Date: 20010810

Docket: 1999-3925-IT-I, 2000-350-IT-I

BETWEEN:

ADALBERT G. LALLIER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

(delivered orally from the bench on July14, 2000, at Sherbrooke, Quebec, and amended for greater clarity)

Archambault, J.T.C.C.

[1]                 Mr. Adalbert Lallier is appealing income tax assessments issued by the Minister of National Revenue (Minister) with respect to his 1995 and 1997 taxation years. For the 1995 taxation year, the Minister disallowed business losses claimed by Mr. Lallier with respect to a business carried on under the name of A.G. Lallier, Consulting and Research (consulting business). For the 1997 taxation year, the Minister disallowed an income tax credit for charitable gifts made to a Thai university, Sripatum University.

FACTS

[2]            At the beginning of the hearing, Mr. Lallier admitted the following facts outlined by the Minister in his Reply to the Notice of Appeal with respect to the appeal for the 1995 taxation year:

3. In order to establish the above-mentioned assessment, the Minister made the following assumptions of fact:

a)              the appellant has claimed since 1987 losses from professional income totalling $224,798.

	1987	1988	1989	1990	1991
Gross Professional income	$    203	$ 7,810	$ 6,624	$    899	$ 2,022
Loss	$ 29,043	$23,802	$14,674	$41,411	$30,120

	1992	1993	1994	1995
Gross Professional income	$      0	$     0	$    476	$ 1,015
Loss	$ 23,188	$22,764	$20,099	$19,697

b)             in 1995 the appellant includes [sic] non-deductible employment expenses as part of the expenses of earning professional income;

c)              the appellant derives [sic] the professional income from consulting and writing in the academic domain of economics and social economics, the resulting revenues are fees and royalties;

e)              during the year in appeal the appellant also provided academic instruction under an employment contract with the Concordia University, Montreal, amount earned in 1995 per T4, $37,707.99;

f)              for the services rendered to the Concordia University the appellant was issued a T4, Statement of Remuneration Paid;

g)             the appellant provides professional services to international organisation [sic] on a gratuitous basis;

k)              the appellant divides his time between research and writing projects and instruction at the Concordia University;

m)             for the 1995 taxation year the appellant's income statement is as follows:

Professional Income		$ 1,015.20
Expenses:
Interest	$ 1,921.86
Automobile expense	4,632.00
Office	3,781.87
Office supplies	957.00
Professional fees	2,920.19
Travel	2,483.69
Capital cost allowance	4,016.53
		20,713.14
Loss		$ 19,697.94

[3]            With respect to the appeal for 1997, Mr. Lallier admitted the following facts:

6. In order to establish the above-mentioned assessment, the Minister made the following assumptions of fact:

a)              the Appellant gave 1,221 books from his personal academic library to Sripatum University, Bangkok, Thailand;

c)              this estimated amount of $6,230 (US) [total value of the books] was claimed as a charitable gift for the 1997 taxation year;

d)             the entire amount of $6,230 was claimed as a non-refundable tax credit for a charitable gift, however, if this deduction is allowed only the prescribed rates applying to this amount for that year should be accepted as non-refundable tax credit.

[4]                 Mr. Lallier, who was 70 years old in 1995, was born in Austria and immigrated to Canada in 1951. Mr. Lallier is a distinguished scholar and academic, a man of honour and high morals and ideals. He believes in giving back to society for what he has received from it and in helping developing countries, not only because it is good for Canada, but also because he sees it as a moral duty. He also believes in paying his taxes: he did not want to be perceived as having abused the tax system.

[5]                 Mr. Lallier has several university degrees. He has a bachelor's degree in Economics and Political Science from McGill University (1958), a master's degree in Economics and a diploma in International Relations from Columbia University in New York (1961), and a doctorate in Economics from La Sorbonne, Paris II (1978). He has also done post-doctoral studies at the London School of Economics and Political Science. Prior to coming to Canada in 1951, he was also enrolled in a three-year program in Economics, Law and Political Science in Vienna, which, unfortunately, he was unable to finish because of a lack of money.

[6]                 Mr. Lallier started his professional career in 1960 as a lecturer at Loyola University (Concordia) in the Economics Department. He subsequently became a professor at Concordia, a position he continued to hold until he took early retirement in 1986. Between 1963 and 1965, he was dean of the Evening Division at Concordia. In 1985, Mr. Lallier received the John W. O'Brien Distinguished Teaching Award in recognition of a decade of distinguished teaching at Concordia. Upon his early retirement, he received an incentive of $52,000.

[7]            In a letter to the Minister's auditor dated December 15, 1996 (1996 letter), Mr. Lallier gave the following as one of his reasons for taking early retirement:

There was newly emerging willingness of faculty associations to go on strike, as a pursuant tactic to have accepted the forever demands for higher salaries and higher social benefits, a proposition which my morality, as a teacher simply could not accept.

Before retirement, Mr. Lallier was earning an annual salary of $67,000 and additional remuneration from his summer courses, which, I believe, amounted to $5,400.

[8]                 Mr. Lallier stated in answer to a written questionnaire (questionnaire) prepared by the Minister that he registered his consulting business in 1971 as "A.G. Lallier, Consultation et recherche économique, éducation, financement". As part of his consulting business, Mr. Lallier provided services to several clients. Between 1971 and 1974, he did a study for the Royal Bank on the risks of Quebec sovereignty. In 1972-1973, he did a three-month research study for Alcan on world charter shipping rates, for which he received remuneration of $1,000. In connection with that research, he had to hire an assistant at a cost of $400. From September 1973 to March 1974, he also performed services for the UN with respect to maritime transport in the Middle East and received for that remuneration of $6,000. In 1981, he did a six-week study for the Quebec Government on the Montreal and the Port-Cartier harbours, for which he was paid $15,000. It appears that after 1989 no similar such consulting work took place, with the exception of a Thai contract, to which I will refer later. I come to this conclusion because, as far as I can see, there were no fees of substance in his gross revenues earned from the consulting business during that period, a fact admitted by Mr. Lallier[1].

[9]            In computing his income from his consulting business, Mr. Lallier included money received in connection with various activities, such as teaching. After having taken early retirement in 1986, he was rehired on an annual basis by Concordia because it could not find a suitable replacement to teach the courses that he had been giving. This rehiring was subject to the needs of Concordia and the existence of proper funding for those courses. Mr. Lallier identified himself as an "adjunct professor". From 1987 to 1992, he was receiving a yearly salary of $25,000 and, from 1993 to 1995, $28,000. It would seem that Mr. Lallier continued to teach at Concordia until 1999 when he retired completely.

[10]                 Mr. Lallier takes the view that his teaching activities constituted a business because they were highly risky. In the 1996 letter, he gave the following explanation to the auditor:

This is so because part-timers never know if they will obtain a contract renewal, which means that their preparation for the courses to be taught can unexpectedly turn into a disinvestment, i.e. an unexpected loss that full-time teachers are not faced with. In addition, having lost all the privileges of a full-time professor, extra costs are involved from having to purchase a computer, a printer, office supplies, having to do many of the tasks for which secretaries are normally available for full-time professors.

[11]                 Mr. Lallier included in his consulting business activities volunteer work done on behalf of CESO, which, as I understand, stands for Canadian Executive Service Organization, a non-governmental organization partly funded by CIDA, a Canadian government agency that provides funding for projects in developing countries. The purpose of CESO is to provide the expert assistance of Canadian executives and scholars who go and work without remuneration in different developing countries or in countries that are converting from a communist to a capitalist regime. Executives and scholars providing their services receive only a living and travelling allowance. Mr. Lallier did such work for one month in August 1995 in the Czech Republic where he gave a series of seminars. He also worked for two universities in Thailand from June 26th, 1996 to August 16th,1996.

[12]          As a result of the work done in Thailand in 1996, Mr. Lallier was able to secure a lucrative contract to help establish an English international program for business communications at Sripatum University. This contract lasted a year, from June 1997 to May 1998. Under the contract, labelled a "Consulting Contract", he was entitled to a monthly allowance of 50,000 baht for services that he described as being equivalent to the work of a dean or a department head. Mr. Lallier was also entitled to the usual benefits of a civil servant, such as life and health insurance and annual leave of up to 30 workdays per year with full pay.

[13]          During the course of his work for Sripatum University, Mr. Lallier realized that the university lacked many resources, including a proper library. So, he decided to give that university 1,221 books from his own library, which had an aggregate value of $6,105 US dollars.[2]

[14]          Last on the list of activities carried on under the name of the consulting business is the writing of books. Mr. Lallier has written several books. The first was a novel published in 1974 entitled Peace Without Honour. It was written between 1969 and 1973. The action takes place during the Vietnam War and, according to Mr. Lallier, it is very critical of American involvement in that war. American publishers refused to publish it in their country because it was perceived to be anti-American. Mr. Lallier stated that he received approximately $4,000 in royalties from the book over a period of five or six years.

[15]          His next book, entitled La souveraineté-association - Réalisme économique ou utopie? (Souveraineté) was published by Cercle du livre de France in 1980. In the 1996 letter, Mr. Lallier states that this book had all the makings of a best-seller for it was recognized by its critics as an important contribution. But he stated that success did not materialize because the issue of Quebec's sovereignty was viewed as being one that could only be treated by writers coming from "Canada's two founding nations" and not by a writer known to be "un nouveau arrivé". In Mr. Lallier's own words, this book was not profitable: he only received approximately $2,500 from it over a period of five or six years.

[16]          Next came The Economics of Marx's Grundrisse - An Annotated Summary (Grundrisse), published by St. Martin's Press in 1989. Mr. Lallier stated that he spent, between 1985 and 1988, a full two years and a half researching and writing this book. Among the expenses he incurred during that period were approximately $2,500 in photocopies, $200 in typing expenses and undisclosed costs for telephone calls. He explained the poor success of this book by the fact that communism collapsed around that time. He said that the book brought in over a period of six or seven years approximately 750 pounds sterling, which probably represents about $1,700 Canadian.

[17]          In 1991, Mosaic Press, an Ontario publisher, published Sovereignty-Association - Economic Realism or Utopia? (Sovereignty), an updated version, in the English language, of Souveraineté published in 1980.

[18]                 Mr. Lallier has completed the drafts of two other books which have not yet been published. One is entitled Sexonomics and the other Sin and Retribution. I believe Mr. Lallier stated in his testimony that he started working on the first book of the two in 1992. However, I find the following information on page 2 of the questionnaire: "Sexonomics, a mischievous scientific inquiry into human behaviour, Manuscript, Montreal, 1987."

[19]          In his 1995 statement of income from his consulting business, Mr. Lallier shows income of $20 from "Sexonomics (1990)". He also testified that he made several trips to obtain opinions from other specialists in 1992 and 1993. As to the reason why this book has not yet been published, I find the following explanation at page 7 of the questionnaire:

Je veux mentionner que l'une des éditions que j'avais approchées avec ma Sexonomie m'offrait la publication si j'aurais la volonté de remplacer les expressions trop intellectuelles par leur équivalent en langue ordinaire, c'est-à-dire de consentir à remplacer les expressions comme " fornication " et " copulation " par leur équivalent vulgaire qui se vendront en masse, mais absolument, non. Ma devise: un dollar honnête en échange pour un produit supérieur et réfléchissant nos valeurs morales.

[20]                 Mr. Lallier stated that he began to work on his novel Sin and Retribution in 1950 but has been working on it more intensively in the last three years. According to Mr. Lallier, that book is as yet unpublished because he was a witness in a Nazi criminal trial in Germany: Mr. Lallier was a Waffen SS officer cadet at the time the alleged crimes were committed. It was suggested to him that he wait until his evidence had been given before publishing the novel.

[21]          The losses incurred from the consulting business from 1987 to 1995, as Mr. Lallier admitted, totalled $224,798. In the computation of those losses, the part-time teaching income of Mr. Lallier is not included. The losses from 1996 to 1998 amount to an additional $29,989, if we exclude the income from his part-time teaching and for his services to Sripatum University.

[22]          I will now review the revenues earned and the expenses incurred by Mr. Lallier for the 1995 taxation year. The income from part-time teaching as declared by Mr. Lallier was $38,818.99; it apparently covers the period from January to April 1995, the summer of 1995 and the period from September to December 1995. The royalty income from his books totalled $304.60, the largest amount being $197 from Sovereignty, published in 1991. The last item of income declared by Mr. Lallier is an amount of $710.60 which represents an additional allowance paid to him to enable him to travel to Prague (Czech Republic) for CESO.

[23]          As part of his expenses, Mr. Lallier claimed amounts for the partial use of his house in Mansonville in the Eastern Townships. During his testimony, Mr. Lallier stated that he used his house for doing his research and for carrying on his consulting business. For business purposes, he used one room and a half out of seven, which represents 21%. At page 4 of the questionnaire, Mr. Lallier stated in the following terms that he claimed 40% of his house for business purposes: "En total, approximativement 40% de la superficie totale, comme rapporté dans ma déclaration d'impôt."[3] I also note that for the 1997 and 1998 taxation years, the percentage of the house claimed for business purposes was reduced to 16.6%.

[24]          There were also travelling expenses for commuting between Mansonville and Montreal. Mr. Lallier had to stay in Montreal three or four days in order to give his courses at Concordia. Although he was only a part-time teacher, he basically taught the same number of hours as he had when he was a full-time professor. The big difference, according to him, was that he received a lot less money than before.[4]

[25]                 Mr. Lallier also stated that he visited Austria twice a year. In 1995, he spent one week there for pleasure only and did not claim any expenses with respect to that trip. During his second stay, he spent four weeks doing research in a library in Vienna. That research was carried out in connection with his novel Sin and Retribution and covered the period from 1934 to 1945.

[26]          During the hearing, the appeals officer testified and produced her written report on page 8 of which she explains as follows her conclusion that the tax auditor had properly disallowed Mr. Lallier's business losses for the year 1995:

Considérant toutes les informations au dossier, les activités de M. Adalbert Lallier sont plus qu'un simple passe-temps. Il est raisonnable de conclure que les activités de recherche et d'écriture font partie de la vie courante du contribuable.

Le contribuable se fait un devoir et une obligation de remettre à la société son savoir pour en faire un meilleur endroit. Toutefois, est ce [sic] que ce sens d'obligation et de dévouement rencontre les principes de base d'une entreprise au sens défini par la Loi de l'impôt sur le revenu?

En considérant objectivement tous les éléments est ce [sic] qu'on peut s'attendre du contribuable qu'il atteigne une expectative raisonnable de profit, en d'autres mots est ce [sic] raisonnable de présumer que les recherches et les écrits du contribuable vont générer un profit éventuellement?

De par les dires du contribuable, ce dernier fait beaucoup de consultations et de recherches pour divers organismes bénévolement, le principe en lui-même est honorable, mais va à l'encontre même d'une entreprise à savoir que le but premier de cette dernière est d'en tirer un avantage économique, en d'autres termes d'en tirer des profits. Pour M. Adalbert Lallier le but premier des [sic] ses activités est la renommée internationale, le second de rendre à l'humanité son savoir puis en dernier lieu en tirer un avantage pécuniaire.

Le contribuable désire qu'il soit pris en considération le fait qu'il a volontairement changé son statut de professeur à temps plein pour celui de professeur à temps partiel et qu'il contribue à la renommée du pays. Il n'est pas dans l'optique du législateur que la contribution sociale et économique du contribuable lui en fasse découler un avantage fiscal.

Les revenus du contribuable sont minimes, et ce même depuis 1987. Il n'y a pas eu de croissance réelle dans les revenus bruts déclarés.

Le contribuable a toujours oeuvré dans les domaines de recherches et d'écriture, donc on peut admettre que la période de démarrage à [sic] commencé durant les années postdoctorales.

Le contribuable consacre beaucoup de temps à ses activités de recherches et d'écriture mais ne fait aucune étude ou encore de " sondage " avant de commencer l'écriture d'un manuscrit. Il écrit et espère par la suite que les maisons d'édition s'intéresseront à son produit. Il est à noter que le contribuable ne réclame aucune dépense pour la promotion de ses livres. M. Adalbert Lallier ne peut définir la rentabilité potentielle de ses oeuvres, il espère qu'il [sic] seront de bons vendeurs.

Les recherches ou études " commandées " au contribuable sont de par les dires du contribuable, des documents officiels qui sont pour usage restreint et confidentiel du demandeur, donc si par hasard le sujet serait d'intérêt général le contribuable ne peut les mettre sur le marché.

Le contribuable admet que ses recherches et écritures sont accessibles et désirées que par un groupe très restreint et sélect. M. Adalbert Lallier fait peu d'effort pour mousser la vente de ses produits, il s'en remet aux maisons d'édition entièrement.

La plus grande partie d'ouvrages que le contribuable a réalisés s'adresse à un public restreint et rencontre les intérêts personnels et professionnels du contribuable.

Le contribuable n'a pas vraiment de plan structuré pour faire en sorte que les travaux d'écriture sur lesquels il travaille présentement deviennent de plus gros vendeurs, M. Adalbert Lallier se contente d'espérer que le prochain livre sera un succès. De plus le contribuable a de grandes ambitions soit de faire du roman sur lequel il travaille (et qui n'a pas encore été édité et publié) un scénario pour film, il est raisonnable d'avancer que les dépenses pour les années en cours et à venir seront encore considérables.

Par conséquent, en considérant tous ces facteurs il est raisonnable de conclure que les activités de M. Adalbert Lallier ne permettent pas d'établir l'existence d'une attente raisonnable de profit.

The position of the respondent

[27]                 Basically, the Minister takes the view with respect to the 1997 taxation year that Mr. Lallier is not entitled to the credit for charitable gifts because Scripatum University in Thailand was not a qualified donee for tax purposes. On the issue of the business losses for the 1995 taxation year, the Minister's position is that the losses claimed by Mr. Lallier do not meet the standards developed in the case law and, accordingly, Mr. Lallier did not have a reasonable expectation of profit.

[28]          Counsel for the Respondent cited three of the classic cases dealing with this issue. The first of these was Moldowan v. The Queen, [1978] 1 S.C.R. 480, a decision of the Supreme Court of Canada. She cited the usual dictum of Dickson, J. at page 485:

Although originally disputed, it is now accepted that in order to have a "source of income" the taxpayer must have a profit or a reasonable expectation of profit. Source of income, thus, is an equivalent term to "business" . . . .

There is a vast case literature on what reasonable expectation of profit means and it is by no means entirely consistent. In my view, whether a taxpayer has a reasonable expectation of profit is an objective determination to be made from all of the facts. The following criteria should be considered: the profit and loss experience in past years, the taxpayer's training, the taxpayer's intended course of action, the capability of the venture as capitalized to show a profit after charging capital cost allowance. The list is not intended to be exhaustive.

[29]          Counsel also cited the Federal Court of Appeal's decision in Landry v. The Queen, 94 DTC 6624, which bears some resemblance to this case, and quoted the following statement by Décary J.A. at page 6626:

Apart from the tests set out by Mr. Justice Dickson, the tests that have been applied in the case law to date in order to determine whether there was a reasonable expectation of profit include the following: the time required to make an activity of this nature profitable, the presence of the necessary ingredients for profits ultimately to be earned, the profit and loss situation for the years subsequent to the years in issue, the number of consecutive years during which losses were incurred, the increase in expenses and decrease in income in the course of the relevant periods, the persistence of the factors causing the losses, the absence of planning, and failure to adjust. Moreover, it is apparent from these decisions that the taxpayer's good faith and reputation, the quality of the results obtained and the time and energy devoted are not in themselves sufficient to turn the activity carried on into a business[5].

[30]          Lastly, counsel referred to another Federal Court of Appeal decision: Tonn v. Canada, [1996] 2 F.C. 73, at page 75:

However, where circumstances suggest that a personal or other-than-business motivation existed, or where the expectation of profit was so unreasonable as to raise a suspicion, the taxpayer will be called upon to justify objectively that the operation was in fact a business.

The position of the appellant

[31]          With respect to the charitable gifts, Mr. Lallier takes the view that the Canadian tax system should recognize that it would be to the benefit of Canada if people like him were allowed to make gifts to organizations such as Sripatum University. His work in Thailand was encouraged by Canadian agencies so that, if that work is recognized by one department, it should also be recognized by the Department of National Revenue. He also stated that he was under the impression that such a gift would be deductible for tax purposes.

[32]          With respect to the issue of the business losses, Mr. Lallier noted that the case law referred to by counsel for the Minister did not include any cases involving intellectual property. He believed strongly that he would not have incurred the expenses in question if the activities had constituted just a hobby for him. He firmly believed that one of his books would eventually prove very successful and that his business losses should consequently be allowed as a deduction.

Analysis

Gift to Sripatum University

[33]          In order to qualify as giving rise to a tax credit under section 118.1 of the Income Tax Act (Act), it is important that the gift come within the definition of "total charitable gifts" in that section. To do so, it must have been made to one of the organizations described in paragraphs a) to f) of the definition. Paragraph (f) is relevant here:

(f) a university outside Canada that is prescribed to be a university the student body of which ordinarily includes students from Canada

[34]          To determine what is "prescribed to be a university", we must turn to section 3503 of the Income Tax Regulations (Regulations), which states that:

For the purposes of subparagraph 110.1(1)(a)(vi) and paragraph (f) of the definition "total charitable gifts" in subsection 118.1(1) of the Act, the universities outside Canada named in Schedule VIII are hereby prescribed to be universities the student body of which ordinarily includes students from Canada.

[35]                 Unfortunately for Mr. Lallier, Sripatum University is not mentioned in Schedule VIII. Therefore, his gift does not qualify under section 118.1 of the Act. It does not matter that the gift made by Mr. Lallier was a true gift, an act of great generosity toward the people of Thailand. The Income Tax Act and the Regulations specify all the conditions that must be met in order to claim the tax credit, and if any of those conditions has not been satisfied, this Court does not have the power to allow the deduction.

Business Losses

[36]          As stated in Brock (D.J.) v. The Queen, [1993] 2 C.T.C. 2989, the burden rests on Mr. Lallier to prove that the losses he incurred were so incurred in carrying on a business.[6] In other words, he must prove that the expenses giving rise to those losses were incurred for the purpose of earning income from a business or from property, which are considered as two distinct sources of income under the Income Tax Act.

[37]          Given that no decisions involving the activity of writing books were referred to by counsel for the Minister, I will summarize quickly those cases that I have found which are, in my opinion, relevant.

[38]          In McKinney v. R., 1996 CarswellNat 2382, the relevants facts are as follows. The taxpayer was a professor who retired from teaching in 1985. The relevant taxation years were from 1990 to 1993. The losses arose from an activity that the taxpayer described as a business of knowledge-based writing. The taxpayer had been working on seven writing projects since 1970. Only one book was ever published, however, and only 500 copies of that book were ever sold. For the years under appeal, the expenses aggregated $12,088, $13,788, $10,533 and $10,529. Against those expenses, the taxpayer reported a revenue of $50 for 1990 and no revenue at all for the other years under appeal.

[39]                 Judge Mogan held that a review of the taxpayer's record showed that he had accumulated approximately $200,000 in losses and earned negligible revenues from writing during the period from 1978 to 1994. A business had to have a reasonable expectation of profit and in the circumstances of that case there was none. In Judge Mogan's view, the taxpayer's life's work in sociology had become a hobby in his retirement. Judge Mogan stated:

20 In reaching my decision, I am influenced by the position of the Appellant in 1990, 1991, 1992 and 1993. At that time, he was a retired professor. In 1990, he had been retired five years. Prior to 1986, he had a 40-year career as an academic and his whole life was research, teaching and writing. When the teaching stopped on retirement, I would not expect him to do anything else but what he has done all his life. A man with an intellectual curiosity and a good mind is not going to turn his brain off just because he retires. He just keeps doing what he has always done; thinking, researching and writing. It is second nature to him. I find it is in the realm of a hobby and not a business because there is virtually no revenue from it.

29 . . . He is simply indulging in his life work which has become his hobby in retirement and a hobby is not a business. A business has to have a reasonable expectation of profit . . . .

[40]          In Brock (supra), the relevants facts and the decision rendered are set out as follows in the headnote:

At all material times, the appellant was employed by the local board of education. Since 1975, the appellant had been producing literary works of one kind or another, primarily about London, Ontario. The appellant's most recent book was published in November 1992. Initially 1905 copies were printed, but since sales were good, a second printing was expected in May 1993. In the 1986, 1987, 1988 and 1989 taxation years, the appellant's income from writing was negligible but he claimed net losses from his writing activities of $4,202 in 1986, $7,152.48 in 1987, $5,674.37 in 1988, and $8,358.60 in 1989. The Minister disallowed the losses on the grounds that the appellant did not have a reasonable expectation of profit . . . .

Held: There were losses in each of the years under review. Furthermore, there was no evidence that the appellant ever turned a profit from his literary endeavours prior to or after those years. The book published in 1992 was described as the most financially successful of any of his undertakings, yet, in 1992, it showed gross revenue of $6,286.59 and a net loss of $480.51.

[41]                 Associate Chief Justice Christie, quoting from the decision of the Tax Court of Canada in Kerr et al v. M.N.R., [1984] CTC 2071, 84 DTC 1094, provided the following explanation at page 2992:

The existence of a reasonable expectation of profit is not to be determined by the presence of subjective hopes or aspirations, no matter how genuine or deep-felt they may be. The issue is to be decided by objective testing.

[42]          In Fleming and Gellately (supra), the taxpayers, husband and wife, were associate professors at the same college. He taught History and she taught Political Science. Each had published numerous articles and one book, and each was working on a book originally planned for publication in 1984. This date was subsequently put back several years in both cases. In issue were expenses claimed for the 1981 taxation year. The headnote of that case contains the following (C.T.C.):

The expenses included amounts in respect of home offices, travel and capital cost allowance. The Minister disallowed the claims on the ground that the taxpayers were not carrying on a business with a reasonable expectation of profit.

Held: The taxpayers had the onus of proving that they were carrying on a business with a reasonable expectation of profit, and not merely writing as a hobby, or as part of their teaching duties. The taxpayers' uncorroborated statements regarding the marketability or expected sales of their projected books did not establish the existence of any such reasonable expectation. The taxpayers' book-writing conduct was more consistent with academic pursuits than with profit making. Their activities were chiefly useful in furthering their academic careers, of which the deferral of publishing dates was a reflection. The taxpayers planned their co-ordinated research travel for personal rather than business reasons. It could not be concluded that they were carrying on a business with a reasonable expectation of profit.

[43]          In Christopher Lobban (supra), we again have a university professor who spent many years, commencing in 1984, conducting research for the purposes of writing a book on "food crops". In computing his income for 1984 and 1985, the taxpayer sought to deduct business losses of $14,809 and $21,295 respectively, which represented costs incurred by him in writing and editing the said book. The Minister disallowed $10,125 and $18,928 of those respective amounts. The appeals were dismissed. The taxpayer's book was still not ready for publication in 1991. An examination of the history of the book project revealed that, from an income and expense point of view alone, there was simply no way that there could have been a reasonable expectation of profit therefrom during the taxation years in issue.

[44]          There are other cases, such as Fouad E. Shaker v. M.N.R., [1987] 2 C.T.C. 2156, 87 DTC 463, a case in which a teacher was not allowed to claim his losses from writing activities.

[45]          There are also cases that went in favour of taxpayers. I will cite for instance Paul Zolis (supra). In that case, the taxpayer was a high-school mathematic teacher. He and three colleagues wrote a mathematics textbook which was published by one publisher in 1980 and by another in 1981. The taxpayer commenced writing in 1979; the following year he built an office in the basement of his home for his writing activity. He published a second book in 1982 and a third in 1983. Royalty income commenced in the 1980 taxation year and by 1983 and 1984 resulted in net profits. The Minister disallowed the losses claimed by the taxpayer as a deduction for 1980 and 1981 on the ground that the writing did not give rise to a reasonable expectation of profit and, therefore, the taxpayer was not engaged in a business endeavour. The conclusion of Chief Judge Couture of this Court in that case is summarized in the headnote (C.T.C.) as follows:

A "reasonable expectation" was concisely defined as "a confident belief, for good and sufficient reasons." The taxpayer's expertise in the field of teaching high school mathematics, the presence of a ready market for his work, and the dedication that he exhibited in pursuing his writing career, when considered in combination, led to the conclusion that he had a reasonable expectation of profit . . . .

[46]          Another example of a decision going in favour of a taxpayer is Ron Callender v. The Queen, [1996] 3 C.T.C. 2334. But at the end of the day, each case must stand on its own facts. So I will now analyze the relevant facts of this appeal.

[47]          The first comment that has to be made with respect to Mr. Lallier's case is that he has considered as being part in his consulting business several activities which, in my opinion, are not business activities. These are his part-time teaching, his work for CESO, the work done for Sripatum University in Thailand and his book writing.

[48]          I will deal first with the services he provided to Concordia on a part-time basis. Were those services provided under a contract of employment or a contract for services? This issue has been raised many times before the courts. In Rosen v. The Queen, [1976] CTC 462, 76 DTC 6274, a decision of Marceau J. of the Trial Division of the Federal Court of Canada, the relevant facts were the following. In addition to his full-time employment in the federal Public Service, Mr. Rosen also had regular engagements as a lecturer at three post-secondary institutions. In respect of the work as a lecturer, he claimed to be self-employed and to be entitled to deduct expenses of $709 in connection therewith. The Minister disallowed Mr. Rosen's deduction on the ground that his income from lecturing was income from employment. Marceau J. concluded that Mr. Rosen's situation as a part-time lecturer was not essentially different from that of a full-time professor. He was not an independent contractor but was rather an employee engaged for the purpose of delivering lectures on a part-time basis.

[49]          That decision was followed in several other decisions, including Talbot v. M.N.R., 92 DTC 1994. In that case, the taxpayer, who was employed by Laval University as an educational consultant, also accepted a teaching assignment, which consisted in giving a regular course at the university and which necessitated his attendance at hours other than those comprising his regular hours of employment.

[50]          In Bart v. M.N.R., 91 DTC 884, the facts bear an even greater resemblance to the facts of the instant case. Mr. Bart, a tenure professor at the University of Windsor, also carried on a consulting business. In May 1985, he personally conducted a five-week course at the University of Cape-Town in return for a flat fee of $13,200, which he received in 1985. Mr. Bart reported this as business income received in the course of his consulting business during its fiscal period ending in 1986. In reassessing Mr. Bart, the Minister included that amount in Mr. Bart's 1985 taxation year as employment income and not as business income. Applying Wiebe Door Services Ltd v. M.N.R., 87 DTC 5025, a decision in which the Court of Appeal set out the well-known four-part test (control, ownership of tools, chance of profit or risk of loss, and integration) for determining the existence of an employer-employee relationship, Judge Brulé of this Court held that on the weight of evidence Mr. Bart's relationship with the University of Cape-Town was that of an employee rather than that of an independent contractor. Accordingly, the $13,200 was employment income.

[51]          As mentioned before, Mr. Lallier stated that, when he taught part-time, he provided to Concordia services similar to those he had provided previously as a full-time professor. He said that he worked almost as many hours but for less money. Tenure and job security are not essential to the existence of a contract of employment. So, the fact that Mr. Lallier's employment contract was subject to annual renewal and that there was no certainty that it would be renewed are completely irrelevant for the purposes of determining the status of the work he did for the university. I would add that there are a lot of Government employees these days working under conditions similar to those of Mr. Lallier and they are all treated as employees. In my view, Mr. Lallier continued after his retirement in 1986 to provide his services to Concordia as an employee.

[52]          This analysis also applies, in my opinion, to the contract performed by Mr. Lallier for Sripatum University. He described his work as that of a dean or a department head. Although he stated that he was hired by the president of the university as a consultant and the contract is referred to as a consulting contract, that does not change the reality that he was hired to perform services normally performed by an employee of the university. Probably one of the reasons why he was only hired for one year is, as Mr. Lallier stated, that there seems to be legal constraints with respect to the hiring of a non-Thai as a full-time employee in a Thai university. Also, I would like to point out that the terms of the contract are in fact characteristic of a contract of employment and not of a contract for services. In a contract for services, one does not usually find provisions for remuneration during vacation. Nor does one usually provide health care benefits to a consultant. In one of the documents filed during the hearing, it is stated that Mr. Lallier left his employment for health reasons, probably two or three months earlier than the time stipulated in the contract and, as I understand it, he was paid in full until the end of that contract. Therefore, it is, in my view, appropriate to subtract from his consulting business income all his income from employment.

[53]          With respect to the 1995 taxation year, the only other activity that could qualify as a business activity is the book writing. No other consulting work was done. As I mentioned in my description of the facts above, I do not see evidence of any true consulting work having been done since 1989 for particular clients such as Alcan, the Royal Bank, the Government of Quebec or the UN. Furthermore, there are no gross revenues at all in 1992 and 1993 from his consulting business and only very small gross revenues in 1994. Based on the gross revenues shown for 1995, it is likely that those for 1994 constituted royalties from his books. Finally, the amount of $710 for the work done in the Czech Republic that was included in gross revenues in 1995 was in all likelyhood not income because it was given to Mr. Lallier as a travelling allowance in the course of work he performed in that country for no remuneration under the auspices of CESO.

[54]          Now, what about the book writing? Is it possible to conclude that the books he wrote amounted to a business being carried on or, at least, constituted property from which income was earned? There was evidence before me that Mr. Lallier started seriously writing his first book in 1969.[7] From that date until 1998, the total income from his books amounted to approximately $10,700: about $4000 from Peace without Honour, $2,500 for each of the French and English versions of Souveraineté and $1,700 for Grundrisse.

[55]          It should be remembered that Mr. Lallier's losses from 1987 to 1998 amounted to $254,787. It is true that those expenses may not all be related to the book writing. However, for the 1995 taxation year alone, when his only business activity was book writing, total expenses incurred were $20,712. It should also be noted that the loss figure includes neither the costs incurred in writing the books published prior to 1987, namely Peace without Honour andSouveraineté, nor at least a year of expenses incurred in writing Grundrisse.

[56]          So, based on these facts, I come to the conclusion that Mr. Lallier has failed to discharge his burden of showing that there was a reasonable expectation of profit from his consulting business in 1995. In my view, the statement by Judge Mogan in McKinney (supra) is apposite here. Mr. Lallier was simply indulging in his life's work, which had become his hobby in retirement, and a hobby is not a business.

[57]                 Mr. Lallier is an honest person who subjectively believed that he was pursuing a business in writing his books. But objectively, his conduct did not conform with that of a businessman engaged in a venture for profit. He preferred maintaining his high standards and therefore did not accept recommendations from his publishers. The fact that Sexonomics, which seems to have been ready since 1987, remains unpublished in 2000 is, in my view, indicative of the fact that there is no market for that book. Since no publisher accepted his offer of the book for publication, Mr. Lallier is now trying to generate interest in it on the Web. But it is well known that people surfing on the Web are used to getting material for nothing, and even to copying material such as music illegally. So, in my view, it is very doubtful that the Web will provide the bonanza that Mr. Lallier is hoping for and enable him to recoup his very high losses. However, I wish him well and much luck. In the unlikely event that his two current books, Sexonomics and Sin and Retribution, become best-sellers, this judgment, now a big disappointment for Mr. Lallier, may prove to be a blessing in disguise. Having concluded that the writing of those books constituted a hobby for Mr. Lallier, I do not see how the Minister could tax any money that they might generate in the future.

[58]                 Accordingly, for all these reasons, Mr. Lallier's appeals for 1995 and 1997 are dismissed.

Signed at Ottawa, Canada, this 10th day of August 2001.

"Pierre Archambault"

J.T.C.C.

COURT FILES NOS.:                                       1999-3925(IT)I and

                                                                                                2000-350(IT)I

STYLE OF CAUSE:                                  ADALBERT G. LALLIER

                                                                                                and Her Majesty the Queen

PLACE OF HEARING:                                              Sherbrooke, Quebec

DATE OF HEARING:                                              July 12 and 13, 2000

REASONS FOR JUDGMENT BY:                 The Honourable Judge Pierre Archambault

DATE OF JUDGMENT:                                          July 20, 2000

APPEARANCES:

For the Appellant:                                              The Appellant himself

For the Respondent:                          Pascale O'Bomsawin and

                                                                                Anne-Marie Desgens

COUNSEL OF RECORD:

For the Appellant:             

Name:                     

Firm:                       

For the Respondent:                          Morris Rosenberg

                                                                                Deputy Attorney General of Canada

Ottawa, Canada

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