Goetz,
T.C.J.:—This
is
an
appeal
by
the
appellant
with
respect
to
his
1977
taxation
year
whereby,
in
computing
the
gain
from
the
sale
of
shares
of
J.
Lee
Investments
Ltd.,
he
sought
to
claim
a
reserve
under
the
provisions
of
subparagraph
40(1)(a)(iii)
of
the
Income
Tax
Act,
S.C.
1970-71-72,
c.
63,
as
amended,
(the
“Act”).
The
respondent
disallowed
the
appellant's
claim
and
relied,
inter
alia,
upon
sections
3,
9,
39
and
40(1
)(a)(iii)
of
the
Act.
At
the
outset
of
the
hearing,
it
was
agreed
that
the
appeal
of
the
appellant's
sister,
Leona
May
White
(82-102),
would
be
heard
on
common
evidence.
The
appellant
agreed
to
the
facts
as
set
forth
in
the
reply
to
notice
of
appeal
as
follows:
2.
In
his
return
of
income
for
the
1977
taxation
year
the
appellant
claimed
a
reserve
of
$19,996.00
with
regard
to
the
disposition
of
the
Appellant’s
shares
in
J.
Lee
Investments
Ltd.
3.
By
Notice
of
Reassessment,
dated
April
14,
1981,
the
Respondent
disallowed
the
reserve
claimed
by
adding
a
taxable
capital
gain
in
the
amount
of
$19,996.00
to
the
Appellant’s
income
for
the
1977
taxation
year.
4.
In
so
reassessing
the
Appellant,
the
Respondent
relied,
inter
alia,
on
the
following
assumptions:
(a)
Prior
to
1977
the
Appellant
owned
80%,
and
his
sister,
Leona
White,
20%
of
the
issued
shares
in
J.
Lee
Investments
Ltd.;
(b)
Prior
to
1977
the
Appellant
owned
40%,
his
sister,
Leona
White,
owned
10%
and
Hugo
Lott
owned
50%
of
the
issued
shares
of
Family
Resources
Ltd.;
(c)
Family
Resources
Ltd.
operates
a
retail
grocery
store
in
Kelowna,
British
Columbia;
(d)
The
only
asset
of
J.
Lee
Investments
Ltd.
was
a
50%
interest
in
an
apartment
block
in
Kelowna,
B.C.
The
other
50%
interest
in
the
said
apartment
block
was
owned
by
Gilbert
Investments
Ltd.,
a
company
wholly
owned
by
the
said
Hugo
Lott;
(e)
By
agreement
the
parties
involved
decided
that
a
50%
interest
of
J.
Lee
Investments
Ltd.
in
the
said
apartment
block
had
a
fair
marketr
value
of
$50,000.00,
while
the
fair
market
value
of
all
the
shares
in
Family
Resources
Ltd.
was
agreed
to
be
nil;
(f)
The
Appellant
and
Leona
White
sold
to
Hugo
Lott
all
their
shares
of
J.
Lee
Investments
Ltd.
for
the
sum
of
$50,000.00;
(g)
Hugo
Lott
transferred
all
his
shares
in
Family
Resources
Ltd.
to
the
Appellant
and
Leona
White
for
no
consideration;
(h)
In
order
to
be
released
from
his
position
of
guarantor
of
Family
Resources
Ltd.’s
bank
loans,
Hugo
Lott
paid
the
said
sum
of
$50,000.00
directly
to
the
bank
to
be
applied
against
the
company’s
indebtedness
to
the
bank;
(i)
The
Appellant
and
Leona
White
agreed
to
the
said
deposit
and
assumed
the
shareholders’
account
as
payment
for
the
sale
of
shares
in
J.
Lee
Investments
Ltd.;
(j)
The
bank
placed
a
restriction
on
the
withdrawal
of
funds
by
the
Appellant
and
Leona
White
until
the
loan
balances
were
substantially
reduced;
(k)
The
said
restriction
imposed
by
the
bank
on
the
withdrawal
of
funds
by
the
Appellant
and
Leona
White
was
not
revoked
during
the
Appellant’s
1977
taxation
year;
Section
40(1)(a)(iii)
reads
as
follows:
40.
(1)
Except
as
otherwise
expressly
provided
in
this
Part
(a)
a
taxpayer’s
gain
for
a
taxation
year
from
the
disposition
of
any
property
is
the
amount,
if
any,
by
which
(iii)
such
amount
as
he
may
claim,
not
exceeding
a
reasonable
amount
as
reserve
in
respect
of
such
of
the
proceeds
of
disposition
of
the
property
that
are
not
due
to
him
until
after
the
end
of
the
year
as
may
reasonably
be
regarded
as
a
portion
of
the
amount
determined
under
subparagraph
(i)
in
respect
of
the
property;
.
.
.
The
appellant,
in
agreeing
to
Hugo
Lott
paying
the
sum
of
$50,000
directly
to
the
bank
and
to
the
account
of
Family
Resources
Ltd.,
put
himself
in
a
position
where
he
could
not
claim
a
reserve
from
the
proceeds
of
the
disposition
of
his
shares
in
J.
Lee
Investments
Ltd.
The
amount
of
$50,000
was
set
up
in
the
books
of
Family
Resources
Ltd.
as
a
loan
payable
to
shareholders,
namely,
the
appellant
and
his
sister.
In
so
doing,
he
increased
his
equity
in
that
company,
the
assets
of
which,
if
disposed
of
at
that
time
would
have
netted
him
$38,500.
The
proceeds
of
disposition
of
the
shares
became
an
account
receivable
from
Family
Resources
Ltd.
and
not
an
amount
owing
to
him
by
Hugo
Lott.
The
bank
imposed
a
restriction
on
the
appellant
with
respect
to
withdrawal
of
funds
from
Family
Resources
Ltd.
which
restriction
was
not
revoked
during
his
1977
taxation
year.
Therefore,
no
moneys
were
payable
to
the
appellant
until
subsequent
to
the
1977
taxation
yar.
For
the
above
reasons,
the
appeal
is
dismissed.
Appeal
dismissed.
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