Date: 20010913
Docket: A-6-99
Neutral citation: 2001 FCA 275
CORAM: ROTHSTEIN J.A.
SEXTON J.A.
EVANS J.A.
BETWEEN:
KEITH LESLIE CARTER
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
Heard at Toronto, Ontario, on September 13, 2001
Judgment delivered from the Bench at Toronto, Ontario, on September 13, 2001
REASONS FOR JUDGMENT OF THE COURT
DELIVERED BY: ROTHSTEIN J.A.
Date: 20010913
Docket: A-6-99
Neutral citation: 2001 FCA 275
CORAM: ROTHSTEIN J.A.
SEXTON J.A.
EVANS J.A.
BETWEEN:
KEITH LESLIE CARTER
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
(Delivered from the Bench at Toronto, Ontario,
on Thursday, September 13, 2001)
ROTHSTEIN J.A.
[1] This is an appeal from a decision of the Tax Court ((1999), 99 D.T.C. 585) dismissing the appellant's appeal from a reassessment made by the Minister of National Revenue in respect of the appellant's 1986 taxation year. The appellant sought to deduct from his income in that year losses of $383,899 arising from hedged investment transactions. The appellant's hedging strategy involved transactions in his own trading account and the trading accounts of his wife and a company that he incorporated. He concedes that the involvement of his wife and the company were for the purposes of income splitting and generating tax losses to himself.
[2] However, the appellant says his transactions were not a sham and that all formalities were in place. Accordingly, there is no basis for the Minister disallowing the losses he sought to deduct for 1986.
[3] The appellant's position is that he should be treated as an individual and that the involvement of his wife and company should be ignored. However, on this approach the appellant's transactions only resulted in losses. Indeed, the appellant concedes that was his intention. While he says that his overall hedging strategy could result in profits, they would not be his profits. Viewing the appellant in his own right, it is inescapable that he had no reasonable expectation of profit from his own transactions, no source of income and therefore no basis for deducting expenses.
[4] The only way in which the appellant's hedging strategy could result in a profit is to consider his transaction in combination with the transactions by his wife and company. In Schultz v. The Queen (1995), 95 D.T.C. 5657 (F.C.A.), leave to appeal to the Supreme Court of Canada denied ([1996] 2 S.C.R. x), the husband and wife taxpayers were found to be partners. The appellant concedes that, barring insignificant differences, the circumstances in the case at bar were the same as those in Schultz. For the reasons given in Schultz, the appellant, his wife and company must be found to be partners. Having regard to the partnership in this case, it is clear that both sides of the hedge were not closed out at the end of 1986 as the appellant's wife and the company still held both sides of the hedge in the securities in question. In the same circumstances in Schultz, losses were not allowed to be deducted. That result must apply to this case.
[5] The appellant also says that the Minister did not act with due dispatch in assessing him as required by subsection 152(1) of the Income Tax Act. The appellant asks that on this basis his appeal be allowed or at least that interest on outstanding taxes be waived. On this appeal against an assessment, there is no power in the court to vacate an assessment on the grounds that the Minister did not act with due dispatch. See R. v. Ginsburg, [1996] 3 F.C. 334 (C.A.). Under subsection 220(3.1) of the Income Tax Act, however, the Minister may exercise his discretion to waive interest. A taxpayer dissatisfied with the Minister's exercise of discretion with respect to the waiving of interest may seek judicial review of the Minister's decision in the Trial Division of the Federal Court and if dissatisfied with the decision of the Trial Division, appeal that decision to this Court. In this case, the appellant did not seek judicial review in the Trial Division of any such decision of the Minister.
[6] The appeal will be dismissed with costs.
"Marshall Rothstein"
J.A.
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