Hopmeyer v. Canada, 2007 FCA 34

Date: 20070205

Docket: A 190-06

Citation: 2007 FCA 34

CORAM:       DESJARDINS J.A.

                        NOËL J.A.                

                        PELLETIER J.A.

BETWEEN:

ESTELLE HOPMEYER

Appellant

and

HER MAJESTY THE QUEEN

Respondent

Heard at Montréal, Quebec, on February 5, 2007.

Judgment delivered from the Bench at Montréal, Quebec, on February 5, 2007.

REASONS FOR JUDGMENT OF THE COURT BY:                                                       NOËL J.A.

Date: 20070205

Docket:  A-190-06

Citation: 2007 FCA 34

CORAM:       DESJARDINS J.A.

                        NOËL J.A.                

                        PELLETIER J.A.

BETWEEN:

ESTELLE HOPMEYER

Appellant

and

HER MAJESTY THE QUEEN

Respondent

REASONS FOR JUDGMENT OF THE COURT

(Delivered from the Bench at Montréal, Quebec, on February 5, 2007)

NOËL J.A.

[1]               The appellant contends that her shares in Aqua Vision Systems Inc. (AVSI) were the subject of a deemed disposition at the end of her 1999 taxation year pursuant to paragraph  50(1)(b) of the Income Tax Act, R.S.C. 1985, c. 1(5^th Suppl.)(ITA), which disposition gave rise to a deductible loss, commonly known as an allowable business investment loss (ABIL).

[2]               Paragraph 50(1)(b) insofar as it is relevant provides:

                                                                                    [Je souligne]

[3]               In order to be entitled to the claimed loss the appellant had to establish, in conformity with this provision, that at the end of 1999: a) AVSI was insolvent, b) AVSI no longer carried on business, c) the fair market value of the AVSI shares was nil, and d) it was reasonable to expect that AVSI would be dissolved or wound up and would not commence to carry on business.

[4]               Lamarre Proulx J. of the Tax Court of Canada found as a fact (2006 T.C.C. 185) that at the relevant time, AVSI continued to carry on business and therefore did not meet the requirement set out in clause 50(1)(b)(iii)(B). She went on to dismiss the appeal on that basis.

[5]               The appellant contends that the Tax Court judge erred in so concluding since AVSI was carrying on the activities that it did for the sole purpose of repaying its bank loan, and not in the pursuit of profit. Thus, AVSI was not carrying on “business” (Stewart v. Canada [2002] 2 S.C.R. 645 at para. 38).

[6]               We are not convinced that Lamarre Proulx J. erred when she held in effect that the survival of AVSI as a profit-marking entity remained possible at the end of 1999 and that its activities were carried on with that end in mind. In our view, the possibility that AVSI would eventually turn a profit, slim as it might have been, could not be excluded.

[7]               More importantly, paragraph 50(1)(b) contemplates that an insolvent corporation whose shares are worthless can still carry on business for purposes of that provision.

[8]               In this case, counsel for the appellant concedes that except for two accounts, the appellant continued to carry on its operations throughout 1999 as it had in the past. Indeed, the evidence reveals that AVSI continued to develop and market new products, sought accounts, made sales, and hired personnel.

[9]               In our view, the requirement that a qualifying corporation no longer carry on business in clause 50(1)(b)(iii)(B) effectively contemplates that the corporation has ceased to conduct, on an ongoing basis, its business activities. Until this happens, the survival of the business cannot be excluded and the legislator, in requiring that a corporation no longer carry on business, was obviously intent on ensuring that the possibility that the corporation might subsist be eliminated altogether before an ABIL can be claimed and deducted. This is the context in which this requirement must be understood.

[10]           As in this case, there is no doubt that AVSI continued to carry on business throughout 1999, the Tax Court judge came to the correct conclusion when she held that the requirement of clause 50(1)(b)(iii)(B) had not been met.

[11]           The appeal will accordingly be dismissed with costs in favour of the respondent.

“Marc Noël”

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                                                              A-190-06

(APPEAL FROM A JUDGMENT OF THE TAX COURT OF CANADA, DATED MARCH 30, 2006, DOCKET NO. 2000-2842(IT)(G).

STYLE OF CAUSE:                                                              Estelle Hopmeyer  v.

                                                                                                Her Majesty the Queen

PLACE OF HEARING:                                                        Montréal, Quebec

DATE OF HEARING:                                                          February 5, 2007

REASONS FOR JUDGMENT OF THE COURT BY:       DESJARDINS J.A.

                                                                                                NOËL J.A.

                                                                                                PELLETIER J.A.

DELIVERED FROM THE BENCH BY:                            NOËL J.A.

APPEARANCES:

SOLICITORS OF RECORD: