Ronald A. Grant v. Minister of National Revenue, [1986] 1 CTC 2465, 86 DTC 1339

Taylor, T.C.J.:—This is an appeal heard in Montreal, Québec, on February 24, 1986, against income tax assessments for the years 1980 and 1981, in which the Minister of National Revenue disallowed as a deduction from other income the loss claimed by the appellant as a result of writing and having published for public sale a book of fiction called “Where the light was burning/’ There were minor other amounts of income and expenses involved in the same “business’* statement which arose out of a small allied activity of providing general editorial services. Basically these “offset’’ each other, and while there might be some question of the method used by Revenue Canada in dealing with these ancillary amounts, the critical issue posed by the appellant was simply whether the costs of publishing his book — $5,612.76 in 1980 and $1,157.50 in 1981 — when contrasted with his revenue earned from the sales of the book — $4.50 in 1980 and $111.08 in 1981

— resulted in a “business” loss of $5,608.26 and $1,046.42 in 1980 and 1981 respectively, which he was entitled to deduct from his other employment income as a writer and a publicist with Canadian Pacific Enterprises Ltd.

No time need be wasted on examining Mr. Grant’s general experience in the writing field and his apparent qualifications to embark on an effort to write a book. There were even certain indications provided in evidence that the book itself was of a commendable quality, but that is not a point on which the Court makes any comment. In addition to his normal day to day employment — directly associated with the field of writing in the broadest sense — Mr. Grant did some of the part-time editorial work for other writers, and did some part-time free-lance writing. He had also, prior to the book in question, written some poetry which he had published himself. When it came to the subject book “Where the light was burning’’ he knew he not only required a contracting publisher, but also needed publicity and distribution facilities which he did not have and indeed with which he was not familiar. From a public newspaper advertisement he contacted a firm (previously unknown to him) called Todd & Honeywell Inc. (“Todd & Honeywell’’) of New York City, and as a result of signing a lengthy and detailed agreement with that company his book was published and made available to the public. It is the essence of Mr. Grant’s complaint that Todd and Honeywell did not pursue the advertising, publicity, promotion and distribution of his book as he believed it should have been done, and the net result was that there was little, if any, demand for his book. These activities — advertising, publicity, promotion and distribution — were solely under the control and at the dictate of Todd & Honeywell. Some time after 1981, Mr. Grant did retrieve the “rights’’ to his book, but he has not made any further effort to have it published again or marketed.

Counsel for the appellant put forward a rather novel argument, that the Minister in this case was requiring the appellant to prove he had “a reasonable expectation of profit”, in order to escape the provisions of paragraph 18(1)(h) of the Income Tax Act S.C. 1970-71-72, c. 63, as amended (the “Act*’); and that the Minister in so doing was (perhaps unintentionally) re- versing the impact of that section. Counsel's argument was that the item in question here, — paying for the cost of publishing the book — could not by any reasonable standards be classified as a "personal or living expense", it must be something else, and the only other thing it could be was that portrayed by the appellant — an attempt to produce and sell a product at a profit. That ne had not been successful in so doing should not be an impediment to Mr. Grant. Counsel made a contrast with another very prevalent line of appeals — farm loss cases — where it can often be argued by the Minister that there were some personal or living expenses intertwined with the alleged business expense. That, according to counsel, could not be said to obtain in this matter. Counsel also briefly referred to some of the case law in which a major impediment had been the inexperience, almost naivety of the taxpayer in engaging in the venture at issue, possibly even writing. That again was not the case here.

Counsel for the Minister largely relied upon the assumption that writing and publishing a book was a very high risk effort, and the prospects of profit were little, probably nil. Mr. Grant had not indicated any effort to "check out" Todd & Honeywell, and at least to some degree he was venturing into a new part of writing, by doing a book of fiction. The results of the effort to sell the book proved this point, that there was no reasonable expectation of profit — it was a hobby for Mr. Grant. Counsel referenced the following jurisprudence:

William Moldowan v. The Queen, [1977] C.T.C. 310; 77 D.T.C. 5213;

Gaston C. Payette v. M.N.R., [1978] C.T.C. 2223; 78 D.T.C. 1181;

Eric C. Krause v. M.N.R., [1984] C.T.C. 2040; 84 D.T.C. 1031;

Jean-Yves Leguillou v. M.N.R., [1984] C.T.C. 2397; 84 D.T.C. 1367;

Matthew Corrigan v. M.N.R., [1984] C.T.C. 2904; 84 D.T.C. 1764.

In the instant case, the Court is asked to uphold the Minister’s assessments based upon a retrospective view that in 1980 and 1981 when Mr. Grant was obligating himself to pay, and indeed did pay, substantial sums of money for having his book published, that he did so under circumstances when he should have been able to see that there was no “reasonable expectation of profit". I can fully accept that he was probably unlearned in the particular venture upon which he embarked; that he could have made further enquiries about Todd & Honeywell; that he might have chosen to print the book himself at less cost; that any number of other alternative directions might have been taken. Also it might well be argued that he did not receive value for his money, and that his displeasure might be directed against Todd & Honeywell — although the Court makes no such determination or assertion. But the simple fact is that he knew he required the services — in addition to printing the book — that his agreement with Todd & Honeywell apparently provided. Further, the split of revenue provisions of that agreement and the other clauses indicating great potential rewards looked promising to him. That he was taking some risk, I am sure he was aware — but that he might be throwing his money away, I do not believe was evident to him. Writing, even writing one book, can be a "business", and Mr. Grant desisted from this venture as soon as it was clear to hi.n that it was totally unproductive — for whatever reason, perhaps even that his book in itself was simply not a marketable product. That is not the same kind of situation that faces the Court in many other appeals. As an author, Mr. Grant quite understandably wanted to have his book published. As I see it, there could only have been one or two reasons for that — either to make a profit as he claims, or to simply have the satisfaction of having his name on a book. I am not aware of any way, short of doing what he did, of determining the marketability of his product and I did not gain the impression that Mr. Grant was greatly elated about the mere prospect of seeing his name in print. Perhaps he chose the wrong route, even perhaps the wrong agents, but that I regard as a business mistake, if it was a mistake at all. In the uncertain world of risk-taking which surrounds business ventures, whether great or small, the guideline for deductibility of expenses is a reasonable expectation of profit, not an unrealistic assurance of return and reward.

In conclusion, I would note with approval the definitive comments made by this Court in Corrigan (supra) and I find no conflict with them in arriving at my conclusion in this matter.

The appeal is allowed, and the appellant is entitled to deduct business losses in the amounts of $5,608.26 and $1,046.42 for the years 1980 and 1981 respectively, in addition to any previously permitted in the assessments in question. The entire matter is referred back to the respondent for reconsideration and reassessment. The appellant is entitled to party and party costs.

Appeal allowed.