Brock (D J.) v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 2989

Christie, A.C.J.T.C.C.:—These appeals are governed by the informal procedure prescribed by section 18 and following sections of the Tax Court of Canada Act. The years under review are 1986, 1987, 1988 and 1989.

The question to be determined is whether certain losses that occurred in those years from an alleged business of the appellant as the producer of literary works are deductible in computing his income for those years. This in turn raises the question whether those activities had a reasonable expectation of profit in the years mentioned.

Paragraphs 1 to 9 of the notice of appeal read:

A. Statement of facts

1. The appellant is a Canadian resident who resides in the City of London in the County of Middlesex.

2. During the taxation years 1986, 1987, 1988, and 1989 the taxpayer claimed losses from his business as a writer for the aforesaid years as follows:

1986	$6,505
1987	$8,224
1988	$8,286
1989	$11,448

3. During this period the appellant's income from writing was negligible.

4. The Minister reassessed the taxation years 1986, 1987, 1988, 1989 by notice of reassessment dated December 13, 1991.

5. The appellant has published a number of works and most recently in November 1992 published a book entitled Best Wishes From London. The book is a pictorial history of the City of London which includes many postcard views of the City of London during the period from 1900-14. Initially 1905 copies were printed. As sales have been good, the second printing is expected in May of 1993.

6. Much of the research for the newly published book occurred over several years including the taxation years in issue.

B: Issue

7. Are the writing losses incurred for the taxation years in question business losses that were incurred in respect of a business which had a" reasonable expectation of profit” and are therefore deductible?

C. Reasons which the appellant intends to submit

8. The appellant claims that all of the business losses forming part of this appeal were incurred when there was a “reasonable expectation of profit” from the project to write and commercially publish the book.

9. The appellant states that he intended at all material times to commercially publish the book, and that these publication plans were implemented. The book is presently being sold to the public.

Paragraphs 1 to 5 of the reply to notice of appeal read:

1. He admits the facts stated in paragraphs 1, 2, 3 and 4 of the notice of appeal.

2. He has no knowledge of and does not admit the facts stated in paragraphs 5 and 6 of the notice of appeal.

3. In computing income for the 1986, 1987, 1988 and 1989 taxation years, the appellant deducted the amounts of $6,504.56, $8,224.36, $8,286.25 and $11,448.18 respectively as business losses.

4. In reassessing the appellant for the 1986, 1987, 1988 and 1989 taxation years, the Minister of National Revenue (the "Minister") disallowed the deduction of the business losses in the amounts of $6,505, $8,224, $8,286 and $11,448 respectively.

5. In so reassessing the appellant, the Minister made the following assumptions of fact:

(a) at all material times, the appellant was employed by the Middlesex County Board of Education;

(b) for the 1986, 1987, 1988 and 1989 taxation years, the appellant’s income from employment was $48,304.96, $50,276.68, $54,059.06 and $55,437.70 respectively;

(c) for the 1986, 1987, 1988 and 1989 taxation years, the appellant reported the following business income, expenses and losses:

Year	Income	Expenses	Net Losses
1986	$ 45	$ 6,549.56	$ 6,504.56
1987	—	$ 8,224.36	$ 8,224.36
1988	$484	$ 8,770.25	$ 8,286.25
1989	$ 35	$11,483.18	$11,448.18

(d) the appellant did not have a reasonable expectation of profit from the

purported business during the 1986, 1987, 1988 and 1989 taxation years;

(e) the claimed business expenses were not made or incurred, or if made or incurred, were not made or incurred for the purpose of gaining or producing income;

(f) the claimed business expenses were personal or living expenses of the appellant.

At the outset of the hearing the Court was informed that the amount of expenses claimed had been reduced as follows:

If these revised figures are projected into paragraph 5(c) of the reply to the notice of appeal the new amounts of net losses are:

The revised amounts for expenses were arrived at by the appellant in consultation with his accountant, Gerald S. Marcus, C.A.

There are a number of documents in evidence as exhibits. It is unnecessary to deal with them all. They show that the appellant has since 1975, been producing literary works of one kind or another, primarily about London, Ontario. There is Dan Brock's Historical Almanack of London — Spring 1975. It is a small soft covered work of 67 pages. It includes diverse matters such as: Laurence Lawrason's Commission as Postmaster, 1825, An Account of the Drowning of William Martin, March 21, 1835, The True Patriot Office (a newspaper) Offered For Sale, 1935. Dan Brock's Historical Almanack of London — Autumn 1975 is along the same lines as the previous almanac. There is also A Historical Calendar of London for the Sesquicentennial Year 1976. The unique feature of this calendar is that for each date there is a historical note, for example, January 14, 1976, has this note: “1926: London native Joseph Coulson Judd, county judge and former police magistrate and mayor, died”. The note for January 28 is : '1942: Large furnace coal sold at $13 per ton at Dalton Fuels Ltd., Rectory Street”. Other publications are Challenged to Achieve Their Full Potential, subtitled St. Peter/St. Mary Choir and Orchestra Program: 1967-1992. This was compiled by Gordon Sanderson and Daniel J. Brock and published in December 1992; Simcoe’s Choice, subtitled Celebrating London's Bicentennial 1793-1993 was edited by Guy St-Denis. The appellant was one of three persons constituting the editorial board. He is also listed at the back of the book as a contributor. Best Wishes from London, subtitled Our Golden Age of Postcards: 1903-14 is 88 pages in length. It was published in November 1992 and consists of the reproduction of postcards with explanatory notes.

There is also in evidence a document entitled "Publications by Daniel J. Brock”. It was submitted by him to Revenue Canada. The titles range from '"The Boys of IXA’, BCH Trumpet Marian Year 1954, (Brantford 1954), 56. This a poem based on the boys in our class for the Brantford Catholic High School yearbook" to"'How about Canadian'Voice' Donation Fund?’ The London Free Press, April 18, 1990, A10. This was inspired by Jim Noble's 'A true "appreciation" of art’, The London Free Press, 6 April 1990, Cl, both articles ridiculing the price Canadian taxpayers paid for the original 'Voice of Fire’ painting” which was published in 1990.

The onus is on the appellant to show that the reassessments are in error. This can be established on a preponderance of probabilities. Where the onus lies has been settled by numerous authorities binding on this Court. It is sufficient to refer to two judgments of the Supreme Court of Canada in this regard: Anderson Logging Co. v. The King, [1925] S.C.R. 45, [1925] 2 D.L.R. 143; and Johnston v. M.N.R., [1948] S.C.R. 486, [1948] C.T.C. 195, 48 D.T.C. 1182. See also Youngman v. Canada, [1990] 2 C.T.C. 10, 90 D.T.C. 6322 (F.C.A.) per Pratte, J.A. speaking for the Court at page 15 (D.T.C. 6325). In Moldowan v. The Queen, [1978] 1 S.C.R. 480, [1977] C.T.C. 310, 77 D.T.C. 5213 (S.C.C.), Dickson, J., as he then was, said at pages 485-86 (C.T.C. 313; D.T.C. 5215): "In my view whether a taxpayer has a reasonable expectation of profit is an objective determination to be made from all of the facts.” In Kerr v. M.N.R., [1984] C.T.C. 2071, 84 D.T.C. 1094 (T.C.C.), this is said at page 2072 (D.T.C. 1095): "The existence of a reasonable expectation of profit is not to be determined by the presence of subjective hopes or aspirations, no matter how genuine or deep-felt they may be. The issue is to be decided by objective testing.”

The evidence establishes that there were losses in each of the years under review. Further there is no evidence that the appellant ever turned a profit from his literary endeavours prior to or after those years. Best Wishes from London, published in 1992 is described as the most financially successful of any of his undertakings. The only evidence of profit or loss from that work is the appellant's return of income for 1992. It shows gross revenue from that publication is $6,286.59 and a net loss of $480.51.

The evidence of the appellant is that he has had great hopes and expectations about profitability to him arising from the composition and publication of literature. But they are not founded on objective testing. I am satisfied that when the objective approach is applied to the facts of these appeals, the proper conclusion is that there was no reasonable expectation of profit in 1986, 87, 88 or 89. It follows that the appeals cannot succeed.

The appeals are dismissed.

Appeals dismissed.