Wood v. The Queen, docket 2001-4499(IT)I (Informal Procedure)

Date: 20020912

Docket: 2001-4499-IT-I

BETWEEN:

HÉLÈNE WOOD,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Rip, J.

[1]            Hélène Wood appeals from an income tax assessment for 2000 on the basis that the Minister of National Revenue ("Minister") has incorrectly calculated and applied net capital losses of previous taxation years to her taxable capital gains for 2000.

[2]            The appellant claimed a deduction of $7,883.07 for "unused capital losses of previous years". The amount of $7,883.07, appellant says, was derived from calculations of unused capital losses "that taxpayers were required to make in their return for the taxation year 1994 and submit to the Minister" on a form "in order to exercise options given to them, following the abolition of a certain capital gains exemption".

[3]            The Deputy Attorney General of Canada states in the respondent's reply to the notice of appeal that the appellant had available as carry forward of capital losses from years prior to 2000 the amount of $4,542 and allowed appellant in 2000 a net capital loss carried forward from earlier years in the amount of $4,072. A document setting out the history of the appellant's capital gains and capital losses from 1986 to 2000 inclusive was attached to the reply as Annex 3; this document also included the net capital gains exemption in the applicable years as well as the application of the net capital losses in each year.

[4]            The issue before me, however, has its genesis in 1994 when section 110.6 of the Act was amended to abolish the $100,000 capital gains exemption and to permit taxpayers to elect, pursuant to subsection 110.6(19), to exempt capital gains accrued on capital property owned at the end of February 22, 1994.

[5]            A copy of Mrs. Wood's 1994 tax return, undated, indicates Mrs. Wood reported taxable capital gains of $14,480.61 (line 127) and claimed a capital gains deduction of $14,480.61 (line 254). Attached to her 1994 income tax return was a yellow handwritten paper ("note") containing the following:

Corrections and/or amendments to earlier returns based on telephone call to Revenue Canada on 19/4/95 on the understanding that they do not change the taxes for 1987, 1989 or 1992.

(1) 1987:           Delete capital loss of $672.47 for 1985 and reclassify as unused. Increase capital gains exemption from $5,706.55 to $6,379.02 by adding $672.47.

(2) 1989:           Delete capital loss of $632.59 for 1988 and reclassify as unused. Increase capital gains exemption from $2,454.91 to $3,087.50 by adding $632.59.

(3) 1992:           Delete capital loss of $1,429.88 for 1990 and capital loss of $913.20 for 1992 (i.e. 75% of $1,217.60 in list shown as totalling $4,265.61) and reclassify as unused. Increase capital gains exemption from $1,769.32 to $4,112.40 by adding $1,429.88 + $913.20.

Revised capital gains exemptions 1985-1993

1987                                                    6,379.02

1988                                                    495.83

1989                                                    3,087.50

1992                   4,112.40

                                                                             14,074.75

[6]            On appeal, the appellant takes the position that the note constitutes a request by her pursuant to subsection 152(1.1) of the Act for a determination of losses.[1]

[7]            The explanation of changes on the form of notice of assessment for 1994, dated May 23, 1995, informed Mrs. Wood that:

       Nos dossiers indiquent que vous avez des pertes en capital d'autres années inutilisées. Vous pouvez utiliser ce montant pour réduire le gain en capital imposable que vous indiquerez dans les déclarations d'autres années. Pour plus de renseignements concernant ce montant, veuillez communiquer avec votre bureau de district d'impôt.

[8]            Mr. Wood, Mrs. Wood's spouse and lawyer, is of the view that the note in the notice of assessment constitutes the Minister's determination of capital losses. In his view, the amount of capital losses is the amount the appellant calculated in the note attached to her 1994 tax return since the Minister did not advise of any alteration of the amount in the notice of assessment for 1994 or elsewhere. The admission by the Minister on the notice of assessment that « ... vous avez des pertes en capital d'autres années inutilisées » suffices as a determination, according to the appellant, if I understand her position. The appellant states that she is "entitled to construe the aforesaid « Avis de cotisation » as acceptance of her return, thereby constituting compliance by the Minister with his obligation under subsection 151(1.1) of the Act, namely that he shall determine, with all due dispatch, the amount of the loss and shall send a notice of determination to the person by whom the return was filed". The appellant, I understand, did not request any information concerning the amount of the unused capital losses of previous years.

[9]            An officer of the Canada Customs and Revenue Agency ("CCRA"), Mr. Hubert de Groot, interpreted the note as an attempt by the appellant "to go back to the 1987 year . . . and take out the loss that was applied from 1985 . . ., put it back in the loss bank and apply the capital gains exemption against the capital gain". Mr. Wood agreed with Mr. de Groot adding that his wife "never had enough years to exhaust the $100,0000 exemption . . .". Again, the note did not suggest an attempt to request a determination of losses.

[10]          I do not agree with the appellant that she had made a valid request for a determination of losses or that the Minister made a determination of losses. The appellant's view is quite a stretch. The note attached to the 1994 tax return is what it says it is, that is, a request for "corrections and/or amendments to earlier returns."[2] The purpose of subsection 152(1.1) is not to amend losses, which the taxpayer attempted to do, but to have the Minister determine the amount of the losses of previous years.

[11]          The appellant also claimed that the Minister erred in disallowing how she calculated her net taxable capital gains in her 2000 income tax return. The appellant sequentially applied "the earliest unused capital losses against the earliest taxable gains during the year (2000 being divided into three periods with different rates of capital gains tax for each period). . .". The appellant submits her method of applying the unused capital losses against taxable capital gains conforms to subsection 111(3) of the Act, "to the effect that '. . . an amount in respect of net capital loss for a taxation year may be claimed . . . only to the extent that' allowable losses 'for preceding years have been deducted' so as to qualify this method as obligatory or at least an optional variant to the averaging method in the Booklet 'Capital Gains 2000' ".

[12]          I have reviewed Annexes 1, 2 and 3 attached to the Minister's reply to the notice of appeal. Annex 1 describes how the CCRA determined the capital gains inclusion rate for 2000. Annex 2 describes how the CCRA allocated the capital losses of Mrs. Wood from 1986 on. As previously stated, a history of capital gains and capital losses is set forth in Annex 3. These annexes are attached as Schedule I to these reasons. Mrs. Wood has not shown any error in the Minister's allocation and calculations. Her application of unused capital losses against her capital gains does not conform to the Act. I find that the methods applied by the Minister to determine capital gains inclusion rate for 2000 and allowable capital losses of previous years are in accordance with amendments made to section 38 of the Act by S.C. 2001, c. 17, s. 22, a relatively complex set of rules.

[13]          The appeal is dismissed.

Signed at Ottawa, Canada, this 12th day of September, 2002.

"Gerald J. Rip"

J.T.C.C.SCHEDULE I

Hélène Wood

Capital Gains Inclusion Rate

Taxation year 2000

	GAIN	RATE	TAXABLE
PERIOD 1 (2000/01/01-2000/02/27) 450 Donahue Information slips Total Period 1	$ 9,359.84 $    407.98 $ 9,767.82	"3/4	$    7,325.87
PERIOD 2 (2000/02/28-2000/10/17) List Information slips Total Period 2	$ 119,509.63 $ 1,284.47 $ 120,794.10	"2/3	$ 80,529.40
PERIOD 3 (2000/10/18-2000/12/31)
Information slips Total	$    325.25 $ 130,887.17	"1/2 0.672471488	$     162.63__ $ 88,017.89

INCLUSION RATE FOR 2000                                                          67.24714882

((88,017.89/130,887.17)*100)

HÉLÈNE WOOD

CAPITAL LOSS APPLICATIONS

YEAR	LOSS	RATE	NET	APPLIED	CARRIED
Taxation year 1986	$1,264.00	1/2	$    632.00
Taxation year 1989
Application according to Ss111(1.1), 1986 Loss		("=2/3 ÷ 1/2)$632	$    842.67	$ 632.00
Balance of 1986 loss					$    210.67
Taxation year 1990	$1,905.33	3/4	$ 1,429.00		$ 1,429.00
Taxation year 1992
Application according to Ss111(1.1), 1986 Loss		("3/4 ÷ 2/3)$210.67	$    237.00	$ 237.00
Application according to Ss111(1.1), 1990 Loss		("3/4 ÷ 3/4)$1,429	$ 1,429.00	$ 1,192.00
Total Applied				$ 1,429.00
Balance of 1986 Loss					$
Balance of 1990 Loss			$    237.00		$    237.00
Taxation year 1995	$ 760.00	3/4	$    570.00		$    570.00
Taxation year 1996
Application according to Ss111(1.1), 1990 Loss		("3/4 ÷ 3/4)$237	$    237.00	$ 237.00
Application according to Ss111(1.1), 1995 Loss		("3/4 ÷ 3/4)$570	$    570.00	$    62.00
Total Applied				$ 299.00
Balance of 1990 Loss					$
Balance of 1995 Loss					$    508.00
Taxation year 1997	$5,314.67	3/4	$ 3,986.00		$ 3,986.00
Taxation year 1998	$ 602.67	3/4	$    452.00		$    452.00
Taxation year 1999
Application according to Ss111(1.1), 1995 Loss		("3/4 ÷ 3/4)$508	$    508.00	$ 404.00
Balance of 1995 Loss					$    104.00
Taxation year 2000
Balance of 1995 Loss			$    104.00
Balance of 1997 Loss			$ 3,986.00
Balance of 1998 Loss			$    452.00
Total carried to 2000			$ 4,542.00
Application according to Ss111(1.1), 1995 Loss		(".672471 ÷ 3/4)$104	$     93.25	$    93.25
Application according to Ss111(1.1), 1997 Loss		(".672471 ÷ 3/4)$3,9	$ 3,573.96	$ 3,573.96
Application according to Ss111(1.1), 1998 Loss		(".672471 ÷ 3/4)$452	$    405.28	$ 405.28
Total applied				$ 4,072.49
Balance of losses carried					$

HÉLÈNE WOOD

HISTORY OF CAPITAL GAINS AND CAPITAL LOSSES

YEAR	Capital Gain (Loss)	Inclusion Rate	Taxable Capital Gain	Net Capital Loss	Capital Gains Exemption	Net Capital Loss applied
1986	$ (1,264.00)	1/2		$     632.00
1987	$ 12,758.00	1/2	$ 6,379.00		$ 5,707.00
1988	$      742.50	2/3	$    495.00		$     495.00
1989	$    4,630.50	2/3	$ 3,087.00		$ 2,454.00	$     632.00
1990	$ (1,905.33)	3/4		$ 1,429.00
1991	-	3/4	$     -	$     -
1992	$    4,265.33	3/4	$ 3,199.00		$ 1,769.00	$ 1,429.00
1993	$     -	3/4	$     -	$     -
1994	$ 19,306.67	3/4	$ 14,480.00		$ 14,480.00
1995	$     (760.00)	3/4		$     570.00
1996	$     398.67	3/4	$     299.00			$     299.00
1997	$ (5,314.67)	3/4		$ 3,986.00
1998	$     (602.67)	3/4		$     452.00
1999	$     538.67	3/4	$     404.00			$     404.00
2000	$ 130,887.18	0.672471	$ 88,017.83			$ 4,072.49

COURT FILE NO.:                                                 2001-4499(IT)I

STYLE OF CAUSE:                                               Hélène Wood and

                                                                                                Her Majesty The Queen

PLACE OF HEARING:                                         Montreal, Quebec

DATE OF HEARING:                                           August 13, 2002

REASONS FOR JUDGMENT BY:      The Hon. Judge Gerald J. Rip

DATE OF JUDGMENT:                                       September 12, 2002

APPEARANCES:

Counsel for the Appellant: David H. Wood

Counsel for the Respondent:              Vlad Zolia

COUNSEL OF RECORD:

For the Appellant:                                                 David Wood

                                                                                Barristers & Solicitors

Address:                          760 Casgrain

                                          Saint Lambert, Quebec

                                          J4R 1G7

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2001-4499(IT)I

BETWEEN:

HÉLÈNE WOOD,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on August 13, 2002, at Montreal, Quebec, by

the Honourable Judge Gerald J. Rip

Appearances

Counsel for the Appellant:                  David H. Wood

Counsel for the Respondent:                              Vlad Zolia

JUDGMENT

                The appeal from the assessment made under the Income Tax Act for the 2000 taxation year is dismissed.

Signed at Ottawa, Canada, this 12th day of September 2002.

"Gerald J. Rip"

J.T.C.C.