Rae B Swansburg v. Minister of National Revenue, [1972] CTC 2125

A J Frost:—This is an appeal from an assessment to income tax in respect of the appellant’s 1969 taxation year, wherein an amount of $5,403.59 which the appellant sought to deduct in respect of ‘‘trading losses” was disallowed as a deduction from the income earned by him in that year. Upon notice of objection duly signed and filed, the Minister of National Revenue reassessed the appellant on May 12, 1971, allowing an additional deduction of $519.32 in respect of commissions paid on personal transactions but leaving the previous assessment unchanged in all other respects. The appeal was heard at Belleville, Ontario, on December 13, 1971, by the Tax Appeal Board as it was then constituted, and dismissed from the Bench.

The appellant was engaged as a commission salesman during the said taxation year with the firm of Jenkin Evans & Company Limited and placed orders for the purchase and sale of securities on behalf of clients. The firm charged regular commissions for their services as brokers and the appellant received a percentage of the commissions earned with respect to those accounts under his care. For 1969, the appellant’s commissions amounted to $13,458. In addition to placing orders for clients, he placed orders for his own accounts, one of which was maintained for long-term transactions and the other for short transactions; he initiated approximately two transactions per week on his own behalf as well as managing his own personal registered retirement savings plan with Guaranty Trust Company of Canada at its Belleville office.

The appellant considered himself to be a professional trader, and argued that he was entitled to deduct trading losses from his income as a commission salesman. The Minister took the position that the appellant was not in the business of buying and selling securities within the meaning of the provisions of the Income Tax Act and declined to allow the deduction of “trading losses” from income on the ground that they were not business losses sustained by the taxpayer but were rather losses of capital.

Having considered the evidence adduced, I have formed the opinion that the appellant was an employee and not in business for himself. The employer of the appellant, Jenkin Evans & Company Limited, was in the business of buying and selling securities, and the appellant, in so far as his own accounts were concerned, was in the same position as any other client. When he placed an order for himself, he was performing the same services as he normally would for other clients of his firm.

Under the circumstances I find that the appeal may only be dismissed as was stated at the end of the hearing.

Appeal dismissed.

RAINBOW PIPE LINE COMPANY LIMITED, Appellant,

and MINISTER OF NATIONAL REVENUE, Respondent.

Tax Review Board (W O Davis, QC), January 25, 1972.

“Nil” assessment — Right of appeal.

The appellant company, in its returns for its fiscal years 1967 and 1968, reduced its taxable income to nil by carrying forward unapplied portions of losses incurred in 1965 and 1966. In reassessing, the Minister notified appellant that no tax was payable but, before applying the losses to be carried forward, reduced appellant’s claims for capital cost allowance. These assessments, according to appellant, were ill-founded in fact and in law.

The Minister moved for an order quashing the purported notice of appeal on the ground that no appeal lay from nil assessments.

HELD:

The question of the right of a taxpayer to lodge an appeal from an assessment notice to the effect that no tax was payable was settled by Newfoundland Minerals Ltd v MNR (Practice Note, [1969] CTC 639) where the Court directed that the notice of appeal be struck out on the ground that there was no right of appeal in the circumstances. Notice of appeal quashed.

S M Chumir for the Appellant.

D MacKinnon for the Respondent.

W O Davis:—The appellant in these proceedings has appealed from reassessments to income tax in respect of its taxation years ended December 31, 1967 and 1968, wherein it was informed that no tax was payable by it for either year as a result of the application of losses suffered by it in 1965 and 1966 against the income earned by it in 1967 and 1968.

When this matter came on before me for hearing at Calgary, Alberta, on November 12, 1971, at a sittings of the Tax Appeal Board as it was then constituted, counsel for the Minister of National Revenue moved for an order of the Board quashing the purported notice of appeal on the ground that, under the provisions of the Income Tax Act, no appeal lies from assessments stating that no tax is payable by the taxpayer.

In its corporate income tax return for its fiscal year ended December 31, 1967 the appellant reported net income of $909,607 but, by carrying forward unapplied portions of losses incurred by it in 1965 and 1966, it reduced its taxable income for the year to nil and declared no tax payable. For its fiscal year ended December 31, 1968 it reported adjusted net income of $1,018,734, but again reduced its taxable income to nil by means of a “loss carry forward” and again declared no tax payable by it for the year.

On March 9, 1970 the Minister issued notices of reassessment of the appellant’s income for the years 1967 and 1968 in which he notified the taxpayer that no tax was payable in respect of either year but in which, inter alia, according to the T7W Form attached thereto, he had, before applying the losses to be carried forward, reduced the appellant’s claims for capital cost allowance.

The taxpayer then forwarded to the Minister notices of objection dated June 3, 1970 in which it complained that the Minister’s assessments were ill-founded in fact and in law because the Minister had re- duced the amounts of capital cost allowance rightfully claimed by the appellant by some $20,000 in each year thereby increasing the appellant’s net income from its business and had arrived at the nil assessments issued only by applying larger portions of the loss suffered by the appellant in 1966 than the taxpayer itself had applied against its net income for 1967 and 1968 in its corporate returns.

On February 17, 1971 the Minister replied to the said notices of objection by issuing a notification to the taxpayer under the provisions of section 58 of the Income Tax Act whereby he did nothing more than confirm “that no tax was payable” by the taxpayer for its taxation years ended December 31, 1967 and 1968.

The question of the right of a taxpayer to lodge an appeal from an assessment notice issued by the Minister to the effect that no tax Is payable has been before the Courts for some time and now appears to have been settled by a ruling of Gibson, J (now of the Trial Division of the Federal Court of Canada but then of the Exchequer Court of Canada) in Newfoundland Minerals Limited v MNR, as set forth in a Practice Note reported in [1969] CTC 639, which ruling was considered and followed by me in Lazis v MNA, [1970] Tax ABC 605. See also Falconbridge Nickel Mines Limited v MNR, [1971] CTC 789 at pages 795-6.

In the Newfoundland Minerals case (supra), an appeal had been instituted by the taxpayer from an assessment showing the tax payable by the taxpayer to be nil. When this matter in due course came on before Gibson, J, on appeal from the Tax Appeal Board, the Minister of National Revenue moved to strike out the notice of appeal on the ground that the Court had no jurisdiction to hear an appeal from a notification that no tax was payable. The Court allowed the Minister’s motion and directed that the notice of appeal be struck out on the ground that there was no right to appeal in the circumstances.

A very useful discussion on this ruling of Mr Justice Gibson in the Newfoundland Minerals case is to be found at page 21 of the January- February 1970 issue of the “Canadian Tax Journal” (Issue No 1, Vol XVII!) as published by the Canadian Tax Foundation.

Counsel for the appellant sought to establish a right on the part of the appellant to appeal from an assessment whereby no tax is payable if the methods of computation employed by the Minister and by the taxpayer to arrive at this result are at variance but, after hearing counsel for the parties, I have concluded that, in view of the present state of the law, I have no alternative but to follow the ruling of Mr Justice Gibson in the Newfoundland Minerals case (supra).

In the circumstances, the appellant’s purported notice of appeal herein must be quashed.

Appeal quashed.