Guy
Tremblay:—This
case
was
heard
in
Edmonton,
Alberta
on
June
1,
1981.
1.
The
Point
at
Issue
Pursuant
to
the
notice
of
appeal
and
the
reply
to
notice
of
appeal,
the
problem
is
whether
the
appellant’s
loan,
without
interest,
in
the
amount
of
$8,000
to
Canadian
All
Parts
Wholesale
Ltd,
was
made
“for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property”
in
the
meaning
of
subparagraph
40(2)(g)(ii)
of
the
Income
Tax
Act.
The
appellant
contends
that
in
addition
to
repayment
of
the
sum
of
the
said
$8,000,
he
should
have
received
25%
of
the
issued
common
shares
in
the
company.
The
respondent
contends
that
there
is
no
evidence
that
the
appellant
was
to
receive
25%
of
the
issued
shares
of
the
borrowing
company.
The
taxation
years
involved
are
1976
and
1977.
2.
The
Burden
of
Proof
2.01
The
burden
is
on
the
appellant
to
show
that
the
respondent’s
assessments
are
incorrect.
This
burden
of
proof
results
particularly
from
several
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
2.02
In
the
same
judgment,
the
Court
decided
that
the
assumptions
of
fact
on
which
the
respondent
based
the
assessment
are
also
deemed
to
be
correct.
In
the
present
case,
in
paragraph
4
of
the
reply
to
notice
of
appeal,
the
respondent
described
the
facts
on
which
he
based
his
assessment:
4.
In
so
assessing
the
Appellant,
the
Respondent
relied,
inter
alia,
on
the
following
assumptions:
(a)
the
loan
was
a
personal
loan
by
the
Appellant;
(b)
the
loan
was
made
at
the
instigation
of
his
lawyer,
D
H
Heighington,
a
director
but
not
a
shareholder
of
the
borrower
company,
Canadian
All
Parts
Wholesale
Ltd,
and
a
long-term
personal
friend
of
the
Appellant;
(c)
there
is
no
evidence
in
the
records
of
Canadian
All
Parts
Wholesale
Ltd
or
the
promissory
note
that
there
is
a
liability
for
interest
on
the
loan
from
the
Appellant
or
that
the
Appellant
was
to
receive
25%
of
the
issued
shares
of
the
borrowing
company
in
lieu
of
interest;
(d)
the
Appellant
was
not
a
shareholder
of
Canadian
All
Parts
Wholesale
Ltd;
(e)
no
value
was
placed
on
the
shares
of
Canadian
All
Parts
Wholesale
Ltd
at
the
time
of
the
said
loan
or
subsequently
thereto;
(f)
Mr
Heighington
had
no
authority
to
offer
shares
in
Canadian
All
Parts
Wholesale
Ltd
to
the
Appellant;
(g)
the
Appellant’s
loss
from
the
disposition
of
his
right
to
receive
$8,000
pursuant
to
the
promissory
note,
dated
February
13,
1975,
was
not
a
right
acquired
by
the
Appellant
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property.
3.
Facts
3.01
The
appellant
is
the
manager
and
part
owner
of
an
equipment
manufacturing
and
repair
company
in
the
City
of
Edmonton.
3.02
In
February
of
1975
after
some
discussion
with
directors
of
Canadian
All
Parts
Wholesale
Ltd,
an
automobile
parts
distributor
in
Edmonton,
the
appellant
loaned
a
sum
of
$8,000
without
interest
in
exchange
for
a
promissory
note
(Exhibit
A-1).
The
promissory
note
reads
as
follows:
PROMISSORY
NOTE
$8,000
DATED:
February
13,
A.D.
1975
CANADIAN
ALL
PARTS
WHOLESALE
LTD,
promises
to
pay
to
the
order
of
ROBERT
CANTIN,
upon
demand,
at
Edmonton,
Alberta
the
sum
of
Eight
Thousand
Dollars
(8,000).
DATED
at
the
City
of
Edmonton,
in
the
Province
of
Alberta,
this
13th
day
of
February,
AD
1975.
CANADIAN
ALL
PARTS
WHOLESALE
LTD
Per:
(Signed)
Per:
(Signed)
3.03
One
of
the
directors
of
the
said
company
was
the
appellant’s
lawyer,
Mr
Donald
Heighington.
3.04
In
his
testimony,
Mr
Heighington
said
that
the
loan
was
made
on
the
understanding
that,
in
addition
to
repayment
of
the
sum
of
$8,000,
25%
of
the
issued
common
shares
in
the
company
would
be
given
to
the
appellant.
According
to
Mr
Heighington,
the
25%
common
shares
were
issued
to
the
appellant.
However,
there
is
no
document
about
this
because
the
company
went
into
bankruptcy
and
the
managing
director
fled
the
country.
All
records
were
taken
by
the
trustees
in
April
1975,
at
the
time
of
the
bankruptcy.
The
appellant
then
filed
his
claim
(Exhibit
A-2).
3.05
To
a
question
of
the
appellant’s
agent,
Mr
Heighington
explained
a
technique
that
is
followed
by
small
companies
in
Western
Canada,
the
share
structure
is
described
in
the
following:
A.
Rather
than
having
a
shareholder
put
the
money
into
the
company
through
purchase
of
shares,
the
shareholder
would
advance
money
to
the
company
by
way
of
a
loan.
In
exchange
for
the
loan,
the
shareholder
would
get
a
promissory
note
for
the
amount
of
the
loan,
and
in
this
particular
case
Mr
Cantin
would
receive
25%
of
the
issued
common
shares
in
the
company.
That
was
very
clearly
the
understanding,
and
that
is
what
took
place.
Mr
Cantin
owned
25%
of
the
company.
He
was
given
a
promissory
note
for
$8,000.
There
was
no
interest
provision
on
the
note,
but
it
was
anticipated
that
he
would
gain
advantage
through
the
ownership
of
the
shares;
and
in
due
course
he
would
likely
have
repayment
of
the
promissory
note.
There
were
other
shareholders
in
the
company,
as
Canadian
All
Parts
Wholesale
Limited,
who
had
advanced
money
to
the
company,
which
was
secured
back
again
by
a
promissory
note
issued
to
the
shareholder,
and
that
was
the
extent
of
it.
I
think
it
might
be
interesting
for
the
court
to
understand
the
origination
of
the
company.
The
company
was
originally
put
together
by
Ernest
O’Gaffney,
and
another
fellow
by
the
name
of
Lome
Meyer.
Both
who
at
that
time
lived
in
Edmonton.
Each
of
those
two
individuals
held
50%
of
the
shares
in
the
company.
That
is
50
shares
each.
The
company
was
incorporated,
I
believe
in
the
summer
of
1974,
I
believe.
Shortly
after
its
incorporation,
Mr
O’Gaffney,
who
was
a
very
vociferous
driving
individual,
pushed
the
other
shareholder
out
of
the
company.
At
that
point
in
time,
a
company
that
I
was
involved
in
as
the
President,
took
the
shares.
That
is
Rand
Holdings
took
the
shares
of
Mr
Meyer,
and
at
that
point
in
time
Rand
Holdings
Limited
owned
50%
of
the
shares.
Mr
O’Gaffney
owned
50%
of
the
shares.
Subsequent
to
that,
Rand
Holdings
Limited
took
one
additional
share
from
Mr
O’Gaffney,
because
we
were
not
pleased
with
the
manner
in
which
he
was
operating
the
company.
It
was
at
about
that
time
Mr
Cantin’s
help
was
solicited,
so
to
speak,
because
of
his
involvement
in
perhaps
similar
operations.
Mr
Cantin
got
into
the
business,
there
was
a
clear
opportunity
there,
if
the
company
could
have
been
managed
on
a
proper
basis.
At
it
turned
out,
we
were
not
able
to
get
this
vociferous
manager
out
of
the
picture
soon
enough.
Mr
Cantin
found
the
various
financial
difficulties,
and
shortly
after
that,
through
resolution
of
myself
and
the
other
director,
Mr
Boyles,
who
was
another
shareholder
in
Rand
Holdings
Limited,
by
resolution,
put
the
company
into
bankruptcy
to
protect
the
creditors
and
thus
avoid
any
further
difficulty
with
it.
I
think
that
explains
the
share
structure
and
the
note.
(SN
pages
38,
39
and
40)
3.06
Concerning
the
assumptions
of
fact
made
by
the
respondent
to
the
effect
that
“the
loan
was
a
personal
loan
by
the
appellant”
(see
4(a)
of
the
reply
to
notice
of
appeal,
quoted
in
paragraph
2.02
above),
Mr
Heighington
testified
as
follows:
Let
me
make
that
very
clear.
The
$8,000
was
advanced
clearly
to
Canadian
All
Parts
Wholesale
Limited
and
Mr
Cantin
received
a
note
and
some
shares
in
exchange
for
the
$8,000.
The
loan
at
no
time
was
advanced
to
myself
or
any
other
director
of
that
company
personally.
It
was
a
personal
loan
by
Mr
Cantin,
no
doubt
at
all.
(SN
pages
40
and
41)
3.07
The
witness
made
the
following
comments
concerning
the
allegation
4(b)
(of
the
reply
to
notice
of
appeal
quoted
in
paragraph
2.02
above):
Q.
Thank
you,
Don.
Passing
now
to
item
(b)
there,
it
says
“The
loan
was
made
at
the
instigation
of
his
lawyer,
D
H
Heighington
.
..”
I
think
we’ve
had
an
admission
that
it
was
your
recommendation,
but
it
goes
on
to
say,
it
acknowledges
that
you
were
a
director
but
it
goes
on
to
say
that
you
were
not
a
shareholder
of
the
borrower
company.
I
think
you
have
already
answered
that,
in
that
you
have
indicated
your
indirect
relationship;
is
that
correct?
Q.
Yes,
that’s
correct.
Rand
Holdings
Limited,
which
I
was
President
of
at
the
time
and
am
Secretary-Treasurer
of
presently,
at
the
time
Mr
Cantin
was
approached,
owned
either
50%
or
51%,
and
I
can’t
be
absolutely
certain
as
to
the
date,
but
it
was
either
50%
or
51%
of
the
shares
in
the
company.
Throughout
this
period
of
time,
from
October
of
'74
until
Mr
Cantin
became
involved
in
the
company,
I
would
have
meetings
with
Mr
O’Gaffney,
the
person
who
was
actually
the
managing
director
of
the
company.
I
controlled,
absolutely
controlled
the
corporate
structure
of
that
company.
If
I
said
to
Mr
O’Gaffney
transfer
all
of
your
shares
to
Mr
Cantin,
Mr
O’Gaffney
would
have
transferred
his
shares.
Therefore,
the
absolute
control
of
the
company
was
within
my
hands.
There
was
no
doubt
whatsoever
that
I
had
the
authority
to
deal
with
any
number
of
shares
in
that
company
that
I
chose
to
deal
with.
Q.
Thank
you,
Don.
Mr
Cantin
indicated
that
he
had
virtually
an
option
to
acquire
additional
shares
if
he
was
to
advance
further
sums
of
money
to
the
company.
Is
that
correct?
A.
Yes,
that
is
correct.
I
must
say
that
I’ve
forgotten
the
complete
detail
of
how
we
had
worked
out
the
number
of
shares
that
would
be
available
for
purchase
by
Mr
Cantin
down
the
line,
but
essentially
it
was
tied
into
the
amount
of
money
that
Rand
Holdings
had
in
the
company
at
the
point
in
time
when
Mr
Cantin
made
his
investment.
There
was
certainly
an
option.
I
cannot
recall
enough
of
the
detail,
so
I
don’t
think
there’s
any
sense
in
speculating
on
what
the
detail
may
have
been.
(SN
pages
41
and
42)
3.08
Mr
Heighington
also
testified
about
the
allegation
4(c)
(of
the
reply
to
notice
of
appeal
quoted
in
paragraph
2.02
above):
Q.
Passing
to
item
(c)
in
the
allegations
of
the
Department
“There
is
no
evidence
in
the
records
of
Canadian
All
Parts
Wholesale
Limited
or
the
promissory
note
that
there
was
a
liability
for
interest.”
I
think
we
concede
that,
there’s
no
question
of
that;
but
it
goes
on
to
say
that
“.
.
.
or
the
appellant
was
to
receive
25%
of
the
issued
shares
of
the
borrowing
company
in
lieu
of
interest.”
No
such
evidence
in
the
records
of
Canadian
All
Parts
Wholesale.
Could
you
tell
me
why
there
would
be
no
record
of
that
commitment
to
provide
the
25%?
A.
As
I
stated
earlier,
I
had
absolute
control
of
that
company
at
the
time
the
proposal
was
made
to
Mr
Cantin.
Mr
Cantin
and
I
have
known
each
other
for
a
number
of
years
and
we
have
had
a
number
of
successful
ventures
together.
There
are
transactions
presently
that
haven’t
been
documented,
but
that’s
the
way
we
Carry
on
business.
In
this
particular
case,
he
was
given
the
promissory
note
only
as
an
indicia
of
the
debt,
so
that
he
had
something
for
his
records
when
the
accountants
came
around
to
ask
him
where
he
put
the
$8,000.
The
actual
share
certificate
I
believe
was
prepared.
I
say
I
believe,
I’m
not
absolutely
certain.
I
believe
it
was
prepared
and
I
believe
it
is
in
the
minute
book,
wherever
it
may
be
at
the
present
time,
showing
Mr
Cantin
to
hold
25%
of
the
shares
of
the
company.
(SN
pages
42
and
43)
In
cross-examination,
Mr
Heighington
testified
as
follows
on
the
same
point:
A.
I
believe
the
25
shares
were
issued
to
Mr
Cantin.
I
believe,
sir,
but
I
cannot
give
evidence,
the
statement
that
I
actually
prepared
the
certificate.
I
believe
it
was.
We
cannot
locate
the
certificates,
therefore
I
cannot
say
for
certain,
but
I
believe
the
share
certificate
was
actually
prepared,
issued
in
his
name
and
left
on
the
company
minute
book.
It’s
our
practice
in
our
law
office
where
we
have
countless
numbers
of
minute
books,
to
leave
the
share
certificates
on
the
minute
books.
The
shareholder
generally
never
takes
the
share
certificate
home
with
him,
and
I
suspect
that
that
share
certificate
is
still
on
the
book,
as
it
is
in
most
cases.
Q.
It’s
my
understanding
that
there
is
nothing
in
the
minute
book
at
all
with
respect
to
these
share
certificates.
Have
you
any
knowledge
of
this,
whether
there
was
or
was
not?
A.
No,
I
said
that
I,
it
was
my
belief
that
the
share
certificate
had
been
prepared.
Whether
it
was
on
the
minute
book
or
whether
it
was
not,
I
do
not
know.
Q.
Perhaps
you
can
assist
me
again
with
respect
to
this;
what
was
required
for
the
transfer
or
for
the
issuing
of
shares
to
Mr
Cantin
by
this
company?
What
part
did
you
take
in
the
operations
of
Canadian
All
Parts
Wholesale
Limited
in
order
to
ensure
that
these
shares
would
be
issued?
Is
there
a
resolution
of
directors,
or
what
steps
would
have
been
taken
and
were
taken?
A.
Again,
I
really
cannot
say,
because
I
do
not
have
the
minute
book
and
I
am
not
certain
as
to
what
documentation
if
any
is
on
the
minute
book.
You
must
remember,
this
company
was
put
into
bankruptcy.
The
managing
director
flew
the
country.
A.
In
terms
of
the
actual
transfer
of
the
shares
and
in
terms
of
the
resolution
to
transfer
the
25
shares
to
Mr
Cantin,
and
to
originally
transfer
the
shares
to
Rand
Holdings
Limited,
the
meetings
were
very
clearly
held.
The
various
resolutions
were
passed
that
were
required,
and
if
they
are
not
evidenced
in
writing,
they
may
not
be
evidenced
in
writing;
but
very
clearly
the
meetings
were
held
and
the
resolutions
were
passed.
(SN
pages
49,
50
and
51)
3.09
Concerning
allegations
4(d),
(e),
(f)
and
(g)
(of
the
reply
to
notice
of
appeal
quoted
in
paragraph
2.02
above)
the
witness
testified
as
follows:
Q.
That
would
likely
take
care
of
item
(d),
which
alleges
that
the
Appellant
was
not
a
shareholder
of
Canadian
All
Parts
Wholesale.
As
far
as
you
were
concerned,
Mr
Heighington,
he
was?
A.
There’s
absolutely
no
doubt
that
Mr
Cantin
owned
25%
of
the
issued
common
shares
of
Canadian
All
Parts
Wholesale
Limited,
no
doubt
whatsoever.
Q.
Item
(e),
“No
value
was
placed
on
the
shares
of
Canadian
All
Parts
Wholesale
Limited
at
the
time
of
the
said
loan
or
subsequently
thereto.”
A.
Yes,
there
was
no
need
to
place
any
value
on
the
shares
at
that
point
in
time.
Mr
Cantin
advanced
$8,000
to
the
company
and
he
received
the
note
back
and
the
shares.
There
was
no
need
to
place
a
value
on
the
shares.
Q.
Item
(f),
“Mr
Heighington
had
no
authority
to
offer
shares
in
Canadian
All
Parts
Wholesale
Limited
to
the
appellant.”
I
think
you
have
already
answered
that
more
than
once?
A.
Yes,
I
believe
that
I
have.
Q.
In
the
affirmative
—
in
the
negative,
pardon
me.
(g),
“The
appellant’s
loss
from
the
disposition
of
his
right
to
receive
$8,000
pursuant
to
the
promissory
note
dated
February
13th,
1975
was
not
a
right
acquired
by
the
appellant
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property.”
Mr
Heighington,
I
think
that
it’s
been
stated
a
number
of
times
already,
has
it
not,
that
the
$8,000
advanced
to
the
company
was
to
give
him
a
right
to
25%
of
the
company;
was
it
not?
A.
Yes,
that’s
correct.
The
$8,000
was
advanced
to
the
company,
number
one,
to
assist
the
company
in
purchasing
assets
for
resale.
That
is
parts,
automotive
parts
for
resale,
with
the
expectation
that
down
the
line
possibly
dividends
would
be
paid
on
common
shares
that
he
owned
in
the
company
and
he
would
thereby
gain
a
return
on
the
investment.
Q.
In
other
words,
the
$8,000
was
to
produce
for
him
shares
which
would
be
a
property
which
would
produce
income?
A.
That’s
correct.
(SN
pages
43,
44
and
45)
3.10
Mr
Heighington
explained
that
the
method
used
in
the
case
of
the
appellant
is
commonly
used
in
Alberta:
Q.
This
particular
manner
of
financing
you
have
already
told
us,
have
you
not,
that
was
followed
by
other
shareholders
in
the
company?
They
too
advanced
money
in
the
same
manner
for
shares?
A.
Yes.
Q.
On
which
no
specific
value
was
placed
at
the
time
they
were
issued?
A.
That
is
correct.
It
was
the
expectation
that
the
monies
would
be
advanced
by
the
various
shareholders
from
time
to
time,
and
that
as
the
company
got
to
a
position
to
repay
the
shareholders’
loan,
then
it
would
do
so.
It
was
as
simple
as
that.
It’s
a
method
of
financing
that
is
considered
very
standard
in
Alberta.
The
companies
are
simply
not
capitalized
on
the
basis
of
money
put
in
for
the
purchase
of
shares.
I
think
it’s
a
fairly
accepted
method
of
financing.
Q.
Would
you
say
that
the
main
reason
for
not
providing
interest
is
so
that
the
shareholders
receive
their
income
by
way
of
dividends,
which
are
given
much
more
favourable
treatment
under
the
Income
Tax
Act?
A.
Yes,
my
answer
to
that
would
be
yes.
(SN
pages
45
and
46)
3.11
In
cross-examination,
he
specified
why,
he
thought
that
the
appellant
was
an
asset
for
the
company:
Q.
I
take
it
by
virtue
of
Mr
Cantin’s
experience
or
expertise
in
the
management
of
a
manufacturing
company,
this
is
why
you
wished
to
see
him
in
here,
you
wished
to
see
him
within
this
other
company
to
assist
in
the
operations?
A.
Yes,
I
considered
Mr
Cantin
to
be
an
astute
businessman.
I
knew
at
the
time
that
he
had
expertise
in
certain
areas
of
the
automotive
field
and
I
thought
that
he
would
be
an
excellent
addition
to
the
management.
(SN
page
55)
3.12
Mr
Cantin
in
his
testimony,
was
mixed
up
with
legal
reality.
Some
sentences
in
his
testimony
were,
at
first
glance,
contradictory
to
the
allegations
of
the
notice
of
appeal
and
to
the
promissory
note.
According
to
him
he
bought
shares
with
the
$8,000.
Exhibit
A-1
clearly
states
it
is
a
promissory
note.
In
his
understanding
certain
things
were
obvious:
—
he
was
a
shareholder
in
the
company,
—
he
participated
in
the
management
of
the
company,
—
he
had
arranged
his
day-to-day
work
so
that
he
could
go
to
the
office
of
the
company
at
least
once
a
day,
—
he
would
later
have
the
possibility
of
acquiring
more
shares.
The
preponderance
of
his
testimony
indicates
that
he
was
interested
in
the
company.
3.13
Mr
Kennedy,
the
counsel
for
the
respondent,
in
the
cross-examination
of
Mr
Heighington
well-summarized
Mr
Cantin’s
evidence:
Q.
Mr
Heighington,
what
concerns
me
now
is
Mr
Cantin’s
evidence
with
respect
to
what
he
was
purchasing,
notwithstanding
he
received
a
note,
he’s
indicated,
I
would
suggest
quite
clearly,
that
he
was
buying
shares.
He
was
paying
$8,000
and
he
was
buying
25%
of
the
shares
of
the
company
in
the
hopes
he
could
operate
the
company
to
bring
it
around
to
a
productive
base.
He
didn't
seem
to
really
follow
the
purpose
of
the
note
or
I
believe
he
indicated
quite
clearly
he
didn't
want
to
—
wouldn’t
expect
to
claim
back
on
the
note
—
make
a
demand,
simply
because
why
would
he
do
that,
he
had
bought
shares,
he
has
indicated
this
is
his
understanding,
and
yet
you
have
indicated
a
practice
otherwise.
Is
it
a
practice
to
accommodate
that
understanding?
Was
he
in
fact
buying
shares
as
far
as
you
were
concerned,
and
that
this
system
of
issuing
a
note,
etcetera,
was
just
a
mechanical
method
that
you
went
through?
I
really
don’t
understand
it.
I’m
going
to
have
to
ask
you
to
assist
me.
A.
Mr
Cantin
was
given
an
opportunity
to
purchase
shares
in
Canadian
All
Parts
Wholesale
Limited.
In
order
to
get
that
opportunity,
he
was
required
to
advance
by
way
of
a
loan
to
the
company,
$8,000.
That
was
a
loan
evidenced
by
a
promissory
note,
which
the
company
intended
to
pay
back
in
due
course,
but
it
was
payable
on
demand
clearly.
Q.
But
the
company
intended
on
repaying
that
no
matter
what
happened
with
the
shares.
That
he
would
receive
back
his
$8,000
down
the
way
sometime,
not
as
dividends,
but
as
a
return
on
that
note?
A.
Yes,
Mr
Cantin
would
have
had
the
promissory
note
repaid
and
he
would
have
retained
ownership
of
25%
of
that
company.
(SN
pages
47
and
48)
3.14
It
is
not
in
dispute
that
the
appellant
received
two
net
payments
from
the
trustees
of
the
bankruptcy
$1,176
in
January
1976
and
later
$601.84
In
July
1977,
the
total
of
$1,777.84
leaving
a
capital
loss
of
$6,222.16
and
a
deductible
capital
loss
of
$3,111.08
if
the
appellant’s
thesis
is
correct.
Moreover,
it
is
not
in
dispute
that
by
virtue
of
paragraph
3(e)
of
the
Income
Tax
Act
the
said
loss
must
be
applied
as
follows:
$1,000
applied
against
1976
income;
$1,000
carried
back
to
1975
and
applied
against
income;
and
$1,111.08
carried
forward
to
1977
and
applied
against
1977
income.
4.
Law
—
Case
Law
—
Analysis
4.01
Law
The
provisions
of
the
Income
Tax
Act
which
are
involved
in
the
present
case
are
3(e),
40(2)(g)
and
50(1)
and
read
as
follows:
3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purposes
of
this
Part
is
his
income
for
the
year
determined
by
the
following
rules:
(e)
determine
the
amount,
if
any,
by
which
the
remainder
determined
under
paragraph
(d)
exceeds
the
lesser
of
(i)
the
amount,
if
any,
by
which
the
amount
determined
under
subparagraph
(b)(ii)
exceeds
the
aggregate
determined
under
subparagraph
(b)(i),
and
(ii)
$1,000,
or
if
the
taxpayer
is
a
corporation
nil;
and
the
remainder,
if
any,
obtained
under
paragraph
(e)
is
the
taxpayer’s
income
for
the
year
for
the
purposes
of
this
Part.
40.
(2)
Notwithstanding
subsection
(1),
(g)
a
taxpayer’s
loss,
if
any,
from
the
disposition
of
a
property,
to
the
extent
that
it
is
(i)
a
superficial
loss,
(ii)
a
loss
from
the
disposition
of
a
debt
or
other
right
to
receive
an
amount,
unless
the
debt
or
right,
as
the
case
may
be,
was
acquired
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property
(other
than
exempt
income)
or
as
consideration
for
the
disposition
of
capital
property
to
a
person
with
whom
the
taxpayer
was
dealing
at
arm’s
length,
(iii)
a
loss
from
the
disposition
of
any
personal-use
property
of
the
taxpayer
other
than
listed
personal
property,
(iv)
a
loss
from
the
disposition
of
property
to
(A)
a
trust
governed
by
a
plan
referred
to
in
any
of
clauses
54(c)(v)(B)
to
(D)
under
which
he
is
a
beneficiary
or
immediately
after
the
disposition
becomes
a
beneficiary,
or
(B)
a
trust
governed
by
a
registered
retirement
savings
plan
under
which
he
or
his
spouse
is
an
annuitant
or
becomes,
within
60
days
after
the
end
of
the
taxation
year,
an
annuitant,
or
(v)
where
the
taxpayer
is
a
trust
governed
by
a
plan
referred
to
in
any
of
clauses
54(c)(v)(A)
to
(D),
a
loss
from
the
disposition
of
property
to
a
beneficiary
or
annuitant
thereunder,
is
nil.
50.
(1)
For
the
purposes
of
this
subdivision,
where
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
a
personal-use
property)
is
established
by
him
to
have
become
a
bad
debt
in
the
year,
he
shall
be
deemed
to
have
disposed
of
it
at
the
end
of
the
year
and
to
have
reacquired
it
immediately
thereafter
at
a
cost
equal
to
nil.
4.02
Case
at
Law
The
only
case
which
was
referred
to
was
Jean
Crevier
v
MNR,
[1976]
CTC
2271;
76
DTC
1208.
4.03
Analysis
4.03.01
Based
on
the
testimony
of
the
appellant,
counsel
for
the
respondent
argued
that
the
$8,000
paid
by
the
appellant
to
Canadian
All
Parts
Wholesale
Ltd
was
to
purchase
25%
of
the
shares
of
the
company.
Therefore,
there
is
no
debt
(a
shareholder
as
such
is
not
a
creditor
of
the
company)
and
provisions
50(1)
and
40(2)(g)
cannot
apply.
Exhibit
A-1
is
clear
(para
3.02).
It
is
a
loan
without
interest.
As
it
is
a
debt,
subsection
50(1)
applies.
4.03.2
Now
the
problem
is
whether
the
requirement
of
subparagraph
40(2)(g)(ii)
applies:
.
.
.
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property
.
.
.
At
first
glance,
a
loan
without
interest
is
not
made
for
the
purpose
of
gaining
income.
However,
when
the
appellant
made
the
loan
in
1975,
If
he
had
been
promised
that
25%
of
the
issued
shares
would
be
transferred
to
him,
despite
the
fact
that
the
loan
would
be
reimbursed,
there
is
no
doubt
that
the
loan
was
made
for
the
purpose
of
gaining
income.
The
future
dividends
from
those
shares
were
indeed
sufficient
financial
incentive
to
justify
the
said
loan
without
interest.
4.03.3
There
is
no
document
to
confirm
the
testimony
of
Mr
Heighington
to
the
effect
that
the
issuing
of
the
shares
was
a
condition
of
the
loan
and
that
the
certificate
of
shares
was
actually
issued.
First,
Mr
Heighington
is
an
independent
witness
without
financial
interest
in
the
present
case.
The
fact
tha
all
the
records
of
the
company
have
been
in
the
hands
of
the
trustee
for
more
than
six
years
(Exhibit
A-2
is
dated
April
1976)
is
a
very
good
reason
for
assuming
that
the
certificate
of
shares
cannot
be
found
because
they
have
probably
been
destroyed
(para
3.04).
Despite
the
appellant’s
testimony
which
was
mixed
up
(para
3.12),
the
fact
that
he
testified
he
purchased
shares
with
the
$8,000,
confirmed
in
a
certain
way
that
he
had
heard
about
this
25%
of
issued
shares
and
even
that
the
shares
were
transferred
to
him.
4.03.4
The
assumed
facts
of
the
respondent
were
rebutted
to
the
satisfaction
of
the
Board
(paras
3.06,
3.07,
3.08
and
3.09).
4.03.5
The
method
used
by
the
appellant
and
Canadian
All
Parts
Wholesale
Ltd
was
also
well
explained
and
justified
(paras
3.05
and
3.10).
4.03.6
In
the
Board’s
opinion
the
preponderance
of
the
evidence
is
in
favour
of
the
appellant’s
thesis.
5.
Conclusion
The
appeal
is
allowed
and
the
matter
is
referred
back
to
the
respondent
for
reassessment
in
accordance
with
the
above
reasons
for
judgment.
Appeal
allowed.
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