Barclay v. R., [1997] 3 C.T.C. 2688

Bowie T.C.J.:

1 The Appellant appeals from his reassessment for income tax for the 1979 taxation year. He claims to be entitled to take into account in computing his income for taxation purposes a business loss suffered by him in connection with the business of distributing a speed reading course called “The Advanced Reading Course” (the course).

2 The loss claimed by him was in the amount of $20,005.00. The Minister of National Revenue (the Minister) disallowed it to the extent of $19,821.92. No explanation was offered at the trial as to the Minister's reason for allowing the amount that he did.

3 Sometime during 1979 the Appellant was approached by a Mr. Higginbottom, who worked for a company called Cannon Business Systems Inc. Mr. Higginbottom persuaded the Appellant to purchase from St. John International Ltd. a license to distribute the course in a defined area within British Columbia. The license was for 20 years and for it the Appellant paid a $100.00 license fee, and was required as well to pay to the licensor a $20,000.00 advance royalty payment. At the same time he entered into an agreement with a company called Raesan Development & Management Corporation whereby Raesan was to sell the course in the Appellant's territory on his behalf. Raesan guaranteed sales on the basis of1/10of 1% of the population of 20,000 in the Appellant's territory per year, and backed up this guarantee with a performance bond in the amount of $15,000.00. The net result of these transactions was that the Appellant put up $5,100.00 of his own money and, but for the reassessment under appeal, would have obtained an income tax deferral of $7,800.00.

4 The Appellant is a salesman. At the material time he was fully occupied with a full-time sales job, and it was not his intention to market the course himself. He stated quite candidly in his evidence that he went into this venture with a view to making profit on the sales that would be achieved for him by Raesan, and for the advantage to him of the tax deferral. He made little investigation, however, of the people with whom he was dealing. He never visited the Raesan premises, and he knew nothing of the ability of Raesan to formulate or carry out a marketing plan. He was not able to give any evidence of efforts made on his behalf by Raesan to sell the course in his territory, and he was unable to say whether any sales had taken place or not, although he did know that he never received any payment from Raesan in respect of sales made by it.

5 In assessing the Appellant the Minister made the following two assumptions of fact, among others.

1) The Appellant in taking part in the arrangements hereinbefore described, did not, at any relevant time, either by himself or through others acting for him or on his behalf, carry on business;

2) Raesan did not have a viable marketing program in place nor were there sufficient employees to carry out a marketing and distributing business.

6 I agree with the statement made by Judge Bonner of this Court in La Liberté v. R. where he said: “a business is a commercial activity and is not constituted by desire alone”[FN1: <p>(1996), 96 D.T.C. 1483 (T.C.C.), at 148.</p>] I find that the Appellant did not carry on business, either on his own behalf or through Raesan. It is trite to say that without a business, and one which has a reasonable expectation of profit, there cannot be a business loss.[FN2: <p><em>Moloney v. R.</em>(1992), 92 D.T.C. 6570 (Fed. T.D.)and<em>Tonn v. R.</em>(1995), 96 D.T.C. 6001 (Fed. C.A.).</p>] In this case there was no business carried on by or for the Appellant.

7 The appeal is dismissed.