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Citation: 2004TCC220
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Date: 20040326
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Docket: 2003-1471(IT)G
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BETWEEN:
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HARRY SHOEMAN,
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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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REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the
General Procedure was heard at Regina, Saskatchewan on March 11
and 12, 2004, together with the appeal of Randall Shoeman,
Harry's son, on common evidence by consent of the parties.
Harry, Randall and another son, Russell, testified for the
Appellant.
[2] Paragraphs 5 to 10 of the Reply to
the Notice of Appeal outline the facts in dispute. They read:
5. In
computing income for the 2001 Taxation Year, the Appellant
claimed a business investment loss ("BIL") in the
amount of $384,320. The Appellant also made a request to have a
non-capital loss carried back to the 2000 Taxation Year in the
amount of $65,000.
6. In
assessing the Appellant on March 25, 2002 for the 2001 Taxation
Year, (the "Reassessment") the Minister denied the BIL
claimed by the Appellant and the request to carry a non-capital
loss back to the 2000 Taxation Year.
7. By Notice
of Objection received May 21, 2002 the Appellant objected to the
Reassessment.
8. By
Notification of Confirmation dated January 20, 2003 the Minister
confirmed that the Appellant was not entitled to a non-capital
loss carry back to the 2000 Taxation Year. By Notice of
Reassessment dated January 20, 2003 the Minister reassessed the
Appellant for his 2001 Taxation Year to allow a BIL in the amount
of $69,685.
9. In so
assessing the Appellant for the 2000 and 2001 Taxation Years the
Minister made the following assumptions of fact:
(a) the BIL claimed
by the Appellant in the 2001 Taxation Year was in respect of
610807 Saskatchewan Ltd. (the "Corporation");
(b) the Appellant
was not a shareholder in the Corporation;
(c) the
Appellant's son Russell Shoeman owned all of the shares in
the Corporation;
(d) an agreement
(the "Agreement") dated August 16, 1999 and amended
February 26, 2001 between the Corporation and Russell Shoeman and
Wayne Leibel/Robert Pyne and Harry Shoeman, Randall Shoeman
stated that the Appellant was liable to repay on behalf of the
Corporation amounts invested by Wayne Leibel/Robert Pyne if
Russell Shoeman or the Corporation did not repay the amount
within twelve months from the date of the original agreement;
(e) the Appellant
made the following payments in respect of the Agreement:
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September 19, 2000 to Rob Pyne
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$20,000
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September 22, 2000 to Wayne Leibel
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5,000
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September 28, 2000 to Wayne Leibel
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10,000
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September 29, 2000 to Wayne Leibel
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30,000
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October 11, 2000 to Wayne Leibel
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4,000
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Total
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69,000
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(f) the
Appellant did not make any additional payments in respect of the
Agreement;
(g) the Appellant
invested the following additional amounts in the Corporation:
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May 31, 2000
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$300
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January 9, 2001
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275
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April 10, 2001
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110
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Total
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$685
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(h) the Corporation
has not filed any income tax returns;
(i) the
Appellant did not have a debt owing to him from the Corporation
in excess of the amounts noted in paragraphs (e) and (g);
(j) the
Appellant did not have a debt owing to him from the Corporation
in excess of the amounts noted in paragraphs (e) and (g) above
that was incurred for the purpose of earning income;
(k) the Appellant
did not have a debt owing to him from the Corporation in excess
of the amounts noted in paragraphs (e) and (g) that became a bad
debt in the 2001 Taxation Year;
(l) the Appellant
was assessed taxable income of $22,702 in his 2001 Taxation
Year;
(m) the Appellant did not
have a non-capital loss in his 2001 Taxation Year.
B.
ISSUES TO BE DECIDED
10. The issues are
whether:
(a) the Appellant
incurred a BIL in the 2001 Taxation Year in excess of the $69,685
determined by the Minister;
(b) the Appellant
has a non-capital loss available from the 2001 Taxation Year to
apply to the 2000 Taxation Year.
[3] Before the date of hearing, the
Appellant elected to proceed under the General Procedure. The
Notice of Appeal assists in outlining the facts of the appeal.
Paragraphs 1 to 4 of it read:
1. Harry C.
Shoeman (the "Taxpayer") resides at 23 Cowburn
Crescent, Regina, Saskatchewan, S4S 5R9. ADMITTED
2. The
Taxpayer is appealing from a Notice of Reassessment dated January
20, 2003 for his 2001 taxation (the "2001
Reassessment") issued by the Minister of National Revenue
(the "Minister") and from a Notice of Assessment dated
July 6, 2001 for his 2000 taxation year (the "2000
Assessment") issued by the Minister which the Minister
confirmed by Notification of Confirmation dated January 20,
2003. ADMITTED
3. The
material facts relied upon by the Taxpayer are as follows:
(a) In approximately
1995, the Taxpayer's son, Russell Shoeman, formulated a
business plan involving the writing and publishing of a book on
famous golf courses in North America, complete with numerous full
colour photographs. The book was entitled The Nature of
Golf.
(b) Russell Shoeman
became the sole shareholder and sole director of 610807
Saskatchewan Ltd. ("610807"), which was incorporated on
March 29, 1995.
(c) 610807 was
sometimes referred to as The Nature of Golf Ltd. although that
was not its registered corporate or business name.
(d) In 1995, 610807
initially entered into written contracts with a photographer, a
writer and a researcher for their creative services involved in
producing the book. 610807 entered into additional contracts for
creative services during and after 1995.
(e) 610807
contracted with Louban Media for the digital imaging and
production of The Nature of Golf during 1998.
(f) 610807
contracted with Friesens Corporation for the printing of 5,000
copies of The Nature of Golf during 2000.
(g) Until February,
1996, 610807 did not operate a bank account in its own name.
Instead most of its expenses were paid by cheques drawn on
account no. 3315454 in the name of Russell Shoeman with Sherwood
Credit Union of Regina, Saskatchewan.
(h) Commencing in
1995 and continuing into 2001, the Taxpayer made numerous loans
to 610807 and advanced substantial amounts for the benefit of
610807. Most of the loans were advanced by transfer to the
above-mentioned account no. 3315454.
(i) 610807
also became indebted to the Taxpayer as a result of the Taxpayer
paying, on behalf of 610807, amounts owed by 610807 to its
suppliers.
(j) In 1998,
the Taxpayer granted a guarantee, in writing, of a loan borrowed
by 610807 from Kenneth Eugene Newman in the principal sum of
$150,000.00.
(k) In 1999, the
Taxpayer granted a guarantee, in writing, of a loan borrowed by
610807 from Wayne Leibel and Rob Pyne in the principal sum of
$150,000.00, bearing interest at the rate of 10 percent per
annum. ADMITTED
(l) 610807
promised the Taxpayer a return of his capital together with a
share of the revenue from the sale of copies of The Nature of
Golf (beyond the initial 5,000 copies) or interest in the
case of default in payment. ADMITTED
(m) During 2000 the
Taxpayer was called on his guarantee by Wayne Leibel and Rob
Pyne. The Taxpayer paid approximately $69,000.00 to Leibel and
Pyne as a guarantor of 610807. ADMITTED
(n) 610807 was only
able to sell a small number of copies of The Nature of
Golf.
(o) On December 20,
2001, 610807 filed an assignment in bankruptcy. According to the
Statement of Affairs sworn by Russell Shoeman, 610807 owed the
Taxpayer $375,936.00 on December 20, 2001. ADMITTED
(p) According to the
Taxpayer's records, 610807 owed the Taxpayer $384,319.00 when
610807 became bankrupt.
(q) The Taxpayer
claimed a business investment loss on his 2001 income tax return
of $384,319.00. ADMITTED
(r) By a Notice of
Assessment dated March 25, 2002 and by a Notice of Reassessment
dated April 8, 2002, the Minister denied the Taxpayer's claim
for a business investment loss in 2001. ADMITTED
(s) The Taxpayer
filed a Notice of Objection on May 21, 2002. ADMITTED
(t) By the
2001 Reassessment, the Minister allowed a business investment
loss in respect of only $69,685.00 of capital loss on the basis
that the remaining bad debt was owed by the Taxpayer by Russell
Shoeman and not by 610807. At the same time, the Minister
confirmed the 2000 Assessment on the basis that there was no
non-capital loss for 2001 that was deductible in computing the
taxable income for 2000. ADMITTED
B. ISSUES
TO BE DECIDED
4. The issues
to be decided are as follows:
(a) whether all of
the bad debt owed to the Taxpayer was owed to him by 610807 or
whether part of it was owed to him by Russell Shoeman; and
(b) whether the
portion, if any, of the debt which may be found to be owed to the
Taxpayer by Russell Shoeman and not by 610807 was made up of
loans made or acquired by the Taxpayer in the ordinary course of
an ordinary business of the Taxpayer that included the lending of
money.
The portions of these paragraphs which are admitted by the
Respondent are followed by the word, in capitals,
"ADMITTED".
[4] In addition, the following
paragraphs in the Notice of Appeal were established to be true by
the evidence: 3(a), 3(b), 3(c), 3(d) is true respecting one
photographer - the remainder was not proved, 3(g) and 3(j).
[5] The following assumptions in the
Reply to the Notice of Appeal were not refuted: 9(a), (b), (c),
(d), (e), (f), (g), (h), (i), (j), (k), (l) and (m).
[6] Harry is now 74. Russell appears
to have been in his late 30's or early 40's at the times
in evidence. He is Harry's son and from 1995 until 2001 he
lived with Harry, did not pay room or board and had almost no
savings. They were father and son as if Russell was an infant
living in his parent's home.
[7] Russell incorporated 610807 as he
said, for tax purposes, and he used it in a very particular
fashion. It was clearly used to obtain input tax credits, but it
did not file any other tax returns. On the evidence, it was used
at times in the words of the second paragraph of Exhibit A-15,
the Newman contract, "for the purpose of administering
certain contracts with independent contractors for the provision
of services related to the book". At other times and for
other purposes, it was not used. There is no clear delineation as
to when 610807 was used and when it was not. Russell testified
that it was not used in the United States and Exhibits A-7 and
A-8 confirm this.
[8] Harry knew of the existence of
610807. He was a signatory of A-15, as an example. Yet throughout
2000 Harry chose to pay money to Russell directly and to pay
other creditors, such as Pyne and Leibel. But he did not pay any
money to 610807. Nor did he have any agreement with Russell or
610807 to receive interest or any other form of remuneration for
the money he paid out, except as assumed by the Respondent.
[9] In the Court's view, Harry is
bound by the acts that he committed in 2000 and throughout the
period in evidence. He did not advance or pay money to 610807 in
2000. Rather, he had an intense father-son relationship with
Russell. As a result, on the evidence or lack thereof, any
payments or advances of the monies in question were to Russell
personally and the presumption of advancement by Harry to Russell
was not rebutted by the evidence before the Court.
[10] The evidence confirms the contents of
the Reply to the Notice of Appeal. The appeal is dismissed. The
Respondent is awarded its party and party costs.
Signed at Vancouver, British Columbia, this 26th day of March,
2004.
Beaubier, J.
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