Christie,
A.C.J.T.C.:
—This
appeal
relates
to
the
appellant's
1983
taxation
year.
In
its
return
of
income
for
that
year
it
reported
net
income
of
$204,819.
On
June
27,
1985
the
respondent
reassessed
the
appellant’s
tax
liability
for
1983
by
adding
$250,370
in
"accrued
interest”
to
its
income.
This
amount
relates
to
money
that
the
appellant
might
have
received
after
1983
depending
upon
what
transpired
subsequent
to
its
making
certain
loans.
Moneys
received
by
the
appellant
in
1983
as
interest
on
loans
made
by
it
was
reported
as
business
income
and
no
question
arises
regarding
that
amount.
The
appellant
objected
to
the
reassessment,
but
the
respondent
confirmed
his
decision.
This
appeal
followed.
There
is
no
dispute
of
significance
regarding
the
facts.
The
appellant
is
incorporated
under
the
laws
of
Ontario
and
has
carried
on
the
business
of
pawnbroker
and
related
matters
in
Toronto
for
a
very
long
time.
It
is
licensed
to
carry
on
the
business
of
pawnbroker
by
the
Municipality
of
Metropolitan
Toronto.
This
is
in
accordance
with
the
requirements
of
the
Pawnbrokers
Act
of
Ontario.
The
basic
manner
in
which
a
pawnbroker
is
to
conduct
that
business
is
set
out
in
that
legislation.
What
is
relevant
therein
for
present
purposes
is
found
in
paragraphs
1(b),
(c)
and
(d),
8(e),
9(1)(a),
and
(d);
sections
10,
14
and
17;
subsection
19(1)
and
sections
20,
21,
22
and
28.
They
provide:
1.
In
this
Act,
(b)
'pawnbroker'
means
a
person
who
carries
on
the
business
of
taking
by
way
of
pawn
or
pledge
any
article
for
the
repayment
of
money
lent
thereon;
(c)
'pawner'
means
a
person
who
delivers
an
article
for
pawn
to
a
pawnbroker;
(d)
'pledge'
means
an
article
pawned
with
a
pawnbroker.
8.
A
pawnbroker
shall
not,
(e)
purchase,
sell
or
otherwise
deal
with
any
pledge
while
in
pawn
with
him,
except
in
accordance
with
this
Act.
9.(1)
Every
pawnbroker
who
takes
an
article
in
pawn
shall,
before
any
money
is
lent
thereon,
enter
in
a
book
to
be
kept
by
him
for
that
purpose,
(a)
the
day,
month
and
year
in
which
the
pledge
was
taken;
(d)
the
sum
lent
on
the
pledge.
10.
At
the
time
of
taking
an
article
in
pawn,
the
pawnbroker
shall
give
the
pawner
a
pawnticket
containing,
(a)
the
pawnbroker's
name
and
business
address;
(b)
the
name
of
the
pawner;
(c)
the
day,
month
and
year
in
which
the
pledge
was
taken
in
pawn;
(d)
the
number
of
the
entry
of
the
pledge
in
the
pawnbroker's
book;
(e)
a
description
of
the
pledge;
(f)
the
sum
lent
on
the
pledge;
(g)
the
rate
of
interest
charged
for
the
sum
lent;
(h)
the
charge
for
the
pawnticket;
and
(i)
the
charge
for
storage,
if
any.
14.
Each
pledge
shall
be
identified
by
a
number
that
corresponds
with
the
number
of
the
pawnticket
and
the
entry
of
the
transaction
in
the
pawnbroker's
book,
and,
when
the
pledge
is
redeemed,
the
pawnbroker
shall
record
the
amount
of
interest
taken
and
his
charges
and
shall
keep
the
record
for
not
less
than
one
year
after
redemption.
17.
The
holder
for
the
time
being
of
a
pawnticket
shall,
as
between
the
pawner
and
the
pawnbroker,
be
presumed
to
be
the
person
entitled
to
redeem
the
pledge,
and,
subject
to
this
Act,
the
pawnbroker
shall
accordingly,
on
payment
of
the
sum
lent,
lawful
interest
and
charges,
deliver
the
pledge
to
the
person
producing
the
pawnticket.
19.
(1)
Where
a
pledge
is
destroyed
or
damaged
by
or
in
consequence
of
fire,
lightning
or
tempest
or
any
additional
peril
defined
in
a
standard
fire
insurance
additional
perils
supplemental
contract,
the
pawnbroker
nevertheless
is
liable,
on
application
within
the
period
during
which
the
pledge
would
have
been
redeemable,
to
pay
the
value
of
the
pledge
after
deducting
the
sum
lent,
lawful
interest
and
charges,
such
value
to
be
the
sum
lent,
lawful
interest
and
charges
and
25
per
cent
on
the
sum
lent.
20.
Where
the
sum
lent
upon
a
pledge
is
$15
or
less,
it
may
be
redeemed
at
any
time
within
one
year
after
the
day
on
which
it
was
pawned
by
tendering
to
the
pawnbroker
the
pawnticket,
the
sum
borrowed
and
the
lawful
interest
and
charges,
and,
if
it
is
not
so
redeemed,
it
becomes
the
pawnbroker's
absolute
property.
21.(1)
Where
the
sum
lent
upon
a
pledge
is
more
than
$15
but
not
more
that
$30,
the
pawnbroker
may
at
any
time
after
it
has
been
in
pawn
for
at
least
one
year
send
to
the
pawner
by
first-class
prepaid
mail
to
the
address
shown
in
his
book
to
be
the
address
of
the
pawner
a
notice
identifying
the
transaction
and
stating
that,
unless
the
pledge
is
redeemed
within
the
fifteen
days
next
after
the
day
of
mailing
the
notice,
it
becomes
the
pawnbroker's
absolute
property.
(2)
Any
such
pledge
may
be
redeemed
at
any
time
within
the
fifteen
days
next
after
the
day
of
mailing
the
notice
by
tendering
to
the
pawnbroker
the
pawnticket,
the
sum
borrowed
and
the
lawful
interest
and
charges,
and,
if
it
is
not
so
redeemed,
it
becomes
the
pawnbroker's
absolute
property.
22.(1)
Where
the
sum
lent
upon
a
pledge
is
more
than
$30,
the
pawnbroker
may
at
any
time
after
it
has
been
in
pawn
for
at
least
one
year
send
to
the
pawner
by
first-
class
prepaid
mail
to
the
address
shown
by
his
book
to
be
the
address
of
the
pawner
a
notice
identifying
the
transaction
and
stating
that,
unless
the
pledge
is
redeemed
within
the
fifteen
days
next
after
the
day
of
mailing
the
notice,
a
final
notice
will
be
published
in
a
newspaper
having
general
circulation
in
the
municipality
in
which
the
pawnbroker
carries
on
business
identifying
the
transaction
and
stating
that,
unless
the
pledge
is
redeemed
within
the
fifteen
days
next
after
the
day
of
publication
of
the
notice,
it
becomes
the
pawnbroker's
absolute
property.
(2)
If
the
pledge
is
not
redeemed
within
the
fifteen
days
next
after
the
mailing
of
the
first
notice
mentioned
in
subsection
(1),
the
pawnbroker
may
at
any
time
thereafter
give
the
final
notice
mentioned
in
that
subsection.
(3)
Any
such
pledge
may
be
redeemed
at
any
time
within
the
fifteen
days
next
after
the
mailing
of
the
first
notice
mentioned
in
subsection
(1)
or
within
the
fifteen
days
next
after
the
day
of
publication
of
the
final
notice
mentioned
in
that
subsection,
as
the
case
may
be,
by
tendering
to
the
pawnbroker
the
pawnticket,
the
sum
borrowed
and
the
lawful
interest
and
charges,
and,
if
it
is
not
so
redeemed,
it
becomes
the
pawnbroker's
absolute
property.
28.
In
addition
to
his
profit
on
the
sum
lent,
being
interest
thereon
at
not
more
than
the
lawful
rate,
a
pawnbroker
is
entitled
to
make
the
following
charges;
1.
For
a
pawnticket,
not
more
than
20
cents.
2.
For
storage
of
a
pledge,
not
more
than
10
cents
per
month
per
cubic
foot
or
part
thereof
of
storage
space
taken
up
by
the
pledge.
3.
For
a
copy
of
a
pawnticket
and
printed
form
of
affidavit,
not
more
than
20
cents.
A
sample
of
the
type
of
pawnticket
issued
by
the
appellant
during
1983
to
a
pawner
is
in
evidence.
It
gives
the
name
of
the
pawner;
date
the
pledge
was
taken
in
pawn;
a
description
of
the
pledge;
the
sum
lent;
interest
is
stated
to
be
2
per
cent
per
month
on
all
loans;
the
charge
for
storage
is
indicated;
the
ticket
is
not
transferable;
these
conditions
are
listed:
"Loans
may
be
renewed
by
payment
of
interest.
Loans
may
be
paid
by
instalments.
In
case
of
lost
ticket,
notify
us.
No
goods
shown
while
in
pawn.
Not
responsible
for
loss
by
robbery
or
fire.
Affidavits—$1.00
each.
No
Cheques
Accepted;"
it
states:
“This
ticket
expires
one
year
from
date"
and
the
appellant
is
described
in
these
words:
PAWNBROKERS
Established
1860
JEWELLERS
JAMES
McTAMNEY
&
COMPANY
LTD.
139
Church
Street
366-9646
Toronto,
Ontario
M5B
1Y5
A
COLLATERAL
LOAN
INSTITUTION
A
similar
document
is
kept
by
the
appellant
in
its
records.
Mr.
James
C.
Shortt
who
is
president
of
the
appellant
and
who
has
been
associated
with
it
for
39
years
explained
how
the
description
"Collateral
loan
institution”
came
about.
It
was
adopted
in
the
1930s
by
his
father
who
succeeded
his
grandfather
in
the
business
in
1928.
In
those
times
considerable
stigma
attached
to
the
business
of
pawnbroker
and
the
description
was
an
attempt
to
alleviate
that.
He
also
described
the
manner
in
which
the
appellant
carries
on
business
which
coincides
with
the
requirements
of
the
legislation.
He
said
that
85
per
cent
of
the
pledges
are
redeemed.
Those
that
are
not
are
sold
at
retail.
The
form
of
notice
of
forfeiture
sent
by
mail
to
a
pawner
by
the
appellant
reads:
DEAR
SIR
or
MADAM:
—
Your
Loan
No.
of
For$
is
past
due.
The
Interest
may
be
paid
now
and
the
Loan
Renewed
for
another
year
should
you
be
unable
to
take
care
of
both
Loan
and
Interest.
When
replying
to
notice
of
this
loan
kindly
mail
or
bring
in
your
Pawn
Ticket.
NO
CHEQUES
ACCEPTED
Will
you
please
call
within
the
next
days,
after
that
date
your
pledge
will
be
sold.
Very
truly
yours,
JAMES
MCTAMNEY
&
CO.
LTD.
THIS
LOAN
COVERS
Interest
&
Storage
due.
These
provisions
of
the
Income
Tax
Act
and
the
Regulations
made
thereunder
were
referred
to:
paragraph
12(1)(c),
subsections
12(3)
and
(9)
and
Regulation
7000(1)(d):
12(1)
There
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
as
income
from
a
business
or
property
such
of
the
following
amounts
as
are
applicable:
(c)
any
amount
received
by
the
taxpayer
in
the
year
or
receivable
by
him
in
the
year
(depending
upon
the
method
regularly
followed
by
the
taxpayer
in
computing
his
profit)
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
interest
to
the
extent
that
such
interest
was
not
included
in
computing
his
income
for
a
preceding
taxation
year;
(3)
Notwithstanding
paragraph
(1)(c),
in
computing
the
income
for
a
taxation
year
of
a
corporation,
partnership,
unit
trust
or
any
trust
of
which
a
corporation
or
a
partnership
is
a
beneficiary,
there
shall
be
included
any
interest
on
a
debt
obligation
(other
than
interest
in
respect
of
an
income
bond,
an
income
debenture,
a
small
business
development
bond,
or
a
small
business
bond)
that
accrued
to
it
to
the
end
of
the
year,
or
became
receivable
or
was
received
by
it
before
the
end
of
the
year,
to
the
extent
that
the
interest
was
not
included
in
computing
its
income
for
a
preceding
taxation
year.
(9)
For
the
purposes
of
subsections
(3),
(4),
(8),
and
(11)
and
20(14),
where
a
taxpayer
has
at
any
time
acquired
an
interest
in
a
prescribed
debt
obligation,
an
amount
determined
in
prescribed
manner
shall
be
deemed
to
accrue
to
the
taxpayer
as
interest
on
the
obligation
in
each
taxation
year
during
which
he
held
the
interest
in
the
obligation.
7000(1)
For
the
purposes
of
subsection
12(9)
of
the
Act,
each
of
the
following
debt
obligations
in
respect
of
which
a
taxpayer
has
at
any
time
acquired
an
interest
therein
is
a
prescribed
debt
obligation:
(d)
a
particular
debt
obligation,
other
than
one
described
in
paragraph
(a),
(b)
or
(c),
in
respect
of
which
the
amount
of
interest
to
be
paid
in
respect
of
any
taxation
year
is,
under
the
terms
and
conditions
of
the
obligation,
dependent
on
a
contingency
existing
after
the
year,
and,
for
the
purposes
of
this
subsection,
a
debt
obligation
includes,
for
greater
certainty,
all
of
the
issuer’s
obligations
to
pay
principal
and
interest
under
that
obligation.
I
believe
it
is
clear
from
the
language
of
the
Pawnbrokers
Act
and
that
employed
by
the
appellant
in
its
business
that
the
primary
pursuit
of
a
pawnbroker
is
the
lending
of
money
at
interest.
The
fact
that
85
per
cent
of
the
pledges
received
by
the
appellant
are
redeemed
underscores
this.
My
reading
of
the
Act
is
that
when
an
article
is
pawned
the
pawnbroker
lends
money
at
a
specified
rate
of
interest
to
the
pawner
and
the
article
pawned
is
security
for
the
repayment
of
the
amount
he
has
put
at
risk
plus
interest
thereon.
A
legal
obligation
to
repay
that
loan
and
interest
may
or
may
not
arise
at
a
time
subsequent
to
the
article
being
taken
in
pawn.
This
will
depend
entirely
on
the
course
of
action
decided
upon
by
the
pawner.
If
he
seeks
to
redeem
the
pledge,
liability
to
repay
the
loan
and
interest
calculated
from
the
commencement
of
the
period
of
redemption
thereupon
crystallizes,
but
not
before.
On
the
other
hand
if
the
pawner
does
not
seek
to
redeem
the
pledge
within
the
redemption
period
applicable
to
it,
the
pledge
automatically
becomes
the
pawnbrokers'
absolute
property
upon
the
expiration
of
that
time.
During
the
hiatus
between
the
commencement
and
termination
of
the
redemption
period,
the
pawnbroker
cannot
call
for
payment
of
either
principal
or
interest
on
the
loan
and
he
may
not
sell
or
otherwise
deal
with
the
pledge
unless,
of
course,
it
is
redeemed,
in
which
case
he
returns
it
to
the
pawner.
The
foregoing
leads
me
to
the
conclusion
that
in
1983
the
pawners
were
under
no
obligation
to
pay
the
appellant
any
part
of
the
$250,370
or
the
principal
sums
in
respect
of
which
it
was
calculated
and,
in
addition,
none
of
it
was
received
or
receivable
by
the
appellant
in
that
year.
This
eliminates
the
applicability
of
paragraph
12(1)(c)
and
that
part
of
subsection
12(3)
that
speaks
of
interest
on
a
debt
obligation
that
became
receivable
or
was
received
by
a
corporation
before
the
end
of
the
year.
This
leaves
these
words
in
subsection
12(3):
any
interest
on
a
debt
obligation
that
accrued
to
a
corporation
to
the
end
of
the
year.
The
phrase
“debt
obligation”
is
not
defined
in
the
Income
Tax
Act,
but
presumably
it
simply
means
an
obligation
to
pay
a
debt.
I
believe
this
is
confirmed
by
the
words
"une
créance"
in
the
French
text.
There
being
no
obligation
on
the
pawners
in
existence
in
1983
to
pay
the
sums
to
which
the
amount
of
$250,370
relates,
no
interest
on
a
debt
obligation
in
that
amount
could
accrue,
i.e.
be
earned
but
not
yet
payable,
to
the
appellant
to
the
end
of
1983.
The
remaining
words
of
subsection
12(3)
referred
to
are
therefore
also
inapplicable.
The
absence
of
a
debt
obligation
also
renders
subsection
12(9)
and
Regulation
7000(1)(d)
irrelevant.
The
appeal
is
allowed
with
party-and-party
costs
to
the
appellant.
Appeal
allowed.
Email this Content