Okell v. The Queen

Okell v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2003-04-02 Neutral citation 2003 TCC 205 File numbers 2002-2094(IT)I Judges and Taxing Officers Gerald J. Rip Subjects Income Tax Act Decision Content Docket: 2002-2094(IT)I BETWEEN: WILLIAM OKELL, Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeals heard on January 30, 2003, at Victoria, British Columbia. Before: The Honourable Judge Gerald J. Rip Appearances: Counsel for the Appellant: George Jones Counsel for the Respondent: Jasmine Sidhu ____________________________________________________________________ JUDGMENT The appeals from the assessments made under the Income Tax Act for the 1998, 1999 and 2000 taxation years are dismissed. Signed at Ottawa, Canada, this 2nd day of April 2003. "Gerald J. Rip" J.T.C.C. Citation: 2003TCC205 Date: 20030402 Docket: 2002-2094(IT)I BETWEEN: WILLIAM OKELL, Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT Rip, J. [1] In his appeals from tax assessments for 1998, 1999 and 2000 in which the Minister of National Revenue ("Minister") did not permit him to deduct losses from a declared business, the appellant, William Okell, states that he operates a business known as "Okell Motorsports", "the main activity of which is auto racing and the business is combined and integral to Okell Personal Counselling, a business of public speaking, to which the racing activities are linked and integral". [2] Apparently not all the losses claimed by the appellant were disallowed. Mr. Okell claimed total business losses of $7,868, $10,481 and $4,043, respectively, for 1998, 1999 and 2000. The Minister reassessed Mr. Okell by reducing the business losses to $1,458, $612 and nil, respectively, for 1998, 1999 and 2000. These losses represent expenses the appellant incurred in the business of Okell Personal Counselling;[1] the Minister denied all expenses with respect to Okell Motorsports. [3] In these reasons I first will consider whether or not Okell Motorsports was a business activity and, if not, consider whether it was "combined and integral" to the business of Okell Personal Counselling. [4] Mr. Okell, 48 years of age, is the principal shareholder of Okell Waterproofing Ltd. ("Waterproofing"), a corporation carrying on business in Victoria. His employment income from Waterproofing in 1998, 1999 and 2000 was $76,000, $64,800 and $81,422, respectively. Although Waterproofing employs other persons, some of whom are in a supervisory capacity, Mr. Okell devotes a significant amount of time to the corporation as its general manager running its day-to-day operations, supervising crews, estimating jobs, picking up materials, setting up and checking job sites and billing customers. [5] Mr. Okell stated that some days he would work five hours for Waterproofing and spend another five hours racing or public speaking and counselling. He estimated that, depending on the season, he could devote anywhere from one to forty hours on activities other than Waterproofing's business. [6] Since at least 1974, Mr. Okell has been active in auto racing. According to his resumé he has spent over 23 years competing in sports car racing, acquiring numerous international racing championships. He was nominated for Male Athlete of the Year in Victoria, and voted most valuable member of the Victoria Motorsports Club. He has raced in the 1995 and 1996 Molson Indy Vancouver in the Performance International Sports Car Race. He also has raced in California. [7] Mr. Okell's resumé also indicates his broadcasting and journalism history, which includes writing for Island Sports Magazine and reporting auto racing for television and radio. Mr. Okell gives about 24 speeches per year to men's groups and businesses, community associates churches, youth groups and appears at special community events. He works with youth focusing on safe driving. However, he declared, his goal for a "number of years" is to race on a full-time basis. [8] Money is a very important requirement in auto racing. Mr. Okell stated that he is trying to compete at a level of auto racing to create a notoriety and produce results that will "create funding to help [me] exist". Some funding comes from prize money won at races; other funding, the greater part, is from sponsors, Mr. Okell explained. For example, Mr. Okell has an agreement with Fram, a manufacturer of air filters, that in exchange for having a Fram decal on his car, Fram will pay him a sum of money based on his standing in a race, the amount varies as between first, second and third place. This is called "contingency" funding, said Mr. Okell. Other manufacturers and distributors of auto parts, such as Castrol Oil, Prestone Antifreeze, have similar arrangements. Drivers apply for decals and decals are awarded based on performance, who you are, media perception, among other things, according to Mr. Okell. Sponsors also provide drivers with parts, such as spark plugs, for their cars. They also assist drivers in purchasing parts and equipment, Mr. Okell explained. [9] Mr. Okell receives revenue from his public speaking, television and radio performances. The Minister has agreed that these activities constitute a business. [10] For the past 20 years, Mr. Okell's goal is to be a race car driver. He would like to "get into Sports Car Club of America" and participate in the Trans Am series of races in the United States and Canada. [11] Drivers are funded in at least four ways, according to Mr. Okell, (a) The driver has his own money and has no need of contingency funding; the driver owns and operates his car; (b) The driver who uses a car provided by factory supported dealers, such as Daimler Chrysler dealers; (c) The driver who is fortunate enough to have a person who has money and a "love" of auto racing who invest in the driver; and (d) The driver who is fully funded by sponsors. [12] So far Mr. Okell cannot predict when he will be able to find any of these types of funding or when he will be successful. He is confident that he will be one day, so long as he "keeps producing" he will attract more sponsors. [13] Mr. Okell has never participated in a National Association for Stock Car Auto Racing ("NASCAR") race and he is not a member of NASCAR "but would love to", he said. Mr. Okell has "covered" races and individual drivers for radio and television. He says attending races gives him the opportunity to meet people "with lots of money". During the years in appeal he has appeared in three races, one per year. He testified that he entered three races in 2001 and two races in 2002. He never won a cash prize in a race. The bulk of travel expenses he claimed were for "covering" races for radio and television, buying trips to purchase auto parts and as a press liaison for a driver who was racing in Japan. In many radio and television contracts he is paid a lump sum, but has to pay his own expenses, which in many cases, exceed the amount of pay. [14] In reply to the Minister's assumption that he does not plan any material changes to his racing related activities in the near future, Mr. Okell declared that he would "love" to do more racing and would "love" to do more broadcasting. He would also "love" to make a profit. [15] Mr. Okell testified that if his radio and television appearance concerns auto racing, the income from that endeavour is included in Okell Motorsports' income; if broadcasting is concerned with golf or civic matters, the revenue is included in Okell Communications' income (which, I infer, is part of Okell Personal Counselling). With respect to public speaking, income depends on the subject matter of the talk; if the speech relates to auto racing, the revenue is that of Okell Motorsports. (In the years under appeal, no revenue from public speaking was included in Okell Motorsports' income.) [16] At the time of trial, Mr. Okell was redesigning a race car. Without being specific, Mr. Okell said he has obtained some sponsorships. [17] During the years in appeal Mr. Okell owned a 1964 MGB race car, two spare transmissions, a cylinder head, a set of fibreglass body molds for fenders, bumpers, a pit cart, car jack, tool box, crew uniforms, specialized testing equipment, race helmet, hand-held radios, specialized pit equipment as well as other equipment and parts for racing. His accountant, Mr. James MacAvoy, estimated the value of Mr. Okell's equipment and car at between $20,000 and $40,000. Mr. Okell's inventory from selling auto parts is about $20,000 according to Mr. MacAvoy. Mr. Okell did not own a trailer to transport his car between races; the cost of a trailer is $15,000. [18] Mr. Okell testified he had three licences during the years in appeal for Molson Indy races. He attended these races but did not race. [19] Mr. Okell belongs to the Sports Car Club of British Columbia ("SCCBC"). The SCCBC organizes races at the Vancouver Molson Indy. It is not a sanctioning body and has social activities, according to Mr. Okell. Mr. Okell stated that he selected a group of individuals to maintain and repair his car for racing at the Vancouver Indy. He had "no wage expense" but paid for the team's motel and food. There is no evidence as to what year Mr. Okell selected the group or when he raced with this group's assistance. [20] During one of the years in appeal - the year is not clear - Mr. Okell went to Japan with Gary Smith, a local driver, for a NASCAR sanctioned race. NASCAR paid the expenses for 14 people. Mr. Okell's expenses were paid for by either Mr. Smith or NASCAR, the evidence is not clear. Mr. Okell used the opportunity to broadcast the race's activities on a local television station. [21] Two witnesses testified on Mr. Okell's behalf, Mr. David Cutler, a former professional football player and car driver who works in marketing for a Victoria radio station, and Mr. MacAvoy. [22] Mr. Cutler's evidence was that a sports background is useful in obtaining clients. He worked in radio with Mr. Okell. He described Mr. Okell as a "very good" driver and a very good communicator with knowledge of car racing. This is the reason he was hired by television and radio stations to comment on auto racing. [23] Mr. MacAvoy has advised Mr. Okell to obtain an agent to help him obtain sponsors for his racing activities. Mr. MacAvoy considered all Mr. Okell's activities outside Waterproofing as one business. He did not take capital cost allowance in computing Mr. Okell's income from these activities nor has he made any monetary projection for the race car activity. Mr. MacAvoy knew the source of Mr. Okell's income from these activities in 2001, although he prepared Mr. Okell's profit and loss statement for the year. [24] I have been unable to find any commercial enterprise with respect to Okell's Motorsports' activities. The auto races in which Mr. Okell participates are few, the money he earns from the races is zero. I have no doubt he would like very much to race on a full-time basis but before, during and after the years under appeal he did not have the wherewithall to support his passion. Mr. Okell did not have the finances to support a motorsport business. Okell Motorsports lacked commerciality; it was not a business. [25] There is no evidence before me to conclude that the auto racing is combined and integral to Okell Personal Counselling. While it is no doubt true that a certain notoriety may follow an athlete or entertainer into a business carried on by that person, I find it lacking in the appeals at bar. Mr. Okell participated in only one race in each year under appeal and has never won prize money from racing. His "notoriety" as an auto racer has not been explained. No evidence was submitted to show specifically that the degree of Mr. Okell's reputation and notoriety was transferable to a business venture. As I stated earlier, I do not doubt that an athlete's notoriety may be useful in a business, but the degree of the notoriety is important. No doubt Mr. Okell is knowledgeable about auto racing and no doubt this knowledge coupled with his personality got him radio and television commentary contracts but any link between auto racing and his other activities is incidental. In the appeals at bar I am not confident that Mr. Okell's notoriety as a race car driver was transferable to any business so that the racing activity could be said to be combined and integral to a business. [26] The appeals are dismissed. Signed at Ottawa, Canada, this 2nd day of April 2003. "Gerald J. Rip" J.T.C.C. CITATION: 2003TCC205 COURT FILE NO.: 2002-2094(IT)I STYLE OF CAUSE: William Okell v. The Queen PLACE OF HEARING: Victoria, British Columbia DATE OF HEARING: January 30, 2003 REASONS FOR JUDGMENT BY: The Honourable Judge Gerald J. Rip DATE OF JUDGMENT: April 2, 2003 APPEARANCES: Counsel for the Appellant: George Jones Counsel for the Respondent: Jasmine Sidhu COUNSEL OF RECORD: For the Appellant: Name: George Jones Firm: Jones Emery Hargreaves Swan For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada [1] In his Notice of Appeal the appellant refers to the business of "Okell Personal Counselling"; the respondent, in her Reply to the Notice of Appeal, refers to "Okell Personal Consulting".