Mike Milliken v. Her Majesty the Queen, [1993] 2 CTC 2963

Hamlyn, T.C.C.J.:— This is in the matter of Mike Milliken the appellant and Her Majesty The Queen the respondent. It's an informal procedure appeal dated June 22, 1993 with respect to the appellant's 1988 taxation year.

In his appeal document Mr. Milliken has said as follows: in May 1988 he purchased a 23-foot motor home from Go Vacations for $44,400. And prior to the purchase he had checked the prices of equivalent vehicles; the price was higher, but Go Vacations offered a rebate of $4,200 cash as an incentive to buy. He was told by the salesman the rebate was not taxable and could be treated the same as rebates provided on car purchases.

There were certain assumptions of fact that I reviewed with Mr. Milliken that have become part of the evidence of this case: that during the relevant taxation year Mr. Milliken was a general partner of Go Vacations; that on May 10, 1988 the appellant signed an agreement with Go Vacations where he had signed a subscription and had agreed to acquire units in Go Vacations; he was to be advanced $4,200. That agreement was filed before the Court as Exhibit R-1, and it states in the preamble:

Whereas the investor has signed a subscription form and has agreed to acquire units in the Go Vacations 1788-A Ltd. Partnership (the “ partnership”).

From the reply assumptions, and Mr. Milliken further agreed, that the loan was to be interest free for two years, and that the prime rate of interest was to be the governing factor plus 1.5 per cent; that Go Vacations was to forgive the loan if the appellant had not realized a 20 per cent return on his investment in Go Vacations in the 1988 fiscal year. The loan was not repaid by September 12, 1988 and Go Vacations actually forgave the outstanding balance of $4,200 in accordance with the agreement. The appellant on May 18, 1988 was issued a cheque for $4,200.

In relation to this loan the taxpayer did not file an election under subsection 53(2.1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

The issue to be decided in this case is, clearly, whether the Minister was correct in reducing the appellant's partnership's loss by an amount of $4,200 in the 1988 taxation year. The Minister did this by way of notice of reassessment dated September 9, 1991, wherein the Minister of National Revenue reassessed the appellant's income tax return for the 1988 taxation year to reduce his partnership loss by $4,200.

Mr. Milliken maintained at the outset of his evidence and pretty well throughout, that he purchased a motor home and the loan was simply a rebate from the purchase price. But on consideration of all the evidence, I find that it's all intertwined, and that his point, that he simply purchased a motor home and received a rebate is not supported by the review documentary evidence such as the agreement R-1. Moreover, the appellant stated on cross- examination that if he wished to obtain the motor home, he would have to surrender his partnership certificates to receive the motor home.

Thus, I've concluded from that that the appellant had an option to acquire the motor home, but only after he left the partnership. And on review of all the circumstances I concluded that the appellant, by his partnership subscription, was in the business of renting motor homes.

From that we turn to find out what is the character of the $4,200. Under paragraph 12(1)(x) of the Income Tax Act under the heading of "Inducements" it provides: (paraphrased as follows)

In computing income of a taxpayer from a business, the taxpayer must include any amount received by the taxpayer in the course of earning income from a business an inducement [that is, a "forgivable loan”, and that is clearly set out] to the extent that it was not otherwise included in computing income.

In this case I find the loan was part of the inducement to the taxpayer to subscribe for the partnership units of Go Vacations Capital Inc. And the taxpayer received the inducement in return for his participation.

As such, I have considered and concluded that the assessment by the Minister was in accordance with the provisions of the Income Tax Act.

The taxpayer has raised other questions in this appeal that could have some bearing on the end result. Specifically, from the pleadings and from his statement this morning, it is apparent that the Minister was some 20 months before the Minister responded to the appellant's notice of objection. And the question I must consider is this: Did the Minister respond to the notice of objection with all due dispatch? There's a recent case, and it's a decision of the Associate Chief Judge of this Court in Apfelbaum v. M.N.R. and it's cited at [1991] 1 C.T.C. 2599, 91 D.T.C. 800 (T.C.C.). One of the issues in that case was whether a confirmation of reassessment was invalid not being issued with all due dispatch as required by paragraph 165(3)(a). And at page 2601 (D.T.C. 802) Judge Christie has said:

If the respondent has not acted within that time [that is “due dispatch"] the taxpayer can bring the matter to a head by appealing to this Court under paragraph 169(b) [now paragraph 161 (1)(b).]

That right of the taxpayer to do this was referred to in the Minister's submissions to the Court in this appeal. And that period kicks in 90 days after the service of the notice of objection as the time for reconsidering the assessment or reassessment. Judge Christie further goes on to say at page 2601 (D.T.C. 802):

. . . the remedy and the only remedy that a taxpayer has if the respondent fails to discharge its duty under paragraph 165(3)(a), is to appeal under paragraph 169(b) [now paragraph 169(1)(b)]. Failure of the respondent to act under paragraph 165(3)(a) does not make a reassessment that has been objected to, liable to be vacated by this Court, regardless of the lapse of time, since the service of the notice of objection.

The application to vacate the reassessments in that case was refused. [In this case the taxpayer did not exercise the statutory remedy.]

The Charter of Rights was also pled by the appellant without any specific allegations, other than the appellant suggests there is one set of rules for the Minister of National Revenue and another set of rules for the taxpayer. [In this case the taxpayer did not exercise the statutory remedy.]

The case of Wolff v. Canada, [1990] 1 S.C.R. 695, 69 D.L.R. (4th) 392, the Supreme Court of Canada answers this by distinguishing between the Government of Canada and individuals. And from McMechan and Bourgard's Tax Court Practice, 1993, at page 930 in relation to Wolff, supra, the following is stated:

The Crown is not an individual with whom a comparison can be made to determine whether subsection 15(1) violation of the Charter has occurred. The Crown represents the State and must represent the interests of all members of Canadian society in court claims brought against the Crown in the right of Canada. Its interests and obligations are vastly different from those of private litigants.

it should be noted, other than the allegation of a differing set of rules and time delay, the Charter argument was not pursued in any specific detail. And I conclude from all the evidence that I have had before me this morning, that there is no Charter infringement discernible in this case from the evidence.

Therefore, I come back to the prior determination whether the Minister is correct in reducing the appellant's partnership loss by an amount of $4,200 in the 1988 taxation year. I have concluded that the amount of $4,200 was received by the appellant, the taxpayer, as a forgivable loan from Go Vacations and should be, therefore, added to his income to reduce his partneiship loss pursuant to paragraph 12(1)(x) of the Income Tax Act.

And on that basis I believe that concludes this case. Therefore the appeal is dismissed.

Appeal dismissed.