Tax Court of Canada Judgments

Citation: 2008TCC42

Docket: 2006-3572(IT)I

BETWEEN:

GASTON LEDUC,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

[OFFICIAL ENGLISH TRANSLATION]

REVISED VERSION OF THE TRANSCRIPT

OF THE REASONS FOR JUDGMENT

Please file the revised version of the Reasons for Judgment, delivered from the bench on December 13, 2007, in Montréal, Quebec. It was revised in order to make a few minor corrections. Paragraph numbers were also added.

Signed at Ottawa, Canada, this 17th day of January 2008.

"Gaston Jorré"

Translation certified true

on this 27th day of February 2008.

Brian McCordick, Translator

              Citation: 2008TCC42

Docket: 2006-3572(IT)I

TAX COURT OF CANADA

Re: Income Tax Act

BETWEEN:

GASTON LEDUC,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

[OFFICIAL ENGLISH TRANSLATION]

REASONS FOR JUDGMENT

DELIVERED BY THE HONOURABLE JUSTICE GASTON JORRÉ

Tax Court of Canada,

Courts Administration Service,

30 McGill Street, Montréal, Quebec

Thursday, December 13, 2007, at 1:30 p.m.

APPEARANCES:

ALSO PRESENT:

RIOPEL, GAGNON, LAROSE & ASSOCIÉS

215 Saint-Jacques Street, Suite 328

Montréal, Quebec  H2Y 1M6

(514) 286-5454

JEAN LAROSE, O.S.

REASONS FOR JUDGMENT

(Revised version of the transcript of the Reasons for Judgment delivered from the bench at Montréal, Quebec, on December 13, 2007.)  

JUSTICE JORRÉ:

[1]     This appeal pertains to the 2002 taxation year. The Appellant has asked for the informal procedure to apply.

[2]     There are two issues:

Can the Appellant deduct the amount of $12,253 as a seminar expense? This amount was deducted as a travel and conference expense.

Secondly, can the Appellant deduct an additional amount of $1,601 on account of telephone expenses?

[3]     The Appellant, his wife and the Respondent's appeals officer testified.

The seminar

Facts

[4]     The Appellant Gaston Leduc is a certified financial consultant. The great majority of his income consists of commissions from insurance companies. He also receives commissions from mortgage companies. In addition, he advises his clients.

[5]     Johanne Bray, the Appellant's wife, is a massage therapist, and reported business income. She also worked for Mr. Leduc's business part-time from ten (10) to twenty (20) hours a week. She answered the telephone and looked after the accounting. She developed an interest in the field.  

[6]     The business belonged to Mr. Leduc, and Ms. Bray was not remunerated for her work.

[7]     In 2002, the gross income of the business was $57,000.

[8]     At one point, Mr. Leduc determined that it might be desirable to be able to advise his customers regarding off-shore investments. He decided that he needed to learn more, and that a certain seminar would be a good way to enhance his knowledge. He was convinced that the seminar would be of very good quality and was worth its very high price. The seminar was held in Cancun, Mexico in November. The total cost, including travel, was $12,253.  

[9]     The seminar was in English. Mr. Leduc testified that, unlike his wife, he did not possess a very good knowledge of English; consequently, it was Ms. Bray who attended the seminar. Ms. Bray hoped not only to learn about off‑shore investments, but also to make contacts that would be helpful in the event that she and her husband decided to advise clients about this type of investment. She tendered her notes from the seminar as Exhibit A‑1.

[10]    The seminar lasted three or three and a half days. Madame Bray arrived in Cancun on the day before the first day of the seminar, and left Cancun on the day after the last day of the seminar. Mr. Leduc did not go to Cancun. After Ms. Bray returned, she spoke with her husband about what she learned, and they concluded that it would be preferable not to add off-shore investments to their business's areas of activity.

[11]    They reached this conclusion for the following reasons, among others: they were concerned about the risks and that there would sometimes be laundered money involved in certain transactions; and they did not believe that they had enough knowledge. Generally, they got the impression that the off‑shore field was not on sufficiently solid ground.

Analysis

[12]    Since the trip lasted only for the duration of the seminar and the time necessary to get to Cancun and return to Canada, it was obviously not in the nature of a vacation.

[13]    Furthermore, I should note that Ms. Bray only stayed in Cancun for four or five nights and that someone wanting a vacation in Cancun can have a very nice trip for well under $6,000, which is much less than what would be left over after the tax on $12,253 in income. To avoid any misunderstanding, I want to emphasize that the Respondent was not suggesting that the trip was a vacation.  

[14]    The Respondent's position is that the Appellant does not meet the conditions of subsection 20(10) of the Income Tax Act. Inter alia, the Respondent argued as follows:

(a) Ms. Bray was not an employee; she did not have the necessary training in the field.

(b) The conference was not related to the business. Mr. Leduc could not have sold off-shore products; at most, he could have advised his clients about such investments.

(c) The seminar's organizer was not a business or professional organization within the meaning of subsection 20(10) of the Income Tax Act.

(d) It was an unreasonable expense, and the Appellant should have deducted any personal part.

[15]    Although these arguments were raised in the context of subsection 20(10), they deserve to be considered in a broader context because one must assess whether or not the expenses are allowed under paragraphs 18(1)(a) and 18(1)(b) of the Income Tax Act. I will come back to the arguments raised by the Respondent later.  

[16]    The purpose of this expense was to consider the possibility of broadening the scope of the business's activities. Thus, the expense was for the purpose of gaining or producing income from a business, and is therefore permitted under paragraph 18(1)(a).

[17]    Since the potential field of activities was not that different from what the business was already doing, it cannot be characterized as an expense incurred for the purpose of starting a new business.

[18]    Having read Ms. Bray's notes (Exhibit A-1) and Exhibit A-2, I do not see how it could be concluded that attendance at this seminar would provide a lasting advantage that would cause the expense to be of a capital nature within the meaning of paragraph 18(1)(b).

[19]    Since the expense does not contravene paragraphs 18(1)(a) or (b), it is unnecessary to assess whether it is permitted under subsection 20(10).

[20]    I will now consider the arguments raised by the Respondent and referred to above. The fact that Ms. Bray is not paid as an employee and has no specific training does not, in and of itself, have any bearing on deductibility. In a family context, a member of a family might not be paid for his or her work, but might nonetheless benefit indirectly from the business income. The important thing is that Ms. Bray worked for the business.

[21]    As for her lack of specific training, I am satisfied, on the specific facts of the case at bar, that Ms. Bray had the ability to replace her husband and provide him with the details necessary to enable the business to use the information obtained at the seminar.

[22]    Was the seminar related to the business? I have already concluded that the potential field of activity was not different enough to constitute a new business.  

[23]    I would add that, even though the Appellant decided not to pursue this field of activities, he can provide his clients with an overview of off‑shore investing. In light of the conclusions that the Appellant and Ms. Bray jointly reached, the Appellant can also warn his clients that one must be very careful before making off-shore investments, and he can explain why. Such information can constitute a valuable service to his clients.

[24]    Since it is unnecessary to consider subsection 20(10), I do not need to consider whether the organizer of the seminar was a business or professional organization within the meaning of that subsection.  

[25]    It remains to be seen whether the expense was "reasonable in the circumstances" within the meaning of section 67 of the Income Tax Act. It is true that the expense was large and that Mr. Leduc ultimately decided not to broaden the scope of the business's activities. With hindsight, the expense might be characterized as avoidable, but this does not show that Mr. Leduc could have known in advance that the expense would not yield all the benefits that he hoped to derive from it. In fact, one should not underestimate the benefits of learning that one should not pursue a field of activity.

[26]    Under the specific circumstances of this case, the expense was not unreasonable.

[27]    The $12,253 seminar expense is deductible.

The telephone expenses

[28]    In 2002, Mr. Leduc's office was in his home. He provided little evidence in support of his telephone expenses. He testified that he no longer had the bills.

[29]    Mr. Leduc had two mobile phones: one with Bell Mobility and one with Rogers. He also had a home phone line. The Bell Mobility package also included Ms. Bray's mobile phone. He kept the Rogers phone so that he could keep the number, which could not be transferred to another mobile phone at the time.

[30]    Ms. Thériault, the appeals officer in this case, testified that Mr. Leduc sent her all the mobile and home telephone expenses. She allocated these expenses either to business or personal use.

[31]    The Appellant has not shown that the various telephones in his or Ms. Bray's possession were never used for personal purposes. He has not shown that a different allocation of the telephone expenses between personal and business uses would be appropriate.

[32]    Consequently, this aspect of the assessment should not be changed.

Conclusion

[33]    The appeal is allowed without costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to deduct the amount of $12,253 in connection with the seminar.

Thank you.

CITATION:                                        2008TCC42

COURT FILE NO.:                             2006-3572(IT)I

STYLE OF CAUSE:                           GASTON LEDUC

                                                          AND HER MAJESTY THE QUEEN

PLACE OF HEARING:                       Montréal, Quebec

DATES OF HEARING:                       May 28 and December 13, 2007

REASONS FOR JUDGMENT BY:      The Honourable Justice Gaston Jorré

DATE OF ORAL JUDGMENT:          December 13, 2007

DATE OF REVISED

REASONS FOR JUDGMENT:            January 17, 2008

APPEARANCES:

COUNSEL OF RECORD:

       For the Appellant:

                     Name:                          

                     Firm:                            

       For the Respondent:                     John H. Sims, Q.C.

                                                          Deputy Attorney General of Canada

                                                          Ottawa, Canada