Christie
J.T.C.C.:
—
This
appeal
is
governed
by
the
informal
procedure
provided
for
under
section
18
and
following
sections
of
the
Tax
Court
of
Canada
Act.
The
year
under
appeal
is
1991.
The
Notice
of
Appeal
reads:
This
letter
is
my
request
for
a
Notice
of
Appeal
(Informal
Procedure)
to
plead
my
case
before
the
Tax
Court
of
Canada.
Since
my
Notice
of
Objection
was
rejected,
I
have
no
alternative
but
to
represent
myself
because
I
cannot
afford
an
attorney
or
accountant.
As
stated
in
my
Notice
of
Objection,
I
am
a
71
year
old
widow
(18
years)
on
a
fixed
income.
On
November
16,
1987
I
issued
cheque
#77
(copy
enclosed)
for
$1,200.00
to
the
Manitoba
Telephone
System
to
cover
an
overdue
account
of
Flower
World’s
toll
free
number
(1-800-665-7352).
As
the
Christmas
season
was
approaching
and
they
needed
the
toll
free
number
to
accept
out
of
town
pre
Christmas
orders,
I
paid
the
bill
or
the
phone
would
be
disconnected.
On
November
27th,
1987,1
issued
cheque
#101,
(copy
enclosed)
for
$8,800
to
my
son-in-law
Bruce
Wierbicki
(Weir)
of
Schledewitz
&
Weir
Corp.,
which
was
deposited
in
the
Royal
Bank
(Flower
World
account)
for
an
Extended
Line
of
Credit.
Unfortunately,
the
Flower
World
records
were
stored
in
the
basement
of
the
Wierbicki
residence
at
338
Redwood
Avenue
in
Winnipeg
and
were
destroyed
by
a
flooded
basement
in
1993.
As
my
daughter,
Joanne
Wierbicki,
was
working
at
Flower
World
and
was
very
dedicated
to
make
a
go
of
it,
I
wanted
to
invest
in
Flower
World
because
I
did
not
want
to
see
another
small
business
go
‘down
the
drain’.
Shortly
after
the
birth
of
my
granddaughter
Jennifer
(born
July
30,
1984)
the
baby
was
taken
to
work
so
that
both
Joanne
and
Bruce
could
devote
as
much
time
as
possible
to
make
the
business
work.
Unfortunately,
they
had
to
compete
with
large
conglomerates
(Safeway,
Growers
Direct,
etc.)
the
business
did
not
survive
and
I
lost
$10,000.00.
When
I
filed
my
1991
Income
Tax,
my
then
accountant,
Mr.
Karl
C.
Godar
of
402-225
Vaughn
Street,
Winnipeg,
Man.
R3C
1T7,
claimed
an
Allowable
Business
Investment
loss
(copy
enclosed).
On
May
1,
1995,
I
was
served
with
a
Notice
of
Reassessment
which
absolutely
shocked
me.
On
speaking
with
Ms.
Heather
Kay,
Office
Audit,
Revenue
Canada,
she
had
so
many
different
interpretations
of
the
Income
Tax
Act,
I
was
completely
baffled.
Her
main
point
was,
that
according
to
her
interpretation,
the
cheque
for
$8,800.00
was
a
“personal
loan”
to
my
son-in-law
Bruce
Wierbicki.
Believe
me,
there
is
no
way
that
I
would
give
him
a
“personal
loan”.
Again,
I
reiterated
this
loan
was
not
a
“personal
loan”
but
was
made
to
help
save
Flower
World
when
I
discussed
my
conversation
with
Ms.
Kay
to
Mr.
Godar,
he
spoke
to
her
and
sent
me
a
letter
on
April
14,
1995
(copy
enclosed)
with
his
summation
of
his
conversation
with
Ms.
Kay.
Subsequent
letters
to
me
from
Revenue
Canada
only
confirmed
that
they
had
different
ideas.
That
is
why,
on
May
16,
1995,
I
filed
the
Notice
of
Objection
(copy
enclosed)
and
which
was
disallowed
by
Revenue
Canada
on
August
25,
1995.
This
letter
informed
me
that
if
I
was
dissatisfied
with
this
ruling,
I
could
request
a
formal
hearing
before
the
Tax
Court
of
Canada.
Mr.
Godar
has
been
very
supportive,
but,
as
previously
stated,
I
cannot
afford
to
have
him
act
on
my
behalf.
In
closing,
all
I
can
say
is,
that
in
no
way
this
was
a
“personal
loan”
and
hope
that
after
reviewing
my
case,
you
will
grant
me
permission
to
present
my
case.
If
any
further
information
is
required,
I
will
gladly
oblige.
Paragraphs
1
to
10
of
the
Reply
to
the
Notice
of
Appeal
read:
1.
In
respect
of
the
second
paragraph
of
the
Notice
of
Appeal
He
admits
that
cheques
of
$1,200.00
and
$8,800.00
were
written,
with
dates
as
stated
therein,
and
payable
to
the
Manitoba
Telephone
System
on
behalf
of
Flower
World
and
Bruce
Wierbicki,
respectively
but
otherwise
has
no
knowledge
of
the
statements
made
in
the
said
paragraph
and
does
not
admit
them.
2.
He
says
that
the
statements
made
in
the
third
paragraph
of
the
Notice
of
Appeal
and
the
copies
of
the
letter
dated
April
14,
1995
sent
to
the
Appellant
by
Karl
C.
Godar
and
the
Notice
of
Objection,
attached
to
the
Notice
of
Appeal,
are
advanced
principally
by
way
of
argument
and
He
denies
any
allegations
of
fact
contained
therein.
3.
In
respect
of
the
fourth
paragraph
of
the
Notice
of
Appeal
He
admits
that
the
Appellant
was
reassessed
and
that
she
filed
a
Notice
of
Objection
on
the
dates
so
described
in
therein,
otherwise
He
has
no
knowledge
of
the
statements
made
in
the
said
paragraph
and
does
not
admit
them.
4.
He
denies
the
fifth
paragraph
of
the
Notice
of
Appeal
and
the
attachment
to
the
Notice
of
Appeal
entitled
‘OLGA
SHKOLNY
ALLOWABLE
BUSINESS
INVESTMENT
LOSS’.
5.
He
says
that
the
copies
of
the
cancelled
cheques
attached
to
the
Notice
of
Appeal
speak
for
themselves.
6.
By
Notice
of
Assessment
dated
June
16,
1992
the
Minister
of
National
Revenue
(the
‘Minister’)
assessed
the
Appellant’s
1991
income
tax
return.
7.
In
computing
taxable
income
for
the
1991
taxation
year
the
Appellant
deducted
an
allowable
business
investment
loss
in
the
amount
of
$7,500.00.
8.
By
Notice
of
Reassessment
dated
May
1,
1995
the
Minister
reassessed
the
Appellant’s
1991
income
tax
return
to
disallow
the
said
deduction.
9.
In
response
to
a
Notice
of
Objection
served
on
the
Minister
on
May
16,
1995,
the
Minister,
by
Notification
of
Confirmation
dated
August
25,
1995,
confirmed
the
said
reassessment.
10.
In
so
reassessing
the
Appellant
the
Minister
made
the
following
assumptions
of
fact:
(a)
on
November
16,
1987
the
Appellant
issued
a
cheque
for
$1,200.00
to
pay
an
outstanding
account
payable
of
Schledewitz,
Weir
&
Company
Limited.,
(the
“Corporation”);
(b)
on
November
27,
1987
the
Appellant
issued
a
cheque
for
$8,800.00
payable
personally
to
Wierbicki,
allegedly
on
the
basis
that
the
said
amount
would
be
invested
in
the
Corporation;
(c)
no
interest
was
charged
on
the
loan
amount
totalling
$10,000.00
(the
“loan
amount”)
in
the
1987
to
1991
taxation
years
inclusive;
(d)
the
loan
had
no
fixed
terms
of
repayment;
(e)
the
Appellant
was
not
a
shareholder
of
the
Corporation;
(f)
the
Appellant
dealt
at
arm’s
length
with
the
Corporation;
(g)
the
Corporation
was
dissolved
in
March
of
1990
and
the
business
operation
thereof
ceased
in
1991;
(h)
the
said
loan
was
not
advanced
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property,
but
was
a
personal
loan
made
by
the
Appellant;
(i)
the
Appellant
did
not
incur
a
business
investment
loss
in
the
amount
of
$10,000
in
respect
of
a
loss
on
shares
of
the
Corporation
during
the
1991
taxation
year.
A
business
investment
loss
for
a
taxation
year
is
a
capital
loss
and
one
of
the
circumstances
that
can
create
such
a
loss
under
the
Income
Tax
Act
(the
“Act”)
is
where
an
individual
has
lent
money
to
a
Canadian-controlled
private
corporation
that
is
a
small
business
corporation
and
the
debt
is
established
by
the
individual
to
have
become
a
bad
debt
in
the
year:
(paragraph
39(1
)(c)
and
subsection
50(1)
of
the
Act).
I
emphasize
that
the
loss
is
capital
in
nature.
Section
40
of
the
Act
states
general
rules
applicable
to
taxable
capital
gains
and
allowable
capital
losses.
What
is
relevant
for
the
purposes
of
this
appeal
in
subparagraph
40(2)(g)(ii)
of
the
Act
provides
that
a
taxpayer’s
loss
from
the
disposition
of
a
property,
to
the
extent
that
it
is
a
loss
from
the
disposition
of
a
debt,
is
nil
unless
the
debt
was
acquired
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property.
An
allowable
business
investment
loss
is
a
fraction
of
a
business
investment
loss.
For
1991,
the
year
under
review,
that
fraction
is
3/4:
(paragraph
38(c)).
The
usual
rule
that
capital
losses
can
only
be
offset
against
capital
gains
does
not
apply
to
an
allowable
business
investment
loss.
Under
paragraph
3(d)
of
the
Act
an
allowable
business
investment
loss
is
treated
on
the
same
basis
as
a
non-capital
loss
from
such
sources
as
employment,
business
or
property,
resulting
in
allowable
business
investment
losses
being
deductible
against
all
sources
of
income
in
calculating
income.
In
Byram
v.
R.
(sub
nom.
Byram
v.
Canada),
[1995]
1
C.T.C.
66,
95
D.T.C.
5069
(F.C.T.D.)
it
was
held
that
interest-free
loans
by
a
shareholder
to
the
company
that
issued
the
shares
made
with
the
intention
of
recovering
income
through
dividends
was
the
acquisition
of
debt
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property
within
the
meaning
of
subparagraph
40(2)(g)(ii).
See
also
Brown
v.
Minister
of
National
Revenue
(sub
nom.
Brown
v.
Canada),
[1995]
1
C.T.C.
208,
(sub
nom.
Brown
v.
R.)
95
D.T.C.
6091
(F.C.T.D.).
On
the
other
hand,
if
the
true
purpose
of
a
loan
made
by
a
taxpayer
to
a
corporation
without
consideration
by
way
of
interest
or
otherwise
is
to
assist
members
of
the
lender’s
family
who
manage
and
control
a
corporation
in
need
of
financing,
that
is
not
to
be
regarded
as
acquiring
a
debt
for
the
purpose
of
gaining
or
producing
income
as
contemplated
by
the
subparagraph
just
cited:
Strecker
v.
R.
(sub
nom.
Strecker
v.
R.),
[1994]
2
C.T.C.
2341,
95
D.T.C.
3.
Turning
now
to
the
evidence
adduced
at
the
hearing:
as
indicated
in
the
pleadings
the
appellant
made
loans
to
Schledewitz,
Weir
and
Company
Limited
which
carried
on
the
business
of
a
florist
under
the
name
Flower
World.
One
was
by
way
of
paying
a
delinquent
account
to
the
Manitoba
Telephone
System
in
the
amount
of
$1,200
and
the
other
by
way
of
a
cheque
in
the
amount
of
$8,800
to
her
son-in-law,
Bruce
Wierbicki.
It
has
not
been
established
on
a
balance
of
probability
that
the
appellant
was
ever
a
shareholder
of
the
corporation.
No
mention
is
made
of
this
in
the
Notice
of
Appeal.
Her
testimony
is
that
the
first
time
she
was
aware
of
being
a
shareholder
was
the
day
before
the
hearing
of
this
appeal
when
her
son-in-law
told
her
she
had
been
given
a
share.
The
appellant
said:
“In
fact
I
was
surprised
to
hear
that
I
had
a
share”.
There
was
no
share
certificate
or
other
documentary
evidence,
it
being
alleged
that
all
relevant
records
were
destroyed
in
the
flooded
basement.
Bruce
Wierbicki,
who
had
been
excluded
while
the
appellant
testified,
was
asked
by
her
when
he
told
her
that
she
was
a
shareholder.
She
asked
him
to
specify
the
date.
His
reply
was
that
he
could
not
remember
nor
could
he
remember
how
many
shares
were
issued
to
the
appellant.
Later,
in
answer
to
a
question
from
the
bench
he
said
that
he
believed
the
shares
were
issued
some
time
in
1988.
He
produced
no
tangible
evidence
concerning
the
issue
of
the
shares,
reference
again
being
made
to
the
flooded
basement.
The
appellant
referred
to
the
loan
as
being
“just
a
family
loan”.
I
believe
that
is
an
accurate
characterization.
She
said:
I
wasn’t
so
much
interested
in
getting
the
interest
as
I
was
in
helping
my
daughter
and
my
granddaughter
to
be
able
to
stay
in
this
business,
because
it
is
a
small
business
and
the
way
the
small
businesses
have
been
going
down,
I
just
felt
that
I
wanted
to
do
something
to
try
and
keep
the
small
business
going
for
as
long
as
I
could.
Later
she
added:
There
was
nothing
in
writing.
I
mean
it’s
my
—
this
is
part
of
my
family.
It’s
I
was
trying
to
do
something
to
help
my
daughter
and
in
fact
hopefully
that
my
daughter
would
carry
on
and
my
little
granddaughter
would
carry
on
in
the
business
too.
While
there
was
no
promissory
note
or
other
document
pertaining
to
consideration
for
the
loan
the
appellant
said
that
she
hoped
she
would
make
a
bit
of
profit.
Lowery
v.
Minister
of
National
Revenue,
[1986]
2
C.T.C.
2171,
86
D.T.C.
1649,
is
cited
in
Brown
v.
The
Queen.
In
Lowery,
Sarchuk
J.T.C.C.
said,
at
page
2174-75
(D.T.C.
1652):
On
the
evidence
adduced
I
am
not
satisfied
that
there
was
any
business
purpose
in
the
granting
of
the
guarantee.
Respondent’s
counsel
submitted,
and
I
agree,
that
it
is
not
sufficient
to
make
a
general
allegation
that
the
appellant
anticipated
some
participation
in
the
profits
of
Threads
at
some
unstated
time
in
the
future
and
on
that
basis
to
argue
that
some
consideration
for
the
guarantee
existed.
There
was
no
arrangement
as
to
interest.
There
was
no
arrangement
relative
to
repayment
in
the
event
of
default
by
Threads.
There
was
no
agreement,
oral
or
written,
setting
out
the
terms
and
conditions
of
the
appellant’s
participation.
The
appeal
is
dismissed.
Appeal
dismissed.
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