Bowie T.C.J.:
1 This appeal under the Income Tax Act arises out of the purchase by the Appellant of the right to distribute a self-taught speed reading course in a particular geographic area. The world rights to the course were, it appears, owned by a Mr. H. N. Thill who assigned the rights to distribute it in Canada to a company called St. John International Ltd. (St. John). It was from St. John that the Appellant purchased a licence to distribute the course in a defined part of Ottawa, Ontario, having a population of some 44,000 people. He paid a fee of $100.00 to obtain a 10-year licence. At the same time he was required to enter into an agreement with Raesan Development and Management Corp. (Raesan) whereby that company would distribute the course for him in his territory, paying him $35.00 for each sale. He also was required to pay to St. John a $20.00 licence fee for each course sold, and to pay in advance to St. John the royalty of $20,000.00 for the first 1,000 sales that would be made. Simultaneously he was provided with a performance bond in the amount of $15,000.00 by Raesan, making his cash outlay $5,100.00.
2 In filing his tax return for the 1980 taxation year the Appellant reported a business loss of $20,000.00, being the amount of the advance royalty paid by him to St. John. The net result of the transactions described above was that the Appellant paid out $5,100.00 in cash, gave a note, or some other obligation, for the remaining $15,000.00 advance licence fee, and received a performance bond from Raesan in the same amount of $15,000.00. If the business loss were allowed he would reduce his taxes for 1980 by somewhat more than the $5,100.00 outlay.
3 The Appellant is a salesman, and experienced in the business of sales. I accept his evidence that he analyzed the proposition that was offered to him by St. John and Raesan from a business point of view, and that he concluded that with the tax deferral that he expected to receive, his risk over the life of the licence was some $900.00. I accept too that he expected to make a profit on the anticipated sales during that 10-year period.
4 The Minister of National Revenue has reassessed the Appellant for the year in question to disallow his claim for a business loss. Simply put, the issue in this appeal is whether or not the Appellant is entitled to claim a loss in 1980 from the business of selling speed reading courses, the loss being the result of having made the advance royalty payment and not having achieved any sales in that year. Although he is a person of experience in sales, the Appellant made little investigation before entering into this venture. It is clear from his evidence that he made no investigation of the sales efforts which Raesan intended to make on his behalf in his territory, or of the staff and the expertise at Raesan's disposal to carry out its obligation under the agreement.
5 In his evidence Mr. Sargent said that he had no knowledge of any sales efforts being made in his territory during the taxation year in question, or of any advertising directed to the people living in that territory. He himself was fully occupied with a full-time job elsewhere and never intended to, and in fact did not, make any efforts to sell the course in his assigned territory himself.
6 At the outset of his appeal Mr. Sargent accepted the issue in the case as pleaded by the Respondent, and as stated above, as being whether or not he carried on a business of selling speed reading courses with a reasonable expectation of profit in the 1980 taxation year. This business, of course, like any other business, can be carried out by an individual through an agent. It is not necessary in order for him to be carrying on business that he himself direct his own efforts to the advertising and selling activities. However, for there to be a business there does have to be somebody who is undertaking business activity on his behalf.
7 In the Minister's Reply to the Notice of Appeal the following assumptions are pleaded:
8(b) the Appellant in taking part in the arrangements herein before described, did not, at any relevant time, either by himself or through others acting for him or on his behalf, carry on business.
(c) Raesan did not have a viable marketing program in place nor were there sufficient employees to carry out a marketing and distributing business;
8 Not only has the Appellant failed to rebut these assumptions, but his evidence tends to confirm them. If there were some business activity undertaken by Raesan on his behalf, we could expect to see at least a few sales. The Appellant produced in evidence two semiannual statements that were sent to him from Raesan, dated February 1, 1981 and July 1, 1981. Each of these reports indicated that no sales had taken place.
9 The conclusion is inescapable that there was no business activity carried on, either by the Appellant or by anyone else on his behalf, to market these courses in Ottawa in 1980. That he hoped there would be business activity and that profits would result from it is not to say that there was a business. As Judge Bonner said in La Liberté v. R.[FN1: <p>(1996), 96 D.T.C. 1483 (T.C.C.)at 1485</p>] , “a business is a commercial activity and is not constituted by desire alone”. No commercial activity has been proven in this case. Absent a business there cannot be a business loss. This is well established by authority that is binding on me[FN2: <p><em>Moloney v. R.</em>(1992), 92 D.T.C. 6570 (Fed. C.A.)and<em>Tonn v. R.</em>(1995), 96 D.T.C. 6001 (Fed. C.A.)</p>] .
10 I note too that the facts of this case cannot be distinguished in any meaningful way from those in the Moloney case, where the Federal Court of Appeal found no business to exist.
11 The appeal is therefore dismissed.
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