Date: 19991108
Docket: 98-1987-IT-I; 98-1989-IT-I
BETWEEN:
JANE HEDGES-MCKINNON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
BETWEEN:
RICHARD MCKINNON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Brulé, J.T.C.C.
[1] These two appeals were heard on common evidence in
Vancouver, British Columbia, on August 9, 1999. The
Appellants are objecting to the assessments made by the Minister
of National Revenue (the "Minister") in relation to
their golfing activities. The assessments, for the 1994, 1995 and
1996 taxation years in the case of Richard McKinnon and the 1996
taxation year in the case of Jane Hedges-McKinnon, were issued in
October of 1997.
Facts
[2] The two Appellants are husband and wife. Jane
Hedges-McKinnon played professional golf on the ladies' tour
while both taught golf professionally. The Minister alleged that
there was no reasonable expectation of profit from their business
and hence the assessments. Tax returns were filed each year, one
schedule showing the giving of golf lessons and playing in golf
tournaments and one statement of professional activities and
listing the same two functions. The business had two owners and
two functions.
Analysis
[3] It seems strange that Revenue Canada Officials took a
different attitude towards this case than the reported decisions
indicated. Revenue Canada insisted, at first, that playing golf
for purses and teaching golf were two separate business
endeavours. In the case of Bourque v. R., [1996] 3 C.T.C.
10, the Court ruled that the two were so closely related, there
was only one business.
[4] The figures used by Revenue Canada as to losses differed
from those used by the Appellants, yet Revenue Canada finally
accepted the figures of the Appellants. As to an expectation of
profit this was the Appellants' only endeavour of a work
nature and any income was a chief source of income. It was said
that it takes 13 years to show that revenue of a female golfer
will cover expenses. In order to reach this level the Appellants
bought a place in Florida to continue their teaching. Only when
there were no funds available did the business cease as there was
no sponsorship available.
[5] In the course of written argument, the appellant quoted
the following:
"Thus the reviewing officer used a paraphrase of part of
the decision in the Landry case (Landry v. The
Queen, 94 DTC 6624) to justify her opinion that the
co-appellants' business was not a business, but she left out
the very part of that same decision which fits this case to a
glove, when the learned Judges held that the following criteria
should be given consideration in making a determination:
the time required to make an activity of this nature
profitable, the presence of the necessary ingredients for profits
ultimately to be earned."
[6] In the case of Oleg Feldgajer v. R. [1996] 1 C.T.C.
2263, one which has many similarities to the present case, Judge
Bowman of this Court said the following:
"There was no suggestion that the expenses were not
incurred or that they were unreasonable. The expenses incurred do
not fall within the section 248 definition of personal or living
expenses. Since commencing the consulting business in 1986, the
appellant was operating a commercial enterprise carried on with a
profit motive. During the years under appeal, time was spent by
the appellant seeking contacts and clients. The fact that the
appellant was still seeking investors did not mean that there was
no business or no reasonable expectation of profit. The revenues
that he did earn can be described only as income from a
business."
[7] The Appellants indicated that:
"The conclusions of Judge Bowman in the Feldgajer
case are so much relevant to this case that we are paraphrasing
them below as follows:
It is plain that we have here a brilliant (golfer) embarking
upon an enterprise that entails certain risks because it is the
leading edge of (professional sport). It is unfortunate that an
attempt to engage in a business in an advanced field of
(professional sport) that is by its nature, neither frivolous nor
inherently incapable of producing a profit, should be discouraged
by the Department of National Revenue simply because it is an
enterprise that does not produce a profit in the first year. Not
everyone who starts a business can be expected to hit the ground
running."
[7] Further in Freud v. M.N.R., [1969] S.C.R. 75, a
case which resembles this case as it applies to professional golf
where earnings become very substantial over a short period of a
professional athlete's gainful lifespan, Pigeon, J. had the
following to say:
"Fairness to the taxpayers require us to be very careful
to avoid allowing profits to be taxed as income but losses
treated as an account of capital that therefore not deductible
from income when the situation is essentially the same."
[8] For the above reasons the appeals are allowed, without
costs, and the assessments are referred back to the Minister for
reconsideration and reassessment.
Signed at Ottawa, Canada, this 8th day of November 1999.
"J.A. Brulé"
J.T.C.C.
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