Tax Court Shuts Out CRA on Hockey Blog Ruling

August 19th, 2015 by

By Ivan Merrow

Can a taxpayer claim business losses in the tens of thousands on a hockey blog with zero revenue? What if the blogger also spent no effort to gather sponsors, and racked up expenses flying to “away games” for the Toronto Maple Leafs?

In its recent decision Berger v. The Queen, Tax Court of Canada (TCC) decided that yes, a hockey blogger’s travel and hotel expenses may be tax deductible as business losses.

However, it serves as a warning to entrepreneurs starting similarly “fun” businesses: have the numbers to back up your business plan, or the Canada Revenue Agency (CRA) may prevent you from claiming business losses on your entrepreneurial endeavour.

At first the Berger decision sounds like a dream come true for Toronto Maple Leafs fans: fly to away games, write about the Leafs online, and then write off the expenses as tax deductible. Unfortunately for Leafs Nation, the TCC made it unlikely those dreams will come true for the average Beleafer. Justice Campbell J. Miller made it clear that the taxpayer’s work history as a veteran hockey journalist for FAN 590 in Toronto played a major factor in his decision.

Luckily for the taxpayer in this case, the courts have the final say about what counts as a tax deductible “business expense” and a non-deductible “personal expense,” not the CRA.

In Stewart, the SCC says that activities that appear at least partly personal have to be looked at objectively. This helps the court to determine whether the taxpayer’s “predominant intention was to make a profit from the activity and that the activity has been carried out in accordance with objective standards of businesslike behaviour.” This prevents people from avoiding taxes by incurring huge “business losses” doing things they would normally do for pleasure, or disguising a personal hobby as a failing business for tax reasons.

Justice Miller determined that sports blogging did have a personal element to it. He then referred to the criteria laid out by the Supreme Court in Stewart to assess whether the taxpayer’s sports blogging activities were sufficiently businesslike to tax deduct its losses. The Stewart criteria include:

  • Profit and loss experienced in past years
  • Taxpayer’s training
  • Intended course of action
  • Capability of venture to show a profit

The fact that the taxpayer’s hockey blog had not turned a profit in the two previous years was not damning to his case; many businesses struggle in their initial years. His training as a sports journalist for 20 years was also a very strong factor supporting his blog’s legitimacy as a business and not a hobby.

Despite those strengths, the taxpayer’s case nearly fell through because he was unable to demonstrate how his business would ever become profitable. Justice Miller pointed out that Mr. Berger’s lack of projections, financials, or hard subscription numbers made his blog less plausible as a serious business. Justice Miller further stated that his decision would not likely hold up if the business continued in the same disorganized manner beyond its first 18 months.

Accordingly, entrepreneurs looking to tax deduct losses from businesses—especially those that look like hobbies—had better provide more hard numbers than hunches to defeat the CRA.

If you have questions about the Berger decision, wonder whether the CRA would ever consider your business a personal venture, or have another tax law question, please contact the tax lawyers at Devry Smith Frank LLP.


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