Roger Lauzon v. Minister of National Revenue, [1976] CTC 2125

A W Prociuk (orally: November 27, 1975):—The appellant, Roger Lauzon, appeals from the respondent’s reassessment of his income for the taxation year 1972 wherein a capital loss to the extent of $1,000 was disallowed by the respondent on the ground that it did not come within the purview of the Income Tax Act.

The facts of this case, as agreed to by counsel for both parties, read as follows. The taxpayer, that is, the appellant, with another, incorporated a corporation known as Windermere Management Limited which in turn acquired shares in a corporation known as McCaffreys Hi Fi, TV & Appliances Limited and, as a condition of the purchase of McCaffreys’ shares, the taxpayer, that is, the appellant, was required to guarantee McCaffreys’ indebtedness to McCaffreys’ bank.

This was taken from the amended Notice of Appeal of the appellant. The other agreed facts appear in paragraph 3 of the respondent’s Reply to Notice of Appeal and they are as follows:

3. In assessing tax as aforesaid the Respondent assumed, acted or found as follows:

(a) The Appellant was at all material times, Inter alia, the President and major shareholder of Sun Parlour Pool Company Limited;

(b) in the year 1969, the Appellant, in partnership with one Len Kane, incorporated Windermere Management Limited, which company, in turn, controlled McCaffreys Hi Fi, T.V. & Appliances Limited (hereinafter referred to as “McCaffreys”);

(c) the Appellant became guarantor of a loan in the amount of $2,000.00 made by the Toronto Dominion Bank to McCaffreys;

(d) McCaffreys subsequently went bankrupt, and the said indebtedness to the Toronto Dominion Bank became uncollectable from McCaffreys;

(e) as guarantor of this loan, the Appellant was required to satisfy the said debt, and did, in fact, discharge it by paying to the Bank the sum of $2,000.00 in the year 1972;

(f) in the 1972 taxation year, the Appellant sought to deduct from his income the sum of $1,000.00 as an allowable capital loss, and the Respondent disallowed to the Appellant deduction of the said amount;

In the Notice of Appeal the appellant states that: “Since the cost of the said shares in the said Corporation should equal the total amount paid by the Taxpayer, and since the proceeds of disposition is equal to less than the cost thereof to the taxpayer, the capital loss should be allowed as a deduction in the manner provided in Section 3 of the Income Tax Act.”

At the hearing of this appeal, the Board was treated to a brilliant thesis on capital loss by counsel for the appellant. He at once agreed with the respondent’s contention that paragraph 18(1)(a) of the Income Tax Act does not apply. He then said that in so far as paragraph 18(1)(h) is concerned, the $2,000 was not a personal or living expense; and he referred to the “exception portion” of the definition of personal or living expenses as set forth in paragraph 248(1)(a). Counsel for the appellant further went on to say that paragraph 20(1 )(p) of the Act does not apply either, as the loss is not deductible under this provision, but it does qualify as a bad debt under subsection 50(1). He went to some considerable length, in what I consider to have been a brilliant dissertation on the interpretation of paragraph (1)(b) and subparagraph (2)(g)(ii) of section 40, and invited the Board to interpret the said provisions in a manner that would permit his client to claim a deductible capital loss.

I am of the opinion that, on the facts as presented to the Board in the Agreed Statement which I have recited, the Board is not entitled to philosophize on the sections as they presently read. Indeed, if the Income Tax Act were to be amended as suggested by counsel for the appellant, it might very well be that the appellant would be entitled to a deduction of this kind. However, in my view, this outlay is not permitted under the current Income Tax Act as a deductible capital loss, and the appeal is dismissed.

Appeal dismissed.