October 2015 Newsletter

Losses from sports blog deductible as business losses

If you run a business that includes a personal element, you can deduct any business losses from all sources of income. On the other hand, if your activities do not constitute a business, any losses will normally be considered personal or without a source of income, which means they are not deductible.

In the recent Berger case, Howard Berger had been employed as a sports journalist on the Toronto “Fan 590” sport radio station. For about 20 years, he had two program slots each day, and developed a solid following for his hockey insights, particularly with respect to the Toronto Maple Leafs.

The radio station had a management change and laid off several employees. The taxpayer felt his job might be in jeopardy. Accordingly, he devised a plan so that, if he lost his job, he would continue to write a hockey sports blog and make a living doing that. For 5 years he wrote the blog. Unfortunately, his employment was subsequently terminated.

In the first couple of years after his employment, Berger continued the sports blog and incurred losses in doing so. The losses resulted largely from his travel expenses incurred in travelling with and following the Maple Leafs, including airfare, and car and hotel costs. There were other incidental expenses. He did not charge subscription fees for his blogs. Instead, he thought he would eventually attract sponsors and advertisements, which would allow him to make a profit. During the two years in question, he had only one sponsor. However, he notified about 500 hockey insiders of his blog, including well-known hockey analysts like Don Cherry and Ron MacLean.

In the meantime, Berger deducted the losses in the first two years as business losses. The CRA re-assessed the taxpayer on the grounds that he was not carrying on a business.

On appeal, the Tax Court of Canada allowed Berger’s appeal and the deduction of the losses. The Tax Court judge reviewed the following factors to determine that Berger’s blogging was a business:

  • There was sufficient “commerciality” to his blogs, even though there was a personal element;
  • There was enough evidence to show that he intended to profit, even though he did not make a profit in the two years in question;
  • Berger had significant training as a sports journalist and therefore sufficient business knowledge in the area; and
  • Although the judge was not convinced that the blogs would ever turn a profit, he felt that Berger had a predominant intention to make a profit, and in the first two years he behaved in a reasonable businesslike manner to pursue that end.

As a result, the judge held that a business existed, and Berger’s blogging losses were deductible.

This letter summarizes recent tax developments and tax planning opportunities; however, we recommend that you consult with an expert before embarking on any of the suggestions contained in this letter, which are appropriate to your own specific requirements.

Last modified on October 14, 2015 12:00 am
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