Earl C. Dixon v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 2890

Mogan, T.C.C.}. (orally):— This appeal is brought with respect to the 1990 taxation year. In that year tne appellant, a retired chartered accountant, paid for a subscription to an investment advisory circulation called The Investment Reporter. At first he paid $95 for a trial subscription. He obviously liked what he saw in the trial subscription because later in the year he paid $947 for a lifetime subscription, making his total cost $1,042. He deducted that amount in computing his income for 1990. The deduction was disallowed by the Minister of National Revenue in an assessment issued to the appellant and the appellant has come to this Court on the question of whether his outlay of $1,042 is deductible. The appellant gave extensive background information concerning his position.

Upon retirement he decided that he should use whatever capital he had assembled to earn the maximum level of investment income. He is a sophisticated businessman and recognized the fact that a person can earn up to approximately $27,000 in dividends from Canadian corporations and, if that were the only source of income, it would be virtually tax-free by reason of the dividend tax credit. He therefore decided to pursue a policy of investing primarily in Canadian corporations to earn the maximum level of dividend income. He has a modest portfolio which in 1990 provided dividend and interest income in the range of $12,000 representing about one-third of his net income for the year. He took the position that the amount paid for his subscription to The Investment Report er was deductible in computing income for three reasons.

Firstly, he stated that The Investment Reporter was published by Marpep Publishing Ltd. which is registered as a security advisor by the Ontario Securities Commission and he regarded the subscription price as equivalent to a fee paid for advice from a knowledgeable, sophisticated, registered securities advisor. Secondly, he argued that the subscription price, at least on a monthly basis, was not a capital outlay because the market is everchanging and, if one issue of The Investment Reporter provided a capital asset of an enduring nature, it would not have to be published so frequently as once a month. And thirdly, he claimed that the cost of the subscription was simply an expense incurred for the purpose of earning income from property; the property being his capital invested in the stock market.

Those are pretty cogent reasons and they have an obvious attraction subject to the reservation that, even if all of the appellant's arguments are well foun- ded, I doubt that he could deduct in one year the cost of a life-time subscription which seems to be an enduring commercial benefit. Some portion of the outlay would probably have to be spread over future years.

This is an area of the income tax law that I have not been into recently. Counsel for the respondent brought to my attention three cases which appear to be relevant. In Canada v. Young, [1989] 1 C.T.C. 421, 89 D.T.C. 5234, the Federal Court of AP eal held that expenses incurred to acquire publications in the investment fie d were outlays on capital account and not deductible. I was also referred to the decision of this Court in Vatcha v. M.N.R., [1991] 1 C.T.C. 2413, 91 D.T.C. 653, a case particularly detrimental to the appellant's position because the taxpayer was attempting to deduct the cost of subscriptions to a number of investment publications including The Investment Reporter published by Marpep Publishing Ltd. In Vatcha, Dussault, J. followed the Federal Court of Appeal in Young, supra, and disallowed the deduction of the subscription cost to The Investment Reporter. Dussault, J. also relied on an earlier decision of this Court in Goodhall-Gunn v. M.N.R., [1985] 2 C.T.C. 2378, 85 D.T.C. 663, a decision of Taylor, J. The Goodhall-Gunn decision was also most detrimental to the appellant's case because in that decision, Taylor, J. was dealing specifically with an amount of $230 paid for an annual subscription to The Investment Reporter published by Marpep Publishing Ltd.

This jurisprudence took me somewhat by surprise because, having heard the evidence, I was inclined to think based on the evidence alone that the annual cost of the publication here would have been an expense incurred for the purpose of gaining or producing income from property and therefore deductible under the provisions of paragraph 18(1)(a) of the Income Tax Act. As I have stated already, I would have had a problem with the lifetime subscription being all deductible in 1990, but that was my first blush impression to the evidence as it came before me.

I cannot ignore the weight of jurisprudence which the respondent has brought to my attention, particularly the decisions of two of my fellow Judges: Taylor, J. in 1985 and Dussault, J. in 1991, dealing specifically with the publication in issue in this appeal. I am not inclined to attempt to distinguish either of those decisions. Because I am rendering judgment this morning immediately at the conclusion of the hearing, I have not had an adequate opportunity to read and analyze in depth the reasoning of the Federal Court of Appeal in the Young case but it is strongly against the appellant.

I can only conclude that the courts in those three cases must have been influenced by the concept of a taxpayer assembling information before the acquisition of the property from which the income is derived. If I could put that idea by way of analogy to real estate, there is no question that a taxpayer who owns a rental property may deduct in computing net rental income the municipal taxes in respect of the property, the interest on the mortgage, and the wages paid to a janitor to look after the property. Those are ongoing expenses after the property has been acquired but, if the same taxpayer had paid a real estate investment analyst for advice on what rental property to purchase, the fee paid to the real estate advisor probably would not be deductible but would be an outlay on account of capital added to the cost of the rental property.

I go through this reasoning because it seems, by analogy, to be the position of the appellant. The subscription guides him to the purchase of a specific security and does not enhance the income he derives from that security once he owns it. In that sense, it is more like the advice the real estate investor would get on whether to buy building "A" as opposed to building "B".

At first blush, I was inclined to think that the expense of the publication would be related directly to the earning of dividend income, particularly for a taxpayer like this who has chosen to pursue a very conservative investment policy. I am bound, however, by the decision of the Federal Court of Appeal in Young and by the decisions of my two fellow Judges, Taylor, J. in Goodhall- Dunn and Dussault, J. in Vatcha. The appeal is dismissed for the reasons just given. On my return to Ottawa next week, I will issue a formal judgment giving effect to the decision I have just made.

Appeal dismissed.