McArthur
J.T.C.C.:—Upon
consent
of
all
parties,
these
appeals
were
heard
on
common
evidence,
pursuant
to
the
informal
procedures
of
this
Court,
in
Saskatoon,
Saskatchewan.
The
issue
is
whether
the
appellants
can
each
deduct
interest
of
$2,229.73,
$2,141.82
and
$2,050.06
for
1989,
1990
and
1991
taxation
years,
respectively.
The
facts
as
set
out
by
the
appellants
in
their
notices
of
appeal
do
not
reflect
the
evidence
relied
on
at
trial.
The
appellant,
Rose-Marie
Kadziolka
("R.M.K."),
testified
that
during
the
late
1970s
or
early
1980s,
she
and
her
husband,
the
appellant
Casimir
Kadziolka
("C.K."),
increased
a
mortgage
on
their
19th
Street
home,
which
they
owned
jointly,
to
raise
the
sum
of
$46,500
which
they
invested,
$23,250
each,
in
Caros
Investments
Ltd.
("the
corporation").
The
corporation
was
incorporated
October
8,
1964
with
the
following
shareholders:
Casimir
Kadziolka:
750
Class
A
shares
Rose-Marie
Kadziolka:
250
Class
A
shares
The
share
capital
of
the
corporation
as
of
April
30,
1987
was:
Issued:
1,000
Class
A
shares:
$
1,000
Issued:
402
Class
C
Shares
$40,200
The
corporation’s
shareholder
loan
account
balance
as
stated
in
its
1987
T2
return
for
the
fiscal
year
ending
April
30,
1987
was
$5,469.
The
corporation
filed
T2
returns
for
the
1988,
1989,
1990,
1991
and
1992
taxation
years
with
the
following
shareholder
loan
account
balances:
$16,683.26
as
at
April
30,
1988
$2,075.52
as
at
April
30,
1989
$23,000
as
at
April
30,
1990
$7,183.43
as
at
April
30,
1991
$16,400
as
at
April
30,
1992
There
was
no
evidence
to
the
effect
that
the
appellants
received
a
promissory
note
or
other
security
from
the
corporation
in
return
for
the
funds
advanced.
Shares
of
the
corporation
were
exchanged
for
property,
not
money.
The
appellants
paid
interest
on
the
$46,500
for
which
they
claimed
a
deduction.
In
1986
or
1987
they
sold
their
home
and
constructed
a
new
one
which
they
mortgaged
in
the
amount
of
$175,000.
They
submit
that
the
$46,500
loan
was
not
paid
back
but
formed
part
of
the
new
$175,000.
They
paid
interest
on
$175,000
mortgage
until
June
1992.
The
company
owned
and
managed
income-producing
real
estate
property
for
which
a
receiver
was
appointed
about
June
1990.
Position
of
the
appellants
They
submit
that
they
paid
interest
on
$46,500
borrowed
by
them
and
which
was
invested
for
the
purpose
of
earning
income
with
their
company
Caros.
Position
of
the
respondent
The
appellants
have
not
provided
satisfactory
evidence
that
interest
paid
was
for
money
borrowed
for
the
purposes
of
earning
income
pursuant
to
paragraph
20(l)(c)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
Subparagraph
20(l)(c)(i)
of
the
Act
reads
in
part
as
follows:
(l)...in
computing
a
taxpayer’s
income
for
a
taxation
year
from
a
business
or
property,
there
may
be
deducted....
(c)...an
amount
paid
in
the
year
or
payable
in
respect
of
the
year...pursuant
to
a
legal
obligation
to
pay
interest
on
(i)
borrowed
money
used
for
the
purpose
of
earning
income
from
a
business....
Analysis
The
appellants
had
the
burden
of
proof.
They
submitted
orally
that
$46,500
was
borrowed
through
a
mortgage
on
their
home,
on
or
about
1980,
and
that
money
was
advanced
to
their
corporation
for
the
purposes
of
earning
income.
They
further
testified
that
this
home
was
sold
and
presumably
the
mortgage
paid
off.
A
new
mortgage
was
placed,
in
the
amount
of
$175,000,
to
finance
a
new
home
they
had
constructed.
R.M.K.
testified
that
the
$46,500
was
not
repaid
upon
the
discharge
or
retirement
of
the
initial
mortgage,
but
formed
part
of
the
$175,000
mortgage
on
the
newly
constructed
home.
There
was
no
evidence
of
this—no
cancelled
cheques.
It
was
the
Appellant’s
evidence
that
of
the
$175,000
advanced
by
way
of
mortgage
on
their
new
home
in
1987-$30,000
in
cash
was
advanced
to
the
corporation
and
$46,500
was
the
original
loan,
the
interest
for
which
they
claimed
a
deduction.
They
were
not
claiming
any
deduction
for
the
$30,000
cash
advanced
to
the
corporation.
The
remarks
of
my
brother
Judge
Teskey
J.T.C.C.
in
Daggett
v.
M.N.R.,
[1992]
2
C.T.C.
2764,
93
D.T.C.
15,
at
page
2766
(D.T.C.
16)
are
relevant
to
the
present
situation.
It
is
my
opinion,
where
a
taxpayer
in
a
non-arm’s
length
situation
purports
to
enter
into
a
transaction
or
a
series
of
transactions
in
order
to
take
advantage
of
benefit
provisions
under
statutes,
such
as
are
found
in
the
Act
or
to
avoid
such
provisions
as
contained
in
subsection
55(1)
of
the
Act,
he
has
to
do
it
right.
That
is,
the
"I’s"
must
be
dotted
and
the
"T’s"
crossed.
The
form
must
be
operative
and
complete,
without
defects,
in
all
respects.
He
quoted
Heald
J.
in
The
Queen
v.
Daly,
[1981]
C.T.C.
270,
81
D.T.C.
5197,
at
page
279
(D.T.C.
5204):
Nonetheless,
it
is
the
duty
of
the
Court
to
carefully
scrutinize
everything
that
a
taxpayer
has
done
to
ensure
that
everything
which
appears
to
have
been
done,
in
fact,
has
been
done
in
accordance
with
applicable
law.
It
is
not
sufficient
to
employ
devices
to
achieve
a
desired
result
without
ensuring
that
those
devices
are
not
simply
cosmetically
correct,
that
is,
correct
in
form,
but,
in
fact,
are
in
all
respects
legally
correct,
real
transactions.
If
this
Court,
or
any
other
court,
were
to
fail
to
carry
out
its
elementary
duty
to
examine
with
care
all
aspects
of
the
transactions
in
issue,
it
would
not
only
be
derelict
in
carrying
out
its
judicial
duties,
but
in
its
duty
to
the
public
at
large.
In
order
to
succeed,
the
appellant
must
prove
that
they
borrowed
the
money
and
paid
interest
for
the
purpose
of
earning
income.
They
have
not
satisfied
that
onus.
General
statements
of
intent
are
not
sufficient.
Other
than
the
testimony
of
R.M.K.
there
is
no
evidence
of
a
$46,500
advanced
to
Caros
for
the
purposes
of
earning
income.
There
was
no
evidence
in
the
corporation’s
records
of
$46,500
being
advanced
by
the
appellants.
The
Court
requires
proof
of
the
transactions
and
not
simply
statements
of
one’s
intentions.
There
was
insufficient
evidence
to
satisfy
the
Court
that
interest
was
in
fact
paid
and
that
money
was
in
fact
borrowed
for
the
purpose
of
earning
income.
For
these
reasons
the
appeals
are
dismissed.
Appeals
dismissed.
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