Date: 20000626
Docket: 2000-626(IT)I
BETWEEN:
PETER GERMAINE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.T.C.C.
[1] These appeals pursuant to the
Informal Procedure were heard at Vancouver, British Columbia on
June 16, 2000. The Appellant testified. The Respondent called the
appeals officer on the file, Rebecca Mular.
[2] The Appellant has appealed
respecting his 1993 - 1997, inclusive, taxation years. Paragraphs
6 to 14, inclusive, of the Reply to the Notice of Appeal
read:
6. The
Minister of National Revenue (the "Minister") initially
assessed the Appellant for the 1993, 1994, 1995, 1996 and 1997
years by Notices dated May 16, 1994, May 30, 1995, May 9, 1996,
June 9, 1997 and April 30, 1998.
7. In
computing income for the 1996 taxation year the Appellant claimed
a business investment loss in the amount of $166,000.00 (the
"BIL").
8. By Notice
dated July 2, 1997 the Minister reassessed the 1993, 1994 and
1995 taxation years to allow the application of non capital loss
from the 1996 taxation years in the amount of $10,482.00,
$11,420.00 and $13,587.00, respectively (the "NCL
Carryback").
9. In
computing income for the 1997 taxation year the Appellant claimed
non capital loss carried forward from the 1996 taxation year in
the amount of $45,678.00 (the "NCL Carryforward).
10. By Notices dated
October 26, 1998 the Minister reassessed the 1993, 1994, 1995,
1996 and 1997 taxation years to disallow the claims for the BIL,
NCL Carryback and NCL Carryforward.
11. By Notice dated
November 1, 1999 the Minister reassessed the 1996 taxation year
to allow an allowable business investment loss in the amount of
$46,252.50 and apply $27,509.00, thereof as detailed on Schedule
"A".
12. By Notice dated
November 1, 1999 the Minister reassessed the 1997 taxation year
to allow a non capital loss in the amount of $18,743.50 as
detailed on Schedule "A".
13. In so reassessing the
Appellant, the Minister relied on the following assumptions of
fact:
a) the facts
stated and admitted above;
b) the
Appellant claimed the BIL in respect of the Company;
c) the
Appellant was a director and officer of the Company;
d) the
Appellant owned 100 Class "B" Common Voting shares in
the Company;
e) the Company
was indebted to the Appellant in the amount of $176,000.00 for
outstanding shareholder's loan (the "Original
Loan");
f) the
Appellant sold his shares in the Company for $10.00;
g) the
Appellant sold $100,000.00 of the Original Loan for $100,000.00
(the "Proceeds");
h) the
Appellant loaned $90,000.00 of the Proceeds to the Company (the
"New Loan");
i) the
Appellant was not a shareholder of the Company when the New Loan
was lent;
j) the
New Loan did not earn interest;
k) the New
Loan was not lent to the Company for the purpose of producing
income;
l) the
Company became bankrupt on October 7, 1996;
m) on October 7,
1996 the Company was indebted to the Appellant in the amounts of
$76,000.00 of the Original Loan and $90,000.00 of the New Loan,
totaling $166,000.00;
n) the
Appellant did not incur an allowable business investment loss in
excess of $46,252.50 in the 1996 taxation year;
o) the
Appellant did not have non capital losses in excess of $18,743.50
from the 1996 taxation year to carry forward to the 1997 taxation
year; and
p) the
Appellant did not have non capital losses available from other
years at the end of the 1997 taxation years to carry back to the
1993, 1994 and 1995 taxation years.
B. ISSUES TO
BE DECIDED
14. The issues are whether
the:
(i) Appellant
is entitled to an allowable business investment loss in excess of
$45,252.50 in the 1996 taxation year;
(ii) Appellant had
non capital losses from other years at the end of the 1997
taxation year to carry back to the 1993, 1994 and 1995 taxation
years; and
(iii) Appellant had non
capital losses available to carry forward to the 1997 taxation
year in excess of $18,743.50.
[3] Assumptions 13(a) to (m) inclusive
are true.
[4] Paragraphs 9, 9.1 and 9.5 of the
Appellant's agreement to sell his shares, $100,000 of his
loan and subsequently to lend $90,000 to Augusta Enterprises Ltd.
read:
9. The Vendor
covenants to loan to the Company from the monies received from
the Purchaser the sum of $90,000.00 for the general purposes of
the Company.
9.1 The said $90,000.00
together with the sum of $76,000.00 (the "Vendor's
Loan"), being the balance owing by the Company to the Vendor
after the aforesaid assignment of $100,000.00 to the Purchaser,
shall be repayable by the Company on demand anytime after the
expiry of Ten (10) Years from the date of this Agreement, and in
addition, in consideration of the said $90,000.00 and forbearance
of the Vendor in demanding immediate payment of the said
$76,000.00, the Company agrees to pay to the Vendor the sum of
$500.00 per month commencing February 1, 1991 and ending April 1,
1996. PROVIDED ALWAYS that the said payment of $500.00 per month
shall cease immediately upon the principal being reduced from
$166,000.00 to $121,000.00.
...
9.5 The Company, Gary
Germaine and the Purchaser, jointly and severally, agree that
commencing January 1, 1991 if in any year the Company pays in any
proportion a total amount of $50,000.00 plus 7% per year,
compounded annually, after the year 1991, inclusive of salary or
dividends, to Gary Germaine and the Purchaser, any remaining
profits in such year earned by the Company shall be distributed
pro-rata in reduction of any outstanding shareholders' Loan
and the balance if any of the Vendors Loan and Ray Germaine's
loan.
The payments of $500.00 per month described in paragraph 9.1
were reductions of the principal of $90,000.00. There was no
other agreement with the purchaser or the Company respecting the
loan. The Appellant alleged that he had a deal with his son to
share in the proceeds of his son's shares, but no written
agreement was submitted and, if it was a legal agreement, it was
not part of the loan agreement. Nor did it relate to the
Appellant's former shareholdings. From the nature of the
Appellant's testimony, the agreement with the son was offered
after the Appellant left his loan or loans in the Company.
[5] As a result, assumptions (n), (o)
and (p) are also correct.
[6] For these reasons, the appeals are
dismissed.
Signed at Saskatoon, Saskatchewan this 26th day of
June 2000.
J.T.C.C.
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