Date:
20021211
Docket:
2002-724-IT-I
BETWEEN:
LOCKLYNN T.
CRAIG,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
O'Connor, J.T.C.C.
[1]
The Appellant owned shares in Fiji Tan (Edm) Inc. ("Fiji
Tan") and was owed $11,176.30 by Fiji Tan. The other
shareholder in Fiji Tan was Robert J. McKendry.
[2]
In the fall of 1997 the assets of Fiji Tan were seized by its
landlord and the landlord purported also to terminate the lease
with Fiji Tan.
[3]
From the date of that seizure and continuing after the date of a
claim by the Alberta Treasury Board, Fiji Tan was never able to
take possession of its assets nor carry on any business nor earn
any income. Fiji Tan was struck from the corporate registry
system of Alberta on August 1, 1999.
[4]
Although unable to carry on its business Fiji Tan, principally
through the efforts of Mr. McKendry and to a certain extent, the
Appellant, attempted to find other premises, visited various
sites and discussed possible leases with other landlords, but
nothing came of this. The hope of the two shareholders was that
if the business could be re-established in another location and a
lease signed they would continue the business, but this did not
occur.
[5]
The Appellant realized in the spring of 1998 that the business
could not be continued and he assigned his shares and shareholder
loan to his co-shareholder, Robert J. McKendry.
[6]
Exhibit A-1 is an acknowledgment of this assignment. It reads as
follows:
October
31, 2001
Re:
Fiji Tan (Edm) Inc.
I, Robert
J. McKendry acknowledge that Locklynn T. Craig and I agreed to an
assignment of the shares and shareholders' loans in Fiji Tan
(Edm) Inc. in 1997 subject to the opening of a new store. It was
clear by the spring of 1998 that a new store for Fiji Tan
(Edm) Inc. would not be opened and accordingly the assignment was
thereafter documented.
Another portion of Exhibit A-1 entitled "Assignment"
reads as follows:
ASSIGNMENT
FOR
VALUE RECEIVED, the
undersigned hereby assigns and transfers unto Robert J. McKendry
the beneficial interest in 16 Class "A" Common
shares in the capital stock of FIJI TAN (EDM) INC. (the
"Corporation") represented by Share Certificate No.
CA-3 which shares the said Robert J. McKendry previously held for
me in trust pursuant to a Declaration of Trust dated the 1st day
of April, 1994, and my loans to the Corporation and hereby
irrevocably constitutes and appoints any director or officer of
the Corporation as attorney to transfer the said shares on the
books of the Corporation with full power of substitution in the
premises.
"Locklynn T. Craig"
The above
Assignment is hereby acknowledged this 9 day of
December, 1998.
"Robert J. McKendry"
[7]
The shares had no value so the only question is whether the
Appellant is entitled to claim a business investment loss of
$11,176.30 representing the amount of the loans by the Appellant
to Fiji Tan.
[8]
If Fiji Tan, at the relevant time, was a small business
corporation as defined in subsection 248(1) of the Income Tax
Act (the "Act") the Appellant will be
entitled to his business investment loss whereas if Fiji Tan was
not a small business corporation as so defined he will not be
able to claim the loss. Counsel for both parties agreed that if
Fiji Tan carried on an active business it qualified as a small
business corporation all other requirements having been met.
Counsel for the Appellant points out that the Appellant did not
actually give up on the business until it became certain in the
spring of 1998 that it could not be revived. Also Fiji Tan had
been successful in defeating the landlord's seizure (hiring a
lawyer for this purpose), apparently on the basis that the
landlord could not seize assets and terminate the lease at the
same time. This was the contention of the Appellant although no
record of the seizure and its defeat was filed in evidence.
Counsel for the Appellant contends that the action of retaining
lawyers to defeat the seizure and to continue looking for
alternate premises was sufficient activity to meet the
qualifications of running an active business.
[9]
So far as applicable "small business corporation" is
defined in section 248 of the Act as
follows:
"small business corporation", at any particular
time, means, subject to subsection 110.6(15), a particular
corporation that is a Canadian-controlled private corporation all
or substantially all of the fair market value of the assets of
which at that time is attributable to assets that are
(a)
used principally in an active business carried on primarily in
Canada by the particular corporation or by a corporation related
to it,
(b)
shares of the capital stock or indebtedness of one or more small
business corporations that are at that time connected with the
particular corporation (within the meaning of
subsection 186(4) on the assumption that the small business
corporation is at that time a "payer corporation"
within the meaning of that subsection), or
(c)
assets described in paragraphs (a) and (b),
including, for the purpose of paragraph 39(1)(c), a
corporation that was at any time in the 12 months preceding that
time a small business corporation, and, for the purpose of this
definition, the fair market value of a net income stabilization
account shall be deemed to be nil;
Further,
"active business" is defined in section 248(1) of the
Act as follows:
"active business", in relation to any business
carried on by a taxpayer resident in Canada, means any business
carried on by the taxpayer other than a specified investment
business or a personal services business;
ANALYSIS
[10] There are
some authorities that suggest that an active business can be
considered to be carried on by a corporation even though there
are no business activities of the same nature as those formally
conducted and even in some cases where there is no business and
no income.
[11] In my
opinion however, something has to be done to enable a corporation
to qualify as carrying on an active business and in my opinion
the defeating of the seizure and searching for other premises
unsuccessfully are not sufficient acts to constitute the carrying
on of an active business.
[12] When only
these activities are carried on how can one say that all or
substantially all of the fair market value of the assets were
used principally in an active business carried on primarily in
Canada. The reference is to assets being used and in the present
case because of the seizure it was impossible to use the assets
in the business.
[13] For these
principal reasons the appeal is dismissed.
Signed at
Ottawa, Canada this 11th day of December, 2002.
J.T.C.C.COURT
FILE
NO.:
2002-724(IT)I
STYLE OF
CAUSE:
Locklynn T. Craig v. The Queen
PLACE OF
HEARING:
Calgary, Alberta
DATE OF
HEARING:
November 21, 2002
REASONS FOR
JUDGMENT
BY:
The Honourable Judge T. O'Connor
DATE OF
JUDGMENT:
December 11, 2002
APPEARANCES:
Counsel for
the
Appellant:
Robert D. McCue
Counsel for
the
Respondent:
Elena Sacluti
COUNSEL OF
RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-724(IT)I
BETWEEN:
LOCKLYNN T.
CRAIG,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeal heard
on November 21, 2002 at Calgary, Alberta by
the
Honourable Judge Terrence O'Connor
Appearances
Counsel for
the Appellant: Robert D. McCue
Counsel for
the
Respondent:
Elena Sacluti
JUDGMENT
The appeal from the reassessment made under the Income Tax
Act for the 1998 taxation year is dismissed, with costs, in
accordance with the attached Reasons for Judgment.
Signed at
Ottawa, Canada this 11th day of December, 2002.
J.T.C.C.
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