Kallis – Tax Court of Canada adopts a restrictive interpretation of what constitutes a money-lending business
The taxpayer used funds that he had generated from a successful career in the oil and gas industry to make interest bearing loans to third parties. Loans of $10 million at 16% interest that he had made to indirectly finance a pay-day loan company, and of $3.5 million that he had made at 22.5% interest to a junior venture capital company, went bad.
Wong J found that the taxpayer did not go “about his loan activities in an orderly, businesslike way, as a business person would normally be expected to do” and thus was not “in the business of lending money during the years under appeal because the positive indicia of a business were either absent or minimally present.” In this regard, she noted that:
- He lent surplus funds (presumably, as contrasted to using borrowed funds).
- The loans were unsecured.
- The number of borrowers and of loans was limited.
- The loan terms were not complex and had not been negotiated by him.
- He used word of mouth and social contacts to generate leads.
- His deficient record-keeping was more consistent with investing than running a business.
His losses were on capital account.
Neal Armstrong. Summary of Kallis v. The Queen 2021 TCC 58 under s. 18(1)(b) – capital loss v. loss - debt.