Mullie v. R., [1998] 1 CTC 3024

McArthur T.C.J. .

This appeal was heard in Edmonton, Alberta under the informal procedures of this Court. The Appellant seeks a declaration that his “pre- 1986 capital loss balance” was $60,964.87 at the end of 1994 taxation year in losses from trading. The losses were sustained through disastrous commodity trading in rape seed, flax and silver. Upon conclusion of the trial, I stated that the appeal was allowed with costs. I am of the same mind and the reasons for judgment follow.

In reassessing the Appellant for the 1994 taxation year on January 4, 1996, the Minister included pension income received from the Pension Fund into income in the amount of $12,477. In addition, a tax credit was allowed in the amount of $2,342 in respect of tax withheld by the Pension Fund. While this was the original issue as seen by the Appellant prior to his retaining Counsel, it was not in dispute before this Court.

Counsel for the Appellant filed an Amended Notice of Appeal wherein he sought:

13(a) a declaration that his “pre-1986 capital loss balance” resulting from the

transactions in commodities described herein was $60,964.87 at the end of his 1994 taxation year;

(b) referral of the Reassessment back to the Minister for reconsideration and reassessment on the basis that the Appellant is entitled to a $2,000 deduction pursuant to paragraph 111(1.1)(b) in determining his 1994 taxable income;

The outcome of this case was dependent, for the most part, on the acceptance or rejection of the facts as presented by the Appellant with the able assistance of Counsel. I accept the evidence of the Appellant.

He is a 70 year old retired farmer and laborer in the oil drilling fields. In 1946, he commenced combining in North Eastern Saskatchewan. Over the years he ended owning, I believe, seven sectors of land which he cleared over the years and sold in the early 1970’s realizing a substantial capital gains. He gambled these funds, in excess of $100,000 in the futures and commodities market in 1972 and 1973 and lost $94,929. He then moved from Saskatchewan to Alberta where he worked in the oil fields. He made a second attempt in 1984 and 1985 to make his fortune in market trading and incurred losses of $27,000.

Despite rigorous efforts, the Appellant was unable to present complete documentary evidence to demonstrate the losses through records of the transactions. He did present some documents reflecting substantial trading during 1972 and 1973 through Richardson Securities of Canada and the Bank of Montreal together with receipts and canceled cheques for his 1984 and 1985 investments.

I accept the following taken from the Appellant’s Amended Notice of Appeal which read as follows:

6.. Prior to filing his 1996 T-1 income tax return, the Appellant never claimed any deduction under the Act on account of the capital losses described above. The Appellant did not report any of these capital losses when filing his T-l income tax returns for the years in which the capital losses were incurred. Since 1972, the Appellant has had his income tax returns prepared by professional tax return preparers, but was not advised that capital losses could be deducted against income other than income from capital gains to the extent of $2,000 per year. Prior to 1996, the Appellant never realized any taxable capital gains and believed that he was not entitled to any deduction under the Act on account of the capital losses he incurred through speculation in commodities.

7. The Appellant has never claimed any deduction pursuant to section 110.6 of the Act.

As stated, I accept the Appellant’s evidence. The lack of documentation does not preclude me from finding that the Appellant’s “pre-1986 capital loss balance” (as defined by section 111(8) of the Income Tax Act (the “Act’) at the end of his 1994 taxation year was $60,964.87, calculated as follows:

I conclude that the Appellant discharged the onus on him to establish, on the balance of probabilities, that the amounts in issue were lost by him in the years specified.

The amount of $60,964.87 reflects 50% of his total losses being the inclusion rate provided in the Act for the relevant period. I adopt the reasoning of the Federal Court of Appeal in Sidhu v. Minister of National Reve- nue93 D.T.C. 5453 (Fed. C.A.) at page 5454 where Mahoney J.A. stated:

… The failure to record transactions will inevitably handicap a taxpayer seeking to discharge the burden of proving that they took place but the responsibility of the trial judge in such circumstances is to decide, on a balance of probabilities having regard to all the evidence and its credibility, whether any, all or none took place. The proper approach was demonstrated by Strayer, J. in Schwartz v.

The law places the onus on the taxpayer in such cases to prove wrong the Minister’s reassessment on the basis that the taxpayer is in a better position to prove what actually happened, if he chooses and is able to do so. Unfortunately, the plaintiff has not been willing or able to particularize in any way the purchases made by him. He has confirmed on many occasions that the figures provided by his accountant as to his total purchases were correct. If he had made any effort to corroborate this and if his oral evidence had seemed forthcoming and credible, it might have been possible to find in his favour even in the absence of any couchers, receipts or other written records.

The Appellant relied on sections 111(1.1), 111(1.1(b)) and 111 (8) of the Act. The carry forward of the allowable capital loss is subject to paragraph 111(1)(b) of the Act as it then read. It limits the carry forward to $2,000 in 1994. The carry forward for future years is also subject to paragraphs 111(1)(b) and 111(8).

In conclusion, the Appellant is entitled to a $2,000 deduction pursuant to paragraph 111(1.1)(b) of the Act in determining his 1994 taxable income.

The appeal is allowed with costs and offered back to the Minister for reconsideration and reassessment.

Appeal dismissed.