KERR, J.:—This is an appeal from a decision of the Tax Appeal Board in respect of the income tax assessment of the appellant for the taxation year 1964. In computing his income for that year the appellant, who carries on the practice of dentistry in Toronto, claimed as deductible expenses the sum of $926.50, made up of:
| Tuition fees | $415.00 |
| Airplane fare | 112.00 |
| Miscellaneous expenses | 231.00 |
| Hotel expenses | 168.50 |
paid out by him in connection with his attendance at a course at the College of Dentistry at New York University. The Minister disallowed deduction of the expenses. The Tax Appeal Board dismissed an appeal against the disallowance. It is not disputed that the appellant paid out the amounts. The issue is Whether they may be deducted for income tax purposes.
The appellant’s notice of appeal to this Court alleges, inter alia, that in 1964 he enrolled in a course of graduate studies in prosthodontics at the said College, that he travelled between Toronto and New York each week to attend the course, and, also, while there, consulted with specialists at the College for the purpose of treatment of specific patients of his in Toronto, and that the knowledge acquired while attending the College was applied in the treatment of specific patients. The notice of appeal claims that the appellant properly deducted the expenses of $926.50 ‘‘since such expenses were made for the purpose of gaining or producing income from the business of the appellant in the taxation year 1964 within the meaning of section 12(1) (a) of the Income Tax Act’’.
In the respondent’s reply to the notice of appeal the respondent says that the deduction of the sum claimed is prohibited in computing the appellant’s income because, if paid, it was:
(a) not an outlay or expense made or incurred for the purpose of gaining or producing income from a business or property of the appellant, within the meaning of Section 12(1) (a) of the Income Tax Act;
(b) in any event an outlay of capital or a payment on account of capital, within the meaning of Section 12(1) (b) of the Income Tax Act;
(c) in the further alternative, a personal or living expense of the appellant within the meaning of Section 12(1) (h) of the Income Tax Act.
In the reply the respondent also relied on Section 11(1) (qb) of the Act, as amended in 1964 and applicable to the 1964 taxation year.
The argument on the appeal in this Court was on the question whether the deduction of the expenditures is prohibited by Section 12(1) (a), (b) or (h) or whether they are deductible under Section 11(1) (qb).
The said provisions read as follows:
11. (1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year:
(qb) where a taxpayer was during the year a student in full- time attendance at a university outside Canada in a course leading to a degree, the amount of any fees for his tuition paid to the university in respect of a period not exceeding 12 months commencing in the year and not included in the calculation of a deduction under this subsection for a previous year except any such fees
(i) paid in respect of a course of less than 13 consecutive weeks’ duration; or
(ii) paid on his behalf by his employer to the extent that the amount thereof exceeds an amount included in his income for the year in which such payment was made in respect of such payment;
12. (1) In computing income, no deduction shall be made in respect of
(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from property or a business of the taxpayer,
(b) an outlay, loss or replacement of capital, a payment on account of capital or an allowance in respect of depreciation, obsolescence or depletion except as expressly permitted by this Part,
(h) personal or living expenses of the taxpayer except travelling expenses (including the entire amount expended for meals and lodging) incurred by the taxpayer while away from home in the course of carrying on his business,
The appellant graduated in dentistry from the University of Toronto in 1953 and practised his profession in Toronto ever since that time. In the years of his practice he also took short special courses at a number of universities in the United States, mostly related to prosthetic dentistry (or the equivalent prostho- donties), which has to do with dentures, bridge work, replacing missing parts and restoring bite and other functions. Because of the courses he had taken and the quality of his work he was recognized before taking the New York course as somewhat expert in the field of prosthodontics. Recently he became a fellow of the Royal College of Dentists, Ontario.
In September 1964 he enrolled in the said postgraduate course in prosthodonties at the College of Dentistry at New York University. The course is a formal one leading to a certificate of eligibility to write examinations to qualify as a prosthodontics specialist in the United States. Prosthodontists, as such, are not yet recognized as specialists by the Ontario authorities. The course did not lead to a degree, but was recognized training for qualification as a specialist. It consisted of lectures, studies and laboratory work. It had two options: (a) on a full-time basis, requiring attendance Monday to Friday, inclusive, each week for one academic year September to June, inclusive, or (b) on a half-time. basis, 2 days each week for the same months for > academic years. He chose the latter option, the half-time 2-year course. He attended it on two days each week and carried on his own practice in Toronto the rest of the time. The half-time and full-time students took lectures together. The former could carry on their practice on the days on which they were not attending the course. Later in the 1964-65 academic year the appellant switched to a longer program leading to a degree of M.Se. in dentistry, and he pursued that program in subsequent years. But, as I appreciate the evidence, his attendance in 1964 was in the certificate course in which he had initially enrolled, and it was not a course leading to a degree.
There have been advances in research, technology and knowledge in relation to dentistry since the appellant graduated from the University of Toronto, and he took the New York University course, as he said, to reinforce his knowledge, to gain new knowledge and to obtain recognized training as a specialist in the field of prosthodonties.
He also took problems of some of his current patients to New York and discussed them with faculty members at the course. Those discussions were an adjunct to the course. He said that he would not have had as good a welcome from the faculty members if he were not taking the course. He said that as a result of taking the course he felt better informed and better qualified to treat those patients and others, and he increased his charges accordingly for those specific patients and in his practice generally in 1964 and subsequent years.
On the evidence I am satisfied that the appellant took the course at New York University in 1964 not only to keep up-to- date with advances in knowledge and developments in his profession of dentistry and to improve his skill and competence in treating his patients, but chiefly to become and be recognized as a specialist in prosthodontics, and, as a. consequence, to advance his earning capacity. I am also satisfied that he increased his professional knowledge and charged higher fees in 1964 and in subsequent years as a result of his attending the course. Having regard to the length of the course and its purposes, it is distinguishable from the more common refresher courses, Seminars and meetings that professional persons attend from time to time to keep up-to-date in their profession.
I also find that the appellant’s consultations with the faculty members in connection with specific patients were incidental to the taking of the course and were not an impelling reason for his trips to New York. I have no reason to think that any of the expenditures claimed were incurred because of such consultations or that the appellant would have gone to New York for the consultations if he had not been attending the course.
The Tax Appeal Board said that the information gleaned by the appellant at New York University was really a capital acquisition ‘‘as is any course of training by a professional man in order to improve his working knowledge of his profession’’. In support of its decision the Board cited the following cases: Cormack v. M.N.R. (1965), 39 Tax A.B.C, 437; Gridley v. M.N.R. (1951), 4 Tax A.B.C. 122; Daley v. M.N.R., [1950] Ex. C.R. 516; [1950] C.T.C. 254; and Humbles v. Brooks (1962), 40 T.C. 500.
In the Cormack case (supra) the facts were that a medical doctor, who devoted much of his time to educational matters, visited Europe to observe educational methods there, and on his return opened a private school. The Minister ruled that the expenses of the trip represented a capital asset. The Tax Appeal Board upheld the ruling, saying that the doctor went to Europe to increase his knowledge of a special subject or adding to what was a capital asset.
In the Gridley case (supra) a medical doctor claimed deduction of tuition fees paid for a postgraduate course to bring his knowledge up-to-date in his field of internal medicine. The Tax Appeal Board held that the payment was made once and for all and that the knowledge gained by the doctor was as much a capital asset as the knowledge gained by him when he took his original medical course that enabled him to practice medicine, and therefore the expenditure was a capital expenditure.
In the Daley case (supra), Thorson, P., of this Court, was dealing with a claimed deduction of a fee paid by a lawyer for his call to the Ontario Bar. The President said that the first inquiry is whether the deduction is permissible by the ordinary principles of commercial trading or accepted business and accounting practice, and he held that the deduction of the admission fee was not, according to the ordinary principles of business and accounting practice, deductible in the ascertainment of the lawyer’s taxable income for the year in which the fee was paid. However, the President did not rule that the payment was, or was not, an outlay of capital, for in that respect he said (p. 524 [262 I ) :
The appellant argued that his call and admission fee was not the kind of expenditure that was excluded from deduction by Section 6(b). In view of the conclusion I have reached it is not necessary to consider whether the words of the section are apt enough for the purpose or whether the fact that the fee was paid once and for all and the contention that its payment gave the appellant a lasting advantage made it an outlay of capital within the meaning of the section.
Humbles v. Brooks (supra) is a. ease in England of a teacher attending lectures to improve his knowledge, but having regard to the facts and the statutory provisions involved in that case I do not find it useful in the present case.
In a more recent decision of this Court, Dr. William H. Alexander v. M.N.R., [1969] C.T.C. 715, concerning claimed deduc- tion of car expenses incurred by a professional radiologist in travelling between his home and Kingston to attend seminars at Queen’s University, Jackett, P. said at page 727 :
On the evidence, I find that the appellant attended these seminars once a week for half the year because he found it necessary to do so to keep up with developments in the field of radiology which was a subject that was, at the time, undergoing substantial changes. On that basis, in the absence of any relevant authority having been discovered by counsel for either party, my conclusion is that the travelling expenses in question were made “for the purpose of gaining or producing income” from the appellant’s profession and that they may therefore be deducted in computing that income notwithstanding Section 12(1) (a) of the Income Tax Act.
That was a seminar to keep up with developments in radiology, as stated, and the decision should also be read with the caveat respecting the absence of any relevant authority.
The Supreme Court of Canada said, in Farmers Mutual Petroleums Limited v. M.N.R., [1968] S.C.R. 59; [1967] C.T.C. 396, at page 65 [400] :
. . . To be deductible for tax purposes an outlay must satisfy. at least two basic tests :
(1) It must be made for the purpose of gaining or producing income (Section 12(1) (a)).
(2) It must not be a payment on account of capital (Section 12(1) (b)).
Both of these tests must be satisfied concurrently to justify deductibility.
In British Columbia Electric Railway Company Limited v. M.N.R., [1958] S.C.R. 133; [1958] C.T.C. 21, Abbott, J. said (p. 137 [31]):
Since the main purpose of every business undertaking is. presumably to make a profit, any expenditure made “for the purpose of gaining or producing income” comes within the terms of Section 12(1) (a) whether it be classified as an income expense or as a capital outlay.
Once it is determined that a particular expenditure is one made for the purpose of gaining or producing income, in order to compute income tax liability it must next be ascertained whether such disbursement is an income expense or a capital outlay. The principle underlying such a distinction is, of course, that since for tax purposes income is determined on an annual basis, an income expense is one incurred to earn the income of the particular year in which it is made and should be allowed as a deduction from gross income in that year. Most capital outlays on the other hand may be amortized or written off over a period of years depending upon whether or not the asset in respect of which the outlay is made is one coming within the capital cost allowance regulations made under Section 11(1) (a) of the Income Tax Act.
In Canada Starch Company Limited v. M.N.R., [1969] 1 Ex. C.R. 96; [1968] C.T.C. 466, Jackett, P. of this Court, referred at page 102 [472] to the distinction between expenditures on revenue account and on capital account and said that, generally speaking,
(a) on the one hand, an expenditure for the acquisition or creation of a business entity, structure or organization, for the earning of profit, or for an addition to such an entity, structure or organization, is an expenditure on account of capital, and
(b) on the other hand, an expenditure in the process of operation of a profit-making entity, structure or organization is an expenditure on revenue account.
In Imperial Oil Limited v. M.N.R., [1947] Ex. C.R. 527 ; [1947] C.T.C. 353, Thorson, P. said (p. 545 [373]);*
. . . As Watermeyer, A.J.P. pointed out in Port Elizabeth Electric Tramway Company v. Commissioner for Inland Revenue ( (1935) 8 S.A. Tax Cases 13), income is earned not by the making of expenditures but by various operations and transactions in which the taxpayer has been engaged or the services he has rendered, in the course of which expenditures may have been made. These are the disbursements or expenses referred to in sec. 6(a), namely, those that are laid out or expended as part of the operations, transactions or services by which the taxpayer earned the income. They are properly, therefore, described as disbursements or expenses laid out or expended as part of the process of earning the income. This means that the deductibility of a particular item of expenditure is not to be determined by isolating it. It must be looked at in the light of its connection with the operation, transaction or service in respect of which it was made so that it may be decided whether it was made not only in the course of earning the income but as part of the process of doing so.
In M.N.R. v. Kellogg Company of Canada, Limited, [1943] S.C.R. 58; [1943] C.T.C. 1, Duff, C.J. also used the words ‘‘an expenditure laid out as part of the process of profit earning”’ (p. 60 [3]).
Fauteux, J., as he then was, in delivering the judgment of the Supreme Court of Canada in M.N.R. v. Algoma Central Railway, [1968] S.C.R. 447; [1968] C.T.C. 161, said (pp. 449-50 [162]) :
Parliament did not define the expressions “outlay . . . of capital” or “payment on account of capital”. There being no statutory criterion, the application or non-application of these expressions to any particular expenditures must depend upon the facts of the particular case. We do not think that any single test applies in making that determination and agree with the view expressed, in a recent decision of the Privy Council, B.P. Australia Ltd. v. Commissioner of Taxation of the Commonwealth of Australia, [1966] A.C. 224, [1965] 3 All E.R. 209, by Lord Pearce. In referring to the matter of determining whether an expenditure was of a capital or an income nature, he said, at p. 264:
“The solution to the problem is not to be found by any rigid test or description. It has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other. One consideration may point so clearly that it dominates other and vaguer indication of all the guiding features which must provide the ultimate answer.”
There is a question whether, reading Section 11(1) (qb)—and (qc), which deals with students’ fees in educational institutions in Canada—with the other provisions of the Act, one should conclude that Parliament intended or implied that tuition fees paid by students would ipso facto fall within the prohibitions of Section 12(1)(a), (b) or (h). I think that I should not conclude that there was any such intention or implication. I think, rather, that what Parliament intended was that if any of such fees in fact fall within the prohibitions of Section 12(1)(a), (b) or (h), they nevertheless will be deductible if the taxpayer and the fees meet the qualifications in Section 11(1) (qb) or (qc).
In the present case the course the appellant was attending at New York University in 1964 was not a course leading to a degree, and therefore, Section 11(1) (qb) does not allow deduction of the fee paid by him in that year for that course. There was the further argument that the appellant was not ‘‘a student in full-time attendance’’ at the university. I express no final opinion on that argument, but I am inclined to think that attendance at what is regarded as a half-time course at a university outside Canada for only two days per week while carrying on the practice of dentistry in Canada the rest of the time hardly constitutes full-time attendance at a university outside Canada within the intent of Parliament expressed in paragraph (qb). The ‘‘full-time’’ condition is not in paragraph (qc), for students in schools in Canada.
Which brings us back to the question whether the expenditures in issue were in fact payments on account of capital within the prohibition of Section 12(1) (b) or were personal or living expenses within the prohibition of Section 12(1) (h), for if they fall within either of those categories they are not deductible for income tax purposes, unless some other provision allows their deduction.
There was no evidence or cited authority from the business or accounting world respecting generally accepted business, commercial or accounting principles or practice relating particularly to expenditures of this kind. To me, they do not appear to fall naturally into the category of current or revenue expenses of the practice of dentistry.
In my appreciation of the expenditures, they were made with a view to bringing into existence an advantage, 1.e., a status as a prosthodontic specialist, for the enduring benefit of the appellant; they were not usual current expenses of a dental practice, nor of a recurrent nature; and they were not laid out as part of the process of profit earning. On the whole, and in the absence of evidence or authority from the business or accounting world as to the principles or practice relating particularly to expenditures of this kind, I conclude that they were payments on account of capital whose deduction is prohibited by Section 12(1)(b).
Moving now to the question whether the expenditures were personal or living expenses whose deduction is prohibited by Section 12(1)(h). The exception from the prohibition in that paragraph is ‘‘travelling expenses . . . incurred by the taxpayer while away from home in the course of carrying on his business’’. I do not think that taking the course at New York was something done in the course of carrying on the appellant’s practice. It was related to his practice, but (apart from the consultations with faculty members that were merely incidental to the course and not the reason for his trips to New York) it was not part of the operation or carrying on of the activities of the practice. Consequently, in my view, the expenditures were personal and living expenses whose deduction is prohibited by Section 12(1) (h).
The appeal is, therefore, dismissed, with costs. The parties agreed at the hearing of the appeal that the costs of whichever one is suecessful be fixed at $650, and I so fix them.