Darke v. MNR, 76 DTC 6468, [1976] CTC 734 (FCTD)

Sweet, DJ:—This is an appeal from a reassessment by the Minister of National Revenue of the plantiff’s (appellant’s) tax for the taxation year 1964 under the Income Tax Act then in force (the Act).

In his computation to assess tax the Minister added to the plaintiff’s reported income the items following:

Those items, added to $4,407.56, the net income as reported by the plaintiff, would bring his revised net income to $381,269.11. Deducting $1,100 personal exemptions and standard deduction, the taxable income as so revised would be $380,169.11.

At the trial, the plaintiff applied to amend his Notice of Appeal to add to the expenses of $36,367.63 other items totalling $18,800. Counsel for the defendant (respondent) consenting, the application was granted. Counsel for the defendant admitted that those items totalling $18,800 were deductible bringing the taxable income figure as claimed by the defendant to $361,369.11.

In his Notice of Appeal the plaintiff took the position that the items of $9,649.34 and $2,748.25 (“Finder’s fees and consultation” and “Profit from sale of English Township Claims’’) should not be classified as income. There was nothing in the evidence to support that position.

In the plaintiff's attack upon the assessment the onus of proving that the defendant made an incorrect assessment is upon the plaintiff (Pashovitz v MNR, [1961] CTC 288 at 294; 61 DTC 1167 at 1170, per Thurlow, J, as he then was, citing R W S Johnston v MNR, [1948] SCR 486; [1948] CTC 195; 3 DTC 1182).

I find that the previously mentioned items of $9,649.34 and $2,748.24 added to income by the Minister should remain.

The Notice of Appeal contains:

5. Schedule “A” attached to the Notice of Re-assessment is a statement listing, among other things, the names of the corporations to which some of the mining properties were sold and the consideration received therefor.

In connection with the addition of $364,463.96 re income from sale of mining claims the Notice of Reassessment contains:

To add to the income revenue from sale of mining claims from participation in partnership with N Bragagnolo and J Angus.

There was no evidence which established that the plaintiff did not personally receive, in the calendar year 1964, the total sum of $400,831.59 as a result of the sale of mining claims to the companies listed in Schedule “A” to the Notice of Reassessment, to be referred to as Schedule “A”.

I find that the plaintiff and two others, Nedo Bragagnolo and John Angus, entered into partnership in January 1964, that there was no written partnership agreement but that by a verbal agreement they were to be equal partners. That partnership is referred to as the first partnership.

According to Mr Darke’s evidence, some 217 mining claims were staked by or on behalf of the first partnership from the time of its formation until the end of April 1964. It is from the proceeds of the sale of some of those claims that the sum of $364,463.96 added by the defendant to the plaintiff’s income arose.

One of the positions taken by the plaintiff is that that sum of $364,463.96 should not be included in computing his income because of section 83 of the Act.

Portions of section 83 are:

83. (1) In this section,

(b) “mining property” means a right to prospect, explore or mine for minerals or a property the principal value of which depends upon its mineral content, and

(c) “prospector” means an individual who prospects or explores for minerals or develops a property for minerals on behalf of himself, on behalf of himself and others or as an employee.

(2) An amount that would otherwise be included in computing the income of an individual for a taxation year shall not be included in computing his income for the year if it is the consideration for

(a) a mining property or interest therein acquired by him as a result of his efforts as a prospector either alone or with others, or

(b) shares of the capital stock of a corporation received by him in consideration for property described in paragraph (a) that he has disposed of to the corporation.

(3) An amount that would otherwise be included in computing the income for a taxation year of a person who has, either under an arrangement with the prospector made before the prospecting, exploration or development work or as employer of the prospector, advanced money for, or paid part or all of, the expenses of prospecting or exploring for minerals or of developing a property for minerals, shall not be included in computing his income for the year if it is the consideration for

(a) an interest in a mining property acquired under the arrangement under which he made the advance or paid the expenses, or, if the prospector was his employee, acquired by him through the employee’s efforts, or

(b) shares of the capital stock of a corporation received by him in consideration for property described in paragraph (a) that he has disposed of to the corporation.

The plaintiff submits that he was a prospector; that the first partnership was a prospector; that the mining claims sold were mining properties acquired as a result of his and/or the first partnership’s efforts as a prospector; that the proceeds of those sales, including the shares of the capital stock of corporations received, were consideration for such mining properties all within the meaning of section 83.

According to the plaintiff, the prospecting consisted of a number of activities. One was the examination of outcroppings of rock for a radius of 20 miles of the areas wherein the first partnership staked claims. Then, where such work indicated the presence of rock types which indicated the probability of economic mineralization, and if it was considered geologically favourable for ore body, that area was examined in detail.

According to Mr Darke, there were very few rock outcroppings because of a cover of glacial overburden which obscured the bedrock. If there were no outcroppings, he said, there had to be an airborne electromagnetic survey and an airborne magnetic survey.

Another aspect, he said, was examination of all assessment work filed in the Timmins branch of the Oontario Department of Mines.

Included also, according to his evidence, were geological interpretations based on the information so garnered.

It is my opinion that those activities taken in their entirety would be included in the efforts of a prospector within the meaning of section 83. This, as I understand it, counsel for the defendant concedes.

The plaintiff is a geological engineer, holding a Bachelor of Applied science degree from the University of British Columbia. Commencing in 1959 and ending July 31, 1964, he was employed as a geologist by Texas Gulf Sulphur Company, hereinafter referred to as “Texas Gulf’’. Thus he was employed by that company during at least part of the time that the first partnership was in existence, regardless of when the first partnership may have ended.

I make the following findings of fact.

Texas Gulf was interested in acquiring mining properties in the areas in which the first partnership staked the claims, plaintiff’s share in the proceeds from the sale of which the defendant added to the plaintiff's income in his computation of tax. Because of that interest, Texas Gulf carried on in and in respect of those areas prospecting and exploration activities including rock outcropping examinations, airborne surveys, examination of filed assessment work and geological interpretations. The plaintiff was one of three persons who decided upon the areas Texas Gulf would explore, though his decisions were subject to being overruled by either of the other two. Surveys were flown by Texas Gulf in 1959, 1960 and part of 1961. The plaintiff was part of the crew in those years. No survey was flown by Texas Gulf in 1963 in connection with claims in the areas in which the first partnership staked the relevant claims. All of those activities of Texas Gulf in those areas were completed before the formation of the first partnership.

The plaintiff personally selected areas he felt should be acquired by the first partnership. He told Bragagnolo where to stake for the first partnership.

Of the claims staked for the first partnership there were three relatively close to the Kidd Creek mine, a major mineral deposit of Texas Gulf in the Timmins area. The claim closest to that deposit staked for the first partnership was about 1 /2 miles from it.

Although Mr Darke said the first partnership did not conduct its own airflown survey, he claimed he did some investigation for himself on his time off from work with Texas Gulf. He gave no significant details of what it consisted. I consider his evidence in this connection too vague to have any weight. So far as the evidence goes, there is, in my opinion, no ground for distinguishing between the services he was to perform and did perform for Texas Gulf and any work he claimed he did for himself.

I find that the plaintiff’s knowledge of and information regarding the areas in which the first partnership staked the relevant claims or caused them to be staked came from what he learned and acquired as an employee of and in his capacity as an employee of Texas Gulf.

I find that the locations for staking of claims on behalf of the first partnership were selected and decided upon utilizing the knowledge and information of the plaintiff, acquired by him as an employee of Texas Gulf and in that capacity.

In my finding, whatever prospecting the plaintiff. did in connection with the relevant claims staked by or on behalf of the first partnership was done for Texas Gulf and not on his own behalf and not for the first partnership.

An individual who prospects or explores for minerals on behalf of himself and others is a “prospector” within its definition in paragraph 83(1)(c). A “prospector” may be an employee. The very use of the word “employee” in paragraph 83(1)(c) implies that when an employee per se prospects for minerals he does it for his employer and for the employer’s benefit, not for himself. If there could be any doubt about that it is removed by subsection 83(3).

The plaintiff would have been entitled to non-inclusion in the computation of his income in respect of the consideration received from the mining properties by virtue of paragraph 83(2)(a) of the Act if those properties had been acquired as a result of his efforts as a prospector on behalf of himself or on behalf of the first partnership or as a result of efforts by the first partnership as a prospector on its own behalf or by the efforts of some other prospector on behalf of the plaintiff or the first partnership. The plaintiff has not brought himself within any of these qualifying circumstances. Prospecting by the plaintiff as an employee of Texas Gulf and so for the benefit of Texas Gulf would not qualify the plaintiff nor the partnership for non-inclusion under section 83. I find the plaintiff is not relieved under section 83.

In his Notice of Appeal the plaintiff also says that shares in mining companies received by the partnership as part of the consideration for the sale of mining properties when distributed to him by the partnership, are capital assets in his hands and the proceeds of sale of such shares when disposed of by him are not required to be included in computing income.

That argument cannot be accepted. The reason for the formation of the partnership, the activities carried on by it, the number of claims staked, the number of properties sold, indeed the entire purpose of the partnership and the conduct of its affairs bring it clearly within the definition of a business in paragraph 139(1)(e) of the Act and point unmistakably to its operations being in the nature of trade.

Other positions of the plaintiff are set out in paragraph 9 of his Notice of Appeal namely:

9. The Appellant says alternatively that if he is required to include in income the amounts received from the sale of mining claims then under the provisions of sections 6(1)(c), 15 and 139(1)(r) of the Income Tax Act such amounts are income for the taxation year 1965 since the fiscal year of the partnership ended in January 1965. In addition, the Appellant says that in computing his income for the taxation year 1965 he is entitled, under the provisions of sections 3, 4 and 139(1 )(e) of the Act to deduct the amount of his losses suffered from dealing and trading in securities in the year; and in computing his taxable income for 1965 he is entitled, under the provisions of section 27 of the Act, to deduct the unabsorbed losses suffered from dealing and trading in securities in the taxation years 1964 and 1966.

Some portions of the Act so referred to are:

6. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year

(c) the taxpayer’s income from a partnership or syndicate for the year whether or not he has withdrawn it during the year;

15. (1) Where a person is a partner . . his income from the partnership . . . for a taxation year shall be deemed to be his income from the partnership . . . for the fiscal period or periods that ended in the year.

(2) Where an individual was a member of a partnership the affairs of which were wound up during a fiscal period of the partnership, for ‘the purposes of subsection (1), the fiscal period may, if the taxpayer so elects, be deemed to have ended at the time it would have ended if the affairs of the partnership had not been so wound up.

139. (1) In this Act,

(e) “business” includes a profession, calling, trade, manufacture or undertaking of any kind whatsoever and includes an adventure or concern in the nature of trade but does not include an office or employment;

(r) “fiscal period” means the period for which the accounts of the business of the taxpayer have been ordinarily made up and accepted for purposes of assessment under this Act and, in the absence of an established practice, the fiscal period is that adopted by the taxpayer (but no fiscal period may exceed

(i) in the case of a corporation, 53 weeks, and

(ii) in the case of any other taxpayer, 12 months,

and no change in a usual and accepted fiscal period may be made for the purposes of this Act without the concurrence of the Minister);

The effect of subsection 15(1) of the Act is that if a fiscal period of the first partnership ended in 1964 the plaintiff’s income from that partnership arising during its fiscal period so ended would, for income tax purposes, be included in the plaintiff's income for the taxation year 1964. If there was no fiscal period of the first partnership ending in 1964 then the plaintiff's income from it arising during its fiscal period ending in another year would not be included in thetaxation year 1964.

To ascertain the situation if the affairs of the first partnership were wound up during a fiscal period of the partnership one looks to subsection 15(2). Although its wording may be something short of precise I think its intent is clear enough. As I interpret it its effect is as follows. If the plaintiff had made the election provided for in subsection (2) his income from the partnership during that fiscal period would have been included in the taxation year in which that fiscal period of the partnership would have ended had there been no winding up. There is no evidence that he made such election. Accordingly such income of his is to be included in the taxation year in which the winding up was completed.

It is to be noticed that subsection 15(2) does not specifically mention the end of the term of a partnership. It refers to the winding up of its affairs. As I see it the end of the term of a partnership and the completion of the winding up of its affairs may not necessarily be concurrent.

The plaintiff contends that the first partnership continued into 1965 and that its fiscal period ended in 1965.

There is some documentation, which, although far from precise and in itself not conclusive is, nevertheless, helpful.

The plaintiff produced a photocopy of an agreement dated April 20, 1964 between John Angus called the Vendor and Nedo Bragagnolo called the Purchaser which recited that Angus had a beneficial interest in certain unpatented mining claims in the Townships of Kidd, Wark, Carnegie, MacDearmid and Jessop, with Bragagnolo. It provided that Bragagnolo would pay Angus $150,000 as follows: $10,000 on signing; $50,000 within 15 days; and the balance within a year from date of execution.

lt contained:

The vendor of the first part doth forthwith assign, transfer and sell to the purchaser his entire remaining interest in the mining claims situate in the Townships. previously referred to in this Agreement and in any other mining claims, land, property or interest existing at the present date or which may be acquired by the purchaser hereafter.

The exact date of execution of that instrument was not established. However, there is the prima facie presumption (which was not rebutted) that it was executed on the date it bears.

The plaintiff also produced a photocopy of an agreement dated December 1, 1965 between John William Angus and Nedo Bragagnolo. It contained a recital the effect of which was that a writ of summons had been issued by Angus against Bragagnolo and Darke claiming a balance of $90,000 said to be due Angus “on the dissolution of a partnership between the Plaintiff and the Defendants”. By it, the parties to the agreement agreed that the action be dismissed without costs; subject to the obligation created by the agreement the parties released each other from all claims and Bragagnolo agreed to pay Angus $24,000 plus interest, of which $8,000 was payable on execution: $8,000 plus interest on or before December 1, 1966; and $8,000 plus interest on or before December 1, 1967.

Although Darke was not a signatory to the agreement dated April 20, 1964 he said Bragagnolo was acting on his behalf according to a verbal agreement. He said, in effect, that the intent so far as he was concerned was that he was liable for one-half of the amount which Angus was to receive. He said that he was to pay Angus one-half of the $150,000 for one-half of Angus’ one-third interest.

On the evidence as a whole, including the two agreements, I find that there was an agreement between the three partners Angus, Bragagnolo and Darke to the effect that for $150,000 to be paid to Angus (half of which was to be contributed by each of Darke and Bragagnolo), Darke and Bragagnolo, between them, and in equal shares, acquired Angus’ undivided one-third interest in assets of the first partnership.

The plaintiff attempted to add a further dimension. He said in effect that there was an understanding that until Angus received the total amount of $150,000 Angus would remain the beneficial owner of a one-third interest in any mining claims still held by the first partnership and that the first partnership would not be terminated until he had received the full amount of $150,000. It was Darke’s position, accordingly, that the first partnership continued beyond April 20, 1964. He said that partnership still retained some claims into the year 1965. He said that up until at least December 1965 Angus had not been paid $90,000. Therefore, he reasoned that Angus was still the owner of one- third of some mining claims and there was no dissolution of the partnership in 1964. Taking this line of reasoning further, he submitted the fiscal period of the first partnership ended, not in 1964, but on the anniversary of its formation, which anniversary would be in 1965. This brought him to the conclusion that even if his income from the partnership were taxable, it would not be taxable in 1964.

I do not accept that contention.

In the first place, the plaintiff’s claim that Angus was to remain the beneficial owner of a one-third interest in the mining claims is inconsistent with the wording of the agreement of April 20, 1964. It does not receive any support from the agreement of December 1, 1965, the terms of which are, in my view, inconsistent with such a situation. It received no support anywhere in the evidence execpt from what Darke himself said.

The fact that Angus was to receive a total of $150,000 under the agreement of April 20, 1964, regardless of what the mining properties brought in the market-place was inconsistent with the continuance of the three-way partnership.

It seems to me that even if there were any understanding beyond the wording of the agreement, it would in any event only be in respect of the nature of security for payment of the $150,000 perhaps by the reservation of some sort of vendor’s lien for the unpaid portion of the sale price. Even if that were so it would be something quite different from the continuation of the partnership. However, I do not consider that the evidence even establishes an agreement for any such security.

I find that the association of Angus, Bragagnolo and Darke in partnership ended on April 20, 1964 and that the term of the first partnership ended on that date.

lt is also my opinion that in this case the termination of the three- way partnership association between Angus, Bragagnolo and Darke and the end of the term of their three-way partnership was concurrent with the completion of the winding up of the affairs of the first partnership. The evidence does not disclose anything to be done in connection with the affairs of that partnership except what was to be done by the agreement of April 20, 1964 and Darke’s associated verbal agreement. In my finding what occurred was a transfer and assignment of Angus’ undivided interest in the assets of the first partnership to Bragagnolo who received it on behalf of both the plaintiff and himself.

There was still money to be paid to Angus but this was a personal liability of Bragagnolo and the plaintiff and not an obligation of the first partnership. There being no evidence of anything further to be done which might be required in the winding up of the affairs of a partnership such as, say, payment of its debts or distribution of partnership. assets it must, in my opinion, be taken that in this case the agreement of April 20, 1964 marked the completion of the winding up of the affairs of the first partnership within the meaning of subsection 15(2).

Furthermore it could not be said that there was no termination of the first partnership but only a continuation of it with Angus withdrawing. In my opinion what occurred was the formation of a new partnership albeit with purposes similar to the first partnership and with some assets which had been assets of the first partnership. Before there were three partners owning the assets and sharing profits and losses. After the agreement there were two partners owning the assets and sharing profits and losses. It was a new and different enterprise. The first partnership consisting of Angus, Bragagnolo and Darke ended and a new partnership consisting of Bragagnolo and Darke came into existence.

Accordingly, in my opinion, all of the plaintiff’s income from the first partnership is deemed to be income for the taxation year 1964 and is to be included for assessment of 1964 tax.

A problem which arises at this state is which, if any, of the twelve items re sale of mining claims, totalling $400,831.59 in Schedule “A” arose from sales by the first partnership, that is, sales in 1964 prior to April 20, 1964.

There. are four “Con West Explorations Company Ltd” items and each of them has a date associated within it in Schedule “A”. Respectively they are April 8, 1964, April 9, 1964, May 14, 1964 and June 2, 1964. I take it that those dates indicate the respective dates of those sales. Since two have dates subsequent to April 20, 1964 I take it that they would be subsequent to the winding up of the affairs of the first partnership. The consideration for one of those is $50,000 cash and $175,000 in stock. The consideration for the other is $37,500 cash and $100,000 in stock. In assessing the Minister included only the cash portions of those sales ($87,500) in the plaintiff’s income. The assessment should be reduced by that amount, $87,500. The cash amounts in the other two Conwest Exploration Company Ltd sales which appear to have ante-dated April 20, 1964 should remain.

There is no indication as to when in 1964 the other eight sales took place. No dates are attached to them in Schedule “A”. At the trial there was no indication that there was any agreement between the parties as to their dates. No evidence was offered as to their dates. The plaintiff indicated that he did not wish to give evidence as to their dates.

The defendant having included those items, relative to the sale of mining claims, in the computation of the plaintiff’s income for the taxation year 1964 and having assessed accordingly the plaintiff, in my opinion, has the onus of proving that they should not have been so included. The plaintiff has not met that onus except in respect of the two Conwest Exploration Company Ltd sales whereby $87,500 cash was received. Accordingly ail of those twelve items re sale of mining claims remain as in Schedule “A”, except

(1) the two Conwest Exploration Company Ltd items previously mentioned totalling $87,500 are to be excluded reducing the “Total revenue re sale of claims” item of $400,831.59 to $313,331.59;

(2) the amount for expense in connection with the sale of claims is increased from $36,367.63 by $18,800 to $55,167.63.

The net income figure of $364,463.96 shown in Schedule “A” in connection with those twelve sales is reduced accordingly by $106,300 to $258,163.96.

I turn now to the plaintiff’s claim for allowance for losses from his transactions in shares of capital stock.

The plaintiff produced a statement said to have been prepared by his accountant purporting to indicate a large number of transactions by the plaintiff in shares of the capital stock of companies in the years 1964, 1965, 1966. With the consent of counsel for the defendant that statement was filed as an exhibit.

According to the summary in that statement the result of those transactions were net losses by the plaintiff of $350,405.70, the losses in each of those years being

Counsel for the defendant stated that he agreed that as a result of transactions in stocks of mining companies the plaintiff lost those amounts in those years but made it clear that he was not admitting that those losses occurred in adventures in the nature of trade, and he contended that they were not deductible items. At the trial I indicated that what I thought was meant by the parties in this connection were the calendar years commencing January 1 and ending December 31. Counsel for the defendant said that was what he had in mind. Mr Darke said that what he meant were fiscal years and that there was some difference as against calendar years but slight. Under the circumstances I then said that I did not consider there was any agreement on this point between Darke and the Minister. However, having regard to the content of the statement prepared by Darke’s accountant, which was made an exhibit with the consent of counsel for the defendant, Darke’s evidence on the subject and no evidence contrary having been adduced by the defendant I consider that under the circumstances those losses to have adequately been proven.

At the trial the plaintiff said that he had bought those shares primarily on speculation in the hope that the shares would go up but that he also felt that if they had a chance to find a mine, if their exploration was successful, or had indications of going to be successful, he would hold the shares.

On cross-examination the following purporting to be a question and its answer contained in a transcript of the plaintiff’s examination for discovery was read to him:

Q. Did you buy any of the shares thinking that maybe the company didn't have any chance of finding a mine and you were just going to write them up and buy them and sell them? A. No, I purchased certain company shares as you know of the thousands available then because I thought first of all they were doing active exploration on ground I thought was favourable and that they had a chance of finding a mine.

The plaintiff said he did not recall being asked the question and the defendant did not offer any proof that it was asked and so answered. However, the plaintiff indicated that the purported answer was true. Counsel for the defendant put the question and answer in as part of the defendant’s case.

Counsel for the defendant submitted that such an answer supported the defendant’s position that the plaintiff was not entitled to claim the loss on the stock transactions as a deduction from income presumably on the ground that such selectivity of the plaintiff in connection with shares he purchased prevented his dealings in stock being classified as a business as defined in paragraph 139(1)(e) of the Act. ! do not agree.

The statement prepared by Darke’s accountant indicates transactions in the period ending December 31, 1964 in shares of 55 corporations.

Whether or not there were more than one transaction in the stocks of any of those companies is not shown by the statement.

In any event having regard to the number of transactions the statement, in my opinion, indicates a classic pattern for classification as trading in shares of capital stock of corporations. To be considered also is Darke’s evidence at the trial which I consider supports his claim to be classified as a trader in shares of capital stock. The fact that a stock trader attempts selectivity in his trades, the fact that he selects shares of corporations which he hopes will yield good results, the fact that he discriminates in his deals in ways which he hopes will be to his advantage does not eliminate him from the category of trader if he would otherwise fall into it. Furthermore even if he buys in the hope that a company the shares of which he acquires will produce a mine, and with the intention of continuing to hold those shares in that event, that in itself would not, in the circumstances disclosed here, be sufficient to exclude him from classification as a trader in shares.

I find the plaintiff’s 1964 transactions in shares of capital stock were in the nature of trade and constituted a business as defined by paragraph 139(1)(e). The 1964 situation, standing by itself, is sufficient for such a conclusion.

I find that the plaintiff’s net losses on his stock transactions in the period ending December 31, 1964 in the amount of $36,349.78 could have been deducted from his income for the taxation year 1964. However, he did not claim that amount in his income tax return (T1 General) for that year.

The plaintiff did claim, on the ground that it was a loss on investments, a deduction in the amount of $2,387.62 on his return for the taxation year 1964. At the trial he did not attempt to reconcile that figure with the $36,349.78 which, at the trial, he submitted was deductible. He was not cross-examined on it. Counsel for the defendant did not comment on it.

In assessing the Minister allowed the $2,387.62 as a deduction. There was no evidence at the trial from which it could be ascertained whether or not that amount was included in the $36,349.78 item for the period ending December 31,1964. The possibility that the $2,387.62 was not so included and that it arose from transactions other than those from which the claimed loss of $36,349.78 arose is not to be ruled out. Under all the circumstances I consider that the $36,349.78 total should be taken as being in addition to the $2,387.62 item already allowed by the Minister, and I so do.

In my opinion, any losses on stock transactions in 1965 and 1966 require different treatment here than does the 1964 stock transaction loss.

In connection with this phase of the matter, I refer to the legislation.

Excerpts from the Act are:

27. (1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted from the income for the year such of the following amounts which are applicable:

(e) business losses sustained in the 5 taxation years immediately preceding and the taxation year immediately following the taxation year, but

(i) an amount in respect of a loss is only deductible to the extent that it exceeds the aggregate of amounts previously deductible in respect of that loss under this Act,

(ii) no amount is deductible in respect of the loss of any year until the

deductible losses of previous years have been deducted, and

(iii) no amount is deductible in respect of losses from the income of any year except to the extent of the lesser of

(A) the taxpayer’s income for the taxation year from the business in which the loss was sustained and his income for the taxation year from any other business, or

(B) the taxpayer’s income for the taxation year minus all deductions permitted by the provisions of this Division other than this paragraph or section 26.

46. (5) Where a taxpayer has filed the return of income required by section 44 for a taxation year and, within one year from the day on or before which he was required by section 44 to file the return for that year, has filed an amended return for the year claiming a deduction from income under paragraph (e) of subsection (1) of section 27 in respect of a business loss sustained in the taxation year immediately following that year, the Minister shall re-assess the taxpayer’s tax for the year.

46. (6) The Minister is not bound by a return or information supplied by or on behalf of a taxpayer and, in making an assessment, may, notwithstanding a return or information so supplied or if no return has been filed, assess the tax payable under this Part.

116. (3) The Minister may at any time extend the time for making a return under this Act.

I deal now with the plaintiff’s contention that he is entitled in these proceedings to have taken into account, and allowances made for, net losses on his transactions in stock subsequent to 1964.

Any such losses in 1966 would not, in any event, have relevance to the plaintiff’s taxation year 1964.

So far as any stock transaction losses in 1965 are concerned, the plaintiff has not followed the procedure set out in subsection 46(5) of the Act. He did not file an amended return provided for in that subsection within the period of one year there referred to, nor at any subsequent time. There was no evidence of any extension of time for filing being granted by the Minister pursuant to subsection 116(3) of the Act, nor, for that matter, was there any evidence of any application by the plaintiff for any such extension of time. The result of this, in my opinion, was that the plaintiff was not at the time of the trial, nor previously, entitled to require the defendant to reassess the plaintiff’s tax for the 1964 taxation year in order to take into account and make deductions from the plaintiff’s 1964 income of any amounts arising out of any loss by the plaintiff from his 1965 stock transactions.

In Montreal Trust Company (Lodestar Drilling Co Ltd Estate) v MNR, [1962] CTC 418; 62 DTC 1242, Judson, J (Taschereau, J concurring) dealing with subsection 42(4A) enacted by Statutes of Canada 1951, c 51, section 14, a predecessor of subsection 46(5), said [at p 425 [1246]]:

Under this legislation, if a taxpayer wishes to carry back business losses, he must file his amended return within the statutory time limit. Otherwise the Minister cannot be compelled to accept the amended return.

In that case, Locke, J (Martland, J and Ritchie, J concurring) said [at p 422 [1244]]:

I have had the advantage of reading the judgment to be delivered in this matter by my brother Judson and I agree with him that the second amended return filed by the trustee in 1955 does not qualify under Section 42(4A), enacted by Section 14 of c 51, Statutes of Canada 1951.

Having reached that conclusion, it is not necessary for me to deal with any other matters which may relate to the plaintiff’s stock transactions after 1964.

No order is made directing any reduction based on the plaintiff’s stock losses subsequent to 1964.

The situation in respect of business losses in 1964 is not the same as it is in respect of subsequent business losses. No provision in the Act relating to business losses in a current taxation year similar to or having an effect similar to subsection 46(5) has been brought to my attention and I have not found any. No separate return is required for such business losses. Deductions may be claimed for them in the Original return to be made by a taxpayer for the year in which such losses occurred.

I consider that the plaintiff's 1964 stock losses should be allowed as a deduction from his income for the taxation year 1964 in the amount of $36,349.78.

There will be judgment as follows—

This matter is referred back to the Minister of National Revenue for reassessment on the basis following:

1. The “Total revenue re sale of mining claims” item of $400,831.59 shown in Schedule “A” is reduced to $313,331.59 and the expense item of $36,367.63 in connection with the sale of such claims is increased to $55,167.63 with the result that the net income figure in connection with such sales shown in Schedule “A” is reduced from $364,463.96 to $258,163.96.

2. There is also to be a deduction from income for the taxation year 1964, of the sum of $36,349.78 by reason of the plaintiff’s loss arising out of stock transactions for the period ending December 31, 1964.

3. Resulting from the foregoing items set out in paragraphs 1 and 2 immediately preceding the plaintiffs taxable income is reduced from that shown in the said Notice of Reassessment by the sum of $142,649.78.

The plaintiff was not represented by counsel at the trial. It appears that he did retain counsel or a solicitor in respect of proceedings prior to the trial. The plaintiff has had partial success and that success is substantial in amount. The plaintiff will have his costs to be taxed in respect of those matters for which he had counsel or a solicitor.

The defendant may prepare a draft of an appropriate judgment to implement the Court’s conclusion and move for judgment accordingly pursuant to the General Rules and Orders of the Court.