Silverman v. R. – TCC: Payment to a US Publishing Agent Not Deductible

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Silverman v. The Queen[1] (November 21, 2013) involved the taxpayer’s claim to deduct in his 2006 taxation year a payment of $13,320 to a US publishing agent.  The taxpayer’s position was that the payment related to a publishing business he had formerly operated:

[4]             Mr. Silverman testified at the hearing and confirmed that in years prior to 2003, he owned and operated as a sole proprietor a publishing business, known as Jonah Publications. The appellant closed Jonah Publications in 2003 when he moved from the United States of America to Canada. In years prior to 2003, the appellant was a resident and a citizen of the United States of America and filed U.S. tax returns. Jonah Publications was operated out of Buffalo, New York. All income earned or received from Jonah Publications was reported in the appellant’s U.S. tax returns.

[5]             The appellant explained that the US $11,745 (CDN $13,320) payment to WS  Hein he made on April 10, 2006 by a cheque drawn on his U.S. personal account represented a refund of funds advanced by WS Hein for law journals that were not published. WS Hein was acting as an intermediary between the publisher and the subscribers. Based on documents filed by the appellant (Exhibits A-1, A-2 and A-3), WS Hein was making advances to Jonah Publications which were recovered from the 20% royalty computed by reference to sales to which Jonah Publications was entitled to.

Put simply, the court rejected the taxpayer’s evidence:

[11]        I have difficulty accepting that the repayment of $13,320 to WS Hein was made by the appellant for the purpose of earning royalty income from publications owned by Jonah Publications Inc. considering the fact that (a) the repayment was made in 2006, (b) no royalty was received by the appellant between 2006 and 2010, and (c) the royalty received in 2011 amounted to only US $1,500. In my opinion, the repayment to WS Hein was made to satisfy a debt contracted by Jonah Publications Inc. for the purpose of preventing collection proceedings and/or claims in court. The only connection, if any, I could see between the repayment and the royalty, is that the repayment can be considered to have been made to preserve or protect a capital asset or a source of income of the appellant. Such an expense is described in paragraph 18(1)(b) of the Act as a capital outlay and may not be deducted except to the extent provided in Part I of the Act.

[12]        For these reasons, I dismiss the appellant’s appeal.

[1] 2013 TCC 366.