Date: 20110916
Docket: A-336-10
Citation: 2011 FCA
254
CORAM: NOËL J.A.
NADON J.A.
STRATAS J.A.
BETWEEN:
GO
SIMON SUNATORI
Appellant
and
HER
MAJESTY THE QUEEN
Respondent
Heard at Ottawa,
Ontario, on September 14,
2011.
Judgment delivered
at Ottawa, Ontario, on September 16, 2011.
REASONS FOR JUDGMENT BY: NOËL
J.A.
CONCURRED
IN BY: NADON
J.A.
STRATAS J.A.
Date:
20110916
Docket:
A-336-10
Citation: 2011 FCA 254
CORAM: NOËL
J.A.
NADON J.A.
STRATAS
J.A.
BETWEEN:
GO SIMON
SUNATORI
Appellant
and
HER MAJESTY
THE QUEEN
Respondent
REASONS FOR
JUDGMENT
NOËL J.A.
[1]
Mr.
Sunatori (the appellant) appeals from a decision of Hershfield J. of the Tax
Court of Canada (the Tax Court Judge) wherein he dismissed the appeals from
reassessments disallowing business investment losses claimed by the appellant
for his 2004, 2005, 2006 and 2007 taxation years on the basis that he had
failed to demonstrate that the debts which formed the basis of the claimed
losses were bad, as contemplated by subsection 50(1) of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.).
[2]
Subsection
50(1) provides in part:
|
50. (1)
For the purposes of this subdivision, where
(a) a debt owing to a taxpayer
at the end of a taxation year (other than a debt owing to the taxpayer in
respect of the disposition of personal-use property) is established by the
taxpayer to have become a bad debt in the year, or
…
and
the taxpayer elects in the taxpayer’s return of income for the year to have
this subsection apply in respect of the debt or the share, as the case may
be, the taxpayer shall be deemed to have disposed of the debt or the share,
as the case may be, at the end of the year for proceeds equal to nil and to
have reacquired it immediately after the end of the year at a cost equal to
nil.
|
50. (1) Pour l’application de la présente
sous-section, lorsque, selon le cas :
a) un contribuable établit qu’une
créance qui lui est due à la fin d’une année d’imposition (autre qu’une
créance qui lui serait due du fait de la disposition d’un bien à usage
personnel) s’est révélée être au cours de l’année une créance
irrécouvrable;
[…]
le contribuable est réputé avoir disposé de la créance ou
de l’action à la fin de l’année pour un produit nul et l’avoir acquise de
nouveau immédiatement après la fin de l’année à un coût nul, à condition
qu’il fasse un choix, dans sa déclaration de revenu pour l’année, pour que le
présent paragraphe s’applique à la créance ou à l’action.
|
[Emphasis
added]
[3]
The
effect of that provision, when read with paragraphs 38(c) and 39(1)(c),
is to allow a taxpayer to deduct half of a debt outstanding in a given taxation
year provided that he or she can establish that the debt became bad at some point
in time during the year in question.
[4]
The
facts are not in dispute. The appellant is the sole shareholder and employee of
a company engaged in scientific research and experimental development. The
company has a taxation year which coincides with the calendar year. For each of
the taxation years at issue, the company paid the appellant a one-time salary
by cheque on December 31. On the same day, the appellant lent the company an
amount of money equal to the salary by issuing a personal cheque payable to the
company. In filing his tax returns for each of the years in question, the
appellant took the position that as of the date of the loan the amount so
loaned was a bad debt thereby giving rise to the claimed losses. The Tax Court
Judge explains the matter this way (Reasons, para. 12):
… On the
same day as these [salary] cheques were delivered, a determination was also
made by the appellant, in his personal capacity as a creditor, that the loan to
the company was a bad debt.
[5]
The
Tax Court Judge framed the issue before him as “whether the requirement in
paragraph 50(1)(a), that the taxpayer established that the subject debts
owing at the end of a particular year had become bad in that year, has been
satisfied” (Reasons, para. 5). He determined that the loans were bona fide,
but that the appellant had not demonstrated that the resulting debts were bad.
More precisely, the Tax Court Judge found as a fact that the appellant did not
even consider the present and future collection possibilities (Ibid.,
para. 39).
[6]
The
appellant raises a variety of arguments in support of his appeal. However, none
address the central issue, i.e. whether the appellant has established
that the respective loans became bad debts on the day on which they were
advanced.
[7]
I
can detect no error in the Tax Court Judge’s holding that the appellant did not
meet his onus on this point. The appellant cannot maintain at once that he made
bona fide loans to his company and that the loans gave rise to bad debts
on the very day on which they were advanced. A monetary loan, by definition, is
an amount advanced in the expectation that it be repaid and the appellant’s position
throughout, which he reiterated before us, is that he always thought that his
company would be profitable (Transcript, Appeal Book, tab 5, p. 87, line 9 to
p. 91, line 7; p. 121, line 14 to p. 122, line 18; p. 124, lines 22-25; p. 125,
lines 1-9).
[8]
In
order to succeed, it was incumbent upon the appellant to show that he could
reasonably foresee that the loans would not be repaid on December 31 of each
year. As the Tax Court Judge found, it is apparent that the appellant never
turned his mind to this issue and that if he had, the prospect of repayment
could not have been excluded.
[9]
It
follows that the Tax Court Judge properly held that the debts underlying the
claimed losses were not shown to have become bad in any of the years in issue.
[10]
I
would dismiss the appeal with costs.
“Marc
Noël”
“I agree
M. Nadon J.A.”
“I agree
David Stratas J.A.”
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND
SOLICITORS OF RECORD
DOCKET: A-336-10
APPEAL FROM A JUDGMENT OF THE HONOURABLE
MR. JUSTICE HERSHFIELD OF THE TAX COURT OF CANADA DATED JUNE 25, 2010, DOCKET
NO. 2009-1638(IT)I.
STYLE OF CAUSE: GO
SIMON SUNATORI and HER MAJESTY THE QUEEN
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: September 14, 2011
REASONS FOR JUDGMENT BY: NOËL J.A.
CONCURRED IN BY: NADON J.A.
STRATAS J.A.
DATED: September 16, 2011
APPEARANCES:
|
Go Simon Sunatori
|
FOR
THE APPELLANT
(SELF-REPRESENTED)
|
|
Jack Warren
Ronald
MacPhee
|
FOR
THE RESPONDENT
|
SOLICITORS OF RECORD:
|
N/A
|
FOR
THE APPELLANT
(SELF-REPRESENTED)
|
|
Myles J. Kirvan
Deputy
Attorney General of Canada
|
FOR
THE RESPONDENT
|
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