Richard v. R., [1998] 4 CTC 2671

Tremblay T.C.J.:

Point at issue

According to the Notice of Appeal and the Reply to the Notice of Appeal the question is whether, in calculating his income for the 1986 taxation year, the appellant is entitled to deduct $3,191 as fees paid to investment counsel pursuant to s. 20(1)(bb) of the Income Tax Act (“the Act”).

According to the respondent the fees in question were paid for a profitability study on possible purchases of immovable property, not securities as provided in s. 20(1)(bb) of the Act. Further, in the respondent’s submission the fees were not paid for the purpose mentioned in s. 18(1 )(a): they were actually a capital outlay within the meaning of s. 18(1)(b).

The instant case was apparently postponed sine die in 1988 following an appeal to the Federal Court in Charron v. Minister of National Revenue)[1] That case concerned the sale of a share in a multiple-unit residential building.

Burden of proof

The appellant has the burden of showing that the respondent’s assessment is incorrect. This burden of proof results from several judicial decisions, including the judgment of the Supreme Court of Canada in Johnston v. Minister of National Revenue.?[2]

In that judgment the Supreme Court held that the facts assumed by the respondent in support of the assessments or reassessments must be presumed to be true until the contrary is shown. In the instant case the facts assumed by the respondent are set out in subparagraphs (a) to (d) of paragraph 7 of the Reply to the Notice of Appeal. That paragraph reads as follows:

[TRANSLATION]

7 In making the assessment for the 1986 taxation year the Minister took into account inter alia the following facts:

(a) in connection with a deduction for carrying charges a sum of $3,191 was paid by the appellant to J. André Émond for services as a real estate investment counsellor in the 1986 taxation year; [admitted]

(b) J. André Émond conducted a profitability study of possible real estate purchases for a group of investors which included the appellant; [admitted]

(c) as a result of this study the appellant, with other investors, became an undivided co-owner of several immovable properties; [admitted]

(d) the fees paid to an investment counsellor are fees incurred in the purchase of property and such fees are not deductible. [denied]

The provision of the Act which governs the instant case is s. 20(1)(bb), which reads as follows:

20. Deductions permitted in computing income from business or property.

(1) Notwithstanding paragraphs 18(1)(a), (b) and (h), in computing a taxpayer’s income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(bb) Fees paid to investment counsel. — an amount other than a commission paid by the taxpayer in the year to a person

(i) for advice as to the advisability of purchasing or selling a specific share or security of the taxpayer, or

(ii) for services in respect of the administration or management of shares or securities of the taxpayer,

if that person’s principal business

(iii) is advising others as to the advisability of purchasing or selling specific shares or securities, or

(iv) includes the provision of services in respect of the administration or management of shares or securities....

The respondent’s first argument is that the condition set out in s. 20(1)(bb)(i) of the Act was not met since a real estate transaction is at issue in the instant case.

Charron v. Minister of National Revenue, heard by this Court, was a similar case to the one before the Court. It was established in that case that this type of transaction is within the jurisdiction of the Commission des valeurs mobilières (C.V.M.) du Québec (Charron v. Minister of National Revenue, at p. 101). The same is true of the Ontario Securities Commission {Charron v. Minister of National Revenue, at p. 105: 4.03.1.6 in fine).

As to the second condition in s. 20( 1 ){bb), paragraph 4.03.1.6, beginning at p. 104 of the aforesaid case, explains the meaning of “security”, with abundant supporting precedent.

The third condition in s. 20(1)(bb) is also met because, even if Mr. Emond did not perhaps think he was advising others as to the advisability of purchasing securities, he did in fact sell them (see para. 4.03.1.10 of the aforesaid case). The same is true of the fourth condition, regarding the management of shares or securities.

The decision in Charron v. Minister of National Revenue has not been overturned by any court. Boucher c. Ministre du Revenu national^[3] is to the same effect.

Conclusion

The appeal is allowed with costs.

Appeal allowed.