Mitchell v. The Queen, docket 2000-4252(IT)G

Date: 20020613

Docket: 2000-4252-IT-G

BETWEEN:

DONALD MITCHELL,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Lamarre, J.T.C.C.

[1]            These are appeals from assessments made by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act") for the appellant's 1990 through 1996 taxation years.

[2]            In assessing the appellant, the Minister:

(a)            disallowed business expenses and included in income the following amounts:

                                                Additional Income                                Disallowed Expenses

1993                                         $ 1,200                                     $39,413

1994                                         $ 4,800                                     $44,711

1995                                         $12,000                                    $40,772

1996                                                                                                         $45,121

(b)            disallowed the amounts of $160,909 and $300,000 claimed by the appellant as allowable business investment losses ("ABILs") for the 1991 and 1996 taxation years respectively;

(c)            disallowed for the 1990, 1992, 1993 and 1994 taxation years the non-capital losses that were carried back or carried forward by the appellant and that related to the claim for ABILs for the 1991 and 1996 taxation years; and

(d)            assessed penalties pursuant to subsection 163(2) of the Act in respect of the undeclared income and disallowed business expenses.

[3]            In so assessing the appellant, the Minister relied on the following facts that are set out in paragraph 12 of the Reply to the Notice of Appeal:

(a)            the Appellant is a shareholder of [Donald G. Mitchell Consulting Corporation ("DGM")] DGM; [admitted]

(b)            DGM owns 36.3% of Canada Trade Group Inc ("CTG"); [admitted for the period at issue, that is, for the taxation years 1993 through 1996]

(c)            the Appellant is the president of CTG; [admitted for the period at issue: 1993-1996]

(d)            CTG paid the Appellant the amounts of $50,000, $60,000, $48,000 and $108,000 in the 1993, 1994, 1995, and 1996 taxation years, respectively, in respect of his duties as president of CTG; [admitted]

(e)            the Appellant reported the amounts referred to in paragraph 12(d) of this Reply as business income; [admitted]

(f)             CTG also paid the Appellant, in respect of his duties as president of CTG, the amounts of $1,200, $4,800 and $12,000 in the 1993, 1994 and 1995 taxation years, respectively, and the Appellant failed to include these amounts in his income for the said years;

(g)            the Appellant carried out his duties of president as an officer or employee of CTG;

(h)            the funds received from CTG are wages, salary or other remuneration from an office or employment;

(i)             during the 1993, 1994, 1995, and 1996 taxation years, the Appellant did not provide any services to other persons;

(j)             CTG reimbursed the Appellant for the expenses which the Appellant incurred in carrying out his duties as president of CTG; [admitted]

(k)            the Appellant deducted from his CTG income business expenses in the amounts of $39,413, $44,711, $40,772, and $45,121, in the 1993, 1994, and 1995 and 1996 taxation years; [admitted]

(l)             the expenses claimed by the Appellant and disallowed by the Minister are outlined in Schedule I attached to this Reply; [admitted]

(m)           the expenses were personal or living expenses of the Appellant and related primarily to the costs of travelling from his home in Ottawa to his workplace in Montreal, the costs of maintaining a dwelling in Montreal and other personal expenses;

(n)            the Appellant was unable to support all of the business expenses claimed in the 1993, 1994, 1995, and 1996 taxation years;

(o)            the Appellant was unable to support his contention that he advanced funds to DGM or Pumps Restaurant or that these funds were advanced for the purpose of gaining or producing income from a business or property;

(p)            if the Appellant advanced any funds to DGM the debt did not become bad in the 1991 taxation year;

(q)            DGM purchased additional shares in CTG in 1993; [admitted]

(r)             DGM was not bankrupt nor was it wound up during 1991; [admitted]

(s)            the Appellant did not incur in the 1991 taxation year an ABIL in respect of advances to DGM;

(t)             if the Appellant advanced any funds to Pumps Restaurant the debt did not become bad in the 1996 taxation year;

(u)            Pumps Restaurant was not bankrupt nor was it wound up during 1996;

(v)            the Appellant did not incur in the 1996 taxation year an ABIL in respect of advances to Pumps Restaurant;

(w)           the non-capital losses available to be carried over to the 1990, 1992, 1993, and 1994 taxation years are NIL;

(x)             the Appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in the making of a false statement by claiming as business expenses the amounts of $39,413, $44,711, $40,772, and $45,121 in the 1993, 1994, 1995 and 1996 taxation years, respectively; and

(y)            the Appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in the making of a false statement by failing to report income in the amounts of $1,200, $4,800 and $12,000 in the 1993, 1994 and 1995 taxation years, respectively.

SCHEDULE I

                  Disallowed expenses

	1993	1994	1995	1996
Rent	$ 8,463	$ 19,456	$ 20,472	$ 20,568
Bank charges & Interest	5,550	4,830	6,000	7,200
Transportation	1,410		400
Restaurants	1,500	2,506	5,200	6,240
Office	2,890		500
Professionnel [ sic] fees	650	1,829
Telephone	2,430	2,690		1,080
Hydro	160			260
Entertainment	4,320
Membership	1,800
Insurance	410	430
Maintenance and repairs	930
Travel	8,900	8,400	8,200	8,273
Vehicle expenses		1,400
Legal and accountant fees		650		1,500
Expenses - work at home		2,520
	________	_______	_______	_______
Total	$39,413	$44,711	$40,772	$45,121

Additional income

[4]            In cross-examination, the appellant acknowledged that he had omitted to declare amounts of $1,200 in 1993, $4,800 in 1994 and $12,000 in 1995 as income received in respect of his duties as president of Canada Trade Group Inc. ("CTG"). He testified however that the omissions were inadvertent. The inclusion of these amounts as additional income is therefore no longer disputed.

Disallowed expenses

[5]            With respect to the disallowed expenses, it would appear that the rent, transportation, restaurant, entertainment, travel, vehicle and work-at-home expenses all related to his travel to Montreal and to his accommodation and other expenses while there, acting for CTG. The appellant stated that he resided in Ottawa but that he rented an apartment for use when in Montreal. He said that he was appointed president of CTG for the years 1993 through 1996 and that he devoted to the duties of that position an average of two days per week in Montreal during the first three years and four days per week in the last year. When in Montreal, the appellant testified, he worked at CTG's office. It also appears from the contracts signed between the appellant and CTG for the 1993 through 1996 taxation years, which were filed as Exhibit R-1, Tabs 26-29, and Exhibit R-2, Tabs 31-35, that for the first three years the appellant was receiving a $5,000 monthly taxable allowance. This amount included his fee and covered as well his accommodation expenses in Montreal and travel expenses between Ottawa and Montreal. The allowance was raised to $9,000 per month in the last year. All travel and living expenses incurred at the request of CTG outside his weekly travel between Ottawa and Montreal were covered by CTG, which paid the appellant a per diem fee ($600/day) for the time thus spent on CTG's business. Finally, any amounts spent by the appellant on entertaining or in-city travel on CTG's behalf were reimbursed separately upon CTG's being billed therefore by the appellant. The maximum allowed for such expenses was $1,000 per month and any expense beyond that had to be pre-approved by CTG.

[6]            The appellant claimed all the meals he took alone in Montreal, the apartment he rented in that city and his expenses for travel back and forth between Ottawa and Montreal (all of which are expenses claimed by the appellant as being in excess of what was reimbursed by CTG). It is clear from his testimony that the appellant was going to Montreal to perform his duties as president of CTG and for no other business reasons. His only source of income while in Montreal was his remuneration from CTG.

[7]            In counsel for the appellant's written submissions, it is argued that the appellant was hired by CTG under a consulting contract pursuant to which he was to bear his own expenses. Counsel submits that the appellant was engaged as an independent contractor and not as an employee and that, consequently, he could deduct all expenses incurred by him in the course of the performance of his duties for CTG for which he was not reimbursed.

[8]            My reading of the agreements signed between CTG and the appellant does not lead me to conclude that the appellant was hired as an independent contractor who had to bear his own expenses. On the contrary, the appellant was paid a monthly allowance for his travel and accommodation expenses (including his travel between Ottawa and Montreal). The contracts further stipulated that any over-budget expense had to be pre-approved by CTG. Furthermore, the appellant testified unequivocally that he was appointed by CTG to be its president, and by virtue of that appointment he also became a director of CTG. Although the contracts stipulated that the time spent attending CTG board meetings should not be considered time for which compensation should be paid, it is difficult to dissociate the appellant's activities for CTG from his role of president of that corporation. In my view, the appellant received his allowance from CTG in order to be able to fulfill his duties as president (which in fact was a circumstance relied upon by the Minister in paragraph 12(d) of the Reply to the Notice of Appeal and admitted by the appellant). The amounts thus received may easily be considered as remuneration from an office within the meaning of section 8 and subsection 248(1) of the Act. The term "office" is defined as follows in subsection 248(1):

"office" - "office" means the position of an individual entitling the individual to a fixed or ascertainable stipend or remuneration and includes a judicial office, the office of a minister of the Crown, the office of a member of the Senate or House of Commons of Canada, a member of a legislative assembly or a member of a legislative or executive council and any other office, the incumbent of which is elected by popular vote or is elected or appointed in a representative capacity and also includes the position of a corporation director, and "officer" means a person holding such an office.

[9]            Should the compensation paid to the appellant be considered to have been for work performed by him in the course of other activities, the contracts tendered as evidence, although each is called a "consulting contract", suggest employee rather than independent contractor status. Those contracts, do not give much latitude to the appellant. The appellant was to devote a certain number of days per week to CTG and CTG certainly had control over the appellant's remuneration and his expenses (no over-budget expense could be incurred without the approbation of CTG). The potential bonus provided for in the 1996 contract (Exhibit R-2, Tab 35) is not necessarily indicative of independent contractor status but could equally as well indicate employee status (I would cite as an example an employee who is a salesperson paid by commission).

[10]          I therefore conclude that the appellant was not acting as an independent contractor in relation to CTG but rather as an officer or as an employee of that corporation. That being so, the appellant is limited to the deductions permitted by section 8 of the Act.

[11]          The relevant parts of section 8 read as follows:

SECTION 8: Deductions allowed.

             (1) In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

. . .

48(1)(h)3

(h) Travel expenses - where the taxpayer, in the year,

(i) was ordinarily required to carry on the duties of the office or employment away from the employer's place of business or in different places, and

(ii) was required under the contract of employment to pay the travel expenses incurred by the taxpayer in the performance of the duties of the office or employment,

amounts expended by the taxpayer in the year (other than motor vehicle expenses) for travelling in the course of the office or employment, except where the taxpayer

(iii) received an allowance for travel expenses that was, because of subparagraph 6(1)(b)(v), (vi) or (vii), not included in computing the taxpayer's income for the year, or

(iv) claims a deduction for the year under paragraph (e), (f) or (g);

. . .

48(1)(h.1)3

(h.1) Motor vehicle travel expenses - where the taxpayer, in the year,

(i) was ordinarily required to carry on the duties of the office or employment away from the employer's place of business or in different places, and

(ii) was required under the contract of employment to pay motor vehicle expenses incurred in the performance of the duties of the office or employment,

amounts expended by the taxpayer in the year in respect of motor vehicle expenses incurred for travelling in the course of the office or employment, except where the taxpayer

(iii) received an allowance for motor vehicle expenses that was, because of paragraph 6(1)(b), not included in computing the taxpayer's income for the year, or

(iv) claims a deduction for the year under paragraph (f);

. . .

48(2)3

             (2) General limitation. Except as permitted by this section, no deductions shall be made in computing a taxpayer's income for a taxation year from an office or employment.

. . .

48(4)3

             (4) Meals. An amount expended in respect of a meal consumed by a taxpayer who is an officer or employee shall not be included in computing the amount of a deduction under paragraph (1)(f) or (h) unless the meal was consumed during a period while the taxpayer was required by the taxpayer's duties to be away, for a period of not less than twelve hours, from the municipality where the employer's establishment to which the taxpayer ordinarily reported for work was located and away from the metropolitan area, if there is one, where it was located.

. . .

48(10)3

             (10) Certificate of employer. An amount otherwise deductible for a taxation year under paragraph (1)(a), (f), (h) or (h.1) or subparagraph (1)(i)(ii) or (iii) by a taxpayer shall not be deducted unless a prescribed form signed by the taxpayer's employer certifying that the conditions set out in that paragraph or subparagraph, as the case may be, were met in the year in respect of the taxpayer is filed with the taxpayer's return of income for the year.

. . .

48(13)3

             (13) Work space in home. Notwithstanding paragraphs (1)(f) and (i),

(a) no amount is deductible in computing an individual's income for a taxation year from an office or employment in respect of any part (in this subsection referred to as the "work space") of a self-contained domestic establishment in which the individual resides, except to the extent that the work space is either

(i) the place where the individual principally performs the duties of the office or employment, or

(ii) used exclusively during the period in respect of which the amount relates for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of the office or employment;

(b) where the conditions set out in subparagraph (a)(i) or (ii) are met, the amount in respect of the work space that is deductible in computing the individual's income for the year from the office or employment shall not exceed the individual's income for the year from the office or employment, computed without reference to any deduction in respect of the work space; and

(c) any amount in respect of a work space that was, solely because of paragraph (b), not deductible in computing the individual's income for the immediately preceding taxation year from the office or employment shall be deemed to be an amount in respect of a work space that is otherwise deductible in computing the individual's income for the year from that office or employment and that, subject to paragraph (b), may be deducted in computing the individual's income for the year from the office or employment.

[12]          Under paragraph 8(1)(h) of the Act, travel expenses will be deductible only if the taxpayer was ordinarily required to carry on the duties of his office away from the employer's place of business or in different places and was required under his contract of employment to pay the travel expenses incurred in the performance of his duties. Here, the appellant received an allowance for the travel expenses required to be incurred for the performance of his duties and that allowance included his expenses for travel between Ottawa and Montreal. The evidence does not disclose that the appellant was required by CTG to incur additional expenses in the performance of his duties. On the contrary, any extra expenses incurred for CTG had to be pre-approved by CTG. Any extra expenses claimed by the appellant were therefore incurred on his own decision and do not fall within the ambit of section 8 of the Act. The same applies to the vehicle expenses under paragraph 8(1)(h.1) of the Act, and to the meal expenses under subsection 8(4), as the meals taken in Montreal were not consumed during a period when the appellant was required by his duties to be away, for a period of 12 hours or more, from the metropolitan area where the employer's place of business was located.

[13]          With respect to the rental expense for the apartment in Montreal, it has not been established that that apartment was the place where the appellant principally performed his duties as president of CTG. In fact, the appellant testified that he worked at CTG's office when in Montreal. Nor has it been established that the apartment in Montreal was used by the appellant exclusively for the purpose of earning income from his office as president and that it was used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing his duties as president, in accordance with subsection 8(13) of the Act. In paragraph 6 of section D of his written submissions, counsel for the appellant submits that CTG wanted accommodation in Montreal suitable for entertaining and holding board meetings. That statement was apparently made at the appellant's discovery, the relevant excerpt from which was not introduced in evidence before me. At trial, the appellant testified that the apartment was used for evening meetings of the board and occasionally to receive clients from out of town. In my view, this is not sufficient to bring the Montreal apartment within the ambit of subsection 8(13). If the purpose in renting the apartment was to have the appellant use it exclusively for CTG, the intention of the parties should have been clearly indicated in the agreements signed between them, and in my view, the rental expense, if not already included in the allowance received by the appellant, would have been reimbursed by CTG as were all the other expenses incurred by the appellant in the performance of his duties.

[14]          The appellant also claimed fees for membership in the Rideau Club in Ottawa and other non-professional membership fees not reimbursed by CTG. Such non-professional membership fees are not deductible under paragraph (8)(1)(i) of the Act. Pursuant to subsection 8(2), the appellant cannot deduct any expense that is not expressly permitted by section 8.

[15]          With respect to interest expenses, the appellant did not give any explanation, nor did he provide any documentation to support such expenses. Some telephone expenses or other expenses were claimed in relation to his home in Ottawa. The appellant claimed that they were incurred for a business relating to an airport in Tanzania. However, the appellant had previously maintained that that business was operated by the Donald G. Mitchell Consulting Corporation ("DGM") of which he was a shareholder. No income was reported by DGM from this airport activity, and even if there had been a source of income, the expenses would have been deductible by DGM and not by the appellant personally. I therefore conclude that none of the expenses claimed by the appellant that have been disallowed by the Minister are deductible for the taxation years at issue.

Penalties

[16]          With respect to the penalties assessed in relation to the undeclared income and the disallowed business expenses for the taxation years 1993 through 1996, the evidence disclosed that the appellant persistently failed to file his tax returns on time and indeed filed none for 1988. The appellant testified that he never read his tax returns before signing them, conduct demonstrating disinterest in the income declared. He did not provide documentation to support the expenses claimed although given plenty of time to do so, thereby showing himself to be careless as regards his tax obligations. The appellant kept saying that he relied completely on his accountant, who supposedly persisted in claiming expenses that had been disallowed in previous taxation years, although he was advised by Revenue Canada (as it was then called) that he was not acting in conformity with the Act.

[17]          While he testified that he had had a brain tumour in 1990 and that he suffered from its after-effects, the appellant, who has a legal background, struck me as still being a very able person. This is corroborated by the fact that he was given by no means insignificant responsibilities after 1990 in being called upon by CTG to deal with partners such as Samsung Co. Ltd. ("Samsung") and SNC Holdings Canada Inc. ("SNC"). In the circumstances, I find that the respondent has established on a balance of probabilities that the appellant knowingly or under circumstances amounting to gross negligence in the carrying out of his duties or obligations imposed by the Act made or participated in the making of a false statement in his tax returns filed for the 1993 through 1996 taxation years, within the meaning of subsection 163(2) of the Act. For these reasons I will maintain the penalties.

ABIL claimed for 1991

[18]          The appellant claimed an amount of $160,909 as an ABIL for 1991. He testified that he was asked by the Royal Bank of Canada to pay an outstanding debt owed to it by DGM. The debt, which he, along with his partner, had guaranteed personally, was for loans and advances made by the bank to DGM. The appellant testified that at the time he had his brain tumour in 1990, his partner in DGM declared bankruptcy and left him alone to respond to the bank's demand for reimbursement in full of all sums owed it by DGM. The appellant testified that, at that time, he cashed in his Registered Retirement Savings Plan and took out an additional mortgage on his house in order to pay off the bank. He filed as Exhibit A-1 a letter from the Royal Bank of Canada dated March 6, 1992, which confirms that significant amounts of money were paid by the appellant to support the debts of DGM. The letter states that at least $212,500 came from the appellant's own resources to cover principal and interest payments for DGM's loan and that the major portion, $190,000, was provided in June 1991 after the bank demanded payment on loans.

[19]          On the other hand, the appellant testified that in 1991 DGM owned 8.5 per cent of the shares of CTG, and the other CTG shareholders were SNC (15 per cent), Samsung (48.7 per cent) and the Federal Business Development Bank ("FBDB") (27.8 per cent) (see Exhibit R-3, Tab 52).

[20]          In 1993, the FBDB sold its shares to DGM for $218,000. DGM made a down payment of $1,000 and the balance, together with interest, was to be paid in a timely fashion from all and any capital distributions from CTG. The appellant testified that the balance was never paid, as there was never any capital distribution. It would seem, according to the appellant's testimony, that CTG ceased operating in 1997 (in his written submissions, counsel for the appellant stated that CTG went out of business in 1996; I note that no supporting document was adduced in evidence to establish that it did so in either 1996 or 1997). The appellant also testified that after 1993 he was offered $4 million by the Bronfman Trust for 10 per cent of DGM's shares in CTG. The sale never occurred, however. According to the appellant, Samsung was not interested in a change of partners in CTG.

[21]          Furthermore, it does not seem that DGM appeared to its partners SNC and Samsung to be insolvent in 1991, as DGM was never considered by them to be in default (that is, insolvent or bankrupt as contemplated by the Shareholders' Agreement (Exhibit R-1, Tab 24)). Had it found itself in that position, DGM would have had to sell its shares to its partners. Yet, far from selling, it actually purchased shares from the FBDB in 1993 (Exhibit R-1, Tab 30).

[22]          Furthermore, the appellant admitted that he himself testified at his discovery that DGM was not insolvent when the Royal Bank of Canada asked him for payment under his guarantee. He stated at his discovery (a part of which was filed in evidence as Exhibit R-11) that DGM just owed the bank some money and that DGM never had the bank take over all its shares (Exhibit R-11, page 54).

[23]          Under subsection 39(12) of the Act, an amount paid by a taxpayer in respect of a debt of a corporation under an arrangement under which the taxpayer guaranteed the debt is deemed to be a debt owing to the taxpayer by a small business corporation, provided that certain conditions are met. Let us assume that all the conditions required by subsection 39(12) have been satisfied. In that case, the appellant would be able to claim an ABIL pursuant to paragraph 39(1)(c) for the 1991 taxation year only if he can prove that he disposed of the debt in that year. Under subsection 50(1), a taxpayer is deemed to have disposed of a debt owing to him for proceeds equal to nil at the end of the year in which he can establish that the debt became a bad debt. Therefore, to be able to claim an ABIL for 1991, the appellant had to show at the end of the 1991 taxation year that the debt had become a bad debt in that year.

[24]          As a general proposition, a debt is recognized as being bad when it has been proven to be uncollectible in the year for which it is claimed. The question of when a debt is to be considered uncollectible is a matter of the taxpayer's own judgment as a prudent businessman. That determination is a subjective one that must be made by the creditor taxpayer in an honest and reasonable manner after having personally considered the relevant objective factors existing in the taxation year for which the bad debt is claimed (see Hogan v. M.N.R., 56 DTC 183, cited in Flexi-Coil Ltd. v. Canada, [1995] T.C.J. No. 1558 (Q.L.), confirmed by 96 DTC 6350 (F.C.A.); see also Deck v. Canada, [2002] T.C.J. No. 69 (Q.L.)).

[25]          In the present case, I do not find that the appellant has reasonably established that the debt paid by him to the Royal Bank of Canada was proven to be uncollectible from DGM in 1991. The fact that the bank called for execution of the guarantee in 1991 does not lead to a reasonable inference that DGM did not have valuable assets out of which payment of the debt could have been effected. According to the appellant's own testimony at his discovery, DGM was not insolvent at that time, and it ". . . never had the bank take over all [DGM's] shares" (see Exhibit R-11, page 54, question 195). DGM was a shareholder in CTG, along with two major partners, SNC and Samsung. The FBDB sold its CTG shares to DGM in 1993 for $218,000. An offer of $4 million for 10 per cent of DGM's shares was made after 1993. These are certainly indications that the appellant had not established at the end of 1991 that DGM had by the end of that year become unable to pay off its debt. It may be that the CTG shares held by DGM were illiquid and difficult to sell, but this was not brought out in the evidence adduced at the hearing. It is difficult without the benefit of the financial statements, for example, to give any weight to such an assumption.

[26]          Based on all these facts, I am of the view that the amount of the DGM debt paid by the appellant was not proven to be uncollectible at the end of 1991 and therefore was not a bad debt within the meaning of section 50 of the Act. Since it was not a bad debt in that year, there was no deemed disposition of a debt and accordingly no loss within the meaning of paragraph 39(1)(c) of the Act.

[27]          The appellant was therefore not entitled to claim a loss for 1991, and hence there was no loss carry-over available for other years.

ABIL 1996

[28]          The appellant claimed a further amount of $300,000 as an ABIL for 1996. He stated that in 1986 he loaned the sum of $400,000 to Pumps Restaurants Ltd., which was owned by a previous client of his, Mr. Kanny Ng. In his Notice of Appeal, he states that the loan consisted of $150,000 in cash and $250,000 in a term deposit with the Toronto-Dominion Bank in Ottawa, the bank of the borrower. Apparently, the term deposit served as collateral for a bank loan to Pumps Restaurants Ltd. The appellant stated that there was an agreement with Mr. Ng that the latter would pay the appellant $5,000 a year in interest and that the appellant would also collect the interest on the term deposit. According to the appellant, the bank asked him for payment of the amount of his guarantee upon Mr. Ng's declaring personal bankruptcy in 1996.

[29]          Neither the appellant nor Mr. Ng was able to provide any documentary evidence regarding the term deposit with the Toronto-Dominion Bank. In fact, there is no evidence that the appellant ever received any interest from the Toronto-Dominion Bank. No interest slips were issued by it nor was any interest from that bank declared by the appellant in his tax returns.

[30]          Furthermore, there is contradictory evidence on how the loan was made, how much was loaned and to whom.

[31]          In a letter signed by Mr. Ng (Exhibit R-6) in May 2002, Mr. Ng states that the appellant held a term deposit of $400,000.

[32]          In another letter, signed by Mr. Ng in November 1997, Mr. Ng states that the appellant lent Pumps Restaurants Ltd. $150,000 and put up $250,000 in a term deposit as a guarantee for a bank loan to Pumps Restaurants Ltd. In that letter, Mr. Ng said that he never paid any interest to the appellant (Exhibit R-8).

[33]          At trial, Mr. Ng said that he paid interest of $5,000 per year for a period of approximately one year in 1987 or 1988. In Exhibit R-8, Mr. Ng states that the bank called the loan in 1990 when his company became insolvent in December of that year.

[34]          If that is so, it is strange that the appellant only claimed a loss for the payment of the loan in 1996. At his discovery, the appellant did not remember to whom the loan was made. He said that he did not ask for any security on the loan, which was made based on trust.

[35]          There is much confusion as to whom the loan was actually made, if in fact there was any loan at all. The ABIL was claimed in 1996, the year Mr. Ng became personally insolvent. There is an inference to be drawn here that the loan, if any, was made to Mr. Ng personally to help him pay his personal debts. This inference is also supported by the document apparently signed by the appellant and Mr. Ng, filed as Exhibit R-2, Tab 38, which says: "Kanny Co. owe [s] Don the sum of $400,000.00 arised [sic] out of failed business partnership venture guarante[e]d by Kanny in the last 2 years and also loans advanced from Don to Kanny," and by the document filed as Exhibit R-7, dated May 29, 1988, in which the appellant authorized the Toronto-Dominion Bank "to use [his] funds as a voluntary draw down on loans of Kanny Ng with [the Toronto-Dominion] Bank branch". As a matter of fact, Mr. Ng named the appellant as a creditor in his personal bankruptcy. To claim an ABIL on a bad debt, the debt must, pursuant to paragraph 39(1)(c) of the Act, be owed by a Canadian-controlled private corporation not by an individual.

[36]          As the evidence is unclear in that regard and because of the many contradictions which came out in the evidence and which taint the credibility of both the appellant and Mr. Ng, I do not find that the appellant established on a balance of probabilities that he made a loan to a Canadian-controlled private corporation and hence that he was entitled to claim an ABIL on the amount in question for the 1996 taxation year. Consequently, there was no loss carry-over available for other years.

[37]          The appeals are dismissed.

Signed at Ottawa, Canada, this 13th day of June 2002.

"Lucie Lamarre"

J.T.C.C.

COURT FILE NO.:                                                 2000-4252(IT)G

STYLE OF CAUSE:                                               Donald Mitchell v. The Queen

PLACE OF HEARING:                                         Ottawa, Ontario

DATE OF HEARING:                                           May 13 and 14, 2002

REASONS FOR JUDGMENT BY:      The Honourable Judge Lucie Lamarre

DATE OF JUDGMENT:                                       June 13, 2002

APPEARANCES:

Counsel for the Appellant: R. Wayne MacKinnon

                                                                               

Counsel for the Respondent:              Michael Ezri

COUNSEL OF RECORD:

For the Appellant:                

Name:                                R. Wayne MacKinnon

Firm:                  MacKinnon & Phillips

                                                                                                Ottawa, Ontario

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2000-4252(IT)G

BETWEEN:

DONALD MITCHELL,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on May 13 and 14, 2002, at Ottawa, Ontario, by

the Honourable Judge Lucie Lamarre

Appearances

Counsel for the Appellant:                    R. Wayne MacKinnon

Counsel for the Respondent:                Michael Ezri

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1990, 1991, 1992, 1993, 1994, 1995 and 1996 taxation years are dismissed.

Signed at Ottawa, Ontario, this 13th day of June 2002.

"Lucie Lamarre"

J.T.C.C.