Date: 20000913
Docket: A-242-99
MCDONALD, J.A.
MALONE, J.A.
BETWEEN:
C.R.B. LOGGING CO. LTD.
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
MCDONALD, J.A.
INTRODUCTION
[1] This is an appeal of a decision of the Tax Court of Canada, which upheld a tax reassessment in which the Minister of National Revenue disallowed the deduction of certain interest expenses incurred by the appellant, C.R.B. Logging.
[2] The Tax Court decision is reported at (1999) D.T.C. 840 and there is therefor no need to review the factual detail of the case.
[3] The central question on this appeal is whether the interest payments on the respective loans were deductible under subparagraph 20(1)(c)(i) of the Income Tax Act, which allows deductibility where (1) the interest is paid or payable pursuant to a legal obligation to pay interest on borrowed funds and (2) where the borrowed money is used for the purpose of earning income from a business or property as opposed to income that is tax exempt.
[4] We are satisfied that the evidence clearly supports the trial Judges findings that the loan was arranged so that the appellant could effectively finance its own acquisition and not to earn income from a business or property.
[5] We find no error in that characterization. It is clearly not unreasonable to conclude that a $1,885,000 investment in a near worthless company had as its purpose some aim other than earning dividend income.
[6] In his well reasoned decision the Tax Court Judge concluded that the December loan was made to replace the initial May loan and should therefore be ascribed the same purpose as that given the May loan. Accordingly the deduction under subparagraph 20(1)(c)(i) was equally unavailable to the appellant in respect of the December loan.
[7] Even if the acquisition by Meager of the appellant was an eligible use of the borrowed funds we are all of the view that any general economic benefit to the appellant from its acquisition by Meager was too remote to constituted an eligible purpose for which a deduction would be available under subparagraph 20(1)(c)(i).
[8] The Tax Court Judge also denied the deduction on the further ground that the income source to which the December loan's interest expense related disappeared once the preferred shares held by the appellant were redeemed by Meager in December of 1990.
[9] We are unable to find any reason to interfere with the Tax Court Judge in the findings that he made.
[10] The appeal will be dismissed with costs.
(Sgd.) "F. Joseph McDonald"
J.A.
September 13, 2000
Vancouver, British Columbia
Date: 20000913
Docket: A-242-99
CORAM: Décary, J.A.,
McDonald, J.A.,
Malone, J.A.
BETWEEN:
C.R.B. LOGGING CO. LTD.
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
Heard at Vancouver, British Columbia on September 13, 2000.
JUDGMENT delivered at Vancouver, British Columbia on September 13, 2000.
REASONS FOR JUDGMENT BY: MCDONALD, J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
| STYLE OF CAUSE: C.R.B. Logging Co. Ltd |
v.
Her Majesty the Queen
| PLACE OF HEARING: Vancouver, British Columbia |
| DATE OF HEARING: September 13, 2000 |
REASONS FOR JUDGMENT BY MCDONALD, J.A.
| CONCURRED IN BY: Décary, J.A., and Malone, J.A. |
| DATED: September 13, 2000 |
APPEARANCES:
| Mr. Frank W. Quo Vadis For the Appellant |
| Ms. Patricia Babcock For the Respondent |
SOLICITORS OF RECORD:
Koffman Kalef
Business Lawyers
| Vancouver, BC For the Appellant |
Morris Rosenberg
Deputy Attorney
| General of Canada For the Respondent |
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