Date: 20011228
Docket: 2001-52-IT-I
BETWEEN:
R. R. ROBERTSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
O'Connor, J.T.C.C.
[1]
These appeals were heard on November 21, 2001 at Winnipeg,
Manitoba.
PRELIMINARY COMMENTS
[2]
Before addressing the major issue in these appeals, it will be
helpful to quote from a letter of the Department of Justice
Canada dated November 14, 2001 and the attached Affidavit of
Arthur Tennenhouse sworn to on November 14, 2001.
[3]
The Department of Justice Canada letter reads as follows:
Department of Justice
Canada
Winnipeg Regional Office
301 -310 Broadway
Winnipeg, Manitoba
R3C 0S6
Our File:
Notre dossier: 3-70103
Your File:
Votre dossier:
November 14, 2001
FACSIMILE & COURIER
Tax Court of Canada
3rd Flr., 200 Kent Street
Ottawa, Ontario
K1A 0M1
Attention:
Registrar
Dear Sir/Madam:
Re:
R. R. Robertson v. Her Majesty the Queen
______Court File No.:
2001-52(IT)I___________
I am writing to advise that as a result of pre-trial
discussions with the Appellant in the above noted matter, Mr. R.
R. Robertson it has become apparent that the Appellant's
position is that the appeal before the Court is not only in
respect of himself, but also in respect of a distinct taxpayer,
Robthor Steel Corporation. It is allegedly paragraph 2 of the
Appellant's Notice of Appeal that purports to advance an
appeal on behalf of Robthor Steel Corporation.
It also seems to be the Appellant's position that an
application for an Order extending the time to file a Notice of
Appeal, filed on January 5, 2001, was made on behalf of both
himself and Robthor Steel Corporation. However, at the time the
application was filed, the Respondent proceeded under the
impression that the application was only in respect of R. R.
Robertson in his personal capacity. That continues to be the
position of the Respondent. Likewise, the Respondent submits that
the Tax Court treated this matter as being solely in relation to
R. R. Robertson, as an Order was endorsed by the Honourable Judge
Sarchuk on April 5, 2001 extending the time within which appeals
for R. R. Robertson may be instituted.
The Respondent maintains that the above referenced appeal is
only in respect of R. R. Robertson, personally, and that any
purported appeal in respect of Robthor Steel Corporation is not
properly before the Court for several reasons. Therefore, to deal
with this matter, the Respondent intends to bring an oral motion
immediately prior to the commencement of the hearing of this
matter scheduled for November 21, 2001.
The Respondent will seek an order quashing any references to a
purported appeal by Robthor Steel Corporation in the
Appellant's Notice of Appeal on the basis that:
1.
Robthor Steel Corporation is a distinct and separate taxpayer
from the Appellant and two taxpayers cannot be the subject of one
appeal;
2.
the last T2 Income Tax return filed in respect of Robthor Steel
Corporation was for the 1994 taxation year;
3.
Robthor Steel Corporation late filed a Notice of Objection to the
1993 and 1994 taxation years on October 28, 1996;
4.
Revenue Canada advised Robthor Steel Corporation by
correspondence dated November 14, 1996 that the Notices of
Objection were late filed;
5.
Revenue Canada received correspondence from Robthor Steel
Corporation on March 14, 1997 applying for an extension of time
in which to file Notices of Objection for the 1993 and 1994
taxation years;
6.
Revenue Canada advised Robthor Steel Corporation in writing on
March 26, 1997 that his application for an extension of time to
file an objection for the taxation years 1993 and 1994 was not
granted;
7.
subsequent to the refusal of the application for an extension of
time, Revenue Canada performed an audit at the request of Robthor
Steel Corporation with respect to Robthor Steel Corporation's
claim for allowable business investment losses;
8.
Robthor Steel Corporation was advised by Revenue Canada of the
results of the audit as well as the steps to be taken on April 8,
1999;
9.
Robthor Steel Corporation did not take the further steps
recommended by Revenue Canada.
Furthermore, the Respondent will seek an Order to amend
paragraph 2 of the Respondent's Reply to Notice of Appeal and
to add a paragraph 2.1.
The amended paragraph 2 will read as follows:
2.
He admits the allegation of facts stated in paragraph 4 of
the Notice of Appeal.
The added paragraph 2.1 will read as follows:
2.1
With respect to paragraph 2 of the Notice of Appeal, the
Respondent states that this appeal is not in respect of Robthor
Steel Corporation and that any appeal by Robthor Steel
Corporation is not properly before the Court at this time.
In support of the Respondent's motion please find enclosed
the Affidavit of Arthur Tennenhouse.
Please do not hesitate to contact me prior to the hearing if
you require further information.
Yours truly,
"signature"
Angela Evans
Counsel, Tax Litigation
Enc.
cc:
R. R. Robertson, Appellant (via courier)
cc:
D. Gill, CCRA Edmonton TSO
The Affidavit of Arthur Tennehouse reads as follows:
2001-52(IT)I
TAX COURT OF CANADA
("Tax Court stamp")
BETWEEN:
REGINALD R. ROBERTSON
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
AFFIDAVIT
I, Arthur Tennenhouse, of the City of Winnipeg, in the
Province of Manitoba, Public Servant, MAKE OATH AND SAY AS
FOLLOWS:
1.
I am employed by her Majesty the Queen in Right of Canada, as a
Tax Appeals Officer in the Canada Customs and Revenue Agency (the
"Agency") in Winnipeg, Manitoba, and as such have
personal knowledge of the matters hereinafter deposed to, save
and except what is stated to be on information and belief, and
where so stated, I verily believe them to be true.
2.
I have examined and searched the files and records of the Agency
which pertain to Robthor Steel Corporation ("Robthor")
in order to inform myself for the purpose of making this
Affidavit.
3.
The last T2 Income Tax return filed for Robthor was in respect of
the 1994 taxation year. There have been no T2 returns filed for
subsequent years.
4.
On October 28, 1996, Robthor filed a Notice of Objection to
assessments of its 1993 and 1994 taxation years. Attached as
Exhibit "A" to this my Affidavit is a true copy of the
Notice of Objection.
5.
By correspondence dated November 14, 1996, the Chief of Appeals,
Appeals Division, Revenue Canada advised Robthor that the
Objections for the 1993 and 1994 taxation years were not filed
within the requisite 90 days from the date of mailing of the
Notices of Assessment, which dates were April 9, 1996 and April
29, 1996, respectively. Attached as Exhibit "B" to this
my Affidavit is a true copy of said correspondence.
6.
On March 14, 1997, Revenue Canada received an application for an
extension of time to file an objection for the taxation years
1993 and 1994 on behalf of Robthor. Attached as Exhibit
"C" to this my Affidavit is a true copy of the
application.
7.
By correspondence dated March 26, 1997, the Chief of Appeals,
Appeals Division, Revenue Canada advised Robthor that the
application for an extension of time could not be granted.
Attached as Exhibit "D" to this my Affidavit is a true
copy of said correspondence.
8.
Subsequently, at the request of Robthor, Revenue Canada performed
an audit with respect to allowable business investment losses
("ABILs") claimed by Robthor for the 1997 taxation
year.
9.
Further to conducting the audit, on April 8, 1999, E. J. Pratt,
of the Audit Division, Revenue Canada, advised Robthor in writing
of the final results of the audit. Robthor was informed that the
revised amount of ABILs was $120,765.00, with 75% of that amount
being $90,574.00, which amount would be applied to the 1997 tax
return when filed. Attached as Exhibit "E" to this my
Affidavit is a true copy of said correspondence.
10.
Robthor has not filed the 1997 tax return and, as such, the
revised amount of ABILs has not been applied to that taxation
year.
11. On
November 8, 2001, myself and Angela Evans, Counsel for the
Respondent in the appeal of R.R. Robertson to the Tax Court of
Canada, file no. 2001-52(IT)I, met with R.R. Robertson. At
said meeting, we advised R.R. Robertson that the position of
the Respondent was that his appeal to the Tax Court is solely in
respect of him as an individual taxpayer and that an appeal in
respect of Robthor was not properly before the court at this
time.
12.
However, I explained to R.R. Robertson that if he wanted to
deal with any ABILs incurred by Robthor that Robthor would have
to file a 1997 T2 return claiming the ABILs. If, further to that
return being filed, Revenue Canada did not allow all of the ABILs
claimed, Robthor could exercise its statutory rights of appeal at
that time.
13. I
make this Affidavit for no improper purpose.
SWORN BEFORE me at the City
of
)
Winnipeg, in the Province of
Manitoba,
)
this 14th day of November,
2001.
)
)
)
)
"signature"_________
)
Arthur Tennenhouse
)
___________"Angela Evans
"___________
)
A Commissioner for Oaths in and
for
)
the Province of
Manitoba
)
Solicitor
A Barrister and Solicitor in and for the
Province of Manitoba
[4]
At the hearing I verbally granted the motion and held that the
appeal in question is simply the appeal of R. R. Robertson and
does not constitute an appeal by Robthor Steel Corporation
("Robthor"). However, it should be noted from the
comments in the aforesaid documentation that Robthor appears to
be entitled in its own right to an ABIL for the 1997 year in an
amount of $90,574 and the Appellant, representing Robthor was
encouraged to take that matter up with Mr. Tennenhouse.
FACTS IN R. R. ROBERTSON'S APPEAL
(APPELLANT)
[5]
Although the Notice of the Appeal and the Reply are convoluted
and extremely difficult to follow, the main facts may be
summarized as follows:
1.
Clive Oakley ("Oakley") is the principal shareholder of
Neg-Ions Ltd. ("Neg-Ions UK") a United Kingdom
corporation. Neg-Ions (North America) Inc. ("NINA") was
a Canadian controlled private corporation for the purposes of the
Income Tax Act ("Act") and was involved
in acquiring dust control technology and marketing rights from
Neg-Ions UK. The share ownership of NINA at incorporation or
shortly thereafter was 70% Robthor (350,000 Class A shares) and
30% Neg-Ions UK (150,000 Class A shares). In the context of
pursuing this business and others the Appellant made certain
advances. The Minister has allowed an allowable business
investment loss ("ABIL") in the 1997 year for certain
advances but has not done so for other advances.
2.
More particularly the Minister concedes that the Appellant
incurred an allowable business investment loss ("ABIL")
of $56,581 in his 1997 taxation year and that the Appellant was
entitled to claim an ABIL of $45,527 in his 1997 taxation year
and to claim the balance of the ABIL namely $11,054 as a
non-capital loss in his 1996 taxation year. The Minister
does not agree that the Appellant incurred an ABIL in the amount
of $71,250 for his 1997 taxation year and further did not have a
non-capital loss balance to apply back to either his 1994 or 1995
taxation years or to carry forward to his 1998 taxation year as
he purported to do.
[6]
The Minister's position with respect to the $71,250 is that
it is made up of a personal loan to Clive Oakley of $50,000 plus
interest accrued on that Clive Oakley loan of $21,250 for a total
of $71,250. Although the pleadings and testimony are not clear it
appears that Neg-Ions UK guaranteed this loan and gave as
collateral security its 150,000 shares of NINA. The loan
eventually was defaulted upon (save for one repayment of 5,000)
but the 150,000 shares of NINA never came into the
Appellant's or Robthor's possession after the
default.
ISSUE:
[7]
The issue is whether the Minister was correct in not permitting
an ABIL with respect to the $50,000 personal loan to Oakley and
the interest accrued thereon of $21,250. The Appellant, an
inventor with some success in the areas of air control and other
environmental areas refers to amounts he and Robthor paid to
acquire technology and marketing rights and that these monies
were lost mainly because of system flaws and fraud on the part of
the U.K. connections. These developments certainly left a sour
note with the Appellant but unfortunately have no bearing on the
issue in this appeal referred to above. Some of these
developments may assist Robthor and the Appellant acting for
Robthor should explore this with Mr. Tennenhouse, which I believe
involves the necessity of Robthor filing a 1997 return claiming
whatever ABILs and capital losses to which it is entitled.
ANALYSIS
[8]
Legislation
The following are extracts from the relevant provisions of the
Act:
38. For the purposes of this Act,
...
(c) a taxpayer's allowable business investment loss for a
taxation year from the disposition of any property is ¾ of
the taxpayer's business investment loss for the year from the
disposition of that property.
39. (1) For the purposes of this Act,
...
(b) a taxpayer's capital loss for a taxation year from
the disposition of any property is the taxpayer's loss for
the year determined under this subdivision (to the extent of the
amount thereof that would not, if section 3 were read in the
manner described in paragraph (a) of the subsection and
without reference to the expression "or the taxpayer's
allowable business investment loss for the year" in
paragraph 3(d), be deductible in computing the
taxpayer's income for the year or any other taxation year)
from the disposition of any property of the taxpayer other
than
...
(c) a taxpayer's business investment loss for a taxation
year from the disposition of any property is the amount, if any,
by which the taxpayer's capital loss for the year from a
disposition after 1977
(i)
to which subsection 50(1) applies, or
(ii)
to a person with whom the taxpayer was dealing at arm's
length
of any property that is
(iii)
a share of the capital stock of a small business corporation,
or
(iv)
a debt owing to the taxpayer by a Canadian-controlled private
corporation (other than, where the taxpayer is a corporation, a
debt owing to it by a corporation with which it does not deal at
arm's length) that is
(A) a
small business corporation,
(B) a
bankrupt (within the meaning assigned by subsection 128(3)) that
was a small business corporation at the time it last became a
bankrupt, or
(C) a
corporation referred to in section 6 of the Winding-up Act
that was insolvent (within the meaning of that Act) and was a
small business corporation at the time a winding-up order under
that Act was made in respect of the corporation, ...
...
125. (7) In this section,
...
"Canadian-controlled private corporation" means a
private corporation that is a Canadian corporation other than a
corporation
[certain corporations are excluded]
...
248. (1) Definitions — In this Act,
"active business", in relation to any business
carried on by a taxpayer resident in Canada, means any business
carried on by the taxpayer other than a specified investment
business or a personal services business;
...
"small business corporation", at any particular
time, means, subject to subsection 110.6(15), a particular
corporation that is a Canadian-controlled private corporation all
or substantially all of the fair market value of the assets of
which at that time is attributable to assets that are
(a)
used principally in an active business carried on primarily in
Canada by the particular corporation or by a corporation related
to it,
(b)
shares of the capital stock or indebtedness of one or more small
business corporations that are at that time connected with the
particular corporation (within the meaning of subsection 186(4)
on the assumption that the small business corporation is at that
time a "payer corporation" within the meaning of that
subsection), or
(c)
assets described in paragraphs (a) and (b),
including, for the purpose of paragraph 39(1)(c), a
corporation that was at any time in the 12 months preceding that
time a small business corporation, and, for the purpose of this
definition, the fair market value of a net income stabilization
account shall be deemed to be nil;
Arguments of the Parties
[9]
The Appellant's contention is that the ABIL claimed in his
1997 income tax return should be allowed to the full extent of
$110,093.
[10] The
Respondent's position is that the Appellant's ABIL
was $56,581 or ¾ of the BIL of $75,441.
[11] The
Minister allowed as ABILs the initial advance for the acquisition
of the Clean Zone technology ($50,000) and the subsequent loan to
NINA ($25,441).
[12] The
amounts at issue on this appeal are the Loan to Oakley ($50,000)
and the interest accrued with respect to that Loan ($21,250): a
total sum of $71,250.
Discussion
[13] An
"allowable business investment loss" for a taxation
year arising from the disposition of any property is defined by
paragraph 38(c) as being ¾ of the taxpayer's
"business investment loss" for the year arising from
the disposition of that property.
[14] Paragraph
39(1)(c) defines a taxpayer's "business
investment loss" for a taxation year to be the
taxpayer's "capital loss" (as defined in
paragraph 39(1)(b) of the Act) for the year from a
disposition after 1977 of shares or debt of a "small
business corporation" which is defined in subsection 248(1)
cited above. For purposes of paragraph 39(1)(c) the shares
or debt must be disposed of to a person with whom the taxpayer
was dealing at arm's length.
[15] A
taxpayer claiming a business investment loss on a debt must meet
the requirements set out in subparagraph 39(1)(c)(iv). For
the 1977 and subsequent taxation years, the debt must be owed to
the taxpayer by a "Canadian-controlled private
corporation"[1] that is a "small business corporation", a
"bankrupt" that was a small business corporation at
the time it last became a bankrupt, or an insolvent corporation
that was a small business corporation at the time a winding-up
order was made under the Winding-up Act (now the
Winding-up and Restructuring Act).
[16] To
qualify under the definition of "business investment
loss", the Loan to Oakley must satisfy the requirements in
subparagraph 39(1)(c)(iv) of the Act. The debt was
not owed to the Appellant by a Canadian-controlled private
corporation. Therefore, the loss incurred by the Appellant as a
result of Oakley's default on the Loan is not a business
investment loss and, thus, could not be deducted as an ABIL.
[17] It will
be assumed that there was a collateral promise by Neg Ions UK to
answer for the debt of Oakley to Robertson. Therefore, it will be
assumed further that there was a valid contract by which the
guarantor, Neg-Ions UK, became bound to the creditor, Robertson,
to guarantee Oakley's Loan obligation with the 150,000
shares it held in NINA.
[18] The
question which arises is whether, upon Oakley's default,
the debt which crystallized between the guarantor, Neg-Ions UK,
and Robertson would qualify under subparagraph
39(1)(c)(iv) of the Act. Although, the object of
the performance under the guarantee was the 150,000 shares of
NINA, this debt was owed to the Appellant by either Oakley or
Neg-Ions UK, or both. Since neither Oakley nor Neg-Ions UK is a
Canadian-controlled private corporation the amount of the loan,
$50,000 and the accrued interest, $21,500 do not qualify for ABIL
treatment.
[19]
Consequently, the appeal is dismissed. There shall be no
costs.
Signed at Ottawa, Canada this 28th day of December,
2001.
"T. O'Connor"
J.T.C.C.
COURT FILE
NO.:
2001-52(IT)I
STYLE OF
CAUSE:
R. R. Robertson v. The Queen
PLACE OF
HEARING:
Winnipeg, Manitoba
DATE OF
HEARING:
November 21, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge T. O'Connor
DATE OF
JUDGMENT:
December 28, 2001
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Angela Evans
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-52(IT)I
BETWEEN:
R. R. ROBERTSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on November 21, 2001, at
Winnipeg, Manitoba, by
the Honourable Judge Terrence O'Connor
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Angela Evans
JUDGMENT
The
appeals from the reassessments made under the Income Tax
Act for the 1994, 1995, 1996, 1997 and 1998 taxation years
are dismissed in accordance with the attached Reasons for
Judgment.
Signed at Ottawa, Canada this 28th day of December,
2001.
J.T.C.C.
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