Gordon F. Dixon v. Minister of National Revenue, [1992] 1 CTC 2468, 92 DTC 1456

Teskey, T.C.C.J.:—The appellant appeals from reassessment of income tax for the years 1982, 1983, 1984 and 1985. There are two issues herein.

The first issue for the Court to determine is the appellant's adjusted cost base of 120,000 shares of New Forty-Four Mines Ltd. (New Forty-Four). At trial, the appellant claimed he purchased from Aztec Development Corporation Ltd. (Aztec) 65,000 shares of New Forty-Four for $156,300 in August of 1983. He had reported and claimed an adjusted cost base of $325,000. In argument, he requested the Court to find an adjusted cost base of $87,600. The respondent in his Reply assumed that the appellant's cost base was not greater than $30,000.

Aztec was solely owned by the appellant, and, therefore, all dealings between the appellant and Aztec were not at arm's length. When the Court looks at non-arm's length transactions, it must balance the oral testimony carefully against the written documentation. It is incumbent upon a taxpayer to have the written documentation to a non-arm's length transaction in clear unequivocal form to back up the oral statements. Where there is a conflict between the written documentation and the oral testimony, the Court will normally not accept the oral statements.

The only written evidence submitted by the appellant, dealing with shares in August of 1983, shows that he borrowed from the Toronto Dominion Bank $156,300 and turned the same over to Aztec, and at the same time, 65,000 shares of New Forty-Four were transferred from Aztec to the appellant, as evidenced by share certificate 2583. The appellant says that he purchased the 65,000 shares of New Forty-Four from Aztec for the said sum of $156,300.

Exhibit A-5 is a letter from the Toronto Dominion Bank to the appellant dated August 12th, 1983. This letter confirms that the appellant did borrow $156,300 from the Toronto Dominion Bank and that the money went to Aztec. It also confirms that 65,000 shares of New Forty-Four registered in Aztec's name were transferred to the appellant. It does not corroborate the appellant's testimony on the purchase of these shares, and on this point, the letter is neutral. Against this evidence, the financial statement of Aztec shows the $156,300 as a loan from the appellant to it. It also states that the appellant purchased the 120,000 shares of New Forty-Four for $30,000.

This is not a case where credibility is an issue. The Court is prepared to accept the appellant's sworn testimony. However, for some unknown reason, Aztec's financial statement was prepared, filed and tax paid thereon, which statements differ from the oral evidence. The appellant's own tax return is wrong.

Under the circumstances of this case, the appellant cannot deny Aztec's financial statement or tax return. He, by signing the return and the return being accepted by the respondent, must abide by it. Therefore, he has been unable to demonstrate that the Minister's assumptions herein are wrong.

The second issue is whether the appellant in the years 1983,1984 and 1985, was farming with a reasonable expectation of profit. It is acknowledged that prior to 1983, he was a class 1 farmer as defined by the Supreme Court of Canada in the Moldowan decision. The appellant filed tax returns for these three years as a class 1 farmer and wrote off losses in excess of $5,000 a year. At trial, the appellant abandoned this position and said he was a class 2 farmer and that he should have the benefit of restricted farm losses. The Minister assumed that the appellant in these years is neither a class 1 or class 2 farmer and that his farming operation did not have a reasonable expectation of profit, and, therefore, he is not entitled to deduct his losses from other income.

There is very little evidence before this Court to substantiate the appellant's position. He had valuable farm equipment. He says that he expected to make a profit but did not back up his opinion with facts to demonstrate this. He claims he got into the rainbow trout business, but no evidence was given as to the capacity of his pond, as to the cost of buying and feeding the trout, or as to the sale price of the trout. The only evidence was that the price was depressed when they were marketed.

The appellant's tax returns again are at odds with his testimony. His 1983 tax returns show that at the first of the year, no livestock was on hand and income of only $1,037, the $37 being patronage payments and $1,000 was for a right-of- way. The 1984 return shows $10,000 worth of cattle being purchased and $874 worth of horses, the only income being $1,850 for hay. The 1985 return shows no livestock purchased and gross income of $11,646.56 on sale of cattle. There is no evidence to show that this income of $11,646.56 was for the sale of all of the cattle purchased the previous year, part of the cattle or just a few of them.

The appellant is bound by his returns, and without objective evidence as to what the operation was and to how the appellant planned to make a profit, the Court must find that he has failed to discharge the onus that he had a reasonable expectation of profit.

The Court would like to say that it found the appellant to be a sincere, honest businessman, and in no way do the reasons of judgment of this case in any way cast any reflection upon his integrity or his statements. It may well have been that he might have been able to prove a reasonable expectation of profit if he had realized the evidence that ought to have been called. There is no doubt that he thought he had a reasonable expectation of profit, but that is an objective test that has to be met with evidence, and it is for this Court to determine based on that evidence whether there was.

For the above reasons, the appeals are dismissed.

Appeal dismissed.