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Citation: 2004TCC758
Date: 20041222
Docket: 2003-3888(IT)I
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BETWEEN:
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DAVID LAPCHUK,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
(delivered orally from the Bench at
Regina, Saskatchewan, on August 31, 2004)
[1] This appeal pursuant to the
Informal Procedure was heard at Regina, Saskatchewan, on August
30, 2004. The Appellant was the only witness.
[2] Paragraphs 7 to 26 inclusive of
the Reply to the Notice of Appeal outline the matters in dispute.
They read:
7. The 1998,
1999, 2000 and 2001 income tax returns were initially assessed as
follows:
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Taxation Year
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Initial Assessment Date
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1998
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June 17, 1999
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1999
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March 27, 2000
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2000
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March 22, 2001
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2001
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April 11, 2002
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8. In
computing income for the 1998 taxation year, the Appellant did
not report any interest or other investment income.
9. In
computing income for the 1999 taxation year, the Appellant
claimed an allowable business investment loss (hereinafter
"ABIL") in the 1999 taxation Year, calculated as
follows:
Business Investment Loss (the
"BIL")
$69,615.00
x ¾
ABIL
$52,211.00
The claiming of the ABIL created a non-capital loss of
$24,954.00 in the 1999 taxation year.
10. In computing income
for the 2000 taxation year, the Appellant claimed a non-capital
loss carry forward from the 1999 taxation year of $22,628.00.
11. In computing income
for the 2001 taxation year, the Appellant claimed a non-capital
loss carry forward from the 1999 taxation year of $1,403.00.
12. The Minister of
National Revenue (the "Minister") reassessed the
Appellant for the 1998 taxation year to include unreported
interest income received of $516.00 earned on funds held in trust
by his lawyer.
13. The Minister
reassessed the Appellant for the 1999 taxation year by reducing
the BIL to $52,649.00 and the ABIL to $39,487.00. This adjustment
reduced the non-capital loss in the 1999 taxation year to
$12,230.00
14. As the non-capital
loss in the 1999 taxation year was reduced to $12,230.00, the
Minister reassessed the Appellant for:
(a) the 2000
taxation year to reduce the non-capital loss carried forward from
the 1999 taxation year to $12,230.00; and
(b) the 2001
taxation year to disallow the non-capital loss carried forward
from the 1999 taxation year.
15. The Notices of
Reassessment outlined in paragraphs 12, 13 and 14 above for the
1998, 1999, 2000 and 2001 taxation years were dated April 22.
2002.
16. The Appellant filed a
Notice of Objection to the 1999 and 2000 reassessments, dated
July 18, 2002.
17. By letter dated April
2, 2003, the time period in which to file a Notice of Objection
for the 1998 and 2001 taxation years was extended to the date of
the letter and the Notice of Objection was deemed to be valid for
the 1998 and 2001 taxation years.
18. In response to the
Notices of Objection, the Minister confirmed the reassessments
for the 1998, 1999, 2000 and 2001 taxation years by means of a
Notification of Confirmation dated May 30, 2003.
19. The Appellant filed a
Notice of Appeal to the Tax Court of Canada on November 5,
2003.
20. In so reassessing the
Appellant for the 1998, 1999, 2000 and 2001 taxation years and in
so confirming those reassessments, the Minister made the
following assumptions of fact:
Interest Income - 1998 Taxation Year
(a) on December 31,
1997, December 31, 1998 and on April 28, 1999 the Appellant's
trust account with his lawyer's firm of Shumiatcher Hrycan
credited the Appellant's trust account with interest of
$119.65, $516.69 and $191.26, respectively;
(b) the Appellant
reported the interest income of $119.65 in the 1997 taxation year
and $191.26 in the 1999 taxation year;
(c) the Appellant
did not report any interest income in the 1998 taxation year;
ABIL and non-capital loss application - 1999,
2000 & 2001 Taxation Years
(d) the Appellant
was a shareholder of SARD;
(e) the Sherwood
Credit Union (hereinafter the "Credit Union") called in
their loans with SARD;
(f) the Credit
Union seized the assets of SARD;
(g) SARD ceased
operations in the 1990 taxation year;
(h) SARD and the
Appellant sued the Credit Union;
(i) the law
suit began in the 1991 taxation year;
(j) the law
suit concluded in the 1999 taxation year and the Credit Union was
successful;
(k) the Appellant
claimed an ABIL of $6,649.00 in the 1992 taxation year and an
ABIL of $7,006.00 in the 1993 taxation year in respect of
SARD;
(l) the
Appellant was allowed an ABIL of $6,649.00 in the 1992 taxation
year and an ABIL of $7,006.00 in the 1993 taxation year in
respect of SARD;
(m) the Appellant claimed
business losses in the 1994 and 1995 taxation years (the
"Business Losses") as follows:
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1994
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1995
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Professional Fees
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$ 235.00
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$
0.00
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Rent
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1,169.90
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999.32
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Legal Fees
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2,450.00
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12,305.50
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Management Fees
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0.00
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195.00
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Total
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$3,854.90
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$13,499.82
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(n) the Business
Losses were incurred by the Appellant on behalf of SARD and
constitute shareholder advances to SARD;
(o) the Minister
reassessed the Appellant for the 1994 and 1995 taxation years
disallowing the Business Losses. The Notices of Reassessment were
dated April 21, 1997;
(p) the Appellant
filed Notices of Objection to the reassessments for the 1994 and
1995 taxation years;
(q) the Minister
confirmed the reassessments for the 1994 and 1995 taxation years
by Notification of Confirmation dated September 9, 1997;
(r) the Appellant
filed a Notice of Appeal to the Tax Court of Canada on October
16, 1997 in respect of the 1994 and 1995 taxation years;
(s) a judgment was
issued by the Tax Court of Canada on November 30, 1999 dismissing
the Appellant's appeal for the 1994 and 1995 taxation
years;
(t) legal fees
paid by the Appellant in relation to the law suit against the
Credit Union represented shareholder's advances;
(u) legal fees
incurred by the Appellant prior to the 1994 taxation year have
been allowed on the Appellant's tax returns in taxation years
prior to 1994;
(v) the Appellant
was owed a debt of $52,649.20 by SARD at the end of the 1999
taxation year that was established by the Appellant to have
become a bad debt in the 1999 taxation year;
(w) the Appellant incurred
a BIL in the 1999 taxation year pursuant to paragraph 39(1)(c) of
the Income Tax Act in the amount of $52,649.20 calculated
as follows:
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Total of Shumiatcher statements (including interest)
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$37,793.49
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Less: 1992 amounts
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(800.00)
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Less: 1993 amounts
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(2,600.00)
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Total Shumiatcher payments allowed
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$34,393.49
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Duncan legal fees
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2,253.68
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Total Legal Fees
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$36,647.17
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1990 Shareholders loan account
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15,669.22
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Share capital
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100.00
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Robinson Investigation
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125.31
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Browns Auction
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107.50
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Gross Business Investment Loss
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$52,649.20
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B.
ISSUES TO BE DECIDED
21. The issues are:
(a) whether the
interest income has been properly included in the Appellant's
income in the 1998 taxation year;
(b) whether the
amount of the BIL has been correctly calculated with respect to
the 1999 taxation year;
(c) whether the
non-capital loss incurred in the 1999 taxation year and carried
forward to the 2000 taxation year has been correctly calculated;
and
(d) whether there is
any portion of the non-capital loss incurred in the 1999 taxation
year available to be carried forward to the 2001 taxation
year.
C.
STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF
SOUGHT
22. He relies on sections
3, 12 and 39, and subsections 50(1) and 248(1) and paragraph
111(1)(a) of the Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp) (the "Act") as amended for the 1998, 1999,
2000 and 2001 taxation years.
23. He submits that the
interest income has been properly included in the Appellant's
income in the 1998 taxation year by the Minister pursuant to
paragraph 12(1)(c) of the Act.
24. He submits that the
Minister correctly calculated the BIL of $52,649.20 pursuant to
paragraph 39(1)(c) of the Act in respect of the 1999
taxation year.
25. He submits that the
non-capital loss incurred in the 1999 taxation year and carried
forward to the 2000 taxation year has been correctly
calculated.
26. He further submits
that as the entire non-capital loss incurred in the 1999 taxation
year of $12,230.00 has been allowed in the 2000 taxation year
pursuant to paragraph 111(1)(a) of the Act, there is no
amount remaining to carry forward to the 2001 taxation year
pursuant to paragraph 111(1)(a) of the Act.
[3] In the course of the trial, the
Appellant admitted that the interest for 1998 described in
paragraph 12 of the Reply was properly assessed.
[4] None of the assumptions in
paragraph 20 were refuted and, in particular, the Respondent
proved the calculations in subparagraph 20(w) to the satisfaction
of the Court.
[5] During the hearing, the Appellant
argued that it was for the Respondent to prove that the expenses
claimed by him were not duplicates of expenses claimed and
allowed by the Respondent in previous years. That is wrong. The
law is that the Appellant bears the onus of proving his
allegations in an income tax appeal as was described by the
Supreme Court of Canada in Johnson v. MNR.
[6] The appeal is dismissed.
Signed at Saskatoon, Saskatchewan, this 22nd day of December
2004.
Beaubier, J.
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