Citation: 2010TCC642
Date: 20101216
Docket: 2009-2999(IT)I
BETWEEN:
MORRIS BOURGET,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Morris
Bourget, is appealing the reassessment of the Minister of National Revenue
disallowing his claim for an allowable business investment loss in 2006. Mr. Bourget was not present at the
appeal. At the request of his agent, Lee C. Merriman, accountant, the appeal
proceeded by legal argument alone based on the facts assumed by the Minister in
paragraph 7 of the Reply to the Notice of Appeal:
7. In determining the Appellant’s tax liability for the 2006
year, the Minister relied on the following assumptions of fact:
(a)
the Appellant was a director of Seeds Plus Inc.
(hereinafter “Seeds”);
(b)
Seeds ceased operations in July of 2003;
(c)
Seeds had outstanding source deductions when it
ceased operations;
(d)
the Appellant made a payment of $43,201 on
October 12, 2005 (hereinafter “the Payment”) in regards to Seeds’ outstanding
source deductions;
(e)
the Payment was made after Seeds had ceased
operations;
(f)
the Payment was not as a result of a personal
guarantee that held the Appellant liable;
(g)
the Payment was made as a result of the
Appellant’s director’s liability;
(h)
the Payment was not loaned to Seeds for the
purpose of producing income, and
(i)
the Payment was not a share of the capital stock
of a small business corporation.
[2]
Of these facts, Mr. Merriman took
issue only with the use of the word “loaned” in subparagraph 7(h) and indicated
that he would address his concerns with that term in his submissions. His argument
that the Appellant was entitled to an allowable business investment loss in
respect of his payment of source deductions owed by Seeds was based on Mr.
Merriman’s interpretation of the analysis of Beaubier, J. in Bender and Day
v. The Queen, the background of which appears at paragraphs 2 to 6:
2 The
evidence before the Court confirmed both Appellants' claims for allowable
business investment losses respecting a disallowance by the Respondent of
values which were agreed upon by the Appellants with the Bank of Montreal
respecting property taken by the Bank of Montreal on account of a loan by it to
Bender Transport (1995) Ltd. ("Transport"). In view of the fact that
the Appellants and the Bank of Montreal were at arm's length, those values
claimed by the Appellants are confirmed by the Court and their appeals are
allowed respecting that portion of the appeals.
3 The parties agreed that on the foregoing basis,
the only matters remaining in dispute related to Janet Day. Therefore, Mr.
Bender's appeal is allowed and he is also awarded his disbursements for
copying, postage and travel to prosecute his appeal, which are fixed at $100.
4 The matters remaining in appeal for 1998 and 1999
claimed by Janet Day relate to funds she paid to the Receiver General in 1998
and 1999 on account of:
1. withholdings due on employees' wages from Transport and,
she believes,
2. GST, due from Transport, of which she was a director.
5 In
the Court’s view, Transport’s withholdings liability arose as a deductible part
of its wages due to employees (and employer’s contributions thereon) on account
of their services in a business for the purpose of earning business income.
Payment by Transport of employee withholdings and associated employer’s
contributions are deductible for income tax purposes.
6 GST
is different. The Excise Tax Act is specific. GST was paid to Transport
as a tax levy of which Transport was a trustee. GST was not received by
Transport as income. Nor was GST in any way a part of Transport’s income
earning process; rather it was a levy on Transport’s customer. Payment of GST
is not a deductible expense to Transport. It was never income to Transport, nor
was it part of Transport’s income earning process. It is merely a collection of
GST (Excise Tax Act, Sections 221 and 222).
[3]
Having made that distinction in
respect of Transport’s rights and obligations in respect of source deductions
and GST remittances, Beaubier, J. then turned his mind to the only issue left
in dispute, Ms. Day’s entitlement to an allowable business investment loss in
respect of amounts paid by her (as a director of Transport) following an
assessment under subsection 227.1(1) of the Income Tax Act in respect of
the company’s unremitted source deductions.
In dismissing her appeal, Beaubier, J. cited Poirier v. Her Majesty the
Queen, a case very similar to Ms. Day’s (and, I would add,
the Appellant’s) in which Bowman, A.C.J. explained why the payment of such an
amount could not be deductible as an allowable business investment loss:
10. Therefore her claim for an allowable
business investment loss or any other form of business expense or deduction
respecting her assessment under section 227.1 is dismissed. In particular,
paragraph 16 of the judgment of Bowman, A.C.J. in Poirier v. R. … describes
a situation similar to Janet Day’s. It reads:
16. That
is not the situation here. I agree with the submission by counsel for the
respondent that when the appellant made the payments in question the company
was no longer in operation. It had ceased operations and was insolvent. There
is a world of difference between making good under a guarantee of a corporation
that was given when it was in operation, with a view to enhancing its income
earning potential, and paying an obligation imposed by law or to remove a lien
after there is no possibility of earning income from the corporation. I
would compare this with the situation where a business has ceased but an
obligation that results from the business that was previously carried on arises
and must be satisfied. The fulfilment of that obligation would seem to me to be
for the purpose of gaining or producing income from a business. Here, however,
the [Appellant’s] obligation to pay the company’s indebtedness arose after the
company has ceased operations.
[Emphasis
added]
[4]
Notwithstanding this
outcome, Mr. Merriman insisted that Bender and Day supported his argument that because Seeds’ liability
for the unremitted source deductions had arisen at a time when the company was
actively carrying on business, it followed that the payment made by the
Appellant some two years after the company had gone under ought to be
characterized as having been made “for the purpose of gaining or producing
income from a business” as contemplated by subparagraph 40(2)(g)(ii) of
the Income Tax Act.
[5]
This is not, however,
what the legislation or the jurisprudence says. Assuming that the other statutory criteria are met, the
Appellant’s entitlement to an allowable business investment loss is limited to
a debt acquired by him at a time when the purpose of that debt was to gain
or produce income from Seeds’ business. By the time the Appellant made the
payment to the Receiver General in respect of Seeds’ source deductions, the
company had long since ceased operations; from this it follows that there was
no possibility of the Appellant having acquired his debt for the purposes
required under the Act.
[6]
For the reasons set out above, the
appeal of the 2006 taxation year is dismissed.
Signed at Regina, Saskatchewan, this 16th day of December, 2010.
“G. A. Sheridan”
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