2016 FCA 150
HER MAJESTY THE
This is an appeal of a judgment rendered by a
Judge of the Tax Court of Canada (the Judge) on April 21, 2015 (2015 TCC 98).
The Judge dismissed Mr. Osborne G. Barnwell’s (the appellant) appeal of a
decision of the Minister of National Revenue (the Minister) that disallowed his
claim for a $39,150 allowable business investment loss (ABIL) deduction
pursuant to subparagraph 39(1)(c)(iv) of the Income Tax Act,
R.S.C., 1985, c. 1 (5th Supp.) (the Act).
The facts underlying this appeal are
straightforward and undisputed.
In the early 2000s, Mr. Nicholas Austin, a long-standing
acquaintance of the appellant, decided to create and publish a travel magazine
targeted at passengers on commercial airlines.
In 2004, Mr. Austin incorporated Whitesand Group
of Companies Inc. (Whitesand) as part of his publication venture. In need of
funding, Mr. Austin approached the appellant to fund the travel magazine. The
appellant agreed to extend funds in the form of loans to Mr. Austin but no
formal agreement was ever concluded in this regard. Whitesand published three
issues of its Whitesand magazine (Winter 2007, Spring 2008 and Winter
2009) but ceased operations shortly thereafter, in 2009.
Subparagraph 39(1)(c)(iv) of the Act
allows a taxpayer to deduct one half of the taxpayer’s ABIL for the year from
the taxpayer’s income on the basis that a debt is owed to the taxpayer by a
Canadian-controlled private corporation (CCPC):
Meaning of capital gain and capital loss
Sens de gain en capital et de perte en capital
39 (1) For the purposes of this
Pour l’application de la présente loi :
(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
c) une perte au titre d’un placement
d’entreprise subie par un contribuable, pour une année d’imposition,
résultant de la disposition d’un bien quelconque s’entend de l’excédent
éventuel de la perte en capital que le contribuable a subie pour l’année
résultant d’une disposition, après 1977:
of any property that is
d’un bien qui est :
(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
(iv) soit une créance du contribuable sur une
société privée sous contrôle canadien (sauf une créance, si le contribuable
est une société, sur une société avec laquelle il a un lien de dépendance)
qui est :
(A) a small business corporation,
(A) une société exploitant une petite
In 2011, the appellant claimed an ABIL of $39,150
in his income tax return. The Minister disallowed the claim. The appellant
appealed the notice of assessment to the Tax Court of Canada and the Judge
dismissed the appeal on the basis that Mr. Austin was the debtor of the loans,
not the CCPC Whitesand.
This is an appeal of the Judge’s judgment.
The sole issue raised in this appeal is the
following: Did the Judge err in dismissing the appeal on the grounds that the
loans at issue were made to Mr. Austin personally and not to Whitesand?
Standard of Review
The parties agree that the standard of review
framework in Housen v. Nikolaisen, 2002 SCC 33,  2 S.C.R. 235
applies to this appeal. For extricable questions of law, the standard is
correctness (para. 8). For questions of fact, it must be established that the
judge made a “palpable and overriding error” (para. 10). For mixed questions of
law and fact, the stricter standard applicable to pure questions of facts also
applies (para. 29).
Although the appellant accepts the Judge’s findings
of fact and acknowledges that the documentary evidence is to the effect that
the loans at issue were made to Mr. Austin as opposed to Whitesand, he
essentially argues that the viva voce – oral – evidence was ignored by
the Judge. It is the appellant’s position that, had the Judge properly
considered the oral evidence, he could only have reasonably concluded that the
loans were made to Whitesand and not to Mr. Austin.
I disagree. The Judge carefully set forth the
factual findings in his decision and the appellant accepts these facts as being
“set accurately” (Judge’s reasons at paras. 4-33 and appellant’s memorandum of
fact and law at para. 4). It is also clear from a reading of the Judge’s
reasons that he considered both the documentary evidence and the oral evidence
before him. In particular, the Judge considered the following :
all of the cheques were made out to Mr. Austin
personally and none were made payable to Whitesand (paras. 16 and 50);
Mr. Austin stated in his testimony that the
promissory notes all provided that he promised to repay the loans (para. 29);
the appellant’s General Bank Journal described
the amounts as loans to Mr. Austin (para. 18);
Mr. Austin stated in his testimony from cross-examination
that a majority of the cheques were deposited into his personal account (para.
Mr. Austin stated in his testimony that he
understood the loans to be debts owed by him personally (para. 58).
Upon weighing the evidence on record, the Judge
concluded that Mr. Austin was the debtor of the loans – not Whitesand – and
that there was no agency agreement or any testimony to suggest that Mr. Austin
was acting as an agent for Whitesand when he was receiving monies from the
appellant. Before us, the appellant is essentially asking this Court to reconsider
and reweigh the evidence in order to reach a different conclusion. This is not
the role of this Court and the appellant has otherwise failed to point to any
error in the Judge’s decision that would warrant the intervention of this
Next, the appellant argues that subsection
18.15(3) of the Act entitled him to have his evidence considered on a
less onerous and technical standard in accordance with the objective of the
informal procedure. This argument fails as well. This provision of the Act has
been interpreted by our Court to mean that the rules for the admission of
evidence do not apply technically in the context of the informal procedure. As
such, while subsection 18.15(3) of the Act is relevant to the
admissibility of evidence in the informal procedure, it does not entitle the
appellant to a more favourable weighting of certain portions of his evidence – i.e.
the oral evidence in this case (Suchon v. Canada, 2002 FCA 282, 291 N.R.
250; Selmeci v. Canada, 2002 FCA 293, 292 N.R. 182 at paras. 4-10).
The appellant further emphasized at the hearing
that the Judge ignored the “commercial reality” of his “arrangement” with Mr.
Austin and that the “mindset, all along, was that the
monies were going to the Whitesand magazine”. In other words,
although the appellant did not provide the funds directly to Whitesand, they
were provided to Mr. Austin for the benefit of Whitesand. On this basis,
the appellant submits that the debt was owed to him by Whitesand and not by Mr.
Austin. Again, this argument is without merit. The clear language of
subparagraph 39(1)(c)(iv) of the Act requires that the debt be “owing to the taxpayer by a Canadian-controlled private
corporation [CCPC]”. Since Mr. Austin testified that the debts were owed
by him personally (Judge’s reasons at paras. 28, 52 and 58), there is evidence
in the record to support the judge’s conclusion that Mr. Austin, and not the
CCPC, owed the appellant the debt.
Finally, the appellant argues that the Judge
erred when he relied on Friedberg v. Canada (F.C.A.), 135 N.R. 61, 
F.C.J. No. 1255 (QL) for the proposition that in tax law subjective intent
cannot displace the characterization of a transaction for tax purposes (Judge’s
reasons at paras. 53-56). The appellant insists that the circumstances of the
present case are distinguishable as “the cheques and
the promissory notes were subjected to the orally expressed intention of the
parties” (appellant’s memorandum of fact and law at para 22). In so
doing, the appellant is merely again asking this Court to prefer his
after-the-fact explanation of the evidence. However, I am of the view that the
Judge’s conclusion was open to him on the basis of the facts established by the
For these reasons, the appellant has failed to
establish any overriding and palpable error on the part of the Judge. I would
accordingly dismiss the appeal. However, given the circumstances of this case,
I would decline to award costs.
Mary J.L. Gleason J.A.”