Date: 19990923
Docket: 98-2211-IT-I
BETWEEN:
ROBERT TURCOTTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
(Delivered orally from the bench on August 27, 1999, at
Montréal, Quebec, and subsequently revised at Ottawa,
Ontario, on September 23, 1999)
Lamarre, J.T.C.C.
[1] This is an appeal under the informal procedure from an
assessment made under the Income Tax Act (“the
Act”) for the 1996 taxation year. In making the
assessment, the Minister of National Revenue (“the
Minister”) denied the appellant an allowable business
investment loss of $22,500 claimed by him under paragraphs
38(c) and 39(1)(c) of the Act.
[2] The only issue is whether the appellant loaned $30,000 to
the Distro-Vend corporation or to its sole shareholder,
Robert Ouimet. It goes without saying that the loan must have
been made to the corporation for the appellant to be able to
deduct a business investment loss under paragraph 39(1)(c)
of the Act.
[3] I feel that the appellant has shown on a balance of
probabilities that he loaned $30,000 to Distro-Vend and not
directly to Mr. Ouimet.
[4] The evidence shows that the appellant, a firefighter,
himself borrowed the $30,000 from one Jean P. Houle, a chartered
administrator, who was looking after his personal affairs. The
appellant told Mr. Houle that he was borrowing the amount for
Robert Ouimet’s business. Mr. Houle then issued a cheque
for $30,000 directly to Robert Ouimet on April 21, 1995, and Mr.
Ouimet deposited the cheque directly in Distro-Vend’s
account.
[5] A notarized contract was adduced in evidence showing that
the loan was made to Robert Ouimet and not Distro-Vend.
According to Mr. Ouimet, the notary hired by Mr. Houle to draw up
the deed of loan took the initiative of making the loan to Mr.
Ouimet personally rather than making it directly to
Distro-Vend. Mr. Ouimet apparently did not react at
the time because the financial institutions had always asked him
to personally guarantee the loans made for his business. As for
the appellant, he said that he signed the notarized contract
without the notary present.
[6] In my view, the existence of the notarized contract, which
is obviously so irregular that its authenticity can be doubted,
since it was signed without the notary present (see Caisse
d’Entraide Économique de Charlevoix c. Cloutier
Perron, [1984] R.D.J. 360 (Que. C.A.)), does not change the
true situation. It is clear that the borrowed money was deposited
directly in Distro-Vend’s account, and counsel for
the respondent does not deny this.
[7] The evidence actually shows that Mr. Ouimet was acting as
a mandatary for Distro-Vend when he received the loan in
his name, and the existence of the purported notarized contract
does not change this fact. I therefore feel that the appellant
had a claim against Distro-Vend.
[8] Moreover, Mr. Ouimet made an assignment of his property on
September 13, 1996, and Distro-Vend has not operated
since. The appellant’s claim therefore became a bad debt.
He borrowed from the bank to repay Mr. Houle the $30,000.
The appellant is currently repaying the bank loan gradually over
a period of five years. He was therefore the one who had the
claim, not Mr. Houle.
[9] Accordingly, the appeal is allowed, with costs if
applicable, and the assessment is referred back to the Minister
for reconsideration and reassessment on the basis that the
appellant is entitled to deduct $22,500 from his income for the
1996 taxation year as an allowable business investment loss under
sections 38 and 39 of the Act.
Signed at Ottawa, Canada, this 23rd day of September 1999.
“Lucie Lamarre”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 26th day of January
2000.
Stephen Balogh, Revisor
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