D
E
Taylor:—This
is
an
appeal
heard
at
a
special
sitting
at
the
City
of
Toronto
on
February
20,
1980
against
an
income
tax
reassessment
for
the
year
1975
in
which
the
Minister
of
National
Revenue
provided
the
following
explanation:
Your
Capital
Loss
has
been
reduced
by
$16.
Your
interest
income
has
been
reduced
by
$1,087.50.
Your
carrying
charges
have
been
reduced
by
$1,196.23.
Your
interest
and
dividend
income
deduction
has
been
reduced
by
$1,000
as
there
was
no
bona
fide
acquisition
or
disposition
of
the
bonds.
In
assessing
the
appellant,
the
respondent
relied,
inter
alia,
upon
section
3,
subsection
9(1),
paragraph
12(1)(c),
subsection
20(14)
and
section
110.1
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended.
This
decision
is
to
be
read
in
conjunction
with
the
decision
in
Frederick
T
Smye
v
MNR.
Contentions
For
the
appellant:
—There
was
a
bond
fide
acquisition
and
disposition
of
the
Government
of
Canada
bonds
due
December
15,
1975,
as
the
taxpayer
purchased
and
paid
for
the
bonds
in
a
binding
legal
transaction
under
which
title
to
the
bonds
passed
to
the
taxpayer.
—The
bonds
were
delivered
to
the
taxpayer
and
were
capable
of
being
disposed
of
by
him.
—The
interest
income
of
$1,087.50
was
paid
by
the
Government
of
Canada
to
the
taxpayer
on
the
date
of
the
maturity
of
both
the
interest
coupons
and
the
bonds
themselves.
—The
payment
of
interest
is
evidenced
by
Form
T5
Supplementary.
—The
interest
expense
of
$1,196.23,
referable
to
the
purchase
by
the
taxpayer
of
Government
of
Canada
bonds
due
December
15,
1975,
and
claimed
by
the
taxpayer,
is
deductible
in
computing
income
under
paragraphs
20(1)(c)
and
20(16)(a)
of
the
Income
Tax
Act.
—The
taxpayer
is
entitled
to
claim
the
interest
and
dividend
deduction
by
virtue
of
subsections
110.1(1)
and
110.1(2)
of
the
Income
Tax
Act.
For
the
respondent:
—On
November
6,
1975,
the
appellant
placed
an
order
with
his
investment
dealer
to
purchase
$30,000
of
Government
of
Canada
bonds
due
December
15,
1975,
7.25%.
—On
December
15,
1975,
the
appellant
ordered
his
investment
dealer
to
sell
the
said
bonds.
—The
appellant
never
took
delivery
of
the
said
bonds.
—The
said
bonds
were
not
assigned
or
transferred
to
the
appellant.
—At
all
material
times,
no
interest
from
the
said
bonds
was
earned
by
the
appellant
in
1975.
Evidence
The
appellant
is
President
of
a
computer
company,
and
the
evidence
established
that
he
did
not
take
personal
delivery
of
the
bonds
but
that
they
were
delivered
on
his
instructions
to
his
bank
and
held
there
until
maturity.
The
bonds
were
numbered
D07144
and
007144
which
the
appellant
recalls
were
“bearer”
bonds.
No
documentary
evidence
was
provided
of
payment
to
the
stockbroker
but
the
appellant
stated
payment
was
made
in
full.
On
November
6,
1975,
the
appellant
did
take
out
a
demand
loan
from
the
bank
in
the
amount
of
$30,875
at
an
annual
interest
rate
of
10
/4%.
The
loan
was
repaid
on
December
15,1975.
Interest
totalling
$338.15
was
also
paid
to
the
bank
and
it
would
appear
that
an
amount
of
$858.08
was
paid
to
the
stockbroker
at
the
date
of
the
“buy”
transaction,
making
the
above
total
of
$1,196.23
claimed
as
interest
expense
by
the
appellant.
Findings
The
Minister
has
concluded
from
the
above
that
the
bonds
never
rested
in
the
name
of
the
appellant
but
were
transferred
from
the
stockbroker
to
the
bank,
with
the
appellant
acting
merely
in
such
delivery.
It
has
not
been
demonstrated
to
me
that
“buy”
and
“sell”
orders
between
a
stockbroker
and
a
client
are
evidence
of
a
“purchase”
and
a
“sale”,
but
they
are
certainly
not
an
indication
of
a
“purchase”
or
a
“sale”
between
the
stockbroker
and
a
bank,
when
the
bank
does
not
appear
thereon
even
as
a
party
to
the
transaction.
The
stockbroker
and
the
bank
are
separate
parties,
each
one
capable
under
certain
circumstances
of
acting
independently
as
agent
in
a
transaction.
There
is
no
stipulation
in
subsection
20(14)
which
would
eliminate
the
use
of
an
agent
for
acceptance
of
a
transfer.
Indeed,
it
could
be
argued
that
there
is
no
stipulation
in
subsection
20(14)
that
requires
a
“purchase”
or
a
“sale”—only
an
assignment
or
transfer.
In
this
situation,
there
was
a
transfer
of
some
kind
since
there
was
a
delivery
of
the
bonds
to
some
party,
and
the
evidence
supports
the
appellant’s
claim
that
he
is
entitled
to
be
regarded
as
the
“transferee”
for
purposes
of
subsection
20(14)
of
the
Act.
In
the
circumstances
of
this
case,
the
credit
arrangements
between
the
appellant
and
the
bank
are
not
relevant
to
the
determination
that
there
was
such
a
transfer
in
fact
and
in
law.
Decision
The
appeal
is
allowed
and
the
matter
referred
back
to
the
respondent
for
reassessment
accordingly.
Appeal
allowed.
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