Mogan,
T.C.J.:
—The
notice
of
appeal
filed
by
the
appellant
himself
with
respect
to
his
1985
and
1986
taxation
years
did
not
adequately
define
the
issues
but,
at
the
commencement
of
the
hearing,
the
appellant
acknowledged
that
the
reply
to
notice
of
appeal
filed
on
behalf
of
the
respondent
described
the
items
in
his
notices
of
reassessment
for
1985
and
1986
which
he
disputed.
The
first
four
issues
are
directly
or
indirectly
connected
with
an
amount
which
the
appellant
received
in
November
1985
when
a
corporation
in
which
he
was
a
minority
shareholder
purchased
for
cancellation
some
or
all
of
his
common
shares.
The
fifth
issue
is
the
deductibility
of
a
loss
which
the
appellant
claims
with
respect
to
his
attempt
to
earn
rental
income
from
a
residential
property
in
Florida.
For
a
number
of
years
prior
to
1985,
the
appellant
was
an
employee
and
minority
shareholder
of
Tri-Way
Machine
Limited
("Tri-Way").
There
was
an
agreement
among
the
shareholders
of
Tri-Way
which
provided
in
part
that
Tri-Way
would
purchase
the
appellant's
common
shares
in
certain
circumstances
including
the
termination
of
the
appellant’s
employment.
The
appellant's
employment
by
Tri-Way
ended
on
June
1,
1985.
When
there
was
no
immediate
move
on
the
part
of
Tri-Way
after
that
date
to
purchase
the
appellant's
shares,
the
appellant
spoke
to
the
firm
of
chartered
accountants
who
were
the
auditors
of
Tri-Way
but
they
told
him
that
he
should
seek
legal
advice
concerning
the
enforcement
of
the
shareholders’
agreement.
Apparently,
the
appellant
had
consulted
with
the
auditors
of
Tri-Way
because
his
shares
were
to
be
purchased
by
the
corporation
at
"book
value”
and
the
appellant
wanted
to
know
the
book
value
of
his
shares.
The
appellant
retained
a
lawyer
to
represent
him
in
forcing
his
fellow
shareholders
and
Tri-Way
to
honour
the
shareholders'
agreement;
and
the
lawyer
retained
a
public
accountant
to
advise
on
the
book
value
of
the
shares
in
question.
Subsequently,
the
appellant
entered
into
an
agreement
with
Tri-Way
under
which
he
agreed
to
sell
all
of
his
1,500
common
shares
in
Tri-Way
for
the
aggregate
sum
of
$119,342.50
payable
in
three
equal
annual
instalments
of
$39,780.83
in
November
1985,
1986
and
1987.
Apparently
the
paid-up
capital
(stated
capital)
of
the
appellant's
1,500
common
shares
of
Tri-
Way
was
$11,250.
The
appellant
reported
the
sale
of
his
Tri-Way
shares
as
resulting
in
a
capital
gain
of
$
17,630.54
for
1985
computed
as
follows:
Sale
Price
of
Shares
|
$
119,342.50
|
Adjusted
Cost
Base
|
11,250.00
|
(paid
up
capital)
|
$
108,092.50
|
Legal
and
Accounting
Costs
|
2,300.00
|
Net
Gain
on
Sale
|
105,792.50
|
Reserve
for
Unpaid
Amount
|
70,531.42
|
Capital
Gain
in
1985
|
35,261.08
|
Taxable
Capital
Gain
|
$
17,630.54
|
The
respondent
issued
a
notice
of
reassessment
to
the
appellant
for
1985
deleting
the
reported
table
capital
gain
of
$17,630.54
but
adding
to
the
appellant's
reported
income
a
deemed
dividend
of
$162,140
computed
as
follows:
Sale
Price
of
Shares
|
$
119,342.50
|
Paid
Up
Capital
|
11,250.00
|
Deemed
Dividend
(Sec.
84(3))
|
108,092.50
|
Grossed
Up
Dividends
(50%)
|
$
162,140.00
|
The
first
four
issues
connected
with
the
above
transaction
are
as
follows:
(i)
whether
the
amount
received
upon
the
sale
of
the
Tri-Way
shares
resulted
in
a
capital
gain
or
a
deemed
dividend
and
how
much
of
that
amount
was
the
appellant's
income
in
1985;
(ii)
whether
the
amount
of
$2,300
paid
for
legal
and
accounting
fees
was
deductible
in
computing
income;
(iii)
whether
the
appellant
was
entitled
to
forward
averaging
for
1985;
and
(iv)
whether
the
appellant
was
liable
for
the
instalment
interest
of
$698.31
for
1985
and
arrears
interest
of
$3,095.61.
Under
subsection
84(3)
of
the
Income
Tax
Act
("Act"),
when
a
corporation
acquires
any
shares
of
its
capital
stock,
it
is
deemed
to
have
paid
a
dividend
on
those
shares
equal
to
the
amount
by
which
the
amount
actually
paid
on
the
acquisition
exceeds
the
paid-up
capital
in
respect
of
those
shares.
And
under
paragraph
54(h),
there
is
excluded
from
"proceeds
of
disposition”
any
amount
that
would
otherwise
be
proceeds
of
disposition
of
a
share
to
the
extent
that
such
amount
is
deemed
to
be
a
dividend
by
subsection
84(3).
Therefore,
when
the
appellant
sold
Tri-Way
shares
back
to
the
corporation
In
November
1985,
he
did
not
realize
a
capital
gain
but
received
a
deemed
dividend
under
the
terms
of
subsection
84(3).
The
appellant
reported
in
1985
only
one
third
of
his
purported
capital
gain
because
he
received
in
1985
only
one
third
of
the
sale
price
of
his
Tri-Way
shares.
Upon
reassessment,
the
respondent
included
a
deemed
dividend
in
the
appellant's
1985
income
as
if
the
appellant
had
received
in
1985
all
of
the
sale
price
of
his
Tri-Way
shares.
In
making
such
reassessment,
the
respondent
assumed
that
in
1985
Tri-Way
"redeemed
1,500
common
shares
..
.
.
owned
by
the
appellant
for
a
price
of
$119,342.50".
There
was
uncontradicted
evidence
that
the
appellant
received
in
1985
only
one
third
($39,780.83)
of
the
sale
price.
Ordinarily,
the
issued
shares
of
a
corporation
are
not
purchased
or
acquired
or
redeemed
by
the
corporation
until
they
are
paid
for.
In
other
words,
if
a
corporation
has
not
paid
for
certain
of
its
issued
shares,
then
the
corporation
has
not
purchased
or
acquired
or
redeemed
such
shares.
The
question
therefore
arises
as
to
whether
only
one
third
of
the
appellant's
Tri-Way
shares
were
redeemed
or
otherwise
acquired
by
Tri-Way
in
1985.
In
my
view,
the
appellant
has
rebutted
the
respondent's
assumed
fact
with
regard
to
Tri-Way
having
"redeemed
1,500
common
shares”
in
1985
for
a
price
of
$
119,342.50;
and
there
is
no
longer
a
burden
of
proof
on
the
appellant
concerning
this
question.
It
is
possible,
however,
that
all
of
the
appellant’s
common
shares
were
purchased
by
Tri-Way
in
November
1985
and
that
the
appellant
loaned
back
to
Tri-Way
two
thirds
of
his
sale
price
thereby
changing
his
status
from
shareholder
to
creditor.
The
actual
procedure
followed
by
the
appellant
and
Tri-Way
can
be
determined
only
by
looking
at
the
resolutions
of
Tri-Way
directors
implementing
the
transaction
and
the
relevant
corporate
balance
sheets
as
approved
by
the
Tri-Way
directors.
Counsel
for
the
respondent
argued
that
subsection
84(7)
supported
the
reassessment
which
included
the
full
deemed
dividend
of
$162,140
in
the
appellant's
1985
income.
Subsection
84(7)
reads
as
follows:
A
dividend
that
is
deemed
by
this
section
or
by
section
212.1
to
have
been
paid
at
a
particular
time
shall
be
deemed,
for
the
purposes
of
this
subdivision,
to
have
become
payable
at
that
time.
With
respect,
I
think
that
subsection
84(7)
begs
the
question.
It
is
only
the
“amount”
of
the
dividend
that
is
deemed
by
section
84
to
have
been
paid
at
a
particular
time
that
is
deemed,
for
the
purpose
of
subdivision
"h"
to
have
become
payable
at
that
time.
Subsection
84(7)
does
not
assist
in
the
determination
of
that
amount
and,
in
particular,
it
does
not
permit
the
respondent
to
increase
the
size
of
a
deemed
dividend
under
section
84
otherwise
than
in
accordance
with
the
particular
facts
of
a
corporate
transaction.
It
seems
that
the
purpose
of
subsection
84(7)
is
to
permit
other
provisions
in
subdivision
"h"
(like
subsection
83(2))
to
apply
to
a
dividend
that
is
deemed
to
have
been
paid
by
section
84.
Counsel
for
the
respondent
also
relied
on
the
decision
of
this
Court
in
Cabezuelo
v.
M.N.R.,
[1983]
C.T.C.
2775;
83
D.T.C.
679
in
which
Mr.
Cab-
ezuelo
sold
his
25
shares
in
Triomphe
Inc.
back
to
the
corporation
for
$300,000.
In
the
same
transaction,
Triomphe
Inc.
was
to
repay
Mr.
Cab-
ezuelo's
advances
of
$50,000.
The
total
amount
of
$350,000
was
retired
with
two
principal
payments
of
$25,000
on
December
29,
1978
and
July
5,1979
and
with
the
balance
payable
at
10
'/2
per
cent
per
annum
in
blended
monthly
payments
of
$3,017.08
from
February
5,1979
to
December
5,
1981.
The
terms
of
the
promissory
note
from
Triomphe
Inc.
to
Mr.
Cabezuelo
are
set
out
at
page
683
of
the
reported
decision.
In
my
view,
the
delivery
of
the
promissory
note
from
Triomphe
Inc.
to
Mr.
Cabezuelo
characterized
the
transaction
as
one
of
sale
and
a
change
in
his
status
from
shareholder
to
creditor.
In
this
appeal,
we
have
no
such
clear
evidence.
Specifically,
we
do
not
know
whether
the
agreement
between
the
appellant
and
Tri-Way
provided
for
the
sale
of
his
1,500
common
shares
in
three
annual
parcels
of
500
shares
each
or
whether
all
1,500
shares
were
sold
in
November
1985
with
a
liability
from
Tri-Way
to
the
appellant
for
the
balance
of
the
purchase
price.
On
this
first
issue,
I
reach
the
following
conclusions:
(1)
In
November
1985,
the
appellant
received
a
deemed
dividend
under
subsection
84(3)
upon
the
sale
of
certain
Tri-Way
shares
and
he
did
not
realize
any
capital
gain
with
respect
to
those
shares.
(2)
The
amount
of
the
deemed
dividend
received
by
the
appellant
in
1985
will
be
determined
by
the
balance
sheet
of
Tri-Way
for
its
first
fiscal
period
ending
after
the
payment
of
$39,780.83
to
the
appellant
in
1985.
If
such
balance
sheet
shows
all
of
the
appellant's
shares
as
having
been
cancelled
and
shows
$108,092.50
as
having
been
charged
against
retained
earnings
in
respect
of
such
cancellation
and
shows
a
liability
to
him
with
respect
to
the
unpaid
two
thirds
of
his
sale
price,
then
he
shall
be
regarded
as
having
sold
all
of
his
Tri-Way
shares
in
1985
and
as
having
received
a
deemed
dividend
of
$108,092.50
to
be
grossed
up
by
the
appropriate
fraction.
But
if
such
balance
sheet
shows
only
one
third
of
the
appellant's
shares
as
having
been
cancelled
and
shows
only
$36,030.83
($39,780.83
minus
$3,750.00)
as
having
been
charged
against
retained
earnings
in
respect
of
such
cancellation,
then
he
shall
be
regarded
as
having
sold
only
one-third
of
his
Tri-Way
shares
in
1985
and
as
having
received
a
deemed
dividend
of
only
$36,030.83
which
will,
of
course,
be
grossed
up
by
the
appropriate
fraction.
Turning
to
the
second
issue,
the
appellant
had
two
kinds
of
property
relating
to
his
investment
in
Tri-Way
shares:
he
had
his
intangible
rights
under
the
shareholders'
agreement
and
he
had
the
shares
themselves.
Because
the
shareholders'
agreement
required
a
corporate
acquisition
of
his
shares,
he
would
on
the
facts
of
this
case
receive
a
deemed
dividend
on
the
disposition
of
his
shares.
The
provisions
of
subsection
84(3)
prevented
him
from
realizing
a
capital
gain
on
shares
which
he
had
purchased
from
the
treasury
of
Tri-Way.
The
costs
which
the
appellant
incurred
in
legal
and
accounting
fees
($2,300)
to
enforce
his
rights
under
the
shareholders'
agreement
were,
on
the
particular
facts
of
this
case,
like
expenses
incurred
to
collect
rents,
royalties
or
other
income
from
property.
In
my
view,
such
costs
are
deductible
and
the
appellant
is
entitled
to
deduct
the
said
amount
of
$2,300
in
computing
his
income
for
1985.
The
third
issue
concerns
forward
averaging.
The
short
answer
to
the
appellant's
claim
is
that
an
individual
taxpayer
is
permitted
a
forward
averaging
deduction
under
subsection
110.4(1)
of
the
Act
only
if
the
taxpayer
files
with
his
return
of
income
"an
election
in
prescribed
form
.
..
on
or
before
the
day
on
or
before
which
he
was
required
to
file
the
return".
The
appellant
did
not
file
any
such
election
with
his
1985
income
tax
return
or
at
any
other
time
prior
to
May
1,
1986.
Subsection
110.4(1)
does
not
permit
any
discretion
on
the
part
of
the
Minister
or
the
taxpayer;
and
the
appellant's
failure
to
file
an
election
form
within
the
prescribed
time
is
fatal
to
his
claim.
The
fact
that
the
appellant
was
not
aware
in
April
1986
(when
he
filed
his
1985
income
tax
return)
that
he
might
have
a
large
deemed
dividend
in
1985
is
of
no
assistance
to
him
if
he
did
not
file
the
prescribed
form
within
the
prescribed
time.
The
appellant
fails
on
the
fourth
issue
concerning
his
liability
for
instalment
interest
and
arrears
interest.
The
respondent's
reply
to
notice
of
appeal
included
two
schedules
showing
the
actual
calculation
of
the
interest
in
dispute.
The
appellant
produced
no
evidence
whatsoever
to
show
that
the
interest
assessed
was
not
correct;
and
he
made
no
argument
as
to
why
the
interest
was
not
assessed
under
the
relevant
provisions
of
the
Income
Tax
Act.
The
fifth
issue
concerns
a
loss
arising
out
of
the
appellant's
attempt
to
rent
his
property
in
Florida.
In
March
1985,
the
appellant
purchased
a
lot
in
Florida
for
$24,000
(U.S.)
and
borrowed
the
entire
purchase
price
from
the
Toronto
Dominion
Bank.
In
March
1986,
he
purchased
a
used
trailer
(29
feet
long)
for
$3,000
(U.S.)
which
would
sleep
four
persons.
He
put
the
trailer
on
the
lot
and
immediately
joined
a
“condo
rental
group"
which
attempted
to
rent
his
trailer.
When
filing
his
1986
income
tax
return,
the
appellant
deducted
a
loss
of
$6,204.80
in
connection
with
his
Florida
property
computed
as
follows:
Expenses
|
|
Property
Taxes
|
$
|
450.06
|
Repairs
and
Maintenance
|
|
841.13
|
Interest
on
Loan
|
|
3,474.24
|
Light,
Heat
and
Water
|
|
185.82
|
Commissions
|
|
640.10
|
Travel
|
|
870.86
|
Set-Up
Fees
|
|
412.08
|
Common
Costs
|
|
1,093.27
|
Total
Expenses
|
$
7,967.56
|
Less
Personal
Use
|
|
306.75
|
|
$
7,660.81
|
Less
Gross
Rents
|
$
1,456.01
|
Net
Loss
|
$
6,204.80
|
The
tenants
in
Florida
were
tourists
not
known
to
the
appellant
who
also
stated
in
cross-examination
that
he
purchased
the
lot
not
necessarily
to
secure
a
return
on
a
yearly
basis
but
because
the
property
was
going
up
in
value.
He
stated
that
the
property
in
1989
was
worth
$45,000
(U.S.).
He
paid
off
his
loan
to
purchase
the
Florida
property
with
his
second
pay-out
from
Tri-Way
in
November
1986.
In
argument,
the
appellant
stated
that
if
his
annual
expenses
were
prorated
over
the
twelve
months,
he
would
show
a
profit
for
certain
winter
months
when
the
trailer
could
be
rented.
That
statement
is
doubtful
because
certain
costs
like
the
commissions
should
be
charged
directly
against
the
rents.
Also,
it
appears
inconsistent
to
pro-rate
all
expenses
over
12
months
to
attempt
to
show
a
profit
for
a
few
winter
months
if
all
expenses
are
going
to
be
included
as
part
of
the
loss
claimed.
Counsel
for
the
respondent
relied
on
the
decision
of
his
Court
in
Perratt
v.
M.N.R.,
[1985]
1
C.T.C.
2089;
85
D.T.C.
101
and
the
decision
of
the
Federal
Court-Trial
Division
in
Meech
v.
The
Queen
[1987]
1
C.T.C.
421;
87
D.T.C.
5251.
I
have
no
difficulty
in
concluding
that
the
appellant
had
no
reasonable
expectation
of
profit
when
he
attempted
the
rental
of
his
trailer
in
Florida.
With
respect
to
the
fifth
issue,
the
appeal
is
dismissed.
The
appellant’s
reassessments
for
1985
and
1986
are
referred
back
to
the
respondent
for
reconsideration
and
reassessment
in
accordance
with
the
first
and
second
issues
described
above.
With
respect
to
the
third,
fourth
and
fifth
issues,
the
appeals
are
dismissed.
Having
regard
to
the
inadequate
notice
of
appeal,
the
appellant
is
not
entitled
to
any
costs.
Appeal
allowed
in
part.