Somers D.J.T.C.:
1 These appeals were heard at Toronto, Ontario, on March 11, 1997, pursuant to the Informal Procedure of this Court.
2 The Minister of National Revenue (the “Minister”) disallowed Radoslaw Bronny's, the Appellant, claim for an allowable business investment loss (ABIL) in the 1992 taxation year. The Minister admits that the Appellant and his spouse acquired shares and loaned the amount of $43,750.00 to a Canadian owned corporation. In computing income for the 1997 taxation year the Appellant deducted ABIL in the amount of $32,775.00 (75% of $43,700.00). In reassessing the Appellant for the 1992 taxation year the Minister disallowed the ABIL of $31,141.00.
3 In reassessing the Appellant, the Minister made the following assumptions of fact which were admitted or denied:
Business Investment Loss:
(b) on April 3, 1990, 890372 Ontario Inc. (the “Corporation”) was incorporated in the Province of Ontario; (admitted)
(c) the Corporation's major activity was intended to be real estate development; (admitted)
(d) since the date of incorporation, the Corporation was the beneficial owner of the parcels of lands municipally known as 459 and 459A Roncesvalles Avenue and 20 Ritchie Avenue (the “Ritchie Property”), both of the City of Toronto, in the Province of Ontario; (admitted)
(e) on April 16, 1990, the Appellant and his spouse purchased 50 common shares of the Corporation at a purchase price of $1.00 per share; (admitted)
(f) in the 1990 and 1991 taxation years, the Appellant and his spouse made several loans to the Corporation totalling $37,500.00 in 1990 and $6,250.00 in 1991; (admitted)
(g) on December 31, 1990, the Corporation issued a Promissory Note in the amount of $37,500.00 payable to the Appellant and his spouse. The due date of this Promissory Note was July 31, 1992; (admitted)
(h) on December 31, 1991, the Corporation issued a Promissory Note in the amount of $6,250.00 payable to the Appellant and his spouse. The due date of this Promissory Note was July 31, 1992; (admitted)
(i) at the end of the 1992 taxation year, the Corporation still owed the Appellant and his spouse the sum of $43,750.00 (the “Debt”); (admitted)
(j) at the end of the 1992 taxation year, the Corporation still owned the Ritchie Property; (denied)
(k) at the end of the 1992 taxation year, the Debt was not established by the Appellant to have become a bad debt to which subsection 50(1) of the Act applies; (denied)
(l) at all relevant times, the Corporation was not carrying on an active business; (denied)
(m) the Appellant failed to produce evidence to support that the Debt was owing to him by a Canadian controlled private corporation that is a small business corporation within the meaning of subsection 248(1) of the Act; (denied)
Arrears Interest:
(n) the income tax return for the 1992 taxation year was required to be filed on or before April 30, 1993; (ignored)
(o) the federal tax payable by the Appellant for the 1992 taxation year which was unpaid on April 30, 1993 amounted to $4,712.90 (the “Excess”); and (ignored)
(p) prescribed arrears interest on the Excess from April 30, 1993 to the date of mailing of the reassessment on January 16, 1995 amounted to $610.93. (ignored)
4 According to the Appellant's testimony, he and his spouse jointly bought 50 shares in a company 890372 Ontario Inc. which was incorporated on April 3, 1990. The company's major activity was intended to be a real estate development. The corporation was the owner of two pieces of land in the City of Toronto.
5 During 1990 and 1991, the Appellant and his spouse loaned money to the corporation on two separate occasions for a total sum of $43,750.00 for which they received two promissory notes. On July 30, 1992 the corporation sold the properties to another company without any transfer of funds. The property was sold for $750,000.00 being the amount of the first mortgage on this property which 815360 Ontario Inc. assumed in consideration of the purchase price. The Corporation 890372 Ontario Inc. was left with no assets.
6 The Corporation 890372 carried on an active business at all relevant times. A list of shareholders was provided as evidence as well as a balance statement. Two full-time employees managed the operations of the corporation. An architect was hired, as it appears in Exhibit A-3, to put up a new building on the property. The project was not realized, leaving an outstanding balance payable to the architect in the amount of $56,000.00.
7 In reviewing the evidence the Respondent admitted the corporation was in active business and that the money owing to the Appellant was a bad debt. The Appellant has no hope of being paid.
8 The Appellant is entitled to deduct an ABIL in the 1992 taxation year in accordance with paragraphs 38(c) and 39(1)(c) of the Income Tax Act.
9 However the Appellant maintains that he can claim the full amount of $32,775.00 (75% of $43,700.00). He said that the money loaned to the corporation was from a joint account with his spouse, he being the sole provider in the family. His income in 1992 was $43,750.00 and his wife's income was $5,146.33.
10 The Appellant's Notice of Appeal indicates that both he and his spouse invested in the corporation and as well loaned it $43,750.00. The promissory notes were issued to both the Appellant and his spouse. The evidence does not indicate whose money was used to make these loans to the corporation.
11 The appeal is allowed on the basis that the Appellant is entitled to deduct 50% of $32,775, which he had claimed as ABIL under paragraph 38(c) of the Act.
12 The appeal of Mrs. Felczynska-Bronny with respect to the calculation of her claim for a child tax credit and a GST tax credit for the 1992 taxation year is dependent on the outcome of the appeal of her husband. Accordingly, in view of the result in Mr. Bronny's appeal, the appeal of Mrs. Felczynska-Bronny is allowed and the matter is referred back to the Minister for reconsideration and reassessment taking into account the adjusted net family income for 1992.
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