Ben Weinstein v. Her Majesty the Queen, [1993] 1 CTC 2714, 93 DTC 318

Christie, A.C.J.T.C.C. (orally):—I shall now deliver the reasons for the judgment that will issue in the appeal of Ben Weinstein v. Her Majesty The Queen. The taxation years to which these appeals relate are 1984, 1985, 1986, and 1987.

Included in the appellant's return of income for 1984 is a statement of investment income and under the heading “carrying charges" is an item of interest on money borrowed from CIBC in the sum of $12,278 which the appellant deducted in calculating his income. In reassessing the deduction was disallowed by the Minister of National Revenue. The taxpayer appealed to this Court.

In the reply to the notice of appeal this preliminary objection is raised. The appellant is seeking to appeal a nil reassessment, a matter over which this honourable Court does not have jurisdiction by virtue of section 169 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). The attorney general respectfully requests that the appellant's purported appeal be quashed. The same point was made at the hearing yesterday morning and in my opinion it is well taken. There are numerous decisions binding on this Court which hold that there is no appeal from a nil assessment or a reassessment. A number of these authorities are cited in Consoltex Inc. v. Canada, [1992] 2 C.T.C. 2040, 92 D.T.C. 1567, at page 2042 (D.T.C. 1568). It is clear from Exhibit R-14, which is a notice of reassessment addressed to the appellant in respect of 1984, that it was a nil reassessment. It follows that this appeal cannot succeed.

In calculating his income for 1985, the appellant sought to deduct interest in the sum of $8,606. This deduction was disallowed on reassessment by the Minister of National Revenue. Paragraph 5 of the reply to the notice of appeal reads:

5. In so reassessing the appellant, the Minister relied upon, inter alia, the following findings or assumptions of fact:

(a) the $8,606 of interest claimed by the appellant was interest paid by the appellant in respect of a loan in the amount of $225,000 made to the appellant in 1983 by the CIBC Mortgage Corp., which loan was secured by a mortgage on the appellant's personal residence at 4 Tullamore Drive in Willowdale, Ontario;

(b) the above mentioned loan was used by the appellant to discharge his obligations under a guarantee given by the appellant to the Canadian Imperial Bank of Commerce (hereinafter" CIBC") in 1978 in respect of loans made by the CIBC to Nibblers Anonymous Inc., corporation of which the appellant was a shareholder;

(c) in 1982 or earlier, Nibblers Anonymous Inc. became insolvent and by letter dated August 6, 1982, the CIBC required the appellant to pay the debts of the corporation to the CIBC pursuant to his obligation under the guarantee;

(d) the interest was not paid pursuant to a legal obligation to pay interest on borrowed money used for the purpose of earning income from a business or property; the $225,000 borrowed by the appellant from the CIBC Mortgage Corp, was not used for the purpose of earning income. from a business or property.

The appellant says that these assumptions are in error to the extent that they make reference to $225,000 borrowed from CIBC to honour a guarantee given to the bank by the appellant in respect of funds advanced to Nibblers Anonymous Inc. He says the interest sought to be deducted relates to $120,000 he originally borrowed from Kenross Mortgage Corp, on May 10, 1979. This $120,000 loan was the subject of a renewal agreement in 1982. Kenross later became part of CIBC. The $225,000 has nothing to do with the interest sought to be deducted. It was borrowed from Saul. B. Kelner and is not germane to this appeal.

I am satisfied the appellant is correct about this. Nevertheless, the question remains about whether he has placed before the Court a body of evidence that establishes on a balance of probability that the renewed $120,000 loan was used in 1985 for the purpose of earning income from business or property within the meaning of subparagraph 20(1)(c)(i) of the Income Tax Act. The appellant made the deduction on the basis and it was disallowed on the ground that this was not so. I do not believe that the error referred to indicates that the ground of the reassessment is different from that on which it was based resulting in the shift of onus from the appellant to the respondent and no submission of that kind was made by the appellant.

In support of this appeal the appellant placed in evidence as Exhibit A-2 some one hundred cards dating from July 1969 to September 1981 relating to business transactions. The subject matter of some are mortgages, others do not indicate what they are about. Some are in blank except for the appellant's name or the name of a corporation. A good number of them relate to business done by Weinstar Limited, a corporation owned 50 per cent by the appellant and 50 per cent by his partner Mr. Starkman. Others relate to business done by Benamat Limited, a corporation owned by the appellant's wife. There is also in evidence as Exhibit A-3 two pages in long-hand recording stock transactions. They run from October 13, 1978 to January 1981. Other analogous documents are in evidence, for example, Exhibits A-9, A-10, A-11, and A-16.

None of this evidence establishes the necessary nexus between the funds borrowed from CIBC and the use of those funds at the times relevant to these appeals for the purpose of earning income from a business or property and the viva voce evidence of the appellant does not make up this deficiency. Again it follows that the appeal respecting 1985 cannot succeed.

Turning now to 1986, the appellant seeks to deduct interest of $24,700.40 under subparagraph 20(1)(c)(i) of the Income Tax Act in respect of funds borrowed from the Royal Bank of Canada. The respondent admits that the $24,700 in interest was paid to the Royal Bank, but says it is not interest within the subparagraph just referred to. The amount borrowed was $285,000. The evidence establishes that this money was used to pay the debt owing to Saul B. Kelner and the balance owing to the CIBC. Throughout the proceeding yesterday, the appellant admitted that the interest on the funds borrowed from Kelner was not deductible. It follows that the interest on funds borrowed to pay that debt is not deductible.

Further, as it has not been established that the interest on the funds borrowed from CIBC is deductible, the interest on money borrowed to discharge that debt is not deductible. Subsection 20(3) deals with the use of borrowed money to repay money previously borrowed. The appeal regarding 1986 fails.

Finally, I deal with 1987. In a very terse notice of appeal the appellant states: "Taxpayer requests a non-capital loss should be changed from $26,933 to nil.” This purports to be in compliance with paragraphs (c) to (g) of the prescribed form for a notice of appeal. Those paragraphs read as follows:

(c) relate the material facts relied on,

(d) specify the issues to be decided,

(e) refer to the statutory provisions relied on,

(f) set forth the reasons the appellant intends to rely on. . . .

All that can be said about this appeal relating to 1987 is that the appellant has failed to place before the Court a legal basis on which the Court could issue a judgment of the kind referred to.

To summarize, the appeals for each of the years 1984, 1985, 1986, and 1987 are dismissed. The respondent is entitled to costs. Thank you.

Appeals dismissed.