Shenanigans Media v. R. – TCC: Taxpayer allowed small portion (roughly 10%) of disallowed expenses

Shenanigans Media v. R. – TCC:  Taxpayer allowed small portion (roughly 10%) of disallowed expenses

https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/235417/index.do

Shenanigans Media Inc.v. The Queen (September 15, 2017 – 2017 TCC 180, Jorré J.).

Précis:   This case involved both corporate expense claims and assessments against the shareholder for taxable benefits.  The shareholder was an extremely young (14-16) but very successful Canadian actor.  The disputed amounts were expenses alleged to have been incurred by the corporation to further the taxpayer’s career.   By the time the matter made it to the Tax Court most of the outstanding issues had been resolved and there was only roughly $23,000 in dispute over the period from 2009-2011.  The Tax Court allowed roughly 10% of the disputed amounts.  Thus the appeals of both the corporation and the individual shareholder were allowed in part. There was no order as to costs since this was an informal procedure appeal.

Decision:  The bulk of the disputed items were straightforward and the Court denied the appeals.  The only issues on which the taxpayers achieved a modest measure of success (roughly 10% of the items under appeal) was with respect to promotion expenses and what was termed “research and development”:

[29]         The description “research and development” does not really convey what these expenses are. The expenditures in question are for attending movies, purchasing DVDs and purchasing books. [The taxpayer] explained that he used these purchases in two ways in his profession.

[30]         First, he has not taken acting classes and he watches movies to see how other actors perform. At one point he purchased Michael Jackson videos in order to study dance moves, some of which he had to replicate on a show. He also has watched movies and read books, for example, in order to prepare for auditions for a role in a sequel to an existing movie.

[31]         These expenses are difficult to classify because, on the one hand, there would normally be a personal element but, on the other hand, such expenses can be a reasonable way to prepare for an audition or to help study and improve one’s craft as an actor. On balance, I accept that, in principle, such an expenditure can be a deductible expenditure.

The Court allowed a portion of the research and development costs, with a caution (footnote 12):

[12] For the future the Appellants may want to remember that when one is making a claim for what is normally a personal expenditure it is highly desirable to note at the time of the expenditure in a precise way the nature and business reason for the expenditure so that one can subsequently justify it. Thus, for each movie, DVD or book it would be useful to record just how the expense relates to [the taxpayer’s] development as an actor.

The Court also allowed a small amount of the disputed promotion expenses.

In the result the Court allowed roughly 10% of the disputed amounts.  Thus the appeals of both the corporation and the individual shareholder were allowed in part. There was no order as to costs since this was an informal procedure appeal.