Date: 19991108
Docket: 98-1987-IT-I; 98-1989-IT-I
BETWEEN:
JANE HEDGES-MCKINNON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
BETWEEN:
RICHARD MCKINNON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Brulé, J.T.C.C.
[1] These two appeals were heard on common evidence in Vancouver, British Columbia, on August 9, 1999. The Appellants are objecting to the assessments made by the Minister of National Revenue (the "Minister") in relation to their golfing activities. The assessments, for the 1994, 1995 and 1996 taxation years in the case of Richard McKinnon and the 1996 taxation year in the case of Jane Hedges-McKinnon, were issued in October of 1997.
Facts
[2] The two Appellants are husband and wife. Jane Hedges-McKinnon played professional golf on the ladies' tour while both taught golf professionally. The Minister alleged that there was no reasonable expectation of profit from their business and hence the assessments. Tax returns were filed each year, one schedule showing the giving of golf lessons and playing in golf tournaments and one statement of professional activities and listing the same two functions. The business had two owners and two functions.
Analysis
[3] It seems strange that Revenue Canada Officials took a different attitude towards this case than the reported decisions indicated. Revenue Canada insisted, at first, that playing golf for purses and teaching golf were two separate business endeavours. In the case of Bourque v. R., [1996] 3 C.T.C. 10, the Court ruled that the two were so closely related, there was only one business.
[4] The figures used by Revenue Canada as to losses differed from those used by the Appellants, yet Revenue Canada finally accepted the figures of the Appellants. As to an expectation of profit this was the Appellants' only endeavour of a work nature and any income was a chief source of income. It was said that it takes 13 years to show that revenue of a female golfer will cover expenses. In order to reach this level the Appellants bought a place in Florida to continue their teaching. Only when there were no funds available did the business cease as there was no sponsorship available.
[5] In the course of written argument, the appellant quoted the following:
"Thus the reviewing officer used a paraphrase of part of the decision in the Landry case (Landry v. The Queen, 94 DTC 6624) to justify her opinion that the co-appellants' business was not a business, but she left out the very part of that same decision which fits this case to a glove, when the learned Judges held that the following criteria should be given consideration in making a determination:
the time required to make an activity of this nature profitable, the presence of the necessary ingredients for profits ultimately to be earned."
[6] In the case of Oleg Feldgajer v. R. [1996] 1 C.T.C. 2263, one which has many similarities to the present case, Judge Bowman of this Court said the following:
"There was no suggestion that the expenses were not incurred or that they were unreasonable. The expenses incurred do not fall within the section 248 definition of personal or living expenses. Since commencing the consulting business in 1986, the appellant was operating a commercial enterprise carried on with a profit motive. During the years under appeal, time was spent by the appellant seeking contacts and clients. The fact that the appellant was still seeking investors did not mean that there was no business or no reasonable expectation of profit. The revenues that he did earn can be described only as income from a business."
[7] The Appellants indicated that:
"The conclusions of Judge Bowman in the Feldgajer case are so much relevant to this case that we are paraphrasing them below as follows:
It is plain that we have here a brilliant (golfer) embarking upon an enterprise that entails certain risks because it is the leading edge of (professional sport). It is unfortunate that an attempt to engage in a business in an advanced field of (professional sport) that is by its nature, neither frivolous nor inherently incapable of producing a profit, should be discouraged by the Department of National Revenue simply because it is an enterprise that does not produce a profit in the first year. Not everyone who starts a business can be expected to hit the ground running."
[7] Further in Freud v. M.N.R., [1969] S.C.R. 75, a case which resembles this case as it applies to professional golf where earnings become very substantial over a short period of a professional athlete's gainful lifespan, Pigeon, J. had the following to say:
"Fairness to the taxpayers require us to be very careful to avoid allowing profits to be taxed as income but losses treated as an account of capital that therefore not deductible from income when the situation is essentially the same."
[8] For the above reasons the appeals are allowed, without costs, and the assessments are referred back to the Minister for reconsideration and reassessment.
Signed at Ottawa, Canada, this 8th day of November 1999.
"J.A. Brulé"
J.T.C.C.