Tremblay,
J.T.C.C.:—This
appeal
was
heard
on
July
6,
1993,
at
Quebec
City,
Quebec.
At
the
beginning
of
the
hearing,
it
was
admitted
that
the
decision
made
in
this
case
would
apply
to
Réjeanne
Boudreault
(93-104).
1.
The
point
at
issue
According
to
the
notice
of
appeal
and
the
reply
to
the
notice
of
appeal,
the
issue
is
the
time
at
which
a
debt
of
$99,247
owing
to
the
appellant
became
uncollectible.
Was
it
when
he
declared
bankruptcy
on
August
25,
1988,
as
the
respondent
contends,
or
was
it
later,
at
the
time
when
the
company
Padome
Inc.,
in
which
the
investment
was
made,
was
dissolved
on
June
22,
1991,
as
the
appellant
contends?
2.
The
facts
2.01
The
uncontested
evidence
established
that
the
investment
in
Padome
Inc.
broke
down
as
follows
at
paragraph
39(1
)(c):
|
5,000
common
shares—Class
A
|
$
5,000
|
|
20,700
preferred
shares—Class
B
|
20,700
|
|
advances
|
73,547
|
|
Total:
business
investment
losses
|
$99,247
|
|
Total:
deductible
business
investment
losses
(
A)
|
$66,165
|
|
[Translation.]
|
2.02
According
to
the
respondent,
the
appellant's
summary
balance
sheet,
produced
by
the
trustee,
Yvon
Delwaide,
on
August
25,
1988,
states
a
value
of
zero
for
the
shares
of
Padome
Inc.
and
does
not
mention
these
advances
in
the
amount
of
$73,547.
We
should
first
note
that
the
appellant
declared
bankruptcy
at
the
same
time
as
did
his
wife,
Réjeanne
Boudreault.
The
appellant
produced
the
summary
balance
sheet
dated
August
26,
1988
(Exhibit
A-1)
stating
total
assets
of
$76,200
and
debts
of
$113,493.87,
leaving
a
balance
of
$37,293.87.
The
assets
shown
are
composed
of,
inter
alia,
"$65,000
in
shares
in
‘Padome
Inc.’
Value:
Zero".
The
appellant
also
produced
Exhibit
A-2,
the
notice
of
assessment
received
by
Padome
Inc.
for
the
fiscal
year
ending
on
May
31,
1988.
This
exhibit
indicates
that
the
net
loss
for
that
year
was
$64,822.
The
comparative
financial
statements
for
1987
and
1988
indicate
that
the
net
loss
for
1987
was
$41,492.
Padome
Inc.’s
total
net
losses,
including
the
other
years,
amounted
to
$220,231
(Exhibit
A-3,
note
12).
Page
7
of
Exhibit
A-3
also
indicates
that
$73,547
was
owing
to
the
appellant,
independently
of
the
capital
stock.
2.03
According
to
the
respondent,
Padome
Inc.
ceased
activities
on
or
about
May
11,
1988,
when
the
main
supplier
repossessed
the
inventory
and
the
property
was
sold.
The
inventory
was
repossessed
by
Provigo
Distribution
Inc.
(Provigo).
Padome
Inc.
purchased
its
products
through
Provigo.
Padome
Inc.
had
borrowed
$32,480
from
that
company
on
January
20,1988,
and
had
assigned
its
inventory
as
security.
2.04
According
to
the
appellant,
the
factor
that
brought
about
the
seizure
of
the
inventory
and
subsequently
of
the
property
was
the
fact
that
for
several
weeks,
a
dishonest
employee
had
retained
income
for
himself
rather
than
making
the
payments
to
Provigo.
According
to
the
appellant,
Provigo
had
some
responsibility
for
this
situation.
A
law
firm
was
retained
to
examine
the
matter
and
commence
the
appropriate
proceedings
for
damages.
On
July
28,
1988,
the
appellant's
lawyer
sent
him
a
bill
of
costs
in
that
regard
(Exhibit
A-5,
filed
jointly).
Another
convenience
store
had
brought
a
similar
action
against
Provigo.
The
lawyers
were
awaiting
the
outcome
of
that
action.
That
convenience
store
was
successful
in
obtaining
$10,000
during
1990
or
1991.
There
had
been
discussion
of
an
action
for
an
amount
on
the
order
of
$500,000
being
brought
by
Padome
Inc.
against
Provigo
in
1990.
Thereafter,
for
a
number
of
reasons,
the
appellant’s
lawyers
reached
the
conclusion
"that
such
an
action
could
not
realistically
be
contemplated"
(Exhibit
A-5,
filed
jointly).
2.05
According
to
the
respondent,
the
appellant
was
unable
to
have
his
advances
paid
by
Padome
Inc.
on
or
about
May
11,
1988,
in
view
of
the
fact
that
Padome
Inc.'s
assets
were
insufficient
by
far
to
cover
the
amount
of
the
accumulated
debts.
The
appellant
admits
that
the
debts
were
substantial,
but
stated
that
the
equipment
had
been
purchased
at
a
cost
of
$100,000,
and
this
was
confirmed,
to
some
extent,
by
Exhibit
A-3.
There
was
only
one
$20,000
debt
remaining
when
the
equipment
was
seized
by
Gestion
Alfo
Inc.
in
September
1990
(Exhibit
A-6).
2.06
The
appellant
denies,
admits
or
ignores
the
following
allegations
by
the
respondent:
(g)
Padome
Inc.
ceased
to
operate
all
of
its
businesses
and
was
insolvent
during
the
appellant's
1988
taxation
year
(pre-bankruptcy
taxation
year,
ending
on
August
24,
1988);
[denied]
(h)
on
August
24,
1988,
the
fair
market
value
of
the
shares
of
Padome
Inc.
was
nil
and
it
was
reasonable
to
anticipate
that
this
corporation
would
be
dissolved
and
would
not
start
operating
a
business;
[denied]
(i)
according
to
the
provincial
Gazette,
s.
8,
there
was
a
forced
dissolution
and
surrender
of
Padome
Inc.'s
charter
on
June
22,
1991;
[admitted]
(j)
the
appellant
is
deemed
to
have
disposed
of
the
debt
for
$73,547
and
of
the
shares
of
Padome
Inc.
for
$25,700
at
the
end
of
its
1988
taxation
year
(prebankruptcy
taxation
year
ending
on
August
24,
1988);
[denied]
(k)
a
deductible
business
investment
loss
totalling
$66,165
was
suffered
at
the
end
of
the
1988
taxation
year
(pre-bankruptcy
taxation
year
ending
on
August
24,
1988);
[denied]
(l)
of
this
deductible
loss
totalling
$66,165,
$20,572
was
deducted
in
the
appellant's
1988
taxation
year
(that
is,
pre-bankruptcy
taxation
year
ending
on
August
24,
1988),
the
year
when
the
loss
was
suffered;
[ignored]
(m)
the
appellant
did
not
ask
to
carry
the
balance
of
the
deductible
business
investment
loss
back
to
years
prior
to
1988;
[Translation.]
2.07
According
to
the
appellant,
an
employee
of
the
respondent
informed
his
bookkeeper
that
it
was
possible
to
deduct
100
per
cent
of
the
loss
subsequently.
However,
the
respondent
has
been
unable
to
trace
this
person's
conversation
in
the
notes
in
the
Department's
file.
Counsel
is
relying
on
hearsay.
However,
the
appellant
contends
that
this
is
the
information
on
which
he
based
his
decision
to
wait
until
1989
and
1990
to
apply
the
loss.
The
appellant
denies
that
the
balance
of
the
deductible
business
investment
loss,
$45,593,
cannot
be
carried
forward
to
subsequent
years,
as
the
respondent
contends.
3.
Analysis
In
short,
if
the
$99,247
owing
to
the
appellant
became
uncollectible
on
August
25,
1988,
the
respondent
is
correct.
However,
if
the
items
set
out
below
may
be
considered
to
be
valuable
assets,
we
might
then
think
that
the
$99,247
owing
did
not
become
uncollectible
until
later.
(a)
The
action
brought
against
Provigo
in
1988
seemed
likely
to
succeed.
Law
firms
are
not
retained
for
the
mere
joy
of
bringing
actions
(2.04).
(b)
The
net
value
of
the
equipment,
over
$80,000
(2.05).
(c)
The
accumulated
fiscal
loss
of
$220,231,
applicable
against
Padome
Inc.’s
future
income,
was
unarguably
an
asset,
since
it
allowed
for
a
tax
exemption
or
credit
of
$110,000
(2.02).
The
result
of
all
of
these
factors
is
that
I
cannot
conclude
with
certainty
that
the
debt
owing
to
the
appellant
by
Padome
Inc.
in
1988
was
collectible.
However,
these
items
constitute
assets
as
a
result
of
which
I
cannot
conclude,
as
does
the
respondent,
that
the
debt
owing
was
uncollectible
in
1988.
Is
it
not
reasonable
to
believe
that
the
debt
owing
to
the
appellant
did
not
become
uncollectible
until
19912
The
Court
believes
it
is.
In
1989
and
1990,
therefore,
the
appellant
was
entitled
to
apply
the
balance
of
the
deductible
business
investment
loss,
in
the
amount
of
$45,593.
4.
In
the
case
of
Réjeanne
Boudreault
(93-104),
the
amount
of
the
deductible
business
investment
loss
is
$13,808,
applicable
to
the
1989
taxation
year.
5.
Conclusion
The
appeal
is
allowed,
with
costs,
and
the
assessment
is
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment.
Appeal
allowed.
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