Date: 20000628
Docket: A-538-98
EDMONTON, ALBERTA, WEDNESDAY, THE 28TH DAY OF JUNE, 2000.
McDONALD, J.A.
SEXTON, J.A.
BETWEEN:
FRED TURNER,
Appellant
- and -
HER MAJESTY THE QUEEN,
Respondent
Heard at Edmonton, Alberta, on Tuesday, June 27, 2000
Judgment delivered from the Bench at Edmonton, Alberta, on Tuesday, June 27, 2000
REASONS OF THE COURT BY: ROBERTSON J.A.
Date: 20000628
Docket: A-538-98
McDONALD, J.A.
SEXTON, J.A.
BETWEEN:
FRED TURNER,
Appellant
- and -
HER MAJESTY THE QUEEN,
Respondent
REASONS FOR JUDGMENT
ROBERTSON, J.A.:
[1] At issue in this appeal is whether the appellant taxpayer is entitled to deduct an allowable business investment loss in accordance with subparagraph 50(1)(b)(iii) The Income Tax Act which reads as follows:
| 50.(1) For the purposes of this subdivision, where |
| (b) a share (other than a share received by a taxpayer as consideration in respect of the disposition of personal-use property) of the capital stock of a corporation is owned by the taxpayer at the end of a taxation year and |
| (iii) at the end of the year, |
| (A) the corporation is insolvent, |
| (B) neither the corporation nor a corporation controlled by it carries on business, |
| (C) the fair market value of the share is nil, and |
| (D) it is reasonable to expect that the corporation will be dissolved or wound up and will not commence to carry on business |
| and the taxpayer elects in the taxpayer's return of income for the year to have this subsection apply in respect of the debt or the share, as the case may be, the taxpayer shall be deemed to have disposed of the debt or the share, as the case may be, at the end of the year for proceeds equal to nil and to have reacquired it immediately after the end of the year at a cost equal to nil. [Emphasis mine] |
[2] We are all of the respectful view that the learned Tax Court Judge erred in ruling against the taxpayer. With respect to whether the loss arose in 1984, as argued by the Minister of National Revenue, or in 1994 as claimed by the taxpayer, we are of the view that the Tax Court Judge erred in adopting the former date. The taxpayer made an election in his 1994 taxation return to claim the loss because that was the year in which his company, Turn-Air Ltd., was wound up. The Minister's position is based on the fallacy that simply because that company ceased to carry on business in 1984, after its licence to operate was revoked by federal authorities, that that was the year in which the loss should have been claimed. The problem with this submission is that subparagraph 50(1)(b)(iii) does not come into play merely because a company ceases to do business. As well, it must be shown that it was reasonable to expect that Turn-Air would be dissolved and not commence to carry on business in future. While it is true that the taxpayer's company ceased to carry on business in 1984, it is also true that its licence was restored in 1985 and that the lawsuit brought by the taxpayer and Turn-Air against the federal authorities relating to the alleged wrongful revocation of the licence was not settled until 1994, the year in which Turn-Air was wound up. In short, it was not reasonably open to conclude that as of 1984 the taxpayer's company would be dissolved and would never carry on business in future. In our respectful view, the taxpayer was entitled to elect, as he did, to claim the loss in question in respect of his 1994 taxation year.
[3] The second issue that arises is whether the taxpayer failed to adduce proof with respect to the adjusted cost base of his shares in Turn-Air and, therefore, he is disentitled to the loss claimed on that basis alone. The Tax Court Judge ruled against the taxpayer on the ground that the latter failed to rebut the Minister's assumption that "the shares of Turn-Air had no value after 1984". We note that the assumptions set out in the Minister's reply to the taxpayer's notice of appeal are somewhat vague and this is particularly true for a self-represented litigant, such as the taxpayer who is required to divine from those assumptions that in effect the Minister was asking that the taxpayer establish the "adjusted cost base" of his shares in Turn-Air as of 1984 and then 1994. Leaving aside that issue it is evident to us that the Tax Court Judge erred in concluding that no evidence was presented to establish what consideration was paid by the taxpayer in return for the shares in Turn-Air. The uncontradicted evidence of the taxpayer was that he invested $55,000 of his own money of the $75,000 needed to purchase the licence under which Turn-Air was to operate its business (see Transcript at pages 13 and 40). This evidence is in addition to the affidavit provided by the taxpayer's former accountant responsible for preparing the general statements of Turn-Air in 1981. Those statements indicated that the taxpayer had been issued 5,500 preferred shares and 99 common shares at a total cost of $55,090. In our view, there was sufficient evidence upon which the taxpayer can be deemed to have rebutted the Minister's presumption. Such evidence, however, does not exist in regard to the $3,161 allegedly owed by Turn-Air to the taxpayer and $13,500 in declared dividends which allegedly were never paid out. For these reasons, we are of the view that the adjusted cost here of the shares in issue must be limited to the $55,090.
[4] For these reasons we will allow the appeal, set aside the decision of the Tax Court Judge dated August 18, 1998, and allow the taxpayer's appeal with respect to the claim for an allowable business investment loss based on the shares having an adjusted cost base of $55,090. As the taxpayer has met with substantial success on this appeal, he is entitled to costs.
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-538-98
STYLE OF CAUSE:
FRED TURNER
- and -
HER MAJESTY THE QUEEN
PLACE OF HEARING: Edmonton, Alberta
DATE OF HEARING: Tuesday, June 27, 2000
REASONS FOR JUDGMENT BY: Robertson J.A.
DATED: June 28, 2000
APPEARANCES:
Mr. Fred Turner ON HIS OWN BEHALF
Ms. Bonnie Moon FOR THE RESPONDENT
SOLICITORS OF RECORD:
Mr. Fred Turner
43 Otto Drive
Yellowknife, N.W.T. X1A 2T9 ON HIS OWN BEHALF
Mr. J. F. Fulcher
Department of Justice
211 Bank of Montreal Bldg
10199 - 101 Street
Edmonton, Alberta T5J 3Y4 FOR THE RESPONDENT
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