Dib Esteban Asin, Luis Rodrigo Montoya, Marcella Gonzalez, Olga Amaral, Jorge Amaral and Ivan Blasevic v. Minister of National Revenue, [1987] 1 CTC 2431, 87 DTC 334

Brulé, T.CJ.:—These appeals, which were heard on common evidence, with respect to certain years, concern the deductibility of the capital cost of property described in Class 12 of Schedule "B" of the Income Tax Regulations as a “certified feature production". The appeals relate to the following taxation years:

The appellants, in computing their income for the years under review, each deducted an amount in respect of the capital cost of property allegedly acquired by them in a certified feature film named “Dilemma” made by 394481 Ontario Limited ("Norcom" or "the company"). The respondent in reassessment of tax to the appellants for these years did not allow the deduction of amounts claimed in computing their income.

The definition of “certified feature production" is found in Regulation 1104(2). Prior to 1979, the Regulations did not stipulate the time period in which a taxpayer could make a qualified investment. The definition, however, was amended in 1978 to provide, in part, as follows:

1104(2) In this Part and Schedule II,

“certified feature production”, in respect of a particular taxation year, means a motion picture film or video tape certified by the Secretary of State . . .

other than a film or tape

(c) acquired after the day that is the earlier of

(i) the day of its first commercial use, and

(ii) 12 months after the day the principal photography or taping thereof is completed,

(d) acquired by a taxpayer who has not paid in cash, as of the end of the particular taxation year, to the person from whom he acquired the film or tape, at least 20 per cent of the capital cost to the taxpayer of the film or tape as of the end of the year,

(e) acquired by a taxpayer who has issued in payment or part payment thereof, a bond, debenture, bill, note, mortgage, hypothec or similar obligation in respect of which an amount is not due until a time that is more than four years after the end of the taxation year in which the taxpayer acquired the film or tape,

(f) acquired from a non-resident, or

(g) in respect of which certification under this definition has been revoked by the Secretary of State as provided in paragraph (10) (b);

The evidence at trial was that principal photography of the film “Dilemma” was completed on October 4, 1978. In order for the appellants to be entitled to any deductions of the capital cost of their investments it must therefore be shown that these investments were acquired no later than October 4, 1979, one year after the principal photography was completed.

The appellants submit that each of their investments was acquired prior to this date. The Minister's position is that these investments, if acquired at all, were acquired after October 4, 1979 and the taxpayers are therefore not entitled to deduct any amounts for the years in question.

It was established by the Supreme Court of Canada in the case of Johnston v. M.N.R., [1948] C.T.C. 195; 3 D.T.C. 1182, that the taxpayer always has the burden of proving that an assessment is incorrect. The standard of proof required is that of the “balance of probabilities’ used in civil cases. I have, with one exception, concluded that the appellants have failed to establish that, on the balance of probabilities, their investments were acquired prior to October 4, 1979.

The appellants each testified that their down payments were paid in cash and the balance of each investment was payable by promissory note. Written agreements between the appellants and Norcom, the producer of the film, and Norcom's company records were produced as evidence of the dates of these transactions, but the accuracy of these documents, particularly the dates noted thereon, was brought into question by the testimony of two witnesses for the Minister.

Mr. Loyola and Mr. Lopez, who invested in the film but were not parties to this appeal, both testified as to the dates of their investments and provided documented evidence to support their testimony. The dates on the cancelled cheques and bank records provided by these two men conflict with the dates noted in the company records and on their investment agreements. I found the evidence of both these witnesses to be straightforward and honest and find that neither the company records nor the written agreements accurately reflect the true date on which these two men acquired their investments. On the basis of the evidence presented I have concluded that these records were prepared at a later date than that asserted by the company's officers.

This brings into question the reliability of the company records and documents as evidence of the date on which each of the appellants entered into the investments that are the central issue of this hearing. None of the appellants was able to provide the Court with any other documentation which could offer proof of the date of their investments. They all apparently paid in cash but none of them had any record of bank withdrawals to substantiate these payments. Some of the appellants testified that although they had originally given Norcom post-dated cheques, they later replaced these cheques with cash. While these appellants may prefer to deal in cash, this does not in any way lessen their burden of proving their case on the balance of probabilities. Given my finding that the dates listed on company documents may not be totally reliable and the fact that the appellants are unable to substantiate the dates on these documents, I find that the appellants have failed to prove their case.

The exception noted above relates to the appellant, Ivan Blasevic. Mr. Blasevic is the only appellant who had dealings with Mr. M. I. Perkovich who was a co-producer of the film in 1977 but did not have any involvement with Norcom after that year. Mr. Perkovich testified that he received Mr. Blasevic's down payment in 1977. I accept his evidence. Another factor in favour of Mr. Blasevic’s position is the fact that, unlike the other appellants, his promissory note had been paid in full as of December 1978 and was not dis- counted with the others in 1982. I therefore find that Mr. Blasevic’s investment in the film “Dilemma” was acquired prior to October 4, 1979. I allow his appeal and refer the matter back to the Minister of National Revenue for reconsideration and reassessment, with costs to this appellant in the amount of $925.

The other appellants have failed to meet the burden of proof in establishing the dates their investments were acquired. Their appeals are therefore dismissed.

Appeal of Blasevic allowed.

Appeals of all other appellants dismissed.