John
B
Goetz:—This
is
an
appeal
heard
at
the
City
of
Penticton,
British
Columbia,
on
June
2,
1980,
against
an
income
reassessment
for
the
1975
taxation
year.
In
assessing
the
appellant,
the
respondent
stated
as
follows:
Your
1975
return
has
been
reassessed
to
delete
bond
interest
income
of
$1,028.90
and
to
disallow
the
accrued
interest
expense
of
$1,064.38.
This
reduces
your
investment
income
to
nil
and
the
interest
income
deduction
of
/$1,000
has
been
disallowed
accordingly.
Based
on
the
information
you
submitted
the
bond
transaction
was
not
entered
into
as
an
investment
or
for
the
purpose
of
gaining
or
producing
income.
Further,
by
Notification
of
Confirmation,
the
Minister
stated
as
follows:
The
Honourable
the
Minister
of
National
Revenue
having
reconsidered
the
assessment
and
having
considered
the
facts
and
reasons
set
forth
in
the
Notice
of
Objection
hereby
confirms
the
said
assessment
as
having
been
made
in
accordance
with
the
provisions
of
the
Act
and
in
particular
on
the
ground
that
there
was
no
bona
fide
acquisition
or
disposition
of
the
Government
of
Canada
Bonds.
Therefore
there
was
no
interest
income
or
interest
expense
and
hence
no
interest
and
dividend
income
deduction
resulting
from
this
transaction.
The
Minister
relies
inter
alia
upon
Sections
3,
9(1),
12(1)(c),
20(1)(c),
20(14),
110.1
and
245
of
the
Act.
Facts
The
appellant
was
employed
by
the
Montreal
Trust
Company
and
stated
quite
clearly
in
his
evidence
that
he
purchased
certain
Government
of
Canada
Bonds
in
1975,
availing
himself
of
what
he
considered
a
“tax
loophole”,
and
as
a
“tax
dodge”.
On
December
23,
1975,
the
appellant
placed
an
order
for
the
purchase
of
Government
of
Canada
Bonds
with
a
face
value
of
$28,000,
bearing
interest
at
9
/4
%.
The
bonds
were
not
delivered
to
the
appellant
nor
to
any
agent
or
trustee
on
his
behalf.
He
entered
a
sell
order
dated
December
29,
1975.
He
had
made
arrangements
with
his
bank
to
effect
a
loan
if,
indeed,
he
had
to
pay
for
the
bonds.
He
stated
in
his
evidence
that
in
making
this
arrangement
he
did
not
sign
a
demand
note,
no
money
passed
from
the
bank
to
the
broker
nor
did
the
broker
receive
any
payment
for
the
bonds
from
the
appellant.
Interest
in
the
amount
of
$10,064.38
had
accrued
at
the
time
of
the
purchase
of
the
bonds
on
December
23,1975,
and
the
appellant
admits
that
he
never
saw
the
bonds.
Findings
There
is
no
evidence
of
registration
or
physical
delivery
of
the
bonds
to
the
appellant.
My
learned
colleague
Mr
D
E
Taylor,
in
the
case
of
Frederick
Tim
Smye
v
MNR,
[1980]
CTC
2372;
80
DTC
1326,
set
out
quite
fully
the
consideration
to
be
made
by
the
Board
in
dealing
with
cases
of
this
kind,
and
I
quote
with
approval
his
general
summary
of
the
situation
at
pages
2379
and
1331
thereof:
Therefore,
whether
or
not
the
Minister
challenges
the
results
of
all
transactions
conducted
under
the
brokerage
house
“buy”
and
“sell”
arrangements,
does
not
change
the
fact
that
the
Minister
in
the
appeals
before
the
Board
has
challenged
the
bona
tides
ot
these
particular
transactions,
at
least
to
the
degree
that
evidence
of
“transfer”
must
be
demonstrated.
Neither
the
rationale
for
that
challenge
nor
the
results
which
flow
from
its
determination
are
direct
considerations
for
the
Board
in
deciding
the
merits
of
the
basis
upon
which
the
Minister
has
reassessed
in
these
particular
situations.
Where
there
is
no
evidence
of
physical
registration
or
delivery,
the
appeal
will
be
dismissed;
where
such
registration
or
delivery
is
asserted
by
virtue
of
a
trustee
or
agency
relationship,
then
that
will
be
considered
only
if
it
is
established
that
no
impediment,
including
payment,
remained
to
pro-
hibit
such
registration
or
transfer
to
the
individual
appellant.
Amounts
to
be
included
in
income
after
passing
the
above
tests,
whether
under
paragraph
12(1)(c)
or
subsection
20(14)
of
the
Act,
will
be
regarded
as
interest
income
for
purposes
of
section
110.1
of
the
Act.
For
the
above
reasons,
I
dismiss
the
appeal.
Appeal
dismissed.
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