Citation: 2004TCC202
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Date: 20040308
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Docket: 2003-1805(IT)I
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BETWEEN:
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IRENE F. STEWART,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
Agent for the Appellant: Barclay G. Stewart
Counsel for the Respondent: John Grant
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench
at Toronto, Ontario, on December 15, 2003)
Bowie J.
[1] The facts of this case are clear.
The Appellant filed her income tax return for 1999, and in doing
so, she declared on page 2, where items of income are listed,
interest and other investment income of $1,825.86. As the
bracketed words on that line indicate, the taxpayer is required
to give particulars of that on Schedule 4. On Schedule 4, there
are no particulars other than this: one line following the word
"specify" has been inserted: "interest,
$27,351.94, minus investment loss, $25,526.08", and then
entered on the schedule across from that line, the net
difference, which is $1,825.86. That is the amount carried by the
taxpayer to line 121 on page 2.
[2] Now, it is quite clear to me from
all of the evidence that I have heard, and particularly from the
back of page 12 of Exhibit A-1 that I just referred to, and from
page 14 of Exhibit A-1, that the Appellant arrived at the numbers
she put in there on the basis that she did have total investment
income - total interest income - which, when aggregated,
came to $27,351.94.
[3] I will not go through the
particulars, other than to say that it came from the
Toronto-Dominion Bank in an amount in excess of $15,000 and from
Ontario Savings Bonds in an amount of $10,135. There were also
several smaller items of interest. The Appellant, in filing her
return, assumed that she was entitled to set off against these an
amount of $25,526.08, which she characterized as an investment
loss, a term, I might add, that is totally unknown to the
Income Tax Act. There are a number of types of loss. There
is a non-capital loss, which can be set off against income.
There is an allowable business investment loss, which also can be
set off against income. Dr. Stewart (agent for the
Appellant) has, several times in the course of the hearing,
disavowed any such claim. Finally, there are capital losses, of
which this is one.
[4] As I understand
Dr. Stewart's argument, it is essentially that the
investment by his mother of $20,000 in a syndicated mortgage was
a business, and that the loss of that $20,000 is therefore a
business loss. The fallacy in this is the suggestion that the
Appellant, in taking $20,000 and investing it in a syndicated
mortgage, was carrying on a business. This was quite clearly a
capital investment. The taxpayer was not in the business of
lending money in the ordinary sense of that expression as it is
understood in the jurisprudence. She had a substantial amount of
capital, and she invested that capital in a number of places. She
invested it in Ontario Savings Bonds. She invested it in deposits
with the Toronto-Dominion Bank and Canada Trust, and she invested
it in a mortgage loan through a firm whose business it was to
receive such investments and relay them, if I can use that verb,
to somebody who was in the business of developing real estate,
for the purpose of capitalizing that person's business. That
does not constitute the business of money-lending, nor any
other business. It is properly characterized as nothing other
than making capital investments for the purpose of producing
interest income. The amount is not deductible from income,
because it is a loss of capital, not a loss on income
account.
[5] The Minister has conceded that at
least the unpaid principal amount of $14,547.13 of that loan
constitutes a capital loss and is, therefore, available for
set-off another day against capital gains. I will not venture an
opinion with respect to the $10,978.95 of arrears of interest,
that were also lost by the taxpayer when this loan went into
default. It is not immediately apparent to me why that too would
not be capital loss, but it is not a matter that is before me,
and I offer no opinion on it. It may come into issue in a
different taxation year if there are capital gains against which
it might be set off, but that is not an issue in the appeal
before me. The present appeal is a simple case of a taxpayer, no
doubt through misunderstanding of the difference between that
which is on capital account and that which is on income account,
seeking to set off the mortgage loan loss against interest
income. The mortgage loan loss, whatever its amount, is not on
income account. It is on capital account.
[6] The fact that a person makes
repeated investments does not turn those investments into a
business. There is no suggestion in the evidence that this
taxpayer was purchasing securities for the purpose of turning
them over for a profit. That would be an adventure, in the nature
of trade. What we have is pure and simple investments in
securities for the purpose of producing income. One of those
investments went bad and was lost, and the loss is quite clearly
a capital loss. The appeal is therefore dismissed.
Signed at Ottawa, Canada, this 8th day of March, 2004.
Bowie J.