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Date: 20030403
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Docket: 1999-601(IT)G
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BETWEEN:
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INDRA DINDIAL,
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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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____________________________________________________________________
Counsel for the Appellant: Patrick Schindler
Counsel for the Respondent: Shatru Ghan
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench on
December 18, 2001, at Toronto, Ontario)
McArthur J.
[1] The
Appellant appeals the assessment of the Minister of National
Revenue denying her claim for a non-capital loss deduction in
1993 pursuant to paragraph 20(1)(j) of the Income
Tax Act. The Appellant is the sole shareholder of Globe
Insulation Company Limited. In 1989, she and her common-law
husband of 15 years, Satnarine Bhansingh, used corporate
funds to purchase their principal place of residence on Bancroft
Drive in Mississauga. The deed of conveyance was registered in
his name alone. Pursuant to subsection 15(2) of the Act,
the Minister added the amount of $105,613 to the Appellant's
1990 income.
[2] I will recite and comment on the
assumptions of fact contained in paragraph 9 of the
Minister's Reply to the Notice of Appeal:
(a) during all
relevant periods, the Appellant was a shareholder of Globe
Insulation Company Limited ("Globe");
(b) the Appellant
reported NIL income from all sources in her 1993 taxation
year;
(c) Satnarine
Bhansingh ("Bhansingh") was, during all relevant
periods, the Appellant's common law spouse;
(d) during the 1993
taxation year the Appellant resided at 1219 Bancroft Drive,
Mississauga;
(e) Bhansingh is the
registered owner of 1219 Bancroft Drive;
(f) on October
15, 1993, Bhansingh purchased a property located at
2850 Keele Street, Willowdale, Ontario for $555,000;
(g) the purchase
price was paid in cash;
(h) there are no
mortgages registered against the title to 2850 Keele Street;
(i) at all
times, Bhansingh held the legal and beneficial interest to the
2850 Keele Street property;
(j) during
1993, the Appellant did not borrow any funds from the Royal Bank
of Canada;
(k) during the 1993
taxation year, the Appellant did not repay any part of the
shareholder loan that was included in the computation of her
income for her 1990 taxation year pursuant to subsection 15(2) of
the Act;
(l) during
1993, the Appellant did not transfer any funds allegedly borrowed
from the Royal Bank of Canada to Globe to enable Globe to
purchase any property.
Paragraphs (a) to (f) inclusive are accurate. With respect to
paragraph (g), whether the purchase price for the Keele Street
property was paid in cash or by certified cheque, nothing falls
on that. With respect to paragraphs (h) and (i) and the fact that
no mortgages were registered against the Keele Street property,
one wonders why, when the bank insisted that it be registered in
Mr. Bhansingh's name and not the corporation's name.
But that is not uncommon for banks. I disagree with paragraph (j)
and I will refer to paragraphs (k) and (l) later in this
decision.
[3] The only witness was
Mr. Bhansingh, the Appellant's husband. The Appellant
was in Court throughout the hearing but did not testify. I do not
draw an adverse inference from this. Mr. Bhansingh has been
in the insulation business since 1970. He commenced Globe in
about 1982. He is a signing officer of Globe and very active in
its day-to-day operation.
[4] In 1989, the Appellant withdrew
the sum of $105,613 from Globe to purchase Bancroft and that
amount was added to her income in 1990 pursuant to subsection
15(2). In 1993, Globe entered into an agreement of purchase and
sale for an income-producing residential apartment building for
$555,000 located on Keele Street in Toronto (the
"Property"). Globe was unable to obtain financing on
its own, although it did advance $300,000 towards the purchase
price. Unfortunately, no evidence with respect to the financial
status of the corporation was entered. Mr. Bhansingh
borrowed $258,000 on the security of his Bancroft home and the
Appellant guaranteed the loan. She was and is jointly and
severally liable for the whole amount. There remains owing
approximately $240,000 under the mortgage to this date.
Mr. Bhansingh testified that it was their intention to
purchase the Property in the company name but at the insistence
of the bank, he took title in his name alone. There is no
indication on the deed to him that he held it in trust.
[5] In April 1994, he signed a
Declaration of Trust (Exhibit A-1, Tab 5) wherein he
declares that he holds the Property in trust for Globe
retroactive to October 15, 1993. He did not convey the Property
to the company because he was advised that in such an event, land
transfer tax would have to be paid. This is understandable. In
April 1995, on the advice of his accountant, he did convey the
property to Globe without consideration. In the land transfer tax
affidavit attached to the Deed or Transfer of Land (Exhibit A-1,
tab 6, page 3), he swore an affidavit that stated the conveyance
was from "trustee to beneficial owner". Also, in answer
to the question "If the consideration is nominal, is the
land subject to any encumbrance?", Bhansingh indicated
"Yes". That leaves me somewhat confused because there
was no mortgage registered against the Keele Street property,
although there was a mortgage registered against Bancroft. Also,
Bhansingh stated in the affidavit: "No taxes payable
pursuant to a trust agreement. The property is being transferred
from trustee to beneficial owner".
[6] The Appellant states that Globe
was the beneficial owner of the Property. She repaid her
shareholder loan in 1993 by borrowing from the bank in excess of
$105,000 owing and advanced it to Globe to acquire the Property.
The Appellant argued she paid off the $105,000 in 1993 creating
the non-capital loss pursuant to paragraph 20(1)(j) and
that pursuant to paragraph 111(1)(a) of the Act,
she is entitled to carry back the loss to 1990.
[7] The Respondent's position is
that the Appellant did not repay any amount of the outstanding
shareholder loan owed to Globe; she is not entitled to deduct any
amount pursuant to paragraph 20(1)(j); and that she did
not suffer a non-capital loss in 1993; and no amount is available
to carry back to her 1990 taxation year pursuant to section 111.
The Respondent further submits that there is insufficient
evidence to conclude that the Appellant borrowed $258,000 or any
part of it from the bank; no conclusive evidence that
Mr. Bhansingh held the beneficial interest in the Property
in trust for Globe; no evidence that Globe took possession of the
Property in 1993; and no evidence that Globe paid $300,000
towards the purchase of the Property.
[8] The pertinent legislation is
subsection 15(2), paragraph 20(1)(j) and section 111,
which read as follows:
15(2) Where a person (other than a
corporation resident in Canada) or a partnership (other than a
partnership each member of which is a corporation resident in
Canada) is
(a) a
shareholder of a particular corporation,
(b) connected
with a shareholder of a particular corporation, or
(c) a member
of a partnership, or a beneficiary of a trust, that is a
shareholder of a particular corporation
and the person or partnership has in a taxation year received
a loan from or has become indebted to the particular corporation,
any other corporation related to the particular corporation or a
partnership of which the particular corporation or a corporation
related to the particular corporation is a member, the amount of
the loan or indebtedness is included in computing the income for
the year of the person or partnership.
20(1) Notwithstanding paragraphs
18(1)(a), (b) and (h), in computing a
taxpayer's income for a taxation year from a business or
property, 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:
(a) ...
(j) such part
of any loan or indebtedness repaid by the taxpayer in the year as
was by virtue of subsection 15(2) included in computing the
taxpayer's income for a preceding taxation year (except to
the extent that the amount of the loan or indebtedness was
deductible from the taxpayer's income for the purpose of
computing the taxpayer's taxable income for that preceding
taxation year), if it is established by subsequent events or
otherwise that the repayment was not made as part of a series of
loans or other transactions and repayments;
111(1) For the purpose of computing the taxable income
of a taxpayer for a taxation year, there may be deducted such
portion as the taxpayer may claim of the taxpayer's
(a)
non-capital losses for the 7 taxation years immediately preceding
and the 3 taxation years immediately following the year;
[9] The question boils down to whether
Globe purchased the Property on October 15, 1993 and if so, did
it use at least $105,000 of the Appellant's money to do so.
While I find this case close to the line, I accept the position
of the Appellant as ably set out by her lawyer. I believe the
uncontradicted evidence of Mr. Bhansingh, although much of
it is undocumented and not corroborated.
[10] What we are left with is: (i) a copy of
the front page of an Agreement of Purchase and Sale wherein Globe
agrees to purchase the Property for $550,000. This corroborates
the Appellant's evidence, or at least,
Mr. Bhansingh's evidence that Globe was the purchaser;
(ii) we have the evidence of Mr. Bhansingh to the effect
that the bank would not lend Globe money and insisted the title
be registered in his name alone. Although again this does not
seem to make much sense, it is not uncommon with banks to demand
such action and I accept it; (iii) the Appellant guarantees a
$258,000 loan jointly and severally with Mr. Bhansingh and,
therefore, she was liable to pay the $258,000 as well; (iv) a
certified cheque for this amount was made out to the solicitors
for the purchaser of the Property. I have no doubt this $258,000
went towards the purchase price; (v) Globe advances $300,000 in
cash or certified cheque towards the purchase of the Property;
(vi) I accept Mr. Bhansingh's evidence to the effect
that Globe took possession of the Property and managed it; (vii)
a Declaration of Trust in April 1994 and I accept the
accuracy of its contents; and (viii) a Deed Transfer of Land from
Mr. Bhansingh to Globe in April 1995, with Mr. Bhansingh's
affidavit that at all times, he held the property in trust for
Globe. To disbelieve all this I would have to conclude that
Mr. Bhansingh fraudulently created a scheme to deceive
Canada Customs and Revenue Agency. The evidence does not support
this.
[11] I conclude that Globe owned the
beneficial interest in the Property as of October 15, 1993. Why
else would Globe advance $300,000 towards the purchase price.
While clear documentation would have made my job easier, I find
that the Appellant is deemed to have paid back the $105,000. If
she is taken to have borrowed this amount from Globe to purchase
the home on Bancroft in 1989 by guaranteeing the mortgage, then
by permitting that money to be advanced towards Globe's
purchase of the Property, I accept that she paid off the
loan.
[12] Subsection 15(2) brought the $105,000
into the Appellant's income in 1990 and paragraph
20(1)(j) creates a non-capital loss in 1993 when she
advanced the $105,000 to Globe. Interest accruing on the tax owed
by the Appellant as a result of the application of subsection
15(2) terminates with her repayment of the loan on October 15,
1993. Paragraph 111(1)(a) permits the Appellant to carry
back the non-capital loss to 1990. For these reasons, the appeal
is allowed, with costs.
Signed at Ottawa, Canada, this 3rd day of April, 2003.
J.T.C.C.
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