Walsh,
J:—This
is
an
appeal
by
plaintiff
from
a
decision
of
the
Tax
Review
Board
dated
June
6,
1973
maintaining.
defendant’s
appeal
of
the
assessment
for
its
1968
taxation
year
and
referring
same.
back
to
the
Minister
of
National
Revenue
for
reassessment.
The
Minister
had
disallowed
a
deduction
of
an
amount
of
$30,000
claimed
as
a
bad
debt
by
defendant
in
that
year,
on
the
basis
that
it
was
not
owing
to
the
defendant,
that
it
had
not
become
bad
in
1968,
that
rt
had
not
been
included
in
computing
the
income
of
defendant
for
1968
or
any
previous
year,
that
part
of
defendant’s
ordinary
business
was
not
the
lending
of
money,
nor
was
the
defendant
during
its
1968
taxation
year
in
the
business
of
trading
in
receivables.
Plaintiff
therefore
claims
that
it
should
have
been
treated
as
a
capital
loss
within
the
meaning
of
paragraph
12(1)(b)
of
the
Income
Tax
Act,
RSC
1952,
c
148,
as
amended.
Proof
revealed
that
Mysam
Holdings
Corporation,
of
which
defendant
is
a
subsidiary,
made
loans
in
the
amounts
of
$10,000,
$30,000,
and
$10,000
in
1962,
1963
and
1965
respectively
to
a
Mr
F
L
Crystal,
which
loans
bore
interest
at
12%
and
were
secured
by
the
pledge
of
Mr
Crystal’s
shares
in
three
real
estate
companies,
namely
Fanpal
Realties
Inc,
Riva
Realty
Inc,
and
Delco
Realty
Inc,
with
respect
to
the
first
two
loans,
the
third
loan
being
allegedly
evidenced
merely
by
a
promissory
note
which
was
not,
however,
produced.
It
is
of
interest
to
note,
however,
that
the
amount
loaned
was
advanced
to
Mr
Crystal
by
a
cheque,
not
of
Mysam
Holdings
Corporation
the
alleged
lender,
but
of
the
defendant
Pollock
Sokoloff
Holdings
Corp
dated
January
27,
1965.
The
explanation
given
by
witnesses
in
testimony
was
that
no
formal
loan
agreement
was
drawn
up
in
connection
with
the
last
loan
because
Mr
Crystal
had
no
further
assets
to
pledge
and
it
was
felt,
in
any
event,
that
the
substantial
assets
of
the
real
estate
companies
in
which
he
had
already
pledged
his
shares
as
security
for
the
first
two
loans
was
sufficient
guarantee
for
the
third
loan
also.
Testimony
was
also
given
to
the
effect
that
although
the
first
$10,000
loaned
was
repayable
on
July
26,
1962,
six
months
after
it
was
made,
the
second
loan
of
$30,000
was
repayable
on
July
25,
1965,
two
years
after
it
was
made
and
no
date
was
specified
for
the
repayment
of
the
third
$10,000
loaned
on
January
27,
1965,
the
delays
for
payment
of
all
these
loans
were
extended
verbally
by
the
lenders
since
they
felt
that
the
security
was
satisfactory
and,
in
fact,
interest
on
ail
three
loans
was
duly
paid
up
to
‘and
including
instalments
due
in
August
1966.
Although
the
shares
pledged
by
Mr
Crystal
did
not
represent
all
the
shares
of
the
three
companies
in
question,
they
represent
a
substantial
proportion
consisting
of
one-quarter
of
the
shares
of
Riva
Realty
Inc,
one-quarter
of
the
shares
of
Delco
Realty
Inc,
and
one-sixth
of
the
shares
of
the
Fanpal
Realties
Inc.
Mr
Crystal
testified
that
in
1962-63
his.
aggregate
investment
in
the
three
companies
in
question
was
about
$60,000
and
that
he
considered
that
his
interest
in
the
land
held
by
these
companies
was
worth
about
$200,000.
Mr
Samuel
Sokoloft,
who
was
Vice-President
and
Secretary-Treasurer
of
defendant
and
President
and
Director
of
Mysam
Holdings
Corporation,
testified
that
these
companies
are
wholly-owned
by
two
families.
They
invest
in
common
shares,
bonds,
make
loans
on
real
estate
and
also
own
real
estate
including
undeveloped
land.
The
balance
sheet
of
defendant
as
of
December
31,
1968
shows
assets
of
$15,288.383
which
included,
inter
alia,
short
term
deposits
of
$6,000,000,
marketable
securities
at
cost
of
$1,021,559,
advances
to
Mysam
Holdings
Corporation,
the
parent
company,
of
$2,252,688
shares
in
Fleetwood
Corporation
of
$1,122,450,
mortgages
and
notés
receivable
in
the
amount
of
$116,211;
which
included
the
$20,000
not
yet
written
off
at
that
date
of
the
loans
to
Crystal,
and
real
estate
in
the
amount
of
$4,253,602.
For
the
year
1967,
mortgages
and
notes
receivable
appear
in
the
amount
of
$185,816
this
being
before
the
$30,000,
which
is
the
subject
of
the
present
appeal,
was
written
off
as
a
bad
debt.
In
addition
to
the
loans
to
Crystal,
the
company
had
a
$20,000
loan
to
S
Jacobson
outstanding
from
1964
to
1968
which
was
allegedly
guaranteed
by
a
pledge
of
shares
in
a
land
company
in
which
Mr
Jacobson
had
a
one-third
interest,
$20,000
starting
in
1964
and
reduced
to
$3,514
by
1968
loaned
to
Messrs
C
Redler
and
P
Waid,
guaranteed
by
a
personal
note,
$75,000
loaned
to
M
Feinstein
Inc
allegedly
guaranteed
by
its
interests
in
certain
land
which
loan
was
fully
repaid
by
1967,
and
a
further
loan
of
$70,526
to
M
Feinstein
Inc
made
in
1965
which
was
still
outstanding
at
the
end
of
1968;
there
was
also
a
loan
to
one
Harry
Feifer,
of
$50,000
made
in
1965
and
reduced
to
$2,141
by
the
end
of
1968,
allegedly
guaranteed
by
his
assigning
his
interests
in
real
estate
as
a
collateral
hypothec,
a
loan
of
$100,000
in
1964
to
Real
Estate
Investors
Corporation
on
the
security
of
a
note
which
was
apparently
fully
paid
by
1965
as
was
a
loan
in
the
amount
of
$7,500
to
Mrs
B
Feinstein
guaranteed
by
hypothec
on
a
country
property.
Finally,
there
was
a
loan
to
J
T
Stone
Cabinet
Manufacturing
Company
Limited
in
the
amount
of
$82,500
outstanding
in
1964
and
fully
paid
by
1967.
The
total
loans
outstanding
at
the
end
of
1964
totalled
$305,000
and,
as
previously
indicated,
by
the
end
of
1968
these
had
been
reduced
to
$116,181
after
the
writing-off
as
a
bad
debt
of
$30,000
of
the
loan
to
Mr
Crystal.
Mr
Sokoloff
testified
that
this
was
the
only
loan
which
the
company
had
ever
written
off
as
a
bad
debt.
These
loans
all
bore
interest
from
8%
to
10%,
a
good
rate
at
the
time.
He
testified
that
the
company
purchases
buildings
and
frequently
deals
with
real
estate
agents
who
submit
various
propositions
to
him
and
know
that
his
company
has
money
to
lend
but
that
he
always
requires
good
security
and
visits
and
examines
the
land
which
is
being
given
in
security
whether
directly
or
by
the
assignment
of
shares
in
companies
owning
the
land,
and
that
he
did
this
in
the
case
of
the
loans
to
Mr
Crystal.
As
for
Mysam
Holdings
Corporation,
it
was
apparently
originally
formed
primarily
as
a
holding
company
and
its
balance
sheet
as
of
December
31,
1966
indicates
assets
consisting
mainly
of
loans
receivable
$50,000
(the
loans
to
Crystal),
shares
in
Pollock
Sokoloff
Holdings
Corp,
valued
at
$6,505,000
and
advances
of
$174,873.
By
December
31,
1967
the
loan
receivable
of
$50,000
had
disappeared
from
its
balance
sheet
as
had
the
advances
of
$174,873
to
Pollock
Sokoloff
Holdings
Corp,
but
it
then
held
marketable
securities
at
cost
value
of
$954,081
and
an
income
debenture
in
Canadian
Power
and
Paper
Securities
Limited
of
a
value
of
$1,000,000.
It
is
quite
clear
from
the
evidence
given
by
Mr
Sokoloff
that
he
had
no
understanding
of
any
distinctions
to
be
made
resulting
from
the
separate
corporate
personality
of
Pollock
Sokoloff
Holdings
Corp
and
Mysam
Holdings
Corporation
(hereinafter
referred
to
as
“Pollock
Sokoloff”
and
“Mysam”
respectively)
and
used
the
companies
more
or
less
interchangeably
according
to
the
advice
of
his
auditors
and
attorneys
with
a
view
to
minimizing,
as
is
legally
permissible,
the
liability
of
the
two
companies
for
Quebec
taxes
on
paid
up
capital
and
Quebec
corporation
tax.
The
companies
were
so
interchangeable
in
his
mind
that
he
found
nothing
unusual,
for
example,
in
Pollock
Sokoloff
issuing
the
$10,000
cheque
to
Mr
Crystal
in
connection
with
the
third
loan
although
same
had
been
made
by
Mysam.
Similarly,
an
account
from
the
companies’
solicitor
rendered
to
Mysam
for
legal
services
in
connection
with
the
eventual
bankruptcy
of
Mr
Crystal
in
1969
was
paid
by
Pollock
Sokoloff
as
Mr
Lipper,
one
of
their
attorneys,
testified.
Nevertheless,
the
accounting
records
of
the
two
corporations
which
were
produced
in
evidence
reflect
the
various
intercompany
transactions,
and
Mr
Louis
Burstein,
CA,
the
auditor
for
both
companies,
testified
and
explained
these
records
in
his
evidence.
It
was
he
who
gave
the
explanation
as
to
why
the
loans
to
Crystal
were
made
by
Mysam
and
not
by
Pollock
Sokoloff.
By
virtue
of
Mysam
entering
into
the
investment
business
by
making
this
loan
it
could
deduct
its
principal
investment
in
shares
of
Pollock
Sokoloff
for
purposes
of
payment
of
the
Quebec
tax
on
corporate
capital,
and
he
believes
that
he
advised
Mr
Sokoloff
that
for
this
reason
the
loan
should
be
made
by
Mysam.
Subsequently,
due
to
changes
in
Quebec
taxing
statutes,
details
of
which
it
is
not
necessary
to
go
into
here,
it
became
necessary,
if
Mysam
was
to
be
considered
as
a
pure
investment
company,
that
its
investments
should
not
include
its
loan
to
Crystal
which
would
have
disqualified
it
from
being
so
considered.
This
was
also
explained
by
him
to
Mr
Sokoloff
and
accordingly
at
the
start
of
1967
this
loan
was
transferred
from
Mysam
to
Pollock
Sokoloff
and,
conversely,
all
Canadian
corporation
bonds
held
by
Pollock
Sokoloff
were
transferred
to
Mysam.
The
bonds
were
transferred
at
their
market
value
and
the
loan
at
its
face
value
and
no
money
changed
hands,
the
transactions
merely
being
reflected
by
entries
in
the
inter-company
accounts.
Copies
of
minutes
of
directors’
meetings
of
both
companies
were
produced
dated
January
2,
1967,
the
first
business
day
of
the
year,
reflecting
the
sale
and
transfer
of
Mysam
to
Pollock
Sokoloff
of
its
interest
in
the
loans
receivable
in
the
sum
of
$50,000
from
Mr
Samuel
Crystal,
the
consideration
being
payment
to
Mysam
of
the
said
$50,000
by
Pollock
Sokoloff.
As
at
that
date
there
was
no
outstanding
overdue
interest
on
the
loan
and
Mr
Burstein
testified
that
no
reserve
was
set
up
as
both
he
and
Mr
Sokoloff
felt
that
the
capital
of
the
loan
was
fully
recoverable.
Mr
Crystal
confirmed
that
he
was
informed
verbally
of
this
transfer
in
due
course
and
had
no
objection
to
it.
When
an
interest
payment
became
due
in
January
1967
he
was
unable
to
make
this
at
the
time
but
in
his
occupation
as
a
real
estate
agent
he
had
several
pending
deals
of
substantial
size
which
he
anticipated
would
yield
him
considerable
income
which,
unfortunately,
fell
through.
He
and
his
brother
who
was
in
business
with
him
had
advanced
considerable
sums
to
Fanpal,
Riva
and
Delco,
their
land
holding
companies,
in
1964,
1965
and
1966.
Although
the
property
owned
was
vacant
land
the
north
shore
autoroute
had
gone
through
it
and
part
of
the
property
has
been
expropriated
for
this
purpose
and
he
was
optimistic
that
this
would
attract
developers.
However,
there
was
a
severe
recession
in
real
estate
sales
in
Quebec
following
Expo
67
and
despite
all
efforts
they
were
unable
to
make
sales
and
went
further
and
further
into
debt.
The
capital
repayment
of
his
loans
from
Mysam
had
been
overdue
for
some
time
but
he
had
spoken
to
Mr
Sokoloff
about
this
and
the
latter
has
always
been
willing
to
extend
them
as
long
as
the
interest
was
paid,
which
he
was
able
to
do
until
the
August
1966
payment.
By
June
1969
his
finances
had
reached
such
a
low
ebb
that
his
telephone
was
disconnected
and
he
finally
made
an
assignment
in
bankruptcy
on
August
29,
1969
and
his
brother,
who
had
also
guaranteed
the
loans,
made
a
similar
assignment
a
week
later.
Mr
Sokoloff
then
instructed
his
attorneys
to
bring
proceedings
to
execute
on
the
shares
of
Fanpal
Realties
Inc,
Riva
Realty
inc,
and
Delco
Realty
Inc
given
as
security
for
the
loans
but
he
neglected
to
tell
them
that
the
loans
had
been
transferred
from
Mysam
to
Pollock
Sokoloff.
The
attorney,
Mr
Lipper,
acting
merely
on
incomplete
information
in
his
files
which
included
the
two
loan
agreements
from
Mysam
to
Crystal
totalling
$40,000,
Issued
a
petition
in
bankruptcy
in
Mysam’s
name
to
have
the
pledged
shares
sold
by
public
auction
on
the
basis
of
the
first
two
loans
for
which
they
had
been
given
as
security
and
by
judgment
dated
November
20,
1969
this
was
duly
authorized.
They
were
seized
on
December
30,
1969
and
brought
to
sale
on
February
9,
1970
and
purchased
for
$1
by
Mysam
in
each
case.
As
the
realty
companies
are
still
in
existence
the
shares
may
eventually
have
sufficient
value
for
Mysam
to
recover
the
amount
of
the
losses
but
this
is
not
an
issue
here.
It
is
also
hardly
necessary
to
point
out
that
the
$1
price
does
not
indicate
that
the
shares
had
no
value
at
the
date
of
the
sale,
but
merely
that
any
other
interested
purchaser
would
be
aware
that
Mysam
would
bid
them
up
to
a
sufficient
price
to
cover
its
loan,
arrears
of
interest,
and
costs
of
the
sale,
and
was
not
prepared
to
pay
this
price
for
them.
Although
Mr
Sokoloff
signed
the
affidavit
accompanying
the
petition
to
have
the
pledged
shares
sold,
I
am
satisfied
that
he
had
no
appreciation
whatsoever
of
the
significance
of
the
fact
that
the
petition
was
being
made
by
Mysam
although
the
loans
had
already
been
transferred
by
it
to
Pollock
Sokoloff,
and
he
apparently
merely
signed
the
document
that
was
put
before
him.
It
is
clear
that
Pollock
Sokoloff
certainly
considered
itself
to
be,
and
acted
as,
the
creditor
of
the
loans
due
by
Mr
Crystal
following
the
transfer
of
same
by
Mysam
to
it
on
January
2,
1967.
In
a
schedule
annexed
to
Pollock
Sokoloff’s
financial
statement
for
the
year
ended
December
31,
1968
appears
a
memorandum
showing
interest
due
by
Crystal,
1966—$2,083;
1967—$5,000;
1968—$5,000;
old
interest—
$124.98;
total—$12,207.98.
There
is
also
an
indication
that
$7,207.98
of
these
arrears
had
accrued
as
of
December
31,
1967
and
that
this
amount
was
being
written
off
against
1968
interest
earned.
It
was
explained
in
evidence
by
Mr
Burstein
that
the
sum
of
$2,083
repre-
sented
interest
accrued
from
the
date
of
the
August
1966
interest
payment
to
December
31,
1966.
Thereafter
interest
would
be
an
even
$5,000
per
annum
at
10%
*.
The
amount
of
$7,207.98
written
off
in
1968
had
been
set
up
as
an
asset
and
income
tax
paid
on
same
in
1967
as
it
was
not
until
1968
that
it
was
considered
to
be
a
bad
debt.
This
does
not
appear
to
be
an
unreasonable
or
improper
accounting
practice
as
it
was
by
no
means
clear
during
1967
that
the
debt
could
not
be
collected
and
had
a
reserve
been
set
up
for
the
interest
or
capital
of
it
as
a
bad
debt
during
that
year
this
might
well
have
been
disallowed.
A
working
paper
annexed
to
the
financial
statements
of
Pollock
Sokoloff
for
December
31,
1969
shows
under
the
heading
of
“Other
Investments”,
17
Z>
common
shares
Delco
Realty
Inc;t
25
common
shares
of
Riva
Realty
Inc,
and
15
common
shares
of
Fanpal
Realties
Inc,
each
at
a
value
of
$1.
Furthermore,
in
another
schedule
to
the
financial
statements
of
Pollock
Sokoloff
as
of
December
31,
1969
we
find,
in
addition
to
the
shares
in
the
said
three
companies
entered
at
a
price
of
$1
each,
that
advances
were
made
to
Riva
Realty
Inc
of
$248,
to
Delco
Realty
Inc
of
$248
and
to
Fanpal
Realties
Inc
of
$1
which,
together
with
the
three
$1
payments
for
the
shares,
makes
a
total
of
$500
paid
to
H
Blauer
in
trust,
with
the
notation
“to
record
acquisition
of
the
above
assets
at
bailiff’s
sales
through
H
Blauer”.
A
cheque
of
Pollock
Sokoloff
was
issued
io
Mr
Blauer
in
this
amount
on
October
9,
1969
and
evidence
relating
to
this
explained
that
there
were
certain
tax
obligations
of
these
companies
and
that
a
portion
of
them
proportional
to
the
share
holdings
had
to
be
advanced.
While
it
seems
extraordinary
that
this
advance
should
have
been
made
in
October
and
the
transactions
recorded
in
the
financial
statements
of
the
company
as
of
December
31,
1969
when
title
to
the
shares
was
only
acquired
at
the
bailiff’s
sale
on
February
9,
1970,
(and
then
it
was
Mysam
who
bought
the
shares)
there
is
certainly
nothing,
despite
these
apparent
irregularities,
to
indicate
that
Pollock
Sokoloff
did
not
at
all
times
following
the
acquisition
of
these
loans
from
Mysam
on
January
2,1967
treat
them
in
its
accounts
as
being
loans
owing
to
it
and
deal
with
them
accordingly.
I
cannot
see
how
the
erroneous
proceedings
taken
to
execute
on
the
security
by
Mysam
in
1969
when
they
should
have
been
brought
by
Pollock
Sokoloff,
nor
the
fact
that
it
was
Mysam
and
not
Pollock
Sokoloff
that
bought
the
shares
at
the
bailiff’s
sale
can
in
any
way
affect
the
validity
of
the
transfer
of
the
loans
from
Mysam
to
Pollock
Sokoloff
in
1967.
At
the
time
of
the
Crystal
bankruptcy
the
loan
itself
was
Clearly
due
not
to
Mysam
but
to
Pollock
Sokoloff
and
was
wiped
out
by
the
bankruptcy.
Whether
or
not
the
shares
of
the
realty
companies
pledged
to
secure
it
were
irregularly
brought
to
sale
by
Mysam
and
therefore
irregularly
bought
by
it
and
whether
Pollock
Sokoloff
is
legally
entitled
to
set
itself
up
as
owner
of
same
in
its
1969
financial
statements
might
only
be
a
matter
of
concern
to
plaintiff
when
and
if
these
shares
acquire
some
value
in
the
future,
but
in
no
way
concerns
the
writing
off
of
part
of
the
loans
as
a
bad
debt
in
the
1968
tax
return
of
defendant,
which
is
in
issue
here.
Plaintiff
invokes
articles
1570
and
1571
of
the
Quebec
Civil
Code
which
read
as
follows:
1570.
The
sale
of
debts
and
rights
of
action
against
third
persons,
is
perfected
between
the
seller
and
buyer
by
the
completion
of
the
title,
if
authentic,
or
the
delivery
of
it,
if
under
private
signature.
1571.
The
buyer
has
no
possession
available
against
third
persons
until
signification
of
the
act
of
sale
has
been
made,
and
a
copy
of
it
delivered
to
the
debtor.
He
may,
however,
be
put
in
possession
by
the
acceptance
of
the
transfer
by
the
debtor,
subject
to
the
special
provisions
contained
in
article
2127.
and
states
that
there
was
no
valid
transfer
of
the
loans
from
Mysam
to
Pollock
Sokoloff
so
as
to
affect
plaintiff,
who
claims
to
be
a
third
person
within
the
meaning
of
these
articles.
This
is
an
attempt
to
distort
the
meaning
of
these
articles
and
apply
them
to
a
situation
for
which
they
were
never
intended.
While
there
was
no
actual
deed
of
sale
between
Mysam
and
Pollock
Sokoloff,
there
were
resolutions
of
both
companies
approving
same
and
while,
in
the
absence
of
a
formal
deed
of
sale
there
was
of
course
no
copy
of
it
delivered
to
the
debtor,
Mr
Crystal,
he
was
informed
of
the
transfer
verbally
and
accepted
same,
which
he
admits.
It
was
of
no
concern
to
him
whether
future
payments
be
made
to
Pollock
Sokoloff
or
Mysam.
These
articles
deal
with
rights
to
possession
of
debts
sold
and
affect
the
claims
of
the
parties
themselves
including
third
persons
directly
affected
by
the
sale
but
surely
the
Minister
of
National
Revenue
has
no
right
to
intervene
and
seek
to
set
aside
such
a
sale
for
want
of
formality
when
all
the
parties
directly
affected
admit
that
it
took
place
and
that
the
debtor
was
aware
of
and
accepted
it,
merely
because
it
might
be
more
advantageous
from
the
taxation
point
of
view
for
the
Department
of
National
Revenue
if
such
a
sale
had
not
taken
place.
There
is
no
suggestion
whatsoever
in
the
pleadings
or
argument
in
the
present
case
that
the
sale
was
a
fraudulent
one
or
made
with
a
view
to
avoiding
federal
income
tax.
The
motivation
for
the
sale
has
been
given
an
acceptable
explanation
and
the
taxation
that
was
reduced
as
a
result
thereof
was
provincial
taxation
and
no
concern
of
plaintiff.
Plaintiff
contended
that
these
loans
were
not
made
in
the
ordinary
course
of
business
of
defendant
and
that
its
normal
business
is
not
money
lending
and
through
a
witness,
Henri
Vernneau,
an
accountant
with
the
Minister
of
National
Revenue,
analyzed
defendant’s
balance
sheet
as
of
December
31,
1968
which
showed
only
$116,211
of
mortgages
and
notes
receivable
out
of
total
assets
of
some
$15,288.000,
a
ratio
of
.8%.
Defendant
for
its
part
argued
that
its
short
term
deposits
in
the
bank
are
a
form
of
loan
to
the
bank
and
that
its
investments
in
bonds
are
equivalent
to
loans
to
the
governments
and
companies
whose
bonds
it
held,
and
furthermore
that,
while
its
loans
to
real
estate
developers
and
others,
details
of
which
have
been
outlined
above,
were
not
perhaps
very
extensive
in
connection
with
its
total
activities
in
the
real
estate
field,
nevertheless,
part
of
its
ordinary
business
was
the
lending
of
money
within
the
meaning
of
paragraphs
11(1)(e)
and
11(1)(f)
of
the
Act,
the
relevant
portions
of
which
read
as
follows:
11.
(1)
Notwithstanding
paragraphs
(a),
(b)
and
(h)
of
subsection
(1)
of
section
12,
the
following
amounts
may
be
deducted
in
computing
the
Income
of
a
taxpayer
for
a
taxation
year:
(e)
a
reasonable
amount
as
a
reserve
for
(i)
doubtful
debts
that
have
been
included
in
computing
the
Income
of
the
taxpayer
for
that
year
or
a
previous
year,
and
(ii)
doubtful
debts
arising
from
loans
made
in
the
ordinary
course
of
business
by
a
taxpayer
part
of
whose
ordinary
business
was
the
lending
of
money;
(f)
the
aggregate
of
debts
owing
to
the
taxpayer
(i)
that
are
established
by
him
to
have
become
bad
debts
in
the
year,
and
(ii)
that
have
(except
in
the
case
of
debts
arising
from
loans
made
in
the
ordinary
course
of
business
by
a
taxpayer
part
of
whose
ordinary
business
was
the
lending
of
money)
been
included
in
computing
his
income
for
that
year
or
a
previous
year;
It
is
not
necessary
that
the
number
of
loans
made
by
a
company
or
the
amount
of
them
be
great
in
proportion
to
its
total
business
activities
for
it
to
be
possible
to
say
that
part
of
its
business
is
the
lending
of
money;
no
proportion
is
established
under
the
Act
and
plaintiff’s
argument
based
on
the
relatively
small
proportion
of
defendant’s
assets
devoted
to
straight
loans
(not
including
term
bank
deposits
and
bond
investments)
cannot
be
accepted.
Considerable
jurisprudence
was
referred
to
by
plaintiff
but
most
of
it
deals
with
somewhat
different
situations
or
is
not
directly
in
point.
Cases
dealing
with
whether
or
not
a
litigant
is
a
money
lender
within
the
meaning
of
the
British
Money
Lenders
Act,
63
864
Vict,
c
51,
c
6,
such
as
Litchfield
v
Dreyfus,
[1906]
1
KB
584,
and
Newton
v
Pyke
(1908)
TLR
127,
are
of
little
relevance
since
the
question
here
is
not
whether
defendant
was
in
the
money
lending
business
and
had
to
be
licensed
as
such,
but
merely
whether
part
of
its
business
was
the
making
of
loans.
The
case
of
George
A
Orban
v
MNR,
10
Tax
ABC
178;
54
DTC
148,
a
Tax
Appeal
Board
case,
discussed
these
judgments
and
held
that
in
order
for
a
man
to
be
a
money
lender
there
must
be
a
certain
degree
of
system
and
continuity
in
his
transactions.
In
that
case
the
appellant
had
only
made
three
loans,
and
it
was
found
that
since
the
fact
that
he
had
some
money
available
was
known
to
only
a
few
individuals
with
whom
he
was
acquainted
and
that
he
never
advertised
himself
or
was
listed
anywhere
as
a
money
lender,
therefore
his
loss
on
two
of
these
loans
was
a
capital
loss.
In
a
later
case
of
Valutrend
Management
Services
Limited
v
MNR,
[1972]
CTC
2170;
72
DTC
1147,
the
same
Board
member
(R
S
W
Fordham,
QC)’
distinguished
the
decision
stating,
at
page
2173
[p
1149]:
While
the
appellant
could
not
profess
to
be
a
money-lender
within
the
restricted
meaning
of
Orban
v
MNR
(supra),
it
was
nevertheless
a
lender
of
money
but
to
a
much
larger
degree
in
that
it
dealt
in
the
thousands
and
made
only
what
may
be
designated
as
commercial
loans.
Hence,
I
am
of
the
opinion
that
such
loans
as
are
involved
in
this
matter
were
made
in
the
ordinary
course
of
appellant’s
business
and,
where
they
have
not
proved
satisfactory
and
collectable,
are
qualified
to
be
classified
as
doubtful
debts
and
made
the
subject
of
a
reasonable
reserve
accordingly.
Two
other
cases
to
which
I
was
referred
were
decided
on
the
basis
of
paragraph
139(1)(e)
of
the
Act
and
did
not
deal
with
paragraph
11(1)(e)
or
11(1)(f),
the
question
being
whether
loans
made
by
an
individual
in
the
circumstances
in
which
he
made
them
constituted
an
adventure
in
the
nature
of
trade,
or
whether
they
were
investments.
In
the
first
of
these,
J
Harold
Wood
v
MNR,
[1969]
CTC
57;
69
DTC
5073,
a
lawyer
whose
firm
had
a
substantial
mortgage
practice
personally
acquired
13
mortgages
over
a
period
of
eight
years.
In
one
of
these
the
appellant
benefited
to
the
extent
of
$700
by
discount,
which
was
held
by
the
Supreme
Court
to
be
a
capital
gain
as
the
pattern
of
his
mortgage
activities
was
consistent
with
the
making
of
personal
investments
and
not
with
the
carrying
on
of
a
business.
Plaintiff
cited
it
mainly
because
of
the
statement
of
Abbott,
J
in
rendering
judgment
at
page
60
[5075]
to
the
effect
that:
Appellant’s
purchases
were
not
speculative
and,
according
to
his
evidence,
they
were
made
after
he
had
inspected
each
property
and
reached
a
decision
that
each
mortgage
was
a
safe
investment
for
him.
There
was
no
question
of
part
of
appellant’s
ordinary
business
being
the
making
of
loans
in
that
case,
unlike
the
present
case
where
I
have
decided
that
this
was
part
of
the
ordinary
business
of
Pollock
Sokoloff
and
the
fact
that
Mr
Sokoloff
carefully
investigated
the
properties
of
the
realty
companies
whose
shares
were
being
given
as
security
for
the
present
loans
and
that
this
was
his
invariable
practice,
as
he
testified,
in
connection
with
all
the
loans
made,
and
that
he
did
not
consider
them
to
be
speculative
indicates
merely
that
he
was
a
prudent
businessman
and
does
not
have
the
effect
of
converting
loans
made
as
part
of
the
ordinary
business
of
his
company
into
investment
transactions.
The
same
comment
applies
to
the
case
of
MNR
v
William
Hedley
Maclnnes,
[1962]
CTC
350;
62
DTC
1208,
in
which
Thurlow,
J
held
that
although
over
a
ten
year
period
the
taxpayer
had
purchased
some
309
mortgages
at
a
discount,
which
mortgages
were
offered
to
him
by
real
estate
agents
without
any
solicitation
on
his
part,
and
held
them
until
they
were
paid
off
either
at
or
before
maturity,
the
discounts
were
nevertheless
capital
gains
resulting
from
enhancement
of
value
on
the
realization
of
investments.
This
judgment
was
reversed
in
the
Supreme
Court,
[1963]
SCR
299;
[1963]
CTC
311;
63
DTC
1203,
which
found
that
the
taxpayer
was
engaged
in
a
highly
speculative
business
of
purchasing
mortgages
at
a
discount
and
holding
them
to
maturity
in
order
to
realize
the
maximum
amount
of
profit
out
of
the
transaction.
It
is
of
some
significance
in
the
present
case
that
the
loans
bore
interest
rates
substantially
in
excess
of
the
going
rate
at
the
time,
which
is
some
indication
of
the
speculative
nature
of
the
loans,
despite
the
fact
that
no
discount
was
involved.
The
most
serious
problem
in
the
present
case
arises
from
the
fact
that
the
loans
were
not
originally
made
by
defendant
but
rather
by
Mysam
and
then
transferred
to
defendant
at
their
full
book
value
in
1967.
Plaintiff
contends
that
it
cannot
be
said
that
part
of
the
ordinary
business
of
Mysam
was
the
lending
of
money
since
these
three
loans
were
the
only
loans
which
it
made.
This
may
well
be
the
case,
but
it
is
not
Mysam’s
taxation
which
is
before
the
Court
nor
was
it
Mysam
which
wrote
off
$30,000
of
the
loans
as
a
bad.
debt
in
1968.
Since
I
have
found
that
part
of
defendant
Pollock
Sokoloff’s
ordinary
business
was
the
lending
of
money
and
that
this
particular
loan.
became
a
bad
debt
in
1968
when
part
of
it
was
written
off,
which
was
amply
confirmed
by
the
bankruptcy
of
the
indebtor
in
1969,
there
would
have
been
no
problem
at
all
had
the
loan
in
question
originally
been
made
by
Pollock
Sokoloff.
itself.
Since
the
wording
of
paragraph
11(1)(f)
however
refers
to
“debts
arising
from
loans
made
in
the
ordinary
course
of
business
by
a
taxpayer”
the
question
arises
as
to
whether
loans
which
were
not
actually
made
by
the
taxpayer
himself
but
acquired
by
transfer
from
another
taxpayer
can
be
written
off
by
the
transferee.
In
a
decision
in
the
Tax
Appeal
Board
case
of
Sun
Securities
Limited
v
MNR,
37
Tax
ABC
106;
64
DTC
821,
the
appellant
company
sought
to
set
up
a
reserve
under
paragraph
11(1)(e)
for
a
bad
debt
acquired
by
it
by
transfer
from
one
of
its
minority
shareholders
who
had
made
the
loans
and
it
was
held
that
this
could
not
be
done
because
of
the
wording
of
paragraph
11(1)(e)
of
the
Act.
The
decision
stated
at
page
108
[822]:
From
a
reading
of
this
section,
there
appears
to
be
no
doubt
that
the
reserve
must
be
set
up
by
the
person
who
made
the
loans.
In
the
present
appeal,
the
facts
do
not
show
this
course
of
conduct.
The
loans
were
made
by
Lawrence
E
Swinburne
whereas
the
reserve
was
set
up
by
Sun
Securities
Limited.
Furthermore,
the
loans
under
consideration
were
not
made
by
the
appellant
in
the
ordinary
course
of
its
business
as
a
moneylender.
On
the
contrary,
they
were
made
by
one
Lawrence
E
Swinburne
personally
without
taking
the
precautionary
measures
usually
expected
of
a
man
in
the
business
of
lending
money.
While
this
case
dealt
with
the
setting
up
of
a
reserve
for
a
doubtful
debt
under
paragraph
11
(1)(e),
and
not
the
writing
off
of
a
bad
debt
by
virtue
of
paragraph
11
(1)(f),
the
words
“loans
made
in
the
ordinary.
course
of
business
by
a
taxpayer”
appear
in
both
sections
and
if
this
judgment
were
to
be
followed
then
plaintiff
would
succeed
in
the
appeal.
I
believe
that
we
have
to
look
at
the
circumstances
in
which
the
loans
were
made
:in
the
present
case,
however.
The
loans
were
agreed
to
after
investigation
by
Mr
Sokoloff,
who
habitually
acted
for
both
Mysam
and
Pollock
Sokoloff.
They
were
made
in
the
name
of
Mysam
rather
than
Pollock
Sokoloff
for
reasons
arising
from
Quebec
taxation
statutes.
The
actual
cheque
to
Mr
Crystal
representing
the
proceeds
of
the
third
loan
of
$10,000
was
a
cheque
of
Pollock
Sokoloff*.
To
say
that
a
company,
part
of
whose
ordinary
business
is
the
lending
of
money,
cannot
also
acquire
by
transfer
made
by
another
company,
or
that
if
it
does
so
a
distinction
must
be
made
between
bad
debts
arising
out
of
loans
made
by
it
itself
which
can
be
written
off
and
loans
acquired
by
it
by
transfer,
which
it
acquired
at
their
full
face
value,
and
that
the
latter
loans
cannot
be
written
off
even
if
they
become
bad
debts,
would
appear
to
me
to
be
an
unreasonable
distinction
and
one
which
would
interfere
greatly
with
normal
business
operations
of
companies
whose
business
or
part
of
whose
business
is
the
lending
of
money.
Surely
it
cannot
have
been
intended
that
loans
acquired
at
a
time
when
they
are
not
in
arrears
and
appear
to
be
well
secured
and
for
which
the
full
face
value
has
been
paid
can
never
be
written
off
by
the
transferee
as
bad
debts
under
paragraph
11(1)(f),
nor
that
a
reserve
cannot,
subsequent
to
the
acquisition,
be
set
up
for
them
as
a
doubtful
debt
under
paragraph
11(1)(e).
Moreover,
the
interest
on
these
loans
was
set
up
in
the
books
of
Pollock
Sokoloff
in
1967
although
it
was
not
collected
and
tax
was
paid
on
same,
no
reserve
being
allowed
for
it
as
a
doubtful
debt,
and
it
was
not
until
1968
that
this
was
reversed
and
this
uncollectable
interest
was
written
off
against
1968
interest
earned.
One
other
case
to
which
I
was
not
referred,
namely
that
of
Western
Wood
Products
Limited
v
MNR,
[1963]
CTC
99;
63
DTC
1053,
might
at
first
sight
appear
to
help
the
plaintiff’s
case
but
on
closer
reading
it
is
evident
that
it
was
decided
on
another
point.
In
this
case
the
taxpayer
set
up
a
reserve
for
a
bad
debt
which
was
acquired
by
it
from
a
subsidiary
corporation
which
had
financed
a
third
company
also
controlled
by
the
taxpayer
on
the
understanding
that
any
resultant
losses
would
be
borne
by
the
taxpayer
itself.
It
was
held
that
in
the
absence
of
documentary
evidence,
the
taxpayer
could
not
be
regarded
as
a
creditor
of
the
borrowing
company
whose
indebtedness
to
the
lender
arose
from
a
transaction
foreign
to
the
taxpayer,
and
that
the
taxpayer
was
therefore
excluded
from
the
scope
of
the
permissive
exception
in
subparagraph
11
(1)(e)(i)
of
the
Act.
A
reading
of
the
judgment
discloses,
however,
that
it
was
based
on
subsection
137(1)
of
the
Act
as
an
attempt
to
“unduly
or
artificially
reduce”
the
income
of
the
appellant.
The
judgment
also
refers
at
page
107
[1057]
to
“the
absence
of
assignments
or
guarantees”.
There
is
no
suggestion
whatsoever
in
the
present
case,
as
already
stated,
that
any
fraud
was
involved
or
that
the
transfer
was
made
with
a
view
to
attempting
to
unduly
or
artificially
reduce
the
income
of
defendant,
Pollock
Sokoloff.
I
therefore
find
that
the
amount
of
$30,000
was
properly
written
off
as
a
bad
debt
of
defendant
in
1968
and
dismiss
plaintiff’s
appeal
against
the
decision
of
the
Tax
Review
Board,
with
costs,
and
refer
the
1968
income
tax
assessment
of
defendant
back
to
the
Minister
for
reassessment
in
accordance
with
this
judgment.