Parr v. R., [1996] 1 CTC 2372

Bowman J.T.C.C. (orally):- This is an appeal for reassessments for the appellant’s 1990, 1991 and 1992 taxation years.

For those years the appellant was the sole shareholder of a corporation known as Queenston House Publishing Company, a company that had been in existence since 1974 or so. It published a number of books.

By 1990, its financial position had deteriorated and it was not particularly active. It could not carry on the business that it had previously carried on and it could not pay its bills. Ms. Parr therefore paid, on behalf of the company, rent, heat, electricity and certain other expenses in the amounts of $8,304.00 for 1990, $6,999.00 for 1991 and $7,676.38 for 1992.

She evidently telephoned the tax department and asked if she could write off these losses, these expenses, and was told that she could. This, I think, was based upon the fact that whoever answered her telephone call was not aware that she was paying on behalf of the corporation. I do not blame either her or the official of the tax department that answered the letter, but they were acting upon erroneous information.

The department reassessed after she claimed these as her own personal expenses and said that they were really the company’s expenses. This involvement arises frequently with corporations that are owned by one or two people, where you see that the company is essentially an extension of themselves which is not a separate legal entity.

As I analyze the situation, these were not her expenses, they were the expenses of the company and she was paying them on behalf of the company. They were therefore loans to the company, shareholder loans or, if you will, advances of capital, although I think shareholder loans perhaps is a more appropriate way of viewing it and the result, these are losses that the company incurred.

In 1993 the company was evidently struck off the register for failure to file-was it 1993?

MS. PARR: 1995.

HIS HONOUR: 1995,1 beg your pardon.

MS. PARR: I sent the return in —

HIS HONOUR: Sorry, in 1995 the company was struck off the register. But I should think that by 1993 it was perfectly obvious that it could never repay these loans.

The question, and it is not whether Ms. Parr can write off these expenses in the years in which she paid them, but rather whether she is entitled in a subsequent year to treat these amounts as business investment losses, giving rise to an allowable business investment loss under section, I think it is 39, of the Income Tax Act. Those years are not before me. For the year in which — 1993, 1994 and 1995, are not before me and of course I cannot deal with anything other than the years that are before me.

However, in dismissing this appeal, as I must, I have two recommendations that I would like to make to the Minister of National Revenue. In the first place, I think this is an appropriate case for the Minister to consider the exercise of his discretionary powers under the so-called fairness package to waive the interest.

Secondly, I would ask Ms. Parr to consider, and I would ask the Minister of National Revenue as well, to consider the possible treatment of these amounts that she loaned to the company as having become bad debts within the meaning of Section 50 of the Income Tax Act, and thereby giving rise in the subsequent year to an allowable business investment loss in probably 1993, but that is a question of fact and I do not have all the facts before me. That would afford to Ms. Parr some measure of relief.

She is obviously a person who has acted in good faith and under, perhaps, a misunderstanding as to the effect of a separate corporate entity. But there may be some relief available to her under Section 39 of the Income Tax Act but, as I say, that is a matter for the Minister to consider, it is not a matter within my jurisdiction because that year is not before me.

So have you understood what I am saying? I am dismissing your appeal.

MS. PARR: Yes, I have, I have written it down.

HIS HONOUR: I am trying to point out some areas in which the Minister can, perhaps, give you some relief because this is an unfortunate case and all I can do is wish you good luck.

MS. PARR: Thank you very much.

Appeal dismissed.