Citation: 2007TCC178
Date: 20070620
Docket: 2006-2565(IT)I
BETWEEN:
GUY BISSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
under the Income Tax Act (the
“Act”) pertaining to the 2002 taxation year.
[2] The issue is
whether, for the year at issue, the Minister of National Revenue (the
“Minister”) was justified in taking into account downward adjustments on debt forgiveness
in the amounts of $14,898 (1995), and $12,000 (1996), in determining the
capital cost of the building when the property was sold in 2002.
[3] The Appellant,
represented at the hearing by his accountant, essentially argued that he should
not be penalized given that the T2154 form was not available for the 1995
taxation year and might not have been available for 1996.
[4] Mr. Wash explained
and described the approach that must be followed by any taxpayer when he or she
profits or benefits from a debt settlement. The exact process is set out at
subsection 80(2) of the Act, which reads as follows:
(2)
Application of debt forgiveness rules.
For the purposes of this section:
(a)
an obligation issued by a debtor is settled at any time where the
obligation is settled or extinguished at that time (otherwise than by way of a
bequest or inheritance or as consideration for the issue of a share described
in paragraph (b) of the definition "excluded security" in subsection
80(1));
(b) an amount of interest payable by a debtor
in respect of an obligation is issued by the debtor shall be deemed to be an
obligation issued by the debtor that
(i) has a principal amount, and
(ii) was issued by the debtor for
an amount,
equal to the portion of the amount of
such interest that was deductible or would, but for subsection 18(2) or 18(3.1)
or section 21, have been deductible in computing the debtor's income for a
taxation year;
(c) subsections 80(3) to 80(5) and 80(7) to
80(13) apply in numerical order to the forgiven amount in respect of a
commercial obligation;
. . .
[5] The evidence clearly
demonstrated, despite the absence of the form, that the Appellant had evidently
made the choice set out in subsection 80(5) of the Act, which reads as follows:
(5) Reductions with respect to
depreciable property
Where a commercial obligation issued by a debtor
is settled at any time, the remaining unapplied portion of the forgiven amount
at that time in respect of the obligation shall be applied, in such manner as
is designated by the debtor in a prescribed form filed with the debtor's return
of income under this Part for the taxation year that includes that time, to
reduce immediately after that time the following amounts:
(a) the capital cost to the debtor of a depreciable property that is
owned by the debtor immediately after that time; and;
(b) the undepreciated capital cost to the debtor of depreciable
property of a prescribed class immediately after that time.
[6] Mr. Wash explained
that there was no possible doubt that the Appellant had not been penalized due
to the unavailability of the form T2154.
[7] Indeed, the
Appellant was not able to establish that he had been penalized for the 1995 and
1996 taxation years, his claims indicating that he was penalized for the 2002
taxation year.
[8] The agent for the
Appellant presented three arguments:
·
first,
that the absence of the form had penalized the Appellant;
·
second,
that the auditor or the person in charge of the file should have contacted the
Appellant to explain to him the provisions of the Act;
·
finally,
he argued half-heartedly that the person in charge of the Appellant’s file in
1995 and 1996 had perhaps not acted correctly in handling the Appellant’s file.
[9] Yet, the Appellant
wrote the following in paragraph 5 of his appeal:
[TRANSLATION]
4.1. On October 28,
1995, I finalized an agreement with Groupe Immobilier Grilli Inc., creditor for
this property, this agreement resulted in a gain from debt forgiveness of
$14,898;
4.2. On April 17,
1996, I finalized an agreement with Les Services Financiers Holdico Inc.,
creditor for this property, this agreement resulted in a gain from debt
forgiveness of $12,000;
4.3. On September 29,
1999, the Honourable Justice P.R. Dussault of the Tax Court of Canada dismissed
my appeals of income tax assessments from 1993, 1994 and 1995 (Docket 98‑1830(IT)I);
This judgment
confirmed the Minster of Revenue’s refusal to grant me the deduction of rental
losses and carrying charges totalling $53,444 for these 3 years;
Since then,
the Supreme Court of Canada has overruled the case law applicable to business
losses, but unfortunately it was too late for me;
5. In preparing my
tax returns for 1995 and 1996, my accountant of the time deducted the amounts
of $14,898 $ and $12,000 in the capital cost allowance tables as set
out in the rules applicable to debt forgiveness; however I never made the
choice to that effect, as set out at subsection 80(5) ITA;
[10] He continued in
paragraphs 6, 7, 8 and 9:
[TRANSLATION]
6. My income tax
returns for 1995 and 1996 were examined by the auditors of Revenue Canada, who
did not ask me to make the choice set out at subsection 80(5) of the ITA;
7. In 1999, during
the proceedings before the Tax Court of Canada, the absence of these choices
was not mentioned;
8. On January
29, 2002, I sold this property for $115,000 and the sales fees came
to $2,646;
9. When preparing
my 2002 income tax return, I claimed a loss on the sale of this property;
[11] He concluded his
Notice of Appeal as follows:
[TRANSLATION]
The rules applicable to debt forgiveness
are very precise and subsection 80(5) sets out that a prescribed form, namely
the T2154, must be completed if one wishes that a gain from debt forgiveness be
deducted from the capital cost (and from the UCC) of a good rather than
included in the income from the year of the gain.
Given the absence of such a choice, the
amounts of $14,898 and $12,000 were taxable in 1995 and 1996 respectively.
The reductions of capital cost (and of
the UCC) of $14,898 and $12,000 were not valid and should not be included in
the calculation of the final loss resulting from the sale of the property,
which should be $36,110 rather than $9,212 as assessed.
[12] The situation is
quite simple. In 2002, the Appellant realized that he should have made another
choice as to the treatment of the gains from debt forgiveness of $14,898 for
1995 and $12,000 for 1996.
[13] In 1995 and 1996, a
true choice was made, although it was not accompanied by the appropriate form –
unavailable at the time – while the Appellant had the advice and support of an
accountant. Can this choice be brushed aside under the pretext that it was
perhaps not the best choice and, in any case, the appropriate form was not
available to express such a choice?
[13] The answer is no.
The assessment was based on the facts submitted. In 1995 and 1996, even if the
form T2154 was not available, it was possible to communicate one’s decision in
respect of one’s intention concerning gains from debt forgiveness. This choice
was clearly expressed and cannot be called back into question in 2002, under
the pretext that the appropriate forms did not exist. The debate over the date
when said forms became available is of no interest. The real issue is
essentially the clarity of the intention or the coherence of the intention,
which, in this case, is neither confusing nor ambiguous. The Appellant would
basically like to take advantage of the confusion as to the existence and the
availability of form T2154.
[14] I have read the
letter from the agent for the Appellant of March 2, 2007, and the reply of
March 9, 2007. The content of these two letters has no bearing on by decision.
[15] Accordingly, the
appeal is dismissed without costs.
Signed at Ottawa, Canada, this 20th day of
June 2007.
“Alain Tardif”
Translation certified true
on this 9th day of July 2007
Gibson Boyd, Translator
Email this Content