Bowie
J.T.C.C.:
—
The
Appellant
is
a
retired
school
teacher.
Under
the
auspices
of
the
Small
Business
Development
Corporations
Act
of
Ontario
(hereafter
called
the
“Act”)
he
also
became
an
entrepreneur.
The
first
venture
which
he
entered
into,
with
the
assistance
of
the
Act,
was
a
manufacturing
business,
and
it
proved
to
be
a
success.
His
second
venture
was
into
the
motel
business;
it
was
less
successful.
He
started
this
business
in
December
1985
under
the
name
504559
Ontario
Limited
(hereafter
called
the
“company”).
The
Appellant
purchased
all
of
the
outstanding
share
capital
of
the
company,
2,338,500
shares.
Much
of
the
capital
to
finance
this
purchase
came
from
the
Appellant’s
own
resources;
$1,000,000.00
of
it
was
borrowed
by
the
Appellant
from
Municipal
Trust
Company.
This
loan
was
guaranteed
by
the
company,
which
secured
its
guarantee
by
pledging
to
Municipal
Trust
a
term
deposit
having
a
face
value
equal
to
the
loan
principal
of
$
1,000,000.00.
Relations
between
Municipal
Trust
and
the
company
were
not
entirely
satisfactory,
and
after
some
two
years
it
was
replaced
by
Barclays
Bank
as
the
lender.
This
relationship
also
soured,
and
eventually
Barclays
was
replaced
by
the
National
Bank
of
Canada.
All
the
while
the
guarantee
of
the
company,
secured
by
the
term
deposit,
remained
in
place.
The
motel
venture
did
not
prove
to
be
profitable,
and
ultimately
the
National
Bank
called
the
loan.
The
Appellant
did
not
have
the
funds
to
meet
this
obligation,
and
in
February
1990
the
company
was
called
upon
to
honour
its
guarantee.
The
bank
ensured
that
it
did
so
by
cashing
the
term
deposit
which
it
held
as
security.
The
effect
of
these
transactions
was
that
the
balance
of
the
loan
from
the
bank
to
the
Appellant
was
extinguished,
and
the
Appellant
in
turn
became
indebted
to
the
company
in
a
like
amount.
The
Appellant
still
held
all
of
the
outstanding
shares
in
the
company,
but
his
evidence
was
that
the
regulations
governing
the
relationship
among
himself,
the
company
and
the
government
of
Ontario
under
the
Small
Business
Corporations
Act
did
not
permit
him
to
reduce
his
paid-up
capital
investment
in
the
company
to
extinguish
his
indebtedness
to
it.
The
Appellant
was
unable
to
pay
his
debt
to
the
company
before
its
January
31,
1991
year
end;
in
fact,
he
was
not
able
to
make
repayment
at
all,
and
as
a
result
the
debt
was
written
off
by
the
company
in
1992
as
uncollectible.
The
business
could
not
be
salvaged,
and
the
Appellant
disposed
of
his
interest
in
it
in
1991,
incurring
a
non-capital
loss
in
the
amount
of
$1,742,625.00
in
the
process.
These
facts
gave
rise
to
the
assessment
which
is
under
appeal.
On
March
30,
1994
the
Minister
of
National
Revenue
reassessed
the
Appellant
to
include
in
his
income
for
the
1990
taxation
year
the
amount
of
$863,547.00,
pursuant
to
the
provisions
of
subsection
15(2)
of
the
Income
Tax
Act.
This
reassessment
also
included
an
amount
of
$121,272.24
on
account
of
interest,
calculated
upon
the
arrears
arising
out
of
the
inclusion
in
his
income
of
the
unpaid
shareholder
loan
under
subsection
15(2).
At
the
request
of
the
Appellant,
a
portion
of
his
non-capital
loss
was
carried
back
to
offset
the
inclusion
of
the
shareholder
loan
in
his
1990
income
as
part
of
the
same
reassessment.
The
Appellant
disputes
this
assessment
on
two
grounds.
First,
he
says
that
he
was
not
indebted
to
the
company
“in
the
true
economic
sense”,
because
he
could,
but
for
the
Small
Business
Development
Corporation
rules,
have
extinguished
his
debt
to
the
company
by
a
reduction
in
his
paid-up
capital,
and
if
he
had
done
so
then
the
shareholder
loan
would
have
been
repaid
before
the
January
31,
1991
year
end,
and
subsection
15(2)
would
have
had
no
application
to
him.
On
this
line
of
reasoning
he
would
not
be
liable
for
the
tax
on
the
shareholder
loan,
nor
for
the
interest
on
the
unpaid
tax
resulting
from
it.
Second,
he
says,
that
as
a
result
of
the
loss
carryback
from
the
1991
taxation
year,
he
has
been
relieved
of
the
burden
of
the
assessment
under
subsection
15(2),
and
that
he
at
least
should
not
have
to
pay
interest
on
the
unpaid
tax
arising
out
of
it.
In
effect,
he
says
that
the
loss
carryback
should
have
the
effect
of
wiping
out
the
tax,
and
all
of
the
interest
on
the
tax
arising
out
of
the
shareholder
loan.
The
Appellant’s
first
submission
is,
in
effect,
an
invitation
to
me
to
decide
this
case
not
on
the
facts
as
they
actually
are,
but
upon
the
basis
of
facts
that
might
have
been.
I
am
not
free
to
do
this.
As
Dickson
C.J.C.
said,
speaking
for
a
unanimous
Court,
in
Bronfman
Trust
v.
R.
(sub
nom.
Bronfman
Trust
v.
The
Queen),
[1987]
1
S.C.R.
32,
[1987]
1
C.T.C.
117,
87
D.T.C.
5059
at
page
55
(C.T.C.
129,
D.T.C.
5067-68):
the
courts
must
deal
with
what
the
taxpayer
actually
did,
and
not
what
he
might
have
done...
In
support
of
his
second
submission,
the
Appellant
relies
upon
subsection
15(1.2)
as
it
appeared
in
1990:
15(1.2)
For
the
purposes
of
subsection
(1),
the
value
of
the
benefit
or
advantage
conferred
on
a
shareholder,
in
circumstances
where
a
loan
or
other
obligation
to
pay
an
amount
is
settled
or
extinguished
at
any
time
without
any
payment
by
him
or
by
payment
by
him
of
an
amount
that
is
less
than
the
amount
of
the
obligation
outstanding
at
that
time,
shall
be
deemed
to
be
the
amount,
if
any,
by
which
the
obligation
outstanding
at
that
time
exceeds
the
aggregate
of
the
amount,
if
any,
of
the
benefit
in
respect
of
the
obligation
that
was
included
in
the
shareholder’s
income
at
the
time
the
obligation
arose
and
the
amount
so
paid,
if
any.
These
words,
he
says,
relieve
him
of
liability
for
the
interest
included
as
part
of
the
reassessment.
I
cannot
read
them
as
having
that
effect.
What
is
addressed
by
this
subsection
is
the
quantification
of
the
amount
to
be
included
in
income
under
subsection
15(1)
in
circumstances
where
a
shareholder
loan
is
forgiven
or
compromised.
It
does
not
deal
at
all
with
the
question
here
at
issue,
which
is
when
the
carryback
is
to
be
applied
for
the
purpose
of
calculating
the
interest
required
to
be
paid
on
outstanding
tax.
The
answer
to
that
question
is
to
be
found
in
subsection
161(7):
161(7)
For
the
purpose
of
computing
interest
under
subsection
(1)
or
(2)
on
tax...
for
a
taxation
year,
(a)
the
tax
payable
by
the
taxpayer
under
this
Part
for
the
year
shall
be
deemed
to
be
the
amount
that
it
would
have
been
if
none
of
the
following
amounts,
namely
(iv)
any
amount
deducted...under
section
111
in
respect
of
a
loss
for
a
subsequent
taxation
year,
were
so...deducted
for
the
year...;
and
(b)
the
amount
by
which
the
tax
payable
by
the
taxpayer
under
this
Part
for
the
year
is
reduced
by
virtue
of
the...deduction...of
an
amount
described
in
any
of
subparagraphs
(a)(i)
to
(vii)
shall
be
deemed
to
have
been
paid
by
the
taxpayer
on
account
of
his
tax
payable
for
the
year
under
this
Part
on
the
day
that
is
the
latest
of
(iv)
where,
as
the
consequence
of
a
request
in
writing,
the
Minister
reassessed
the
taxpayer’s
tax
for
the
year
to
take
into
account
the
deduction...,
the
day
on
which
the
request
was
made.
The
relevant
date
in
this
case
appears
to
be
December
15,
1993,
when
the
Appellant’s
accountant
wrote
to
Revenue
Canada
Taxation
to
request
that
the
reassessment
include
a
carryback
of
an
amount
of
the
1991
noncapital
loss
sufficient
to
offset
the
inclusion
of
$863,547
under
subsection
15(2).
Given
the
plain
words
of
the
Act,
I
am
unable
to
accept
the
Appellant’s
submission
on
this
issue
either.
These
words
make
it
quite
clear
that
the
Appellant
has
been
correctly
assessed
for
interest
on
the
tax
that
would
have
been
payable
by
him
but
for
the
loss
carryback,
up
to
the
date
on
which
the
request
for
the
carryback
was
made.
The
appeal
is
therefore
dismissed,
without
costs.
Appeal
dismissed.
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