Whether a Partnership to Cash in on Child’s Future Tennis Career was In pursuit of Profit.

Bouchard v MNR, 2013 TCC 247

At issue was whether there was a partnership at law – whether the parties were carrying on of a business, jointly, with a view to profits.

The Taxpayer entered into partnership with another taxpayer for the purpose of developing both of their daughters’ tennis talents, to defray the expense of training, and to share in eventual incomes if and when the daughters became professional players.  The taxpayer contributed money to the partnership only sufficient to cover his daughter’s training costs, and the partnership immediately issued him a cheque in the same amount to identify him for those costs personally incurred. The daughter secured sponsorships, but the benefit of these went to her personally and not to the partnership. At the time the partnership was entered into, the subject of the partnership – the daughter – was only 9 years old and was not capable of entering into a legally binding obligation.

The partnership losses were deducted form income by the taxpayer, but the MNR reassessed and denied the losses.

The TCC referred to the Stewart v Canada, [2002] 2 SCR 645 two part test to determine if here was a source of business income, asking:

(i)                 Is the activity of the taxpayer undertaken in pursuit of profit, or is it a personal endeavour?

(ii)        If it is not a personal endeavour, is the source of the income a business or property?

The Court concluded at paragraph 21 that

[21]        In the case at bar, having examined the activities of the partnership and also those of the Appellant within the framework of the partnership, it is obvious that the Appellant became involved in this venture strictly for personal reasons; the development of his daughter as a professional tennis player. I conclude that he was not looking at the partnership as a source of profit but was instead looking for a means to finance Eugénie’s development as a tennis player, while at the same time creating a tax advantage in the form of a tax loss for himself.

The Court concluded;

[22]      In conclusion, I am not satisfied that the Appellant has established that his predominant intention was to make a profit from the partnership activities. I find that the predominant purpose and intention was personal in nature and was clearly in relation to his daughter. A secondary but equally important purpose was the creation of a tax loss by using an “in and out” scheme of flowing money through the partnership bank account. These expenses could not be deducted by the Appellant himself and using this “in and out” scheme cannot convert non‑deductible personal expenses into deductible business or partnership expenses. I am not satisfied that the activity that was being carried out was done so in a sufficiently commercial manner so as to constitute a source of income. When one looks at the commerciality of the activity, it is readily apparent that any hope of recouping investments and making a profit lay far in the future, at least a decade from the time of establishing the partnership. Any hope of recouping investments and making a profit was not dependant (sic) on the merits of a good business plan but was instead entirely dependant (sic) on the good will and willingness of Eugénie.

This leaves open the possibility that such a scheme, set up and run in a commercial manner with a business plan, may succeed.