Wieler v. The Queen, docket 2000-4630-IT-I (Informal Procedure)

Date: 20010425

Docket: 2000-4630-IT-I

BETWEEN:

JAMES H. WIELER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Bowman, A.C.J.

[1]            This is an appeal from an assessment for 1998 in which the Minister of National Revenue denied to the appellant the deduction of an allowable business investment loss ("ABIL"). The appellant claimed that in 1998 he sustained a business investment loss of $41,988.

[2]            It is not necessary that I review the several statutory provisions that give rise to an ABIL. This has been done with admirable clarity and succinctness by Hamlyn J. in paragraph 17 of his decision in Klassen v. R., [1997] 3 C.T.C. 2497. Essentially it involves the interaction between paragraphs 3(d), 38(c), 39(c), section 50 and subparagraph 40(2)(g)(ii).

[3]            An ABIL can be written off against other income and not just against taxable capital gains.

[4]            For the purposes of this appeal it is sufficient to say that there has to be a debt owing to the taxpayer by a small business corporation, as defined, or a share in such a corporation. The debt has to have gone bad in the year and it has to have been acquired for the purpose of gaining or producing income.

[5]            The facts in this unhappy case are as follows:

-                Mr. Wieler knew Guy Berard from the church they both attended. Berard was the sole shareholder of Granville Island Pizza Co. Ltd. ("GIP"). Berard told Mr. Wieler that if he invested about $45,000 in GIP he would open another store in Vancouver which Mr. Wieler could operate and he would be given 49% of the shares of GIP.

-                Mr. Wieler, in reliance on this promise, took out a mortgage on his house, obtained a line of credit with Canada Trust, gave Berard a credit card in his (Wieler's) name and gave Berard a number of signed blank cheques drawn on his account with Canada Trust.

-                There was nothing in writing. Berard used the credit card and filled in the blank cheques in the name of GIP or his own name and put the money into GIP and used it to pay its bills. No second store was opened. GIP became insolvent in 1998 and surrendered its charter. Mr. Wieler asked Berard to sign an acknowledgement of what he believed to be the arrangement between them but Berard contemptuously and arrogantly refused.

-                In all Mr. Wieler was defrauded of $41,988 by Berard. He was not the only one. Berard left his own bookkeeper with unpaid accounts and also engaged in some questionable practices with respect to GST.

[6]            In short, Berard was a scoundrel and a con artist and I feel very sorry for Mr. Wieler.

[7]            Unfortunately the money that he lost through his unfortunate encounter with Berard was not a business investment loss. He was never a shareholder of GIP and so he does not meet the condition in paragraph 50(1)(b) of the Income Tax Act. Nor do I think the $41,988 was a debt owing to him by GIP. There was no legally enforceable obligation to pay the advances back and they bore no interest. Therefore paragraph 50(1)(a) does not assist him. The $41,988 can at best be characterized as advances he made to GIP in the hope of becoming a shareholder.

[8]            The provisions giving rise to an ABIL are somewhat complex and however great the sympathy I feel for Mr. Wieler I do not think he has brought himself within those provisions.

[9]            The appeal is therefore dismissed.

Signed at Ottawa, Canada, this 25th day of April 2001.

"D.G.H. Bowman"

A.C.J.