Date: 20010119
Docket: 2000-268-IT-I
BETWEEN:
JENNY M. FRY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
[1]
The issue is whether the Appellant is entitled to deduct an
allowable business investment loss from income in her 1996
taxation year.
[2]
The Appellant, who did not attend on the hearing, was represented
by Douglas Fry ("Fry"), her estranged husband.
[3]
He testified that a limited company, 888764 Ontario Inc.
("the Company") was incorporated in April, 1990.
Respondent's counsel filed as an exhibit, a photocopy of the
Articles of Incorporation showing the incorporation date to be
April 5, 1990. He initially said that the Appellant loaned money
to the Company. He later said that she invested $25,000 in the
Company for shares and that "she got them" in May or
June, 1990. He stated that she expected to earn dividend income
from this Canadian corporation. He also said that each of two
lawyers in Sudbury owned 25,000 shares and that he and the
Appellant each owned 25,000 shares, the total shares issued and
outstanding being 100,000.
[4]
He testified that one of those lawyers was arrested and
imprisoned and that a Mr. Pope ("Pope"), a Timmins
lawyer, was appointed as custodian of documents. He said that
Pope suggested that the imprisoned lawyer had burnt corporate
documents along with thousands of other documents.
[5]
Fry said that he was the sole director and signing officer and
that the Appellant was a shareholder of the Company and that a
share certificate had been issued to her.
[6]
On cross-examination, Fry stated that he bought the Company
shares between September, 1989 and May, 1990 and that the Company
was then in existence. When shown the copy of the Articles of
Incorporation dated April 5, 1990 and asked how he could have
bought shares in a company not yet incorporated, he stated that
they put up the money to show they would buy.
[7]
Fry then said that they operated the Company until May, 1990.
Respondent's counsel entered as an exhibit a photocopy of a
share certificate bearing the name 889764 Ontario Inc. dated
September 25, 1989 showing that Jenny M. Fry was the registered
holder of 25,000 common fully paid and non-assessable shares. Fry
said the number 889764 was a typographical error and that it had
been corrected on an amended certificate.
[8]
Fry stated that the Company had been doing home renovation and
wholesaling building materials and that it ceased to exist in
1993. He also said that every possible search had been made for
the minute book. He said that his share certificate was in the
minute book but that the Appellant had her certificate at the
office building and that the landlord had seized all
documents.
[9]
Respondent's counsel entered as an exhibit, Fry's 1992
Income Tax Return with a stamped endorsement showing it as having
been received on November 2, 1994. It is undated. It contains a
claim for an allowable business investment loss in the sum of
$18,750, being ¾ of $25,000.
[10] Annette
Paquette, a Canada Customs and Revenue Agency employee testified
that she had requested certain information from the Appellant and
received nothing. She then stated that she could not accept just
her word that documents had disappeared.
[11] At the
end of the hearing, I asked the parties for written submissions
to be followed by a telephone conference. Fry has not submitted
anything to the Court and has not responded to any telephone
calls from the Court respecting any submissions and has not
returned any telephone call respecting the arrangement of a
telephone conference.
[12]
Respondent's counsel's submission outlines some of the
evidence presented. It then contains the following:
Presumed facts:
The Respondent's submissions are based on the
above-mentioned facts and on the following assumption as
requested by his Honourable (sic) Judge Bell. However, the
Respondent does not consider this assumption as being proven or
true.
1.
The Appellant purchased 25,000 shares of 888764 Ontario Ltd. for
which she paid $25,000 in September, 1989.[1]
ANALYSIS AND CONCLUSION:
[13] Paragraph
38(c) provides that a taxpayer's allowable business
investment loss for a taxation year from the disposition of any
property is ¾ of the taxpayer's business investment
loss for the year from the disposition of that property.
[14] Paragraph
39(1)(c) provides that a business investment loss is the
amount of capital loss from a disposition to which subsection
50(1) applies.[2]
[15]
Subsection 50(1) reads, in part:
... where
...
(b) a
share ... of the capital stock of a corporation is owned by the
taxpayer at the end of a taxation year and
...
(iii) at the
end of the year
(A) the
corporation is insolvent,
(B)
neither the corporation nor a corporation controlled by it
carries on business,
(C) the
fair market value of the share is nil, and
(D) it
is reasonable to expect that the corporation will be dissolved or
wound up and will not commence to carry on business
and the taxpayer elects in the taxpayer's return of income
for the year to have this subsection apply in respect of the ...
share ... the taxpayer shall be deemed to have disposed of the
... share ... at the end of the year for proceeds equal to nil
and to have reacquired it immediately after the end of the year
at a cost equal to nil.
[16] The
Appellant's Notice of Appeal states that she claimed "a
business investment loss on my 1996 income tax return".
Neither that return nor a copy thereof was entered in evidence.
The Appellant did not appear in Court and the Court was therefore
deprived of the potential benefit of her evidence. Fry's
evidence respecting the payment of $25,000 by the Appellant for
shares was not supported by any documentation such as a cancelled
cheque or bank debit or anything of that nature or any other
evidence. Fry's description of the Company's business was
fleeting in nature and accompanied by his evidence that it ceased
to exist in 1993. He claimed an allowable business investment
loss in his 1992 tax return which was filed in 1994. The
Appellant allegedly claimed an allowable business investment loss
in respect of the same circumstances but not until 1996.
[17]
Accordingly, the Appellant cannot succeed because she has failed
to comply with the conditions of subsection 50(1)(b)[3] in that if the
claim was made in her 1996 taxation year that election was not
made in the year described in subparagraph
50(1)(b)(iii).
[18]
Accordingly, the appeal is dismissed.
Signed at Ottawa, Canada this 19th day of January,
2001.
"R.D. Bell"
J.T.C.C.
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