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Citation: 2003TCC205
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Date: 20030402
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Docket: 2002-2094(IT)I
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BETWEEN:
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WILLIAM OKELL,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Rip, J.
[1] In his appeals from tax
assessments for 1998, 1999 and 2000 in which the Minister of
National Revenue ("Minister") did not permit him to
deduct losses from a declared business, the appellant, William
Okell, states that he operates a business known as "Okell
Motorsports", "the main activity of which is auto
racing and the business is combined and integral to Okell
Personal Counselling, a business of public speaking, to which the
racing activities are linked and integral".
[2] Apparently not all the losses
claimed by the appellant were disallowed. Mr. Okell claimed total
business losses of $7,868, $10,481 and $4,043, respectively, for
1998, 1999 and 2000. The Minister reassessed Mr. Okell by
reducing the business losses to $1,458, $612 and nil,
respectively, for 1998, 1999 and 2000. These losses represent
expenses the appellant incurred in the business of Okell Personal
Counselling;[1] the
Minister denied all expenses with respect to Okell
Motorsports.
[3] In these reasons I first will
consider whether or not Okell Motorsports was a business activity
and, if not, consider whether it was "combined and
integral" to the business of Okell Personal Counselling.
[4] Mr. Okell, 48 years of age, is the
principal shareholder of Okell Waterproofing Ltd.
("Waterproofing"), a corporation carrying on business
in Victoria. His employment income from Waterproofing in 1998,
1999 and 2000 was $76,000, $64,800 and $81,422, respectively.
Although Waterproofing employs other persons, some of whom are in
a supervisory capacity, Mr. Okell devotes a significant amount of
time to the corporation as its general manager running its
day-to-day operations, supervising crews, estimating jobs,
picking up materials, setting up and checking job sites and
billing customers.
[5] Mr. Okell stated that some days he
would work five hours for Waterproofing and spend another five
hours racing or public speaking and counselling. He estimated
that, depending on the season, he could devote anywhere from one
to forty hours on activities other than Waterproofing's
business.
[6] Since at least 1974, Mr. Okell has
been active in auto racing. According to his resumé he has
spent over 23 years competing in sports car racing, acquiring
numerous international racing championships. He was nominated for
Male Athlete of the Year in Victoria, and voted most valuable
member of the Victoria Motorsports Club. He has raced in the 1995
and 1996 Molson Indy Vancouver in the Performance International
Sports Car Race. He also has raced in California.
[7] Mr. Okell's resumé also
indicates his broadcasting and journalism history, which includes
writing for Island Sports Magazine and reporting auto racing for
television and radio. Mr. Okell gives about 24 speeches per year
to men's groups and businesses, community associates
churches, youth groups and appears at special community events.
He works with youth focusing on safe driving. However, he
declared, his goal for a "number of years" is to race
on a full-time basis.
[8] Money is a very important
requirement in auto racing. Mr. Okell stated that he is trying to
compete at a level of auto racing to create a notoriety and
produce results that will "create funding to help [me]
exist". Some funding comes from prize money won at races;
other funding, the greater part, is from sponsors, Mr. Okell
explained. For example, Mr. Okell has an agreement with Fram, a
manufacturer of air filters, that in exchange for having a Fram
decal on his car, Fram will pay him a sum of money based on his
standing in a race, the amount varies as between first, second
and third place. This is called "contingency" funding,
said Mr. Okell. Other manufacturers and distributors of auto
parts, such as Castrol Oil, Prestone Antifreeze, have similar
arrangements. Drivers apply for decals and decals are awarded
based on performance, who you are, media perception, among other
things, according to Mr. Okell. Sponsors also provide drivers
with parts, such as spark plugs, for their cars. They also assist
drivers in purchasing parts and equipment, Mr. Okell
explained.
[9] Mr. Okell receives revenue from
his public speaking, television and radio performances. The
Minister has agreed that these activities constitute a
business.
[10] For the past 20 years, Mr. Okell's
goal is to be a race car driver. He would like to "get into
Sports Car Club of America" and participate in the
Trans Am series of races in the United States and
Canada.
[11] Drivers are funded in at least four
ways, according to Mr. Okell,
(a) The driver has his own money
and has no need of contingency funding; the driver owns and
operates his car;
(b) The driver who uses a car provided
by factory supported dealers, such as Daimler Chrysler
dealers;
(c) The driver who is fortunate enough
to have a person who has money and a "love" of auto
racing who invest in the driver; and
(d) The driver who is fully funded by
sponsors.
[12] So far Mr. Okell cannot predict when he
will be able to find any of these types of funding or when he
will be successful. He is confident that he will be one day, so
long as he "keeps producing" he will attract more
sponsors.
[13] Mr. Okell has never participated in a
National Association for Stock Car Auto Racing
("NASCAR") race and he is not a member of NASCAR
"but would love to", he said. Mr. Okell has
"covered" races and individual drivers for radio and
television. He says attending races gives him the opportunity to
meet people "with lots of money". During the years in
appeal he has appeared in three races, one per year. He testified
that he entered three races in 2001 and two races in 2002. He
never won a cash prize in a race. The bulk of travel expenses he
claimed were for "covering" races for radio and
television, buying trips to purchase auto parts and as a press
liaison for a driver who was racing in Japan. In many radio and
television contracts he is paid a lump sum, but has to pay his
own expenses, which in many cases, exceed the amount of pay.
[14] In reply to the Minister's
assumption that he does not plan any material changes to his
racing related activities in the near future, Mr. Okell declared
that he would "love" to do more racing and would
"love" to do more broadcasting. He would also
"love" to make a profit.
[15] Mr. Okell testified that if his radio
and television appearance concerns auto racing, the income from
that endeavour is included in Okell Motorsports' income; if
broadcasting is concerned with golf or civic matters, the revenue
is included in Okell Communications' income (which, I infer,
is part of Okell Personal Counselling). With respect to public
speaking, income depends on the subject matter of the talk; if
the speech relates to auto racing, the revenue is that of Okell
Motorsports. (In the years under appeal, no revenue from public
speaking was included in Okell Motorsports' income.)
[16] At the time of trial, Mr. Okell was
redesigning a race car. Without being specific, Mr. Okell said he
has obtained some sponsorships.
[17] During the years in appeal Mr. Okell
owned a 1964 MGB race car, two spare transmissions, a cylinder
head, a set of fibreglass body molds for fenders, bumpers, a pit
cart, car jack, tool box, crew uniforms, specialized testing
equipment, race helmet, hand-held radios, specialized pit
equipment as well as other equipment and parts for racing. His
accountant, Mr. James MacAvoy, estimated the value of Mr.
Okell's equipment and car at between $20,000 and $40,000. Mr.
Okell's inventory from selling auto parts is about $20,000
according to Mr. MacAvoy. Mr. Okell did not own a trailer to
transport his car between races; the cost of a trailer is
$15,000.
[18] Mr. Okell testified he had three
licences during the years in appeal for Molson Indy races. He
attended these races but did not race.
[19] Mr. Okell belongs to the Sports Car
Club of British Columbia ("SCCBC"). The SCCBC organizes
races at the Vancouver Molson Indy. It is not a sanctioning body
and has social activities, according to Mr. Okell. Mr. Okell
stated that he selected a group of individuals to maintain and
repair his car for racing at the Vancouver Indy. He had "no
wage expense" but paid for the team's motel and food.
There is no evidence as to what year Mr. Okell selected the group
or when he raced with this group's assistance.
[20] During one of the years in appeal - the
year is not clear - Mr. Okell went to Japan with Gary Smith, a
local driver, for a NASCAR sanctioned race. NASCAR paid the
expenses for 14 people. Mr. Okell's expenses were paid for by
either Mr. Smith or NASCAR, the evidence is not clear. Mr. Okell
used the opportunity to broadcast the race's activities on a
local television station.
[21] Two witnesses testified on Mr.
Okell's behalf, Mr. David Cutler, a former professional
football player and car driver who works in marketing for a
Victoria radio station, and Mr. MacAvoy.
[22] Mr. Cutler's evidence was that a
sports background is useful in obtaining clients. He worked in
radio with Mr. Okell. He described Mr. Okell as a "very
good" driver and a very good communicator with knowledge of
car racing. This is the reason he was hired by television and
radio stations to comment on auto racing.
[23] Mr. MacAvoy has advised Mr. Okell to
obtain an agent to help him obtain sponsors for his racing
activities. Mr. MacAvoy considered all Mr. Okell's activities
outside Waterproofing as one business. He did not take capital
cost allowance in computing Mr. Okell's income from these
activities nor has he made any monetary projection for the race
car activity. Mr. MacAvoy knew the source of Mr. Okell's
income from these activities in 2001, although he prepared
Mr. Okell's profit and loss statement for the year.
[24] I have been unable to find any
commercial enterprise with respect to Okell's
Motorsports' activities. The auto races in which Mr. Okell
participates are few, the money he earns from the races is zero.
I have no doubt he would like very much to race on a full-time
basis but before, during and after the years under appeal he did
not have the wherewithall to support his passion. Mr. Okell did
not have the finances to support a motorsport business. Okell
Motorsports lacked commerciality; it was not a business.
[25] There is no evidence before me to
conclude that the auto racing is combined and integral to Okell
Personal Counselling. While it is no doubt true that a certain
notoriety may follow an athlete or entertainer into a business
carried on by that person, I find it lacking in the appeals at
bar. Mr. Okell participated in only one race in each year under
appeal and has never won prize money from racing. His
"notoriety" as an auto racer has not been explained. No
evidence was submitted to show specifically that the degree of
Mr. Okell's reputation and notoriety was transferable to
a business venture. As I stated earlier, I do not doubt that an
athlete's notoriety may be useful in a business, but the
degree of the notoriety is important. No doubt Mr. Okell is
knowledgeable about auto racing and no doubt this knowledge
coupled with his personality got him radio and television
commentary contracts but any link between auto racing and his
other activities is incidental. In the appeals at bar I am not
confident that Mr. Okell's notoriety as a race car driver was
transferable to any business so that the racing activity could be
said to be combined and integral to a business.
[26] The appeals are dismissed.
Signed at Ottawa, Canada, this 2nd day of April 2003.
J.T.C.C.
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