Date: 20010629
Docket: 2000-4092-IT-I
BETWEEN:
ALWYN B. GILL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
__________________________________________________________________
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
John O'Callaghan
____________________________________________________________________
Reasons for Judgment
(Delivered orally from the Bench at Edmonton, Alberta, on
Tuesday, February 27, 2001)
Margeson, J.T.C.C.
[1]
The matter before the Court for decision at this time is that of
Alwyn Gill and Her Majesty the Queen, 2000-4092(IT)I. The
sole issue before the Court is whether or not the Appellant has
satisfied the Court on a balance of probabilities that he was
entitled to the Allowable Business Investment Loss
("ABIL") that was sought in reporting his income tax
for the 1998 taxation year.
[2]
The Court would note that a very important witness in this case
would have been the wife herself. If she had testified, she may
have been able to corroborate the testimony of her husband as to
the intention of the parties. She may have explained why there
was no paper trail setting out the terms of the alleged trust
including the purpose of the loans.
[3]
Counsel for the Minister did not raise this but it is something
that one might reasonably expect that the Appellant would have
done. She was not present and there was no explanation as to why
she was not here to buttress the evidence of the Appellant
himself. There was very feeble evidence of any trust agreement or
what the terms might have been.
[4]
The only evidence of a trust is what the Appellant himself said.
The only documentary evidence of any trust agreement, (which the
Court does not consider a trust agreement), is the document
referred to in the Appellant's exhibits at pages
53-54. It was nothing more than an indication of an
intention of the parties that the shares might be held in trust,
but there was no Declaration of Trust and there was no
specificity with respect to what the trust was. It is necessary
to be able to show what the purposes of the trust were.
[5]
Because the Appellant's spouse did not testify one might
conclude that her evidence might have been detrimental to the
Appellant's case.
[6]
The Court carefully listened to the evidence of the Appellant and
gave him every opportunity to produce evidence which would have
met the burden that is upon him of establishing that the
Minister's assessment was incorrect.
[7]
The arguments made by counsel for the Respondent in his summary
were both detailed and weighty, as far as the Court is concerned,
and he referred to a number of cases to support his position.
[8]
There are two problems that the Appellant has as far as the Court
is concerned. He must show that he was a shareholder. Secondly,
with respect to the characterization of the loan, he must show
that the loan was made and that it was made for the purposes of
gaining or producing income. It is the Appellant's duty to
show that.
[9]
The Court is not satisfied that the Appellant has met the burden
of showing that he was a shareholder. First of all, there is no
trust agreement which the Court can rely upon as setting out
clearly and specifically that there was a trust and what the
purpose of the trust was. The Court does not accept the document
in the Appellant's exhibit at pages 53 or 54 as being
sufficient for those purposes. It is nothing more than a
declaration of intention. It is not sufficient to meet the
requirements of a satisfactory trust agreement.
[10] Further,
there is evidence which seems to contradict the Appellant's
position that he was indeed the shareholder and his wife was not.
Again, on that issue, she was not here to confirm that she was
the shareholder. There are some legal documents in the
Appellant's own exhibit list that would contradict that.
One was a defence which indicates that the wife was the seller of
the shares and the Appellant was not the seller of the
shares.
[11] It would
appear on the basis of the evidence that the Appellant regarded
the shares as being his rather than those of his wife or being
held in trust for his wife when it was convenient to do so, but
when it was not convenient to do so the documents refer to the
shares as being sold by the wife and being those of the wife.
There is nothing in those documents which would satisfy the Court
that the shares were intended to be and were indeed the
husband's but, through negligence, oversight or some other
reason were not specifically declared to be what they were
intended to be. As a matter of fact, there are documents which
tend to indicate the contrary.
[12] The
reasons that the Appellant gave initially as to why he would make
an investment really do not answer the questions that have been
posed. It may very well be that he expected in due course that
the business would make money and that he would profit from it,
but there was nothing in any declaration or otherwise which would
indicate that that was the purpose for which he made the loan or
any portion of it.
[13] Counsel
for the Respondent referred to the decision of Cadillac
Fairview Corp. Ltd. v. The Queen, 1999 CarswellNat 75 and
argued that on the basis of the facts in that case, the Appellant
has a problem here. The Court would have to be satisfied that
there was a payment arrangement made by the Appellant when he
made the loan, as to how he was going to get paid back, where the
money was coming from, what the interest rate would be, what he
could reasonably expect to gain from it and be able to show that
the guarantees that were given and the loan which was
subsequently made had as their purpose, the production of income.
The Court is not satisfied as to why the loan was made or that
the loan was made in order to produce income.
[14] Counsel
also referred to the case of Helen Lepp v. The Queen, 1999
CarswellNat 2897. In that particular case the Court held that
there must be no doubt as to the purposes for which the loan is
made in order for the interest to be deductible. There, the Court
concluded that "the granting of the guarantee was not, in
fact or in law, for the purpose of gaining or producing income.
It was done simply to assist the Appellant's husband and
his company." In the case at bar, in order for the loan to
give rise to an ABIL, it must be established that the money that
was obtained as a result of the guarantee, was used for the
purposes of earning income.
[15] It is the
duty of the Appellant to establish that that was the purpose for
which the loan was made. It is possible to do this by proper
documentation. In this particular case we have a dirth of
evidence to establish the purpose for the loan. There are other
purposes for which a loan might be made other than to produce or
gain income. You might loan the money to establish a capital
base. You might loan the money to make sure the company keeps
going. It is the duty of the Appellant to establish that it was
for the purpose of gaining or producing income.
[16] On the
facts in the case at bar, the Court is satisfied that this was
not an adventure in the nature of trade. The Appellant himself
was not in the business of loaning money, and it is his job to
establish that the money was loaned for the purpose of gaining or
producing income. The Court is not satisfied that he has done
that.
[17] In the
case of John Strecker v. The Queen, 1994 CarswellNat 1085,
the Court held that it was not satisfied that there was any
business purpose in the granting of the guarantee. When you give
a guarantee, when you loan money to a business, when you loan
money to your own company or you loan money to another company,
when you invest in a business, the stock market or something
else, it should be relatively simple to establish what the
purpose was in giving the guarantee, in loaning the money or in
investing the money. It is not sufficient to make a general
allegation that the Appellant anticipated some participation in
the profits at some unstated time in the future or to argue that
some consideration for the guarantee existed. That is not enough.
One has to be able to show with specificity what the purpose was,
that there was default and that the taxpayer who is seeking the
deduction has suffered a loss as a result thereof.
[18] Here, as
in the Strecker case, supra, the Court is satisfied
that there was no oral or written agreement setting out the terms
and conditions of the Appellant's participation and what
the purposes of the loan might have been.
[19] The case
of The Queen v. Edwin Byram, 1999 CarswellNat 77,
involved dividend income. It seems clear from the cases that if
you can show that your purpose in investing the money in the
company in which you were a shareholder was for the purpose of
producing dividend income, that would satisfy the requirements.
But here, again, there was insufficient evidence before the Court
from which it could safely conclude that the purpose of the
Appellant in loaning the money, advancing the money or
guaranteeing the loan was for the purpose of producing income.
The Appellant himself said that they had not decided on all of
the facts and all the conditions, how they would take the money
out or how they thought that they might make money. Those
omissions are fatal to the Appellant's case here.
[20] The case
of William J. McKissock v. The Queen, 1996 CarswellNat
2190, dealt with the situation that even though all of the
amounts might not be deductible, some of it might be. But again,
here it is the responsibility of the Appellant to establish what
is deductible. The Appellant was seeking to satisfy the Court
that he was entitled to deduct the whole amount advanced. The
evidence showed quite clearly that of the amount of money that
was advanced, part of it came out of the shares of the Appellant
and his spouse from the sale of the matrimonial home. It is
hardly sufficient under such circumstances to merely say that the
wife had agreed to pay him back and then to come to Court and say
that he has not been paid back yet.
[21] Even if
the Court could find that part of it would qualify for an ABIL
rather than the whole amount, the Court would still have to be
convinced that the Appellant in this particular case was a
shareholder. The Court has found already that that was not the
case.
[22] The case
of Barnes v. M.N.R., 1986 CarswellNat 424, makes it clear
that for a trust to come into existence there must be three
essential conditions satisfied: (a) a certainty of intention, (b)
a certainty of subject matter, and (c) a certainty of object. The
Court agrees with counsel for the Respondent in this, that the
certainty of intention has not been established on the balance of
probabilities. The certainty of the subject matter is probably
there, because it had to do with the ownership of the shares if
anything, but then there is some question about the certainty of
the object or what the purpose or object was in making the trust
agreement in the first place and secondly what was the purpose or
object in making the loan?
[23] For the
Appellant; he agreed that he did not cross all of his t's
or dot all of his i's. He said that perhaps when he filed
the income tax return he did it improperly but surely when the
return is filed it is essential to know whether the shares are
held in trust or outright. If there were to be a capital gain,
who would claim it? If there were an adequate trust agreement,
that question would be answered. How would the Minister know who
was supposed to claim the capital gain otherwise?
[24] The Court
finds it very difficult to believe that a chartered accountant
with experience in such matters would allow an income tax return
to be filed in the way that it was filed here, bearing in mind
that there was a possible ABIL available, bearing in mind also
that somebody has to report the capital gain, if any, if the
Appellant's position were tenable.
[25] There is
also some question about the amended return. The Appellant said
that he filed an amended return. There is some question that the
amended return was merely a request to allow the ABIL to be
calculated and then to allow the ABIL to take care of the capital
gain which would have accrued as a result of the sale of the
shares. But there again the Court is not satisfied as to exactly
what was filed and what was not filed. If the Appellant had filed
an amended return he could have provided us with a copy of that
return to show the Court what has been done, but that was not
done here.
[26] The Court
is not satisfied that the Appellant has established on a balance
of probability that he was a shareholder as he indicated. It is
not satisfied that he has shown that the debt that was incurred
was created for the purpose of gaining or producing income.
[27] It is not
for the Court to decide at this particular point in time whether
the wife is entitled to an ABIL or not. But the Court is
satisfied that the evidence indicates to its satisfaction that
the wife was the holder and the owner of the shares and it was
not the husband. It would be up to the Appellant's wife to
take whatever action she sees fit under the circumstances. There
is substantial evidence here to indicate that she was indeed the
shareholder. The Court is not deciding that she was entitled to
an ABIL as that is not before it.
[28] On that
basis then the Court finds that the Appellant has not met the
burden upon him showing that the Minister's assessment was
wrong. The Court will confirm the Minister's assessment and
dismiss the appeal.
Signed at Sydney, Nova Scotia, this 29th day of
June 2001.
J.T.C.C.
COURT FILE
NO.:
2000-4092(IT)I
STYLE OF
CAUSE:
Alwyn Gill and Her Majesty The Queen
PLACE OF
HEARING:
Edmonton, Alberta
DATE OF
HEARING:
February 27, 2001
REASONS FOR JUDGMENT BY: The
Honourable T.E. Margeson
DATE OF
JUDGMENT:
March 6, 2001
DATE OF WRITTEN REASONS: June
29, 2001
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
John O'Callaghan
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
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