Taylor,
T.C.J.:
—This
is
an
appeal
heard
in
Calgary,
Alberta,
on
January
11,
1989
against
an
income
tax
assessment
in
which
the
Minister
of
National
Revenue
disallowed
an
amount
of
$21,131
claimed
as
an
allowable
investment
business
loss
for
the
1984
taxation
year.
The
essential
facts
are
few
and
simple.
1.
On
December
3,
1979,
Mr.
Earl
loaned
$42,000
to
a
Canadian
corporation,
Copystat
Products
Alberta
Ltd.
(Copystat).
2.
He
took
back
a
note
receivable
and
a
chattel
mortgage
on
the
office
equipment
and
inventory
as
security.
3.
He
received
regular
interest
payments
until
December
1980.
4.
On
March
27,
1980,
he
received
an
amount
of
$5,000
on
account
of
principal.
5.
On
May
2,
1981,
the
Federal
Business
Development
Bank
(FBDB)
seized
the
assets
of
Copystat,
and
realized
on
them,
putting
the
corporation
out
of
business.
The
obligation
of
FBDB
was
for
$20,000
dated
December
8,
1978
on
which
there
was
an
outstanding
overdue
balance
at
April
15,
1981
of
$10,080
plus
interest
and
collection
costs.
FBDB
still
had
a
net
write-off
in
February
1982
of
$4,971.73,
after
all
its
efforts
at
collection
and
realization.
In
the
reply
to
the
notice
of
appeal,
the
Minister
stated
that:
—
The
Appellant
knew
or
should
have
known
that
the
debt
owing
to
him
by
Copystat
Products
Alberta
Ltd.
was
a
bad
debt
prior
to
his
1984
taxation
year.
—
The
Respondent
relies,
inter
alia,
upon
Section
3,
Subsection
50(1)
and
Paragraph
39(1)(c)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148,
as
amended
by
S.C.
1970-71-72,
c.
63,
s.
1,
applicable
to
the
1984
taxation
year
of
the
Appellant.
—
The
Respondent
submits
that
he
correctly
reassessed
the
Appellant
by
disallowing
the
deduction
of
an
allowable
business
investment
loss
in
the
1984
taxation
year
as
the
debt
owing
to
him
from
Copystat
Products
Alberta
Ltd.
was
not
established
by
him
to
have
become
bad
in
the
1984
taxation
year.
In
testimony,
Mr.
Earl
stated
that
he
had
not
searched
any
records
to
see
if
there
were
already
obligations
outstanding
from
Copystat,
when
he
loaned
the
$42,000
and
he
was
not
aware
of
the
FBDB
loan
and
similar
(prior)
security
which
it
held
against
Copystat.
Further,
he
became
seriously
ill
early
in
1981
and
had
been
unable
to
attend
to
his
business
affairs
for
a
very
long
time.
On
recovery
he
was
shocked
to
find
that
Copystat
was
no
longer
in
business,
and
he
proceeded
to
attempt
recovery
even
from
FBDB.
Whether
he
had
any
record
keeping
method,
which
should
have
alerted
him
to
the
fact
that
he
was
no
longer
receiving
interest
during
his
illness
was
not
made
clear
to
the
Court.
It
took
him
quite
a
while
even
to
determine
what
had
actually
happened,
and
even
longer
to
be
assured
that
he
had
lost
his
money.
He
reached
that
conclusion
in
1984.
Analysis
In
my
view
the
crux
of
the
issue,
and
the
fault
in
the
Minister’s
assessment
rests
in
the
interpretation
placed
on
subsection
50(1)
of
the
Income
Tax
Act
(the
"Act")
by
the
Minister.
Subsection
50(1)
reads:
50.(1)
For
the
purposes
of
this
subdivision,
where
(a)
a
debt
owing
to
a
taxpayer
at
the
end
of
a
taxation
year
(other
than
a
debt
owing
to
him
in
respect
of
the
disposition
of
personal-use
property)
is
established
by
him
to
have
become
a
bad
debt
in
the
year,
or
(underlining
mine)
(b)
a
share
of
the
capital
stock
of
a
corporation
(other
than
a
share
received
by
a
taxpayer
as
consideration
in
respect
of
the
disposition
of
personal-use
property)
is
owned
by
the
taxpayer
at
the
end
of
a
taxation
year
and
the
corporation
has
during
the
year
become
a
bankrupt
(within
the
meaning
of
subsection
128(3)),
the
taxpayer
shall
be
deemed
to
have
disposed
of
the
debt
or
the
share,
as
the
case
may
be,
at
the
end
of
the
year
and
to
have
reacquired
it
immediately
thereafter
at
a
cost
equal
to
nil.
The
Minister
says,
supra
.
.
the
Appellant
knew
or
should
have
known
.
..”;
and
"the
debt.
.
.
was
not
established
by
him
to
have
become
bad
in
the
1984
taxation
year".
Mr.
Earl's
testimony
is
that
he
did
not
know
of
the
demise
of
Copystat
during
the
period
of
his
lengthy
illness,
and
the
Minister
has
not
shown
that
he
should
have
known.
Whether
Mr.
Earl
would
have
(or
could
have)
reached
the
conclusion
while
he
was
ill,
that
his
investment
was
lost
with
only
the
information
that
Copystat
was
not
paying
interest
or
even
that
it
was
no
longer
in
business,
is
only
a
matter
of
conjecture
and
not
sufficient
to
disallow
his
claim.
With
regard
to
the
Minister's
final
statement
”.
.
.
was
not
established
by
him
to
have
become
bad
in
the
1984
taxation
year",
the
Minister
has
not
demonstrated
that
any
other
year
(1981,
1982
or
1983)
was
the
year
in
which
Mr.
Earl
so
established—
in
light
of
his
direct
testimony
with
respect
to
the
year
1984.
Barring
clear
evidence
to
the
contrary,
the
year
selected
by
an
appellant
as
that
in
which
he
and
he
alone
according
to
the
Act,
established
that
a
debt
became
bad,
should
be
the
one
accepted
by
the
Minister
for
purposes
of
subsection
50(1)
of
the
Act.
I
would
point
out
that
nothing
of
such
a
contrary
nature
was
brought
out
at
the
hearing
even
though
no
separate
verification
of
Mr.
Earl's
illness
or
inability
to
look
after
his
affairs
was
presented
on
behalf
of
the
appellant.
I
would
further
note
that
the
Minister
did
not
dispute
the
calculation
of
the
$21,131
at
issue
(50
per
cent
of
the
principal
balance
of
$37,000,
plus
interest)
and
the
question
of
the
propriety
of
including
interest
was
not
raised.
The
appeal
is
allowed
and
the
matter
referred
back
to
the
Minister
for
reconsideration
and
reassessment
according
to
these
reasons
for
judgment.
The
appellant
is
entitled
to
party-and-party
costs.
Appeal
allowed.
Email this Content