Date:
20101110
Dockets: A-177-10
A-178-10
Citation: 2010 FCA 303
CORAM: DAWSON J.A.
LAYDEN-STEVENSON J.A.
STRATAS
J.A.
BETWEEN:
Docket: A-177-10
S. ROSS KEUS
Appellant
and
HER MAJESTY THE QUEEN
Respondent
AND BETWEEN:
Docket: A-178-10
T. BRUCE KEUS
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
DAWSON J.A.
[1] S. Ross Keus
and T. Bruce Keus (the appellants) are brothers who entered into a partnership
agreement for the purpose of carrying on a commercial fishing operation. Each
filed tax returns for the 2000, 2001 and 2002 taxation years in which they
claimed certain deductions. Each was then reassessed. Each filed an appeal
from the reassessment to the Tax Court of Canada (Tax Court). Their appeals
were heard together by a Judge of the Tax Court who gave judgment pursuant to
the informal procedure. The Judge's reasons are cited as 2010 TCC 294.
[2] Each brother
has now appealed the decision of the Tax Court. These appeals have been
consolidated by order of this Court.
Issue
[3] The sole
issue to be decided on this appeal is whether the Judge erred in finding that
certain interest expenses were not deductible by the appellants.
The Facts
[4] The following
facts are not in dispute. In 1996, the appellants bought a fishing enterprise
for $200,000.00. Based on the value of the gear to be acquired, their bank
would only lend $65,000.00 to the appellants to finance the purchase.
[5] To obtain the
funds needed to complete the purchase, the appellants' parents, Elizabeth and
Cornelius Keus, obtained two bank loans. One loan, for $100,000.00, was
secured by a mortgage on the parents' home. The other loan, in the approximate
amount of $35,000.00, was a personal loan. No contemporaneous records were
created to document any arrangement between the appellants and their parents.
The Decision of the
Judge
[6] The Judge
found as a fact that the interest expenses for the two loans were incurred by
Cornelius and Elizabeth Keus. The Judge also found as a fact that the expenses
were not incurred by the appellants. It followed, as a matter of law, that the
interest expenses fell within the limitation on business income deductions
contained in paragraph 18(1)(a) of the Income Tax Act, R.S.C.
1985, c. 1 (5th Supp.) (Act). It further followed that the
expenses were not deductible under paragraph 20(1)(c) of the Act.
The Positions of the
Parties
[7] The
appellants do not assert the Judge committed any error of law. Nor do the
appellants assert any specific palpable and overriding error with respect to
any particular finding of fact made by the Judge. Rather, the appellants say
that it is "clear from the evidence" that the parents lent money to
the appellants to complete the purchase of the fishing enterprise. They say it
can be "assumed from the evidence" that the loan from the parents to
the appellants was on the same terms and conditions as the loan to the parents
from the bank. It is, therefore, submitted that the relationship between the
parents and the appellants was one of debtor-creditor. In the alternative, the
appellants submit that the parents acted as agents of the appellants when
arranging the loan with the bank.
[8] The
respondent argues that these are new arguments the appellants cannot advance on
appeal because they did not lead a proper evidentiary foundation before the Tax
Court. Further, the respondent submits that the Judge did not commit any
palpable and overriding error when finding the interest expenses were incurred
by the parents.
Consideration of the
Positions of the Parties
[9] In Performance
Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] 1 S.C.R.
678, at paragraph 32, the Supreme Court of Canada restated the principle that
applies when a party seeks to raise a new issue on appeal. Justice Binnie
wrote:
[…] Unless the parties have fully addressed a factual issue
at trial in the evidence, and preferably in argument for the benefit of the
trial judge, there is always the very real danger that the appellate record
will not contain all of the relevant facts, or the trial judge's view on some
critical factual issue, or that an explanation that might have been offered in
testimony by a party or one or more of its witnesses was never elicited. As
Duff J. put it in Lamb v. Kincaid (1907), 38 S.C.R. 516, at p. 539:
A court of appeal, I think, should not give effect to such
a point taken for the first time in appeal, unless it be clear that, had the
question been raised at the proper time, no further light could have been
thrown upon it. [Emphasis added.]
[10] The rationale
for this principle is obvious. It furthers the fairness of both the trial
and the appeal.
[11] The onus on a
party seeking to raise a new issue is substantial. The party must establish
that all relevant facts were adduced at trial and that no satisfactory response
could have been offered by the opposite party. See: Block Bros. Realty Ltd.
v. Boese, [1988] B.C.J. No. 416 (C.A.).
[12] The new
issues the appellants seek to raise are whether there was a debtor-creditor or
an agency relationship between the appellants and their parents. Both issues
are in large part fact driven.
[13] The
appellants have failed to show that at trial they:
i)
examined
their witnesses on the facts relevant to these issues;
ii)
cross-examined
the auditor produced on behalf of the Canada Revenue Agency on the facts
relevant to these issues; or
iii)
made
submissions to the Judge on these issues.
[14] The
appellants have fallen well short of establishing that all relevant evidence
was adduced before the Tax Court, or that the respondent could not have adduced
relevant evidence on these issues had it known that these issues would be in
play. In consequence, the appellants are precluded from arguing the new issues
on appeal.
[15] Moreover, the evidentiary record,
equivocal as it is on these issues, coupled with the factual findings the
Judge did make, lead to the inevitable conclusion that the appellants did not
establish either a debtor-creditor or an agency relationship.
[16] Therefore, I
would dismiss the appeal with costs to the respondent.
[17] A copy of
these reasons shall be placed in Court file A-178-10.
“Eleanor R.
Dawson”
“I agree
Carolyn Layden-Stevenson J.A.”
“I agree
David Stratas J.A.”
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