Citation: 2011 TCC 57
Date: January 28, 2011
Docket: 2007-4009(IT)G
BETWEEN:
GARY J. ACKLES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A. FACTS
[1]
The Appellant resides
in Dawson Creek, British
Columbia.
[2]
The Appellant was the founder
of Aquatic Cellulose International Corporation (the “Corporation”).
[3]
The
Corporation was a publicly traded company incorporated in the State of Nevada in March, 1996.
[4]
The
Corporation had a fiscal year end of May 31.
[5]
The
Appellant was the President, Chief Executive Officer, a director and a shareholder
of the Corporation until he resigned on March 26, 2003.
[6]
The Appellant
had developed and patented technology that was used to harvest submerged
timber.
[7]
The
Minister of National Revenue (the “Minister”) maintains that the Appellant gave
the Corporation a license to use the technology that the Appellant had
developed.
[8]
In
the Reply, the Minister states that, from April 1, 2003 to February 2004, the
Appellant acted in an advisory capacity and performed various duties for the
Corporation pursuant to a Consulting Agreement between the two parties.
[9]
The
Appellant said that the Corporation was going to pay him a consulting retainer
of $5,500 per month for a minimum of six months. The Appellant said, “… I never
did an hour’s work for them. …” (Transcript, page 32, lines 12-13). The
Appellant also said that he never received a consulting fee from the
Corporation (Transcript, page 32, lines 10, 15 and 16).
[10]
In
the Reply, the Minister maintains that, during the Corporation’s 1999 fiscal
year, the Appellant borrowed US$97,500 from the Corporation to finance the
Appellant’s exercise of an option to purchase shares of the Corporation (the “Shareholder
Debt”). The Appellant denies this statement.
[11]
On
February 22, 2000, the Appellant purchased shares of the Corporation.
[12]
The Minister
maintains that, as of May 26, 2003, the Appellant was owed US$395,733.34 by the
Corporation for the following amounts (the “Corporate Debt”):
a)
Unpaid
Wages (“Consulting Fees”) US$293,774.82
b)
Reimbursement
of Expenses US$19,140.74
c)
Severance US$82,817.78
[13]
On
or about May 26, 2003, Sheridan Westgarde replaced the Appellant as President
and Chief Executive Officer of the Corporation.
[14]
The
Minister maintains that, on May 26, 2003, the Appellant entered into an agreement
with the Corporation (the “Agreement”). Pursuant to this Agreement, the
Shareholder Debt of US$97,500 was set off against the Corporate Debt (the
“Consideration”).
[15]
The
Minister also maintains that, since the Appellant received the Consideration,
the Shareholder Debt was eliminated and the Corporate Debt was reduced by the
amount of US$97,500 as follows:
US$395,733.34
- 97,500.00
US$298,233.34
[16]
The
Minister also maintains that the Consideration, in the amount of $133,653(Cdn)
(US$97,500), was a taxable benefit received by the Appellant by virtue of his
office or employment with the Corporation in the 2003 taxation year.
[17]
The
Minister maintains that the Appellant transferred 3.6 million shares back to
the Corporation to facilitate a loan to the Corporation. (Note:
According to a letter dated March 27, 2003, the Appellant transferred
15,510,214 shares, having a value of US$310,204, back to the Corporation.)
[18]
The Minister
said that the Appellant continued to trade shares in the Corporation throughout
2003, up until December 2003. The Appellant admitted that he traded a number of
shares of the Corporation but said that he paid tax on any gains realized on
the sale of shares of the Corporation. (Note: I have reviewed the
Appellant’s income tax returns for the 2000, 2001 and 2002 taxation years and
these tax returns confirm the Appellant’s statement that he included capital
gains on the sale of the shares of the Corporation in his income for the years
in question.)
[19]
A
further point in issue is the transfer of funds by the Appellant to his son,
Sean, by Western
Union wire,
in the amount of $24,000 (Cdn). The Appellant deducted the amount of $24,000 in
computing his income for the 2003 taxation year.
B. ISSUES TO BE DECIDED
[20]
The
issues are:
a)
Did
the Appellant receive the Consideration of $133,653 (Cdn) as a benefit by
virtue of his office or employment with the Corporation during the 2003 taxation
year?
b)
Is
the Appellant allowed to deduct the amount of $24,000 that was transferred to
his son Sean?
C. ANALYSIS:
[21]
During
the hearing, the Appellant testified that he had developed robotic technology
which could be used to harvest submerged trees.
[22]
The
Appellant said that originally he was looking at Canada as being the primary
market for harvesting submerged wood but he said that the value of the
submerged wood in Canada was not there (Transcript, page 16, lines 19-22).
[23]
The
Appellant explained the robotic technology as follows:
…I developed the technology and it was able to reach
down under the water and grab these trees, cut them off and then retrieve them
to the surface. …
(Transcript, page 19, lines 18 to
20)
[24]
The
Appellant also testified that, after reviewing various business possibilities,
he decided to use the robotic technology to harvest some of the trees that were
flooded in the Tucurui reservoir located some 200 miles from the mouth of the
Amazon River in northern Brazil. The Appellant said that there were approximately 450,000
hectares of inundated forest of high quality wood in the reservoir, i.e., trees
such as mahogany, masaran duba, jatoba and redwood (Transcript, page 15, lines
3 to 5).
[25]
The
Appellant said that the Corporation harvested thousands of trees in Brazil but there were some
unscrupulous individuals who robbed a lot of their wood as they brought it into
port (Transcript, page 21, lines 13 to 18).
[26]
The
Appellant said, “…literally our wood was being taken away and being sold
elsewhere.” (Transcript, page 27, line 25 to page 28, line 1).
[27]
The
Appellant said that he had lost several hundred thousand dollars of his own money
in the attempt to harvest submerged wood in Brazil (Transcript,
page 29, lines 23 to 24).
[28]
The
Appellant also said that he had put all of his shares back into the company
(i.e. the Corporation) to try to keep the company going (Transcript, page 29,
line 24 to page 30, line 1).
[29]
Counsel
for the Respondent said that the amount of US$55,000 per month for consulting
fees is not the basis of the assessment (Transcript, page 41, lines 23 to
25). (Note: My comments - this number should probably be US$5,500 per
month, not US$55,000, in accordance with the evidence of the Appellant.)
[30]
Counsel
for the Respondent said, “… The basis of the assessment is A-7, the document at A-7 and then the set
off…” (Transcript, page 41, line 25 to page 42, line 2). Counsel for the
Respondent referred to Exhibit A-7 and said:
That's the one that details the amounts that are
owed to him for salary and wages, reimbursement of expenses and severance and
discuss the detail and calculates this set off of the $97,500 with respect to
the options.
(Transcript, page 42, lines 7 to
11)
[31]
Counsel
for the Respondent also said:
Mr. Majawa: With the exchange rate of, I believe
at the time was 1.3708, that comes out to $133,000. And the basis of the
assessment is of course set out in the Reply. The reason for it is that Mr.
Ackles borrowed money from the company in the company's 1999 fiscal year to exercise
options to purchase shares. When he left the company he and Mr. Westgarde
agreed that that $97,500 loan would be forgiven or set off against the amounts
still owing to him. That forgiven is what –
Justice: So are you saying $97,500 is the promissory
note?
Mr. Majawa: Correct. That’s right.
Justice: Or outstanding note, it says.
Mr. Majawa: That’s right, the
outstanding note.
Justice: And you say that that amount translates
into Canadian dollars [$]133,000?
Mr. Majawa: That’s correct. …
(Transcript, page 44,
lines 7 to 24)
[32]
The
Appellant denied that he owed money to the Corporation to exercise the stock
option. The Appellant said:
… Now there
was nothing ever called. They are trying to represent this [$]97,500 as being
called, somehow I was called on this. It was never the case. There was never
any calling of any kind. "The balance owed to the company was offset as
offsets against unpaid wages due Gary Ackles." This is fabrication. I have
never seen this before it was presented to me, and I had no input into any of
this whatsoever. I think this is strictly an accounting sleight of hand to
reduce the debts that were on the books, I would imagine. And I have never been
notified of this. And it is surprising how somehow I get pegged with having to
pay $100,000 but yet the other two shareholders were -- the loans were
forgiven. Just, bingo. But yet Gary Ackles somehow has $100,000, right?
(Transcript, page 51, line 15 to page 52, line 4)
[33]
The
Appellant also said:
… But why
would he put [$]132,000 owed to Mr. Westgarde and Gary Ackles for unpaid
consulting fees? I never received any. And this document was news to me when I
received it. Again I had nothing to do with it. I was long gone from this
company before this stuff happened.
(Transcript, page 54, lines 11 to 16)
[34]
The
Appellant also said:
… This debt of
97 [$97,000] is an option based on shares that basically all the shares were
back in the company so there was no possible way I could have ever had a
financial gain when the shares that I had were already in the company. So I
imagine that is about all I can say about that is I do feel that there was no
financial gain whatsoever. The shares had gone back into the company, the
company owed me huge volumes of money at that time, which I never received, and
again, I guess unfortunately this document surfaced and I would have signed it
based on where my mind was at the time, which is sometimes hard to get my head
around right now. But anyway.
(Transcript, page 55, line 16 to page 56, line 2)
[35]
On
cross-examination, Counsel for the Respondent referred to the transfer of the
licensing fees and said:
All right. And
in this letter you mention that and you say that "all outstanding
licensing fees are still owed and must be paid in cash or shares at my discretion".
So this was another one of those amounts owing to you that you want to make
sure you document for the record?
(Transcript, page 80, lines 16 to 25)
[36]
Counsel
for the Respondent asked the Appellant if he borrowed money from the
Corporation. The following exchange occurred:
[Mr. Majawa:] Q Okay,
now the reference there in that paragraph to the options being issued to you,
you have already admitted in the request to admit that that was a true state of
affairs, that you were issued an option to purchase shares and you borrowed the
money from the corporation to do so.
[Appellant:] A No, I didn't borrow any money from the corporation. They
got their -- the shares went right back into the company, so there was never a
financial gain. I never borrowed money from the company, believe me.
(Transcript, page 94, lines 3 to
13)
[37]
A
further exchange between the Appellant and Counsel for the Respondent occurred:
[Mr. Majawa:] Q But
you said yes that you agreed that you borrowed [$]97,500 from the corporation
to finance the purchase of the option.
[Appellant:] A But
the overriding factor is the money was put back into the company.
[Mr. Majawa:] Q I
take your position.
[Appellant:] A No
financial gain.
[Mr. Majawa:] Q I
understand your position, but you do agree that you -- to exercise the option
to purchase the shares, you borrowed the money. Regardless of what happened
afterwards that you borrowed the money to purchase those shares?
[Appellant:] A I
didn't borrow anything.
[Mr. Majawa:] Q Well,
you said yes here that you did borrow.
[Appellant:] A Well
again, maybe it is a misstatement. Maybe I should have looked at this thing a
little bit closer. I never borrowed a dime from this company. Ever. I guess I
should have maybe not filled this out at all and discussed all these things
while we were here.
(Transcript, page 95, line 22 to page 96, line 17)
[38]
Counsel
for the Respondent referred to the Securities Exchange Commission (“SEC”)
filing by the Corporation and asked the Appellant to agree that the Corporation
granted the Appellant options. The Appellant said:
A It
is correct, but we have to also look at this and say, "Okay, we have options
to the directors, right? Why at the end of the day would they say, "Okay,
we are going to exercise -- we need to call Gary's note and we'll cancel the
other two directors notes"? I just think there is something foul there. So
they are cancelling two directors notes, except for Gary's. Why? Because they
want to keep writing me down on the books and getting rid of me, possibly.
(Transcript, page 103, lines 12 to 20)
The Appellant also said:
… Obviously
when they owe you the kind of money in shares they owed me, believe me I had no
delusion in my mind that somehow I owed them money.
(Transcript, page 105, lines 19-21)
[39]
Counsel
for the Respondent also asked the Appellant to comment on another SEC filing
which referred to the offset of the amount alleged to have been owed by the
Appellant to the Corporation. The Appellant said:
… They are
trying to reduce their debt within the company and do it at anybody's expense,
and it was obviously at mine. That statement is just as unrealistic as the one
that says "The remaining two loans were forgiven to the other two directors."
Just a broad statement. They are forgiving other directors but somehow they are
not forgiving Gary. It's the damnedest thing I've ever seen.
(Transcript, page 112, lines 16 to 23)
[40]
There
is a further reference to the alleged loan at page 116. Counsel for the
Respondent said:
[Mr. Majawa:] Q Okay.
Now, we referenced this or you referenced this during your evidence in chief
but if you turn to tab 18, and this is the SEC filing for the fiscal year
ending May 31st, 2005. So again this is after you've left. The last
paragraph on the third page of that tab says:
"During
the fiscal year ended May 31st, 2003 approximately $100,000 of loans
made to a director for the exercise of company stock option was called by the
company."
Now, did that
never happen?
[Appellant:] A It never happened.
[Mr. Majawa:] Q There was never a call?
[Appellant:] A There was never a
call.
(Transcript, page 116, lines 10 to
23)
[41]
Counsel
for the Respondent asked a further question:
[Mr. Majawa:] Q From
your responses and some of the evidence you gave in your evidence in chief my
understanding of your position is that even though the letter at tab 13, the
agreement at tab 13 is clear as to what it provides for, that you didn't feel
that you were indebted to ACIC because you had returned all of those other shares.
Is that a fair characterization of your position?
[Appellant:] A Shares
and money. They got huge amounts of my money also. I would sell shares and put
that money into the company. I mean whatever it took to do it. So believe me
there was no dilution to indebtedness.
[Mr. Majawa:] Q I
mean your position at the end of the day, I take it is that "They owed me
a lot of money."
[Appellant:] A A
lot of shares.
[Mr. Majawa:] Q Lot
of shares.
[Appellant:] A Option
shares, all went back in the company everything.
[Mr. Majawa:] Q So,
but so it didn't bother you at the time to sign this agreement at tab 13,
because you realized, "Well I owed -- I exercised this option and this
happened, I can reduce that amount because they still owe me a lot more than that."
[Appellant:] A They
owed me so much that this was, obviously again, where I was at that point in
time I just don't think it mattered. It was closure.
(Transcript, page 117, line 14 to page 118, line 15)
[42]
In
his argument, the Appellant said:
… the reality is the company did not have -- was not in a
position and would never be in a position to be able to repay me any of this
money that was owed to me. That's where my head was coming from at that time.
(Transcript, page 167, lines 17 to 21)
[43]
In
essence, the Appellant believes that since he never received the money in
question from the Corporation, he should not have to pay tax on the money.
Gold Mining Expenses of $24,000 Claimed
by Appellant
[44]
The
Appellant said that after he left the Corporation in March of 2003, he and his
son Sean began to pursue the business concept of using the robotic technology
that he had developed to locate gold in the Amazon region of Brazil.
[45]
When
the Appellant filed his income tax return for the 2003 taxation year, he claimed
expenses of $24,000 in connection with the gold mining venture.
[46]
The
Appellant said that he transferred $24,000 (approximately $2,000 per month) to
his son by wire transfers sent by Western Union to Brazil (Transcript, page 131, lines 17 to
19).
[47]
The
Appellant admitted that he sent his son more than $24,000 (Transcript, page
138, lines 10 to 17). (Note: There was also a reference in the documents to the
fact that some of this money was sent to Ms. Bichara for translation services
provided by her. Ms. Bichara was Sean’s girlfriend at the time and she is now
his wife.)
[48]
The
Appellant admitted that he cannot tell from the list of wire transfers sent to
his son what amount went to what functions (Transcript, page 142, lines 14
to 20).
D. CONCLUSION RE: $133,653
[49]
As
noted above, Counsel for the Respondent stated, on page 41 of the transcript,
that the basis of the Assessment is found in Exhibit A-7. A-7 reads as follows:
May 26, 2003
Gary Ackles
[…]
[…]
Mr. Ackles
This letter is
in regards to share options issued to you at the price of $0.03 per share
resulting in 3,250,000 of Aquatic Cellulose International Corp. shares issued
to you in February of 1999. As we have agreed, I have deducted this amount from
the amount owed to you in missed wages, expenses and severance. Please note the
following calculation and if you agree please sign and return it to me.
Thank You
[Calculation
US Dollars Conv@1.35]
Amount owed to
you.
Missed
Wages $396,596.00 [CAN] - $293,774.82
Missed
Expenses $25,840.00 [CAN] - $19,140.74
Missed
Severance $111,804.00 [CAN] - $82,817.78
Total -$395,733.34
Less your
outstanding note. -
$97,500
Balance
owed to you -$298,233.34 [US]
Note: This
calculation does not include outstanding licensing fees or calculations for
shares you have loaned the company.
Sincerely,
Acknowledged:
“Sheridan
Westgarde” “Gary
Ackles”
Sheridan
Westgarde Gary Ackles
President/CEO
[50]
I
have carefully reviewed the words contained in the letter and I have concluded
that the words contained in this letter are inconsistent and not reliable when
compared to some of the other documents. I have reached this conclusion for the
following reasons:
(a) Sheridan
Westgarde provided the Appellant with a letter dated May 30, 2006. This letter
reads as follows:
May 30, 2006
Mr. Gary Ackles
Dear Gary;
Gary please note the following responses
I have to your situation with Revenue Canada and the
subsequent complaint you have levied with us;
·
I certainly
acknowledge the fact that the, approximately, $97,000 dollar loan reimbursement
was discounted from the aggregate value of of [sic] the total funds Aquatic owed you
at the time and that it was never discussed what these funds represented.
·
Additionally, I would
like to remind you that, I think as far back as 2002, we have made continual
acknowledgement of the shares that you loaned back to the Company.
·
Given the fact that
you did loan shares back to the company it does seem difficult to understand
the tax implications since it would appear that until that account is settled
you would not have benefited financially.
Respectfully,
“Sheridan
Westgarde”
Sheridan
Westgarde
Director/CEO
(Exhibit A-8)
It will be noted that
Mr. Westgarde stated: “… as far back as 2002, we have made continual acknowledgement
of the shares that you loaned back to the Company.” In his letter, Mr.
Westgarde also said: “Given the fact that you did loan shares back to the company
it does seem difficult to understand the tax implications since it would appear
that until that account is settled you would not have benefited financially.”
(b) I also refer to
a letter from Sheridan Westgarde to the Appellant dated March 27, 2003 (Exhibit
R-1, Tab 11). This document reads as follows:
March 27, 2003
Gary Ackles
[…]
[...]
Mr. Ackles,
I, Sheridan
Westgarde, hereby acknowledge the debt owed to Gary Ackles of $534,240.00 [ĈDN].
This amount
represents $396,596.00 in outstanding wages, $25,840.00 in expenses and
$111,804.00 represents a minimum severance package as stated in section 7.1 of
your Service Agreement dated November 1, 2000.
I also
acknowledge 15,510,214 free-trading Aquatic Cellulose International Corporation
shares having a cash value of $310,204 [US]
at the time of transaction and owed to you as per a loan agreement. Your shares
were returned to treasury to facilitate ongoing Aquatic Cellulose International
Corporation operations.
I wish to
continue to use your services on an “as required” consulting basis during the
transition phase and into the future at a retainer of $5500.00US per month for
a minimum of six months.
Sincerely,
“Sheridan
Westgarde”
Sheridan
Westgarde
President/CEO
It will be noted that
Mr. Westgarde states that 15,510,214 free-trading shares of the Corporation
having a cash surrender value of US$310,204 were
returned to Treasury by the Appellant to facilitate the Corporation’s ongoing
appeals. The records do not show that officials of the Canada Revenue Agency
(“CRA”) realized or recognized that the Appellant had a capital loss of $310,204
or any loss re the shares that were transferred back to the Corporation.
(c) Finally, I
refer to a memorandum dated July 10, 2004:
SETTLEMENT AGREEMENT
JULY 10, 2004
THIS MEMORANDUM OF UNDERSTANDING MADE
this ____ day of _______ 2004.
1.
PARTIES TO THIS AGREEMENT
1.1
The following
entities will hereinafter be referred to collectively as the “Parties”.
1.2
Aquatic Cellulose
International Corporation, hereinafter referred to as “Aquatic”, is a
publicly traded company incorporated under the laws of the state of Nevada of
the United States of America and traded on the “Pink Sheets”, trading symbol
AQCI, the Chairman and CEO being
Mr. Sheridan B. Westgarde, a resident of Vernon, British Columbia Canada.
1.3
Legacy Systems
Corporation, hereinafter referred to as “Legacy”, is a 100% privately
owned company and incorporated under the laws of the state of Nevada of the United States of America, the Owner and
President being Mr. Gary J. Ackles a resident of Vernon British Columbia Canada.
1.3.1
Gary J. Ackles, hereinafter
referred to as “Ackles”, is an individual residing in the city of Vernon British Columbia Canada.
2.
SCOPE OF THIS
AGREEMENT
2.1
This document is the
primary instrument for establishing the particulars regarding;
2.1.1.
The settlement of all
outstanding debt owed to Ackles for unpaid wages, licensing fees and stock
returned to treasury totaling $555,889[US].
2.1.2.
The settlement of note owed to Legacy by Aquatic totaling $44,000
and ownership of the ATH mechanical assembly built and stored at Beaver
Manufacturing Kamloops BC, Canada.
2.2
It is here stated that the bodies of the respective board of directors
and or principal parties of the respective parties have unanimously agreed to
enter into this agreement.
2.3
The terms of this settlement may only be amended in writing
signed by all parties.
3.
ATH MECHANICAL
ASSEMBLY & $44,000 LOAN
3.1
Legacy hereby
exercises its right to forgo the $44,000 loan made to Aquatic in exchange for
full unencumbered rights to the ATH mechanical assembly built and stored at
Beaver Manufacturing Kamloops. Legacy hereby assumes all costs of storage
and/or any outstanding liabilities associated.
4.
AMOUNTS DUE
LEGACY PRE-CONSOLIDATED
4.1
Aquatic agrees to
relinquish all claims to the Aquatic Timber Harvesting Machine and Legacy to
assume full unencumbered rights to the said equipment.
4.2
Aquatic agrees to
issue 40,000,000 pre-consolidated shares of the Company’s common stock in
exchange for the forgiveness of the funds borrowed from Legacy Systems and
$80,000 of amounts due to Legacy for un-paid licensing.
4.3
Each disbursement
order Legacy will assign full voting rights of all those shares to the Aquatic
Board of Directors regardless of who they are dispersed to.
5.
AMOUNTS DUE
ACKLES POST-CONSOLIDATED
5.1
Ackles and Aquatic
hereby agree to a TOTAL SETTLEMENT AMOUNT DUE ACKLES TO BE $417,000, which will
be converted into 13 percent of the issued and outstanding post-consolidated shares
of the Company pending shareholder approval of the Proxy.
5.2
Regarding the
post-consolidated shares Ackles would be an affiliate of the Company bearing
all the restrictions of affiliates according to the Securities and Exchange Act
of 1933 as well as retain all rights associated with these shares.
5.3
Ackles agrees to an
alternative method of payment for the remaining $417,000 whereby should Aquatic
chose to exercise this option, Aquatics can pay Ackles a cash payment of 130%
of the value owed or $542,100 and Ackles will forgo all post-consolidated
compensation as stated in item 5.1 above. Aquatic and Ackles agree that this
option will be subject to this cash payment being made to Ackles before the
anticipated consolidation.
5.4
Ackles and Aquatic
hereby agree that this agreement shall preclude all other agreements and that
all other agreements, licensing, consulting or otherwise shall be rendered
terminated.
6.
SIGNATORIES TO
THIS AGREMENT
IN WITNESS WHEREOF the Parties hereto have caused this
Agreement to be executed the day and year first before written.
Gary J. Ackles
Legacy Systems Corporation
Aquatic cellulose International
Corporation
(Exhibit R-1,
Tab 6)
It will be noted that
paragraph 5.1 of this Agreement states as follows:
5. AMOUNTS DUE ACKLES
POST-CONSOLIDATED
5.1 Ackles and Aquatic hereby agree to
a TOTAL SETTLEMENT AMOUNT DUE ACKLES TO BE $417,000, which will be converted
into 13 percent of the issued and outstanding post-consolidated shares of the
Company pending shareholder approval of the Proxy.
5.2 Regarding the post-consolidated
shares Ackles would be an affiliate of the Company bearing all the restrictions
of affiliates according to the Securities and Exchange Act of 1933 as well as
retain all rights associated with these shares.
5.3 Ackles agrees to an alternative
method of payment for the remaining $417,000 whereby should Aquatic chose to
exercise this option, Aquatics can pay Ackles a cash payment of 130% of the
value owed or $542,100 and Ackles will forgo all post-consolidated compensation
as stated in item 5.1 above. Aquatic and Ackles agree that this option will be
subject to this cash payment being made to Ackles before the anticipated
consolidation.
5.4 Ackles and Aquatic hereby agree
that this agreement shall preclude all other agreements and that all other
agreements, licensing, consulting or otherwise shall be rendered terminated.
The Appellant testified that,
by the time this Agreement was entered into in 2004, the shares of the
Corporation were of no value (Transcript, page 169, lines 5 to 11). In addition,
Counsel for the Respondent indicated that the Appellant recognized that he was
not likely to get paid back (Transcript, page 189, lines 19 to 23). Once again,
we have a situation where it is acknowledged that the Corporation owed the
Appellant US$555,889 (see paragraph 2.1.1 of the Agreement) and he received
nothing of value from the Corporation in connection with this debt. Furthermore,
officials of the CRA have not taken this loss into consideration.
[51]
In
addition, if Counsel for the Respondent wanted to establish the validity of the
Agreement dated May 26, 2003, he should have subpoenaed Mr. Westgarde and
had him establish the proper interpretation to be placed on the Agreement. (Note:
According to the Appellant, Mr. Westgarde lives in the Kootenays, in British Columbia.)
[52]
It
should also be noted that the Corporation forgave the loans made to
Mr. Westgarde and another director but the Corporation did not forgive the
“so‑called loan” that the Minister claims was made to the Appellant.
[53]
Counsel
for the Respondent did not call any witnesses from the CRA or any outside party
to contradict any of the statements of the Appellant or any of the letters or
agreements that are referred to above.
[54]
I
have concluded that officials of the CRA have relied upon documents to
determine that a benefit was received by the Appellant, but the CRA has not
taken into consideration the huge losses suffered by the Appellant when he
transferred 15,510,214 shares back to the Corporation and basically received
nothing for these shares.
[55]
I
have, therefore, concluded that the Appellant is not required to include the
amount of US$97,500 or $133,654(Cdn) in
his income for the 2003 taxation year. The appeal is allowed on this point.
Expenses re Gold Mining Project -
$24,000
[56]
I
have concluded that the expenses of $24,000 that were claimed by the Appellant as
business expenses are not deductible. I have concluded that these payments by the
Appellant to his son were personal in nature, i.e., payments made by a father
to his son, (or to his son’s wife), to support an undocumented business venture.
[57]
Since
success has been divided, I am not prepared to award costs.
Signed at Vancouver, British Columbia, this 28th day of January 2011.
“L.M. Little”
Email this Content