Citation: 2009 TCC 146
Date: 20090312
Docket: 2008-2830(IT)I
BETWEEN:
DONALD IAN MOYES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] The appellant,
Donald I. Moyes, brings this appeal in respect of income tax assessments for
the 2004, 2005, 2006 and 2007 taxation years. The issue concerns the tax
treatment of certain distributions from foreign entities.
[2] Mr. Moyes
submits that the distributions should be
taxed as capital gains.
[3] The Minister submits that the distributions are in the
nature of dividends from foreign corporations, and that as such the distributions
are required to be included in computing income.
[4] The amount of the distributions at issue are: $1,046
for 2004, $1,220 for 2005, $1,369 for 2006, and $18,914 for 2007.
Preliminary issue
[5] Before considering the main issue, I would comment
briefly on the burden of proof.
[6] According to the reply, the Minister assumed in making
the assessments that the amounts in dispute were interest. This is clearly not
the case.
[7] Shortly before the hearing, counsel for the Minister
prepared an amended reply which, among other things, changed this assumption. The
filing of this document was not in dispute.
[8] According to the amended reply, in making the
assessments the Minister assumed that the distributions were “interest or other
investment income.” This description originates from a line in the income tax return
form. The line corresponds to the category of income under which the
distributions were reported on T5 slips.
[9] Although the explanation for the amendment provided by
counsel makes sense, I am left with an uneasy feeling as to what assumptions
the Minister actually made in making the assessments. For this reason, I have
concluded that it is appropriate for the Minister to bear the burden of proof
on a prima facie basis to establish the nature of the amounts received.
Main issue
[10] Based on the evidence presented, I have concluded that
the Minister’s characterization of these amounts as dividends from foreign
corporations is correct on a prima facie basis, and that the appeal cannot
succeed.
[11] By way of background, Mr. Moyes is a retired
accountant who was a controller with a large company.
[12] Mr. Moyes maintains two US currency brokerage accounts
with TD Waterhouse in which the following types of investments have been
made: (1) American Depositary Receipts (ADRs), (2) Shares, and
(3) Exchange Traded Funds (ETRs).
[13] In investment summaries provided to Mr. Moyes, TD
Waterhouse categorized distributions from the above investments into two types.
[14] The first, described as code 3, represents ordinary
dividends. There is no dispute about these.
[15] The second, described as code 5, appears to represent
either stock dividends or distributions of long-term capital gains realized by investment
funds. It is the code 5 distributions that are at issue.
[16] Some of the entities from which code 5 distributions
were received by Mr. Moyes during the taxation years at issue are: Chile
Fund Inc., H&Q Life Sciences Investors, Korea Fund Inc., Telfonica S.A., Latin
America Equity Fund.
[17] Mr. Moyes submits that the code 5 distributions should
be taxed as capital gains for purposes of the Income Tax Act. He does
not submit that there are specific provisions in the Act that deal with
distributions of this nature. He seems to suggest that they should be taxed as
capital gains on general principles.
[18] In order for Mr. Moyes to succeed in this appeal, it
must be determined that the code 5 distributions are not dividends from corporations.
[19] I have concluded, based on the evidence presented,
that the distributions are likely dividends, paid either in cash or in stock.
[20] Mr. Moyes submits as follows:
(a)
the T5 slips prepared by TD
Waterhouse are in error because the amounts are stated in US currency;
(b)
flow-through treatment should
apply to capital gains realized by funds because the funds act in an agency
capacity; and
(c)
the entities from which he
received distributions are not corporations.
[21] I cannot
agree with these submissions.
[22] As for the submission that the T5s were incorrectly
prepared by TD Waterhouse, this is not a sufficient basis to allow the
appeal even if the T5s are incorrect. The question to be determined is the
nature of the distributions received. The fact that the T5 slips have been
prepared in US currency is not relevant to that question.
[23] As for the other two submissions, I would conclude
based on the evidence as a whole that the Minister has made a prima facie
case that the distributions are dividends from foreign corporations.
[24] In documents introduced by Mr. Moyes, many of the
relevant entities are described as management investment companies (e.g., Korea
Fund Inc., Latin America Equity Fund, and H&Q Life Sciences Investors). It
is not in dispute that the amounts at issue are distributions from these
entities.
[25] Mr. Moyes
has not been able to rebut the prima facie case made by the Minister.
Other than the submissions of Mr. Moyes, there
is no evidence before me that the entities involved are acting in an agency
capacity or that they are not corporations.
[26] The appeal will be dismissed.
Signed at Toronto, Ontario this
12th day of March 2009.
“J. Woods”
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