which he
seeks work. He then gave numerous examples of contracts that he was able to
acquire as a result of his marketing materials and the income he has earned
from these contracts. The Appellant was not cross-examined on this portion of
his evidence.
[8] By capitalizing the travel expenses, the
Minister has conceded that the Appellant has a source of income from making
documentaries. See Stewart v. Canada., [2002] 2 S.C.R. 645 at para. 57
where the Court stated:
It is clear
from these provisions that the deductibility of expenses presupposes the
existence of a source of income, and thus should not be confused with the
preliminary source inquiry. …
The
Minister has also found that there was a business purpose for the trips in 2002
and 2003.
I
may have answered that question differently if it had been before me. It was
not raised as an alternative pleading in the Reply to Notice of Appeal that the
travel expenses were personal or living expenses.
[9] After
reviewing all the evidence I find that if there was a business purpose to the
trips in 2002 and 2003, then that purpose was to make films which became
documentaries and clips in the Appellant’s demo reels - the tools he used to
market himself as a performer. In either scenario, the films were capital
assets and the travel expenses were capital expenditures as they were incurred
to bring assets of enduring value into existence. The Appellant has established
that footage from the documentaries was used to earn income from his work as a
self-employed performer. He is entitled to deduct CCA from his income in 2002
and 2003.
[10] I further find that the Minister was
correct in disallowing the expenses that the Appellant incurred on his trip to
Whistler. The DVD that the Appellant tendered was made after the fact. It is my
opinion that it was made just for the Court hearing and not for a business
purpose.
RESEARCH AND PROFESSIONAL
EXPENSES
[11] The Appellant had claimed 100% of the
costs for cable television and high speed internet services as research and
professional expenses. At the hearing he was prepared to reduce his claim to
75%. He stated that if he were not a performer he would not need high speed
internet and three-tiered cable television. He used high speed internet to make
applications for employment. The Appellant took the position that as a
performer he watched television from a different perspective than the person
who was not a performer. Television was a training tool for him and
consequently the costs for cable was a business expense.
[12] However, on cross-examination the Appellant
stated that he used the television to watch sports programs, especially the
Canuck hockey games. His wife also watched television. There was only one
internet connection in the home and both he and his wife used the computers. In
cross-examination, the Appellant admitted that he used the computer for both
personal and business purposes.
[13] The CRA allowed the Appellant to deduct
50% of the costs of his internet and cable television services as a business
expense, which in my view was generous. The Appellant has not brought forth
sufficient evidence to show that the reassessment was incorrect. The Appellant’s
statements that he used his computer and television entirely for business
purposes were self-serving and were contradicted when he was cross-examined on
this issue.
BUSINESS USE OF HOME
EXPENSES
[14] The Appellant and his wife live in a two-level
condominium which measures 1066 square feet and consists of seven rooms
including bathrooms and storage rooms. The Appellant had claimed that three
rooms (433 square feet or 40.6%) of the condominium were used exclusively for
business. The Minister reassessed on the basis that it was not reasonable in
the circumstances for the Appellant to claim more than 15% of the condominium
for the purpose of earning income from business.
[15] On cross-examination the Appellant admitted
that each of the rooms which he had claimed was used exclusively for business
was also used for personal purposes. For instance, the office also doubled as
the guest room when he and his wife had company staying with them. It was also
used by his wife when she used the computer. The “rehearsal area” and “storage
room” were also used to store personal items. In the end result, the Appellant
has not shown that the reassessment was incorrect.
[16] In his Notice of Appeal the Appellant has
asked that all interest charges be waived on the net taxes owing for each year.
This Court does not have the jurisdiction to waive interest on taxes. The
Minister has the discretionary power to waive interest under subsection
220(3.1) of the Act and the Appellant must make his request for waiver
of interest to the Minister.
[17] The appeals are allowed and the Appellant
is entitled to deduct CCA in 2002 and 2003.
Signed at Ottawa, Canada this 18th day of April, 2008.
V.A.
Miller, J.
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