Date: 20020330
Dockets: 2000-1817-IT-G, 2000-1818-IT-G
BETWEEN:
MICHAEL R. BOSSY,
MICHAEL EVANS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Beaubier, J.T.C.C.
[1]
These appeals pursuant to the General Procedure were heard
together on common evidence at London, Ontario on March 19 and
20, 2002. Both Appellants testified. They are both chartered
accountants. Suzanne Walker, C.M.A., the auditor on these files,
testified for the Respondent.
[2]
Both appeals arise from reassessments of the Appellants' 1993
income tax returns in which they each reported the sale of
188,000 Class C preferred shares of Thomson, Fisher & Bossy
Management Consultants Inc. ("TF & B") on capital
account and claimed a capital gains deduction in respect thereto.
In fact, the "sale" of shares consisted of a redemption
of the shares by TF & B.
[3]
Although the numbers of the following paragraphs differ in each
Reply, their wording is identical. Paragraphs 10 to 17 inclusive
of the Reply to the Notice of Appeal of Michael R. Bossy
read:
10.
In so reassessing the Appellant, the Minister relied on, inter
alia, the following assumptions:
(a)
Grandview Motors Inc. ("Grandview") was an automobile
dealership located in Parkhill, Ontario.
(b)
Mr. Stan Fisher, a partner of Thomson,
Fisher & Bossy Chartered Accountants (a Canadian
partnership of which the taxpayer was a partner), acquired
control of Grandview Motors on or about July 1988. At that time,
the business had accumulated significant non-capital losses
($945,820) which it had been unable to utilize for tax purposes
by reason of its continuing losses.
(c)
Commencing in 1990, Grandview began to provide management
consulting services to clients of Thomson, Fisher & Bossy
Chartered Accountants ("the CA partnership").
(d)
By the end of April 1991, the automobile dealership business of
Grandview had completely ceased.
(e)
All remaining inventories of the automobile dealership were
disposed of by the end of 1991.
(f)
An agreement with an effective date of January 1, 1991
was executed between the CA partnership and Grandview
whereby the management consulting and some other portions of the
business conducted by the CA partnership would be officially
transferred to Grandview.
(g)
On October 21, 1991, the name of the corporation was changed from
Grandview Motors Inc. to Thomson, Fisher & Bossy Management
Consultants Ltd. ("TF & B").
(h)
On October 21, 1991, debt owed to Mr. Fisher from Grandview
Motors was converted to equity in the form of 564,000 Class
"C" shares of the company having a price of
$1.00/share.
(i)
On the same day as the transaction referred to in (h) above, the
same Class "C" shares of the company were sold to
Messrs. John Thomson, Michael Bossy & Michael Evans,
("other partners" in the CA partnership with Stan
Fisher).
(j)
The value of the shares at the time of sale to the other partners
was calculated by Mr. Stan Fisher as follows:
|
Loss carried forward face amount (approx.)
|
$1,300,000
|
|
Tax Rate
|
50%
|
|
Tax Savings
|
$ 650,000
|
|
Less: Bank Indebtedness
|
$ 200,000
|
|
|
$ 450,000
|
|
Divided Among 3 Investors
|
$ 150,000
|
|
Premium provided to Investors for risk being taken
|
$ 38,000
|
|
Face Value of Shares Issues
|
$ 188,000
|
(k)
In consideration of Messrs. Thomson, Bossy & Evans
executing personal guarantees in favour of the Canadian Imperial
Bank of Commerce ("CIBC") with respect to
indebtedness between TF & B and the CIBC, Mr. Stan Fisher
transferred 188,000 Class C shares to each of Messrs. Thomson,
Bossy and Evans.
(l)
TF & B filed its 1991 T2 income tax return reporting a net
income of $141,330 for tax purposes. Non-capital losses
from the pool referred to in (b) above were applied to eliminate
all taxes of this income.
(m)
Throughout the period between the acquisition of the shares by
the other partners and the redemption of the shares in 1993, the
only business conducted by TF & B was the management consulting
business specified in the agreement with the CA partnership.
(n)
The management consulting services of TF & B were provided by
the same partners and employees who had provided these services
on behalf of the CA partnership.
(o)
TF & B filed T2 returns for 1992 and 1993 showing nil net
income for tax purposes and although it showed the activity of
the corporation as "inactive", it was active in the
management consulting business during the 1992 and 1993 taxation
years.
(p)
In 1993, TF & B redeemed the shares for $1.00/share, their
stated value ($564,000 in aggregate).
(q)
The Appellant reported the redemption of his shares as
dispositions of small business corporation shares and other
securities and properties and claimed taxable capital gains of
$140,999 for tax purposes. ($188,000 redemption proceeds less
$1.00 nominal cost times 75% capital gains inclusion rate).
(r)
The Appellant also claimed a capital gains deduction for the full
amount of taxable capital gain referred to in (q) above.
(s)
At the time of acquisition of the Class "C" shares, the
Appellant knew the profitable management consulting business of
the CA partnership had been transferred to TF & B, a loss
corporation.
(t)
The Appellant acquired the shares for the provision of a loan
guarantee to allow TF & B to continue business operations.
(u)
The profits generated by TF & B came solely from the profitable
management consulting business.
(v)
The profits from this profitable business provided TF & B with
resources first to discharge the debts to CIBC, the to pay
dividends on the Class "C" shares and then to redeem
the Class "C" shares.
(w)
TF & B paid dividends during a 24 month holding period in order
to be eligible for an enhanced capital gains deduction.
(x)
The operating motivation for the acquisition of the Class
"C" shares was to utilize the losses of TF & B.
(y)
The Appellant's profit from the sale of the
Class "C" shares was on income account;
B.
ISSUES TO BE DECIDED
11.
The issue to be decided are:
(a)
whether the Appellant's profit from the sale of the Property
was on capital or income account, and
(b)
whether the Minister acted with due dispatch.
C.
STATUTORY PROVISIONS RELIED ON
12.
He relies on sections 3, 4, 9 and 38, subsections 165(3) and
248(1) and paragraphs 39(1)(a) and 110.6(2.1) of the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (the
"Act").
D.
GROUNDS RELIED ON AND RELIEF SOUGHT
13.
He submits that the Class "C" shares of TF & B were
not acquired by the Appellant as an investment, but were acquired
to provide a personal guarantee on behalf of TF & B".
14.
He submits that the series of events surrounding the acquisition
and redemption of the Class "C" shares constitute an
adventure in the nature of trade and are taxable as profit from a
business.
15.
He submits that the Minister properly assessed the Appellant in
accordance with sections 3 and 9 of the Act on the basis
that the profit from the sale of the Class "C" shares
was income from a business within the meaning of
subsection 248(1) of the Act, in the Appellant's
1983 [sic] taxation year and, also for this reason, he submits
that the Minister correctly disallowed the capital gains
deduction claimed by the Appellant in his 1993 taxation year.
16.
He submits that the Minister acted in accordance with his duty
under subsection 165(3) of the Act.
17.
He further submits that if the Minister failed to act "with
due dispatch", which is not admitted but denied, the
reassessment should not be vacated given that the Appellant had
recourse is to appeal to the Tax Court.
[4]
With respect to the assumptions in subparagraphs (a) to (u)
inclusive, the following exceptions must be noted:
(f) & (m)
There is no direct testimony from the Appellants which
contradicts assumptions (h), (i), and (s). Together, they
establish that the Appellants transferred their interests in the
consulting business to TF & B on October 21, 1991, as part of
the deal in exchange for their Class C shares, which were then
valued at $188,000 for each. The agreements backdated January 1,
1991 confirmed the transfer of that business from the
CA partnership to Grandview, which changed its name to
"TF & B". TF & B then shared the costs of the
premises and staff with the CA partnership pursuant to a
written agreement between the parties dated as of January 1,
1991.
(k)
Was amended as quoted by the Respondent's counsel at the
opening of the hearing and those facts were established by the
evidence to be true.
(v)
The word "the" following the comma in the third line
appears to be a typographical error; it should read
"then".
With these amendments, assumptions (a) to (v) inclusive were
not refuted by the evidence.
[5]
The Appellants' chartered accounting partnership (CA
partnership) at the times in question was under one name with the
following partners in the following Ontario towns and city:
Mr. Thomson: Apparently
London
Mr.
Fisher:
Parkhill
Mr.
Bossy:
Tilsonburg
Mr.
Evans
London
[6]
Mr. Bossy became a chartered accountant in 1982. Mr. Evans became
a chartered accountant in 1985. In 1985 both were partners in the
CA partnership with Stan Fisher and Mr. Thomson. In June, 1990
their partner Stan Fisher presented Mr. Evans with a Deloitte
Touche letter which had attached Mr. Fisher's
"Business Opportunity" outline of seven pages that
proposed a transaction with Grandview Motors shares (Exhibit A-1,
Tab 1). Mr. Evans rejected it both for himself and for his
clients as being too aggressive for tax purposes. It constituted
a rough outline of what became the transaction in question before
the Court in these appeals. Assumption (j) is an outline of
Mr. Fisher's numbers in Exhibit A-1, Tab 1.
[7]
Commencing in October, 1990, the partnership was actively
reviewing the possibility of using a corporation for its
management consulting work. By the end of 1990 Mr. Evans knew
from documents he had reviewed and from talks with Mr. Fisher
that Fisher was "tapped out"; he had a second mortgage
on his home and he had withdrawn all of his capital from their
partnership. By April of 1991 Mr. Evans knew that Mr. Fisher was
considering bankruptcy. In April of 1991 Mr. Fisher brought the
"Business Opportunity" to the partnership meeting. In
May, 1991 another partner, Mr. Thomson, advised Mr. Bossy
that Mr. Fisher was in imminent danger of receiving a demand
on his guarantee with the Canadian Imperial Bank of Commerce
("CIBC") on behalf of Grandview Motors. By this time
Mr. Fisher was the sole shareholder of Grandview Motors.
Mr. Thomson stated that if CIBC made the demand, Mr. Fisher
would have to go bankrupt.
[8]
The two Appellants described different reasons for proceeding
with the transaction under appeal:
Mr. Bossy stated
1.
Mr. Bossy had signed an unlimited guarantee for the CA
partnership debt of $500,000. Mr. Bossy believed that his
guarantee would be demanded upon and that this would ruin him, if
Mr. Fisher went bankrupt;
2.
If the consulting business was operated by TF & B, the taxes
saved from Grandview Motors' loss could be used to help the
business purchase assets; and
that is why Mr. Bossy signed the guarantee and acquired the
Class C shares. Mr. Bossy acquired his Class C shares
in the fall of 1991.
Mr. Evans stated
1.
Mr. Fisher's bankruptcy would hurt the CA partnership's
reputation and would end Mr. Fisher's contributions to the
firm's profits as a C.A.;
2.
Mr. Evan's profits from the CA firm's business would be
reduced;
3.
The consulting fees would be sheltered as income by virtue of the
loss carry forward in TF & B; and
that is why Mr. Evans signed the guarantee and acquired the
Class C shares. Mr. Evans acquired his Class C shares
on October 21, 1991.
[9]
Both Appellants testified that at the time of acquiring the
Class C shares they understood all of the tax nuances
of the transaction, including the requirements necessary for a
share redemption such as occurred in their cases. Mr. Bossy
testified that he thought that redemption might occur when he
finally retired. Mr. Evans testified that he thought redemption
on this basis was remote - that he might get the money for the
shares if TF & B had enough business.
[10] At the
end of 1991 both Appellants received a copy of a financial
statement of TF & B prepared by Mr. Fisher which confirmed what
he had told them when they entered into the transaction:
TF & B's only liabilities were debts of $190,000 to CIBC
and other accounts payable of $54,666 (Exhibit A-1, Tab 35).
Commencing in late 1990, TF & B proceeded to do the consulting
work that the CA partnership no longer did. Thus, it is
clear that once the parties transferred the consulting business
for the shares on October 21, 1991, they backdated both the
management agreements to January 1, 1991, and backdated the
inclusion of TF & B's consulting income to include
consulting income earned in 1990. By the summer of 1993 it had
paid off the $190,000 and the $54,666. In addition, it paid the
Class C shareholders' dividends of six percent per annum for
1992 and 1993.
[11] In the
fall of 1992 Mr. Evans drafted Exhibit A-1, Tab 40 and met with
Mr. Thomson in an effort to have Mr. Thomson present it to
Mr. Fisher for Mr. Fisher to sign. Mr. Thomson refused
to do this. Exhibit A-1, Tab 40 provides, among other
things, that Mr. Fisher will indemnify the other partners
respecting the tax benefits of the transaction. So far as Mr.
Evans knows, Mr. Fisher never saw this document.
[12] In the
summer of 1993 Mr. Thomson told Mr. Bossy that there were
two other lease debts of TF & B that Mr. Fisher had not
revealed to them which arose from subleases of premises by
Grandview Motors (TF & B). One is described in Exhibit A-1, Tab
15, an Amended Statement of Claim dated October 27, 1992 as
$372,000. The other is described in Exhibit A-1, Tab
20, dated February 17, 1993 as unpaid rent due
February 1, 1993 of $3,477, etc. Mr. Bossy relied
on Mr. Thomson to straighten this out; in the fall of 1993
Mr. Thomson felt the course was to wind up TF & B to
protect their assets. Mr. Evans learned of this from
Mr. Thomson in the fall of 1993 while having coffee with
him. Mr Evans went ballistic; he wanted to wind up TF & B and
get rid of the exposure.
[13]
Throughout the entire history of these proceedings, Mr. Fisher
owned all of the voting shares of TF & B. Mr. Fisher voted to
pay the six percent dividends on the Class C shares of the
Appellants. He voted to redeem the Class C shares in December,
1993. Neither Appellant was ever a director of TF & B. Mr.
Fisher did not testify but, so far as there is any evidence
before the Court, Mr. Fisher was the directing mind of TF & B.
Despite the fact that the Court believes that Mr. Fisher did not
reveal the sublease indebtedness possibilities which arose in
1993 when he presented this transaction to the Appellants, the
Court accepts as correct the material contained in Exhibit A-1,
Tab 1. It is the "Business Opportunity" which Mr.
Fisher drafted with Deloitte Touche and had presented to the
Appellants as the agreement under which they would acquire the
Class C shares in TF & B. It was not adopted in
detail - for instance, the Class C shares were not
retractable. However both agreements between the
CA partnership and TF & B had expiry dates of
December 31, 1993, after which they could be terminated on
30 days' notice by either party. Paragraph 6 of the
"Business Opportunity" plan states that the
Class C shares must be held for at least two years in
an active business.
[14] The
Appellants' argument that the Minister failed to respond to
the Notices of Objection with all due dispatch was withdrawn by
Appellants' counsel at the opening of his argument. However,
Suzanne Walker testified that the Appellants' assessments
arose from the fact that TF & B's income tax returns for
1992 and 1993 described it as an "inactive"
corporation. Therefore the redemption of the
Class C shares triggered a review. But until
TF & B's 1992 and 1993 income tax returns were filed, this
fact was not known. It is significant that TF & B's 1992
and 1993 income tax returns contained what, in the circumstances
of this case, was a serious error while TF & B remained under
the control of Mr. Fisher.
[15] These
assessments are based on the Minister's allegation that the
Appellants' gains were from an adventure in the nature of
trade. Appellants' counsel argued that the Appellants'
realization as a result of the operation of the Income Tax
Act is not the factor to be considered. Rather it is whether
the transaction is a trading operation which is intended to, and
does, earn a profit. He quoted Hugessen, J. A. in Loewen v.
The Queen, 94 DTC 6265 at 6269:
In order to resolve the conflict, it is necessary, in my view,
first to ask oneself whether tax considerations, and more
particularly an anticipated tax advantage, can properly be
determinative of whether or not any given transaction is a
trading operation. In my view, they cannot. While the saving of
taxes is clearly an important consideration in the conduct of any
modern business, I do not think it can properly be said that a
transaction whose sole purpose is to reduce the tax otherwise
payable by a taxpayer is, for that reason alone, an adventure in
the nature of trade. In the recent case of Moloney v. The
Queen,4 this Court was faced with the opposite
side of the income/capital gains coin, namely whether a taxpayer
could deduct as business expenses the costs incurred in a scheme
the whole purpose of which was to obtain refunds of tax. In
dismissing the taxpayer's appeal, we said:
While it is trite law that a taxpayer may so arrange his
business as to attract the least possible tax, it is equally
clear in our view that the reduction of his own tax cannot by
itself be a taxpayer's business for the purpose of the
Income Tax Act. To put the matter another way, for an
activity to qualify as a "business" the expenses of
which are deductible under paragraph 18(1)(a), it must not
only be one engaged in by the taxpayer with a reasonable
expectation of profit, but that profit must be anticipated to
flow from the activity itself rather than exclusively from the
provisions of the taxing statute.
[emphasis added]
4
92 DTC 6570.
Respondent's counsel argued that the entire transaction is
a replica of Minister of National Revenue v. Sissons, 69
DTC 5152 which the Supreme Court of Canada unanimously found to
be taxable as an adventure in the nature of trade. In particular
Pigeon, J. said for the Court at 5154:
(d)
As to the fact that the gain arose at least in part from
respondent's efforts, this clearly tends to show not that it
is a capital gain but profit from a "business". One of
the characteristics of income from such a source is that it is
essentially the result of the businessman's efforts.
(e)
Finally, respondent's gain cannot properly be considered as
having arisen fortuitously. On the contrary, uncontradicted
evidence shows that it is the result of a carefully considered
plan executed as conceived. It is true that there is some
evidence that the profits from the stamp business carried on for
the benefit of Sonograph were greater and quicker than
anticipated. This does not make them fortuitous in the legal
sense.
[16]
Respondent's counsel also raised the issue that the
Appellants had a secondary intention at the time that they
acquired the Class C shares to realize the gain in question.
Secondary intention was not pleaded by the Respondent in either
Reply.
[17] The
entire transaction must be examined in order to make a
determination in these appeals. Using the headings set out by
Rouleau, J. in Happy Valley Farms Ltd. v. The Queen, 86
DTC 6421, the Court finds:
1.
Nature of the Property sold
These shares were not sold in 1993. They were redeemed by
TF & B. The Appellants had no corporate control over that
occurrence. The holders of the Class C shares were paid
dividends at the will of TF & B at the rate of six percent per
annum.
2.
Length of period of ownership
About 26 months. This was just over the 24 month limit
required. The Appellants both testified that the redemption
occurred because of the unforeseen lease liabilities. While Mr.
Fisher did not testify, the evidence is that these two
liabilities were contingencies which were unknown to the
Appellants when they signed the guarantees and acquired the
Class C shares in 1991. When the subtenants failed to
pay, the landlords demanded and sued TF & B. It is credible
that Mr. Fisher would chose to pay off his accounting partners
who had bailed him out in 1991 by signing the guarantees before
he would pay the landlords. Legally, the Appellants had no right
to cause or prevent the redemption; that was entirely up to
Mr. Fisher. Thus the length of ownership was not within the
Appellants' control. One of the Appellants testified that
while they learned of the lease liabilities in September and
October, 1993, it took until December, 1993 for the paperwork to
be completed. This allegation is verified by the fact that the
Appellants agreed to sign the guarantees in return for the
Class C shares which they acquired on or about October
21, 1991. Yet the agreements between the partnership and TF & B
were signed later.
3.
Frequency of similar transactions
Neither Appellant has owned similar shares or had such shares
redeemed either before or since.
4.
Work expended in connection with the property
realized
This factor is very much in accord with the facts in
Sissons. The Appellants' partnership had transferred
the consulting work. The same staff, including the Appellants,
did the consulting work for TF & B. TF & B's profits
from their work paid off the debts, paid the six percent
dividends to the Appellants and provided the money for the
redemption. As stated in Sissons, those profits were not
fortuitous.
5.
Circumstances responsible for the sale of the
property
In this case there is no testimony from Mr. Fisher as to why
he caused the Class C shares to be redeemed. Mr.
Fisher's "Business Opportunity" plan (Exhibit A-1,
Tab 1) clearly describes the redemption that occurred and the
Appellants saw it before they entered into the transaction.
However Mr. Fisher's words are not always reliable: his
December 31, 1991 statement for TF & B made no note of the
sublease problem. He did not advise the Appellants of the
sublease demands when he first learned of them. He finally had
Mr. Thomson advise the Appellants of the sublease claims and the
partners concerns about them. Mr. Fisher caused TF & B to
redeem the shares. He controlled the date of redemption. The
Court accepts as true the fact that the redemption occurred in
December, 1993 because of delays in proceeding with the
paperwork. A further corroboration for this finding is that Mr.
Evans certainly knew from the first moment that he saw the
"Business Opportunity" plan that these assessments were
likely; in these circumstances, a delay from December, 1993 to
January, 1994 for redemption would have offered the Appellants
some respite respecting a possible assessment. That did not
happen.
6.
Motive at the time of acquiring the Class C
shares
The Court accepts both Appellants' testimony that the
exact timing of the redemption occurred as a result of the
sublease claims. Once the Appellants learned of them they wanted
it to occur as soon as possible so as to avoid the sublease
liabilities. What their motives were at the time of acquisition
of the Class C shares remains to be decided.
[18]
Generally, the following is a summary of the findings based on
Happy Valley Farms:
1.
Dividend paying shares were redeemed by a corporation controlled
by a stranger.
2.
The shares were owned for about 26 months.
3.
The Appellants had no similar transactions.
4.
The Appellants' work produced the gains in the shares
redeemed.
5.
The motive remains to be decided.
6.
The Appellants acquired the shares from Mr. Fisher as part of the
consideration for transfer of their consulting business to
TF & B.
[19] With
respect to finding number 4, had the consulting business failed
to pay off the bank, the Appellants and the other partners would
have had to pay the bank. It follows that the Appellants
logically expected and intended that TF & B would make enough
money to pay off TF & B's indebtedness. Moreover,
Mr. Evans testified that he presented Mr. Fisher with the
demand for six percent dividends and Mr. Fisher did not disagree.
These also had to come out of the consulting earnings. On this
basis, it is clear that, from the beginning of the entire
transaction, the Appellants intended that the consulting profits
that TF & B acquired would pay off its debt without any tax
cost to them and would use the Appellants' former consulting
business's profits to do so. The partners saw to it that
TF & B made enough profit to pay the Class C shares six percent
dividends in 1992 and 1993. Moreover TF & B had enough profit
to redeem all of the Class C shares (188,000 x 3) by
the end of 1993. Given the circumstances, that represents a very
large amount of consulting work that the partnership transferred
to TF & B.
[20] In 26
months TF & B earned enough consulting profits to pay:
1.
Debts
199,000
+54,666
253,666
$253,666
2.
Dividends
188,000
x 6%
11,280
x 3
33,840
x 2 years
67,680
67,680
3.
Shares redeemed
188,000
x 3
564,000
564,000
TOTAL
$885,346
By comparison, the Appellants' net professional incomes
which they reported for income tax purposes in 1993 and 1994 are
as follows:
1993
1994
Mr. Bossy (Exhibit R-2)
$71,365.54
$55,882.47
Mr. Evans (Exhibit R-1)
$51,847.00
$80,289.94
[21] That fact
assists in establishing an underlying long-term intent.
Compared to the Appellants' professional incomes, the total
consulting profits required to redeem the Class C shares at
the end of 1993 is very large. It is very unlikely that it was
suddenly acquired or available to TF & B in the short period
between the Appellants learning of the sublease claims and the
Class C share redemption. Moreover, those profits were the result
of the partners' efforts. Those efforts followed the course
of the plan conceived by Mr. Fisher in his "Business
Opportunity" document which the Appellants examined before
they entered into this transaction.
[22] The
question which remains is whether this can be regarded as an
adventure in the nature of trade when control over the redemption
was not the Appellants'. Mr. Fisher controlled that.
[23] All of
the testimony about what Mr. Thomson and Mr. Fisher said is
hearsay. No explanation was given as to why they did not testify.
Thus, the only acceptable evidence of Mr. Fisher's
intention (whether for himself or as TF & B's sole
director) that is before the Court is Exhibit A-1, Tab 1, the
"Business Opportunity" document which was drawn by
Mr. Fisher with the attached letter from Deloitte Touche. That
outlines a programme to utilize the tax losses with redeemable
preference shares in accordance with what in fact happened. The
Court finds that the Appellants' Class C shares were issued
as part consideration for the Appellants' transferring or
moving the consulting business and income into TF & B. However,
on the evidence, the Class C shares were not worth $188,000 to
each at that time in 1991; that value could not exist in the
shares unless TF & B obtained income to create the value in the
corporation. It could only occur if all the accounting partners
transferred the consulting business and income into TF & B.
They did that immediately, back-dated to the beginning of 1991
and to include some 1990 work. On the basis of this evidence it
is clear that, from the beginning, the Appellants and the other
accounting partners intended, when Messrs. Thomson, Bossy and
Evans acquired the Class C shares, to transfer the consulting
business and its income into TF & B, to pay off these $199,000
and $54,666 debts, and to put enough consulting earnings into
TF & B to redeem the Class C preferred shares in the manner
that they did and on whatever date they could first conveniently
do so. This was the intention and the concerted action of all the
partners, together, from the beginning until the redemption
occurred.
[24] For these
reasons, the Court finds that assumptions 10(w), (x) and (y) are
correct and are established by the evidence.
[25] The Class
C shares were not acquired by the Appellants' as an
investment. The events in evidence establish that they were
acquired by the Appellants in part consideration for their
guarantees, but with the main purpose and intent of obtaining a
profit from their redemption by means of the insertion of their
consulting practice's income into TF & B and redeeming it
through the Class "C" shares, as they did.
[26] As a
result the Appellants' profits from the Class C shares are
income from a business in the 1993 taxation year as assessed.
[27] The
appeals are dismissed.
Signed at Saskatoon, Saskatchwan, this 30th day of April,
2002.
"D. W. Beaubier"
J.T.C.C.
COURT FILE
NO.:
2000-1817(IT)G and 2000-1818(IT)G
STYLE OF
CAUSE:
Michael R. Bossy and Michael Evans
v. The Queen
PLACE OF
HEARING:
London, Ontario
DATE OF
HEARING:
March 19 and 20, 2002
REASONS FOR JUDGMENT BY: The
Honourable Judge D. W. Beaubier
DATE OF
JUDGMENT:
April 30, 2002
APPEARANCES:
Counsel for the Appellant: Keith M. Trussler
Counsel for the
Respondent:
Gerald Chartier
COUNSEL OF RECORD:
For the
Appellant:
Name:
Keith M. Trussler
Firm:
Griffen & Partners
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-1817(IT)G
BETWEEN:
MICHAEL R. BOSSY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the
appeals of
Michael Evans v. Her Majesty the Queen,
(2000-1818(IT)G)
on March 19 and 20, 2002 at London, Ontario
by the Honourable Judge D. W. Beaubier
Appearances
Counsel for the
Appellant:
Keith M. Trussler
Counsel for the
Respondent:
Gerald Chartier
JUDGMENT
The
appeals from the reassessments made under the Income Tax
Act for the 1993 and 1994 taxation years are dismissed in
accordance with the attached Reasons for Judgment.
Signed at Saskatoon, Saskatchewan, this 30th day of April,
2002.
J.T.C.C.
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