In June, a Tax Court of Canada case, Berger v. The Queen (2015) was published. The case revolved around sports, income tax, and blogging. Now that’s my type of case and a topic I have to write about. There is a further “kicker” in this case for me. I grew up with Howard Berger, the appellant, a well-known sports reporter and journalist at the FAN 590 in Toronto.
Howard was a sports fanatic from the get-go with an encyclopedia-like mind for dates, events, statistics, and he used to take me to Toronto Toro games. For those of you too young to remember, the Toro’s were part of the World Hockey Association from 1973-1976 and included such luminaries as Gilles Gratton and his Tiger Mask, Shotgun Tom Simpson and even Frank Mahovlich.
The case deals with whether Howard could claim business losses from operating his hockey-based sports blog, carried on under the name Berger Bytes. Running and setting up the blog (which was created shortly after Howard was laid off from his job at the FAN 590) resulted in start-up losses of $26,540 and $37,866 respectively on his 2011 and 2012 tax returns. The CRA felt these losses should be denied because the personal element of following around the Toronto Maple Leafs and writing about the Leafs and hockey was for Howard's personal enjoyment as opposed to conducting a business activity for a profit.
Most of the facts below are taken directly from the judgement issued by The Honourable Justice Campbell J. Miller and are noted in quotes.
1. “In 1992, the FAN 590 became an all sports station and Mr. Berger, though initially covering all sports, became by 1994 a hockey, and specifically a Maple Leafs, reporter. He had a regular twice a day slot reporting on FAN 590 and developed a sports fan following for his insights into hockey and the Maple Leafs. Part of his job as an employed sports reporter was to follow the team at both games and practices, including attending their away games. He developed significant contacts with media relations personnel on teams across the National Hockey League.”
2. Howard became concerned about his prospects with the FAN 590 following the 2008 economic downturn and a change in management.
3. “Since 2006 part of his job with FAN 590 had been to write 3 or 4 blogs a week for the FAN 590 website: indeed, he described this as becoming an important part of his job. Given his ongoing concern about his future with FAN 590 he devised a plan that, if he lost his job, he would continue to write a hockey sports blog and make a living doing so. His plan was simple: he would write a quality hockey blog that would attract sufficient readership that sponsors would want to advertise on his site”.
4. “On June 1, 2011 when Mr. Berger was indeed let go by FAN 590. He started his first blog that same month and has been blogging ever since.”
5. He established Bergerbytes.ca in September, 2011.
6. In 2011, Howard reported $26,540 of expenses (approximately $24,000 that related to travel following the Toronto Maple Leafs for flights, car rentals and hotel), these expenses were denied by the CRA on the basis the expenses were personal in nature and not incurred in the course of a commercial activity or business.
7. In 2012, Howard reported $37,866 of expenses (approximately $35,000 that related to travel following the Toronto Maple Leafs for flights, car rentals and hotel). In 2012, he received $7,500 in advertising revenue from a lawyer. These expenses were denied by the CRA on the basis the expenses were personal in nature and not incurred in the course of a commercial activity or business.
For all intents and purposes, the sole issue at law in this case was whether Howard was operating a business for profit or was this truly a personal hobby and pursuit?
Prior to the Supreme Court case of Stewart v Canada (2002) there was a “reasonable expectation of profit” test the CRA would often apply. However, following Stewart, the key test has become whether the business carried on was commercial. Thus, there is no need to determine whether there was a reasonable expectation of profit or to review a taxpayer’s business decisions or planning or forecasts where a commercial business is carried on.
Yet, where there is a personal component to the supposed business activity, there must be evidence to support that you carried on that business for profit. Justice Miller noted, “The Supreme Court of Canada points out that even where there is a personal pursuit, if it is undertaken in a sufficiently commercial manner, the venture will be considered a source of income. The court stipulated in this analysis that “this requires the taxpayer to establish that his or her predominant intention is to make a profit from the activity and that the activity has been carried out in accordance with objective standards of business-like behaviour”.”
The Supreme Court in Stewart cited the below factors to be considered in whether an operation was carried on for business. These factors and the related comments by Justice Miller are noted below:
1. The profit and loss experience in past years:
Justice Miller noted “that for a sports fan like Mr. Berger to be traveling to New York City, for example, to watch the Maple Leafs play the Rangers, does have a personal element, as does the blogging itself. Indeed, while presented with no evidence in this regard, common sense suggests “blogging” is by its nature as much a recreational pastime as possibly a commercial practice. I conclude that there is a personal element to Mr. Berger’s activities: they are not clearly commercial as that concept is defined by the reasoning in Stewart.”
2. The taxpayer’s training:
Justice Miller stated “In commercial terms, Mr. Berger was in a start-up phase and the nature of the activity was such that immediate profits in this media-type business would be unlikely. Like a struggling artist (singer, dancer, writer…) in the early stages of a career, some businesses inherently take time.
Mr. Berger has taken a commercial activity, sports writing, for which he got paid for 20 years and used that experience to attempt to continue to get paid. As indicated earlier, this is not just a sports enthusiast having a crack at making money from his passion. Mr. Berger has some impressive credentials to suggest his approach.”
3. The taxpayer’s intended course of action:
Justice Miller said “I find Mr. Berger did intend to pursue profit and did take, in those 18 months, commercial steps to do so. There will come a time, however, where continuing on this course without any sponsors knocking on his door can only lead to a conclusion that a commercial expectation has been overtaken by personal dreams. I do not have years after 2012 in front of me.”
4. The capability of the venture to show a profit:
Justice Miller stated “I conclude the lack of evidence on this aspect, while not helpful to Mr. Berger, is also not fatal. I simply have not been convinced one way or the other that this venture is capable of showing a profit.”
Justice Miller concluded that “Mr. Berger had a predominant intention to make a profit, and in the first 18 months behaved in a reasonable business-like manner to pursue that end. As I hope I have made clear to Mr. Berger, my view is limited to the short term start-up phase of his venture.”
As such, all the expenses were allowed as business expenses, save some small meal expenses.
This case is a very interesting example of the considerations the courts will have where there is a personal element in a business venture. The case also reflects that were possible, you should ensure there is no personal element to your business, so that the CRA is precluded from looking for a profit motive.
Howard was a sports fanatic from the get-go with an encyclopedia-like mind for dates, events, statistics, and he used to take me to Toronto Toro games. For those of you too young to remember, the Toro’s were part of the World Hockey Association from 1973-1976 and included such luminaries as Gilles Gratton and his Tiger Mask, Shotgun Tom Simpson and even Frank Mahovlich.
The Case
The case deals with whether Howard could claim business losses from operating his hockey-based sports blog, carried on under the name Berger Bytes. Running and setting up the blog (which was created shortly after Howard was laid off from his job at the FAN 590) resulted in start-up losses of $26,540 and $37,866 respectively on his 2011 and 2012 tax returns. The CRA felt these losses should be denied because the personal element of following around the Toronto Maple Leafs and writing about the Leafs and hockey was for Howard's personal enjoyment as opposed to conducting a business activity for a profit.
The Facts
Most of the facts below are taken directly from the judgement issued by The Honourable Justice Campbell J. Miller and are noted in quotes.
1. “In 1992, the FAN 590 became an all sports station and Mr. Berger, though initially covering all sports, became by 1994 a hockey, and specifically a Maple Leafs, reporter. He had a regular twice a day slot reporting on FAN 590 and developed a sports fan following for his insights into hockey and the Maple Leafs. Part of his job as an employed sports reporter was to follow the team at both games and practices, including attending their away games. He developed significant contacts with media relations personnel on teams across the National Hockey League.”
2. Howard became concerned about his prospects with the FAN 590 following the 2008 economic downturn and a change in management.
3. “Since 2006 part of his job with FAN 590 had been to write 3 or 4 blogs a week for the FAN 590 website: indeed, he described this as becoming an important part of his job. Given his ongoing concern about his future with FAN 590 he devised a plan that, if he lost his job, he would continue to write a hockey sports blog and make a living doing so. His plan was simple: he would write a quality hockey blog that would attract sufficient readership that sponsors would want to advertise on his site”.
4. “On June 1, 2011 when Mr. Berger was indeed let go by FAN 590. He started his first blog that same month and has been blogging ever since.”
5. He established Bergerbytes.ca in September, 2011.
6. In 2011, Howard reported $26,540 of expenses (approximately $24,000 that related to travel following the Toronto Maple Leafs for flights, car rentals and hotel), these expenses were denied by the CRA on the basis the expenses were personal in nature and not incurred in the course of a commercial activity or business.
7. In 2012, Howard reported $37,866 of expenses (approximately $35,000 that related to travel following the Toronto Maple Leafs for flights, car rentals and hotel). In 2012, he received $7,500 in advertising revenue from a lawyer. These expenses were denied by the CRA on the basis the expenses were personal in nature and not incurred in the course of a commercial activity or business.
Business vs Personal Expenses
Prior to the Supreme Court case of Stewart v Canada (2002) there was a “reasonable expectation of profit” test the CRA would often apply. However, following Stewart, the key test has become whether the business carried on was commercial. Thus, there is no need to determine whether there was a reasonable expectation of profit or to review a taxpayer’s business decisions or planning or forecasts where a commercial business is carried on.
Yet, where there is a personal component to the supposed business activity, there must be evidence to support that you carried on that business for profit. Justice Miller noted, “The Supreme Court of Canada points out that even where there is a personal pursuit, if it is undertaken in a sufficiently commercial manner, the venture will be considered a source of income. The court stipulated in this analysis that “this requires the taxpayer to establish that his or her predominant intention is to make a profit from the activity and that the activity has been carried out in accordance with objective standards of business-like behaviour”.”
The Supreme Court in Stewart cited the below factors to be considered in whether an operation was carried on for business. These factors and the related comments by Justice Miller are noted below:
1. The profit and loss experience in past years:
Justice Miller noted “that for a sports fan like Mr. Berger to be traveling to New York City, for example, to watch the Maple Leafs play the Rangers, does have a personal element, as does the blogging itself. Indeed, while presented with no evidence in this regard, common sense suggests “blogging” is by its nature as much a recreational pastime as possibly a commercial practice. I conclude that there is a personal element to Mr. Berger’s activities: they are not clearly commercial as that concept is defined by the reasoning in Stewart.”
2. The taxpayer’s training:
Justice Miller stated “In commercial terms, Mr. Berger was in a start-up phase and the nature of the activity was such that immediate profits in this media-type business would be unlikely. Like a struggling artist (singer, dancer, writer…) in the early stages of a career, some businesses inherently take time.
Mr. Berger has taken a commercial activity, sports writing, for which he got paid for 20 years and used that experience to attempt to continue to get paid. As indicated earlier, this is not just a sports enthusiast having a crack at making money from his passion. Mr. Berger has some impressive credentials to suggest his approach.”
3. The taxpayer’s intended course of action:
Justice Miller said “I find Mr. Berger did intend to pursue profit and did take, in those 18 months, commercial steps to do so. There will come a time, however, where continuing on this course without any sponsors knocking on his door can only lead to a conclusion that a commercial expectation has been overtaken by personal dreams. I do not have years after 2012 in front of me.”
4. The capability of the venture to show a profit:
Justice Miller stated “I conclude the lack of evidence on this aspect, while not helpful to Mr. Berger, is also not fatal. I simply have not been convinced one way or the other that this venture is capable of showing a profit.”
Verdict
Justice Miller concluded that “Mr. Berger had a predominant intention to make a profit, and in the first 18 months behaved in a reasonable business-like manner to pursue that end. As I hope I have made clear to Mr. Berger, my view is limited to the short term start-up phase of his venture.”
As such, all the expenses were allowed as business expenses, save some small meal expenses.
This case is a very interesting example of the considerations the courts will have where there is a personal element in a business venture. The case also reflects that were possible, you should ensure there is no personal element to your business, so that the CRA is precluded from looking for a profit motive.
This site provides general information on various tax issues
and other matters. The information is not intended to constitute professional
advice and may not be appropriate for a specific individual or fact situation.
It is written by the author solely in their personal capacity and cannot be
attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional
advice, and neither the author nor the firm with which the author is associated
shall accept any liability in respect of any reliance on the information
contained herein. Readers should always consult with their professional advisors in respect of their particular
situation.
wow great story. I was reading and hoping it would turn around and Mr Berger would get sponsors and be profitable eventually. would have made a good ending. I believe his time is coming though.. Taking the time to follow and report on a team on your own dime is exactly what it takes to earn a big audience. I have five words of advice for him 'daily fantasy sports betting sponsor'
ReplyDeletethx Rob, that is great advice. You should send it to him
Delete