Allegritti v. R., [1997] 2 CTC 2114

Watson DJ.T.C.:

These appeals were heard on common evidence on consent of the parties in Toronto, Ontario on December 10, 1996.

In computing income for the 1992 taxation year, the Appellants deducted the amount of $83,114.25 each as an allowable business investment loss (“ABIL”). In computing income for the 1993 and 1994 taxation years, the Appellant Raffaele Allegritti deducted the amount of $24,080.06 and $20,310.97 respectively as non-capital losses of other years; the Appellant Cathy Allegritti deducted the amounts of $33,335.96 and $13,420.74 respectively as non-capital losses of other years.

In reassessing the Appellants for the 1992 taxation year, the Minister disallowed the deductions of the ABIL in the amounts of $83,114.25 each. In reassessing the Appellants for the 1993 taxation year and in assessing the Appellants for the 1994 taxation year, the Minister disallowed the deduction of the non-capital losses of other years in the amounts of $24,080.06 and $18,573.17 respectively for Raffaele Allegritti and $33,335.96 and $13,420.74 respectively for Cathy Allegritti.

In so reassessing and assessing the Appellants, the Minister made the following assumptions of facts:

(a) the Appellant’s claim for a Business Investment Loss consists of his claim for 50% of an alleged disposition of a debt, amounting to $109,749.00 owed by 880251 Ontario Inc., operating as Da Peppi’s Restaurant (the “Company”) and outlays and expenses thereon amounting to $1,070.00;

(b) the Company was not bankrupt, insolvent or wound up in the 1992 taxation year;

(c) the Company’s T2 income tax return filed for the 1993 taxation year does not indicate that the company was bankrupt, insolvent or wound up in the 1992 or 1993 taxation years;

(d) there was no debt owing to the Appellant which has been established to be a bad debt;

(e) the Appellant did not incur a Capital Loss nor a Business Investment Loss in the 1992 taxation year;

(f) the Appellant does not have available non-capital losses of other years in the amounts disallowed by the Minister, to deduct from his income for the 1993 and 1994 taxation years.

At the hearing the Agent for the Appellants admitted paragraphs (a) and (c) and denied paragraphs (b) and (d) to (f).

Counsel for the Minister submitted that the appeal of Raffaele Allegritti for the 1992 and 1993 taxation years be dismissed as he did not serve on the Minister a Notice of Objection to the assessments for the 1992 and 1993 taxation years as required by section 169 of the Income Tax Act (the “Act’); he further submitted that the appeal for the 1993 taxation year of Cathy Allegritti be dismissed as the Appellant did not serve on the Minister a Notice of Objection to the assessment for the 1993 taxation year as required by section 169 of the Act. The Counsel for the Minister submitted evidence that the above mentioned Notice of Objection had not been received by the Minister within the time allowed therefor; the Agent for the Appellants had no evidence that Notices of Objection were ever served as required. Accordingly, the appeal of Raffaele Allegritti is dismissed in relation to the 1992 and 1993 taxation years and the appeal of Cathy Allegritti in relation to the 1993 taxation year is dismissed.

At the hearing of the appeals, the two Appellants gave their evidence relying on vague memories of what went on in relation to the remaining taxation years. There was no documentary evidence whatsoever concerning the amounts of the debts owing or what became of the bad debt; there was no documentary evidence that the company was bankrupt or insolvent; no proof of any loans, debts or capital losses.

In March 1989, Raffaele incorporated a numbered company to operate Peppi’s Restaurant in Toronto; he owned all of the shares in the company; the Restaurant ceased operations in October 1992 and the Appellants are still trying to pay off the debts incurred by the company. The financing for the purchase of the business came from mortgages on the house co-owned by the Appellants and from Cathy Allegritti’s father. The Restaurant kept losing money from the start and finally closed in 1992. Cathy Allegritti had a full employment elsewhere. The finances of the two Appellants and the company were treated as a single unit, with some of Cathy’s earnings and funding from relatives kept the Restaurant alive for a while. They finally sold their family house to pay some of the debts.

Both Appellants give the impression of honest hard-working persons who relied entirely on the accountant to look after all the finances, bookkeeping and income tax returns; they trusted and believed in this accountant. They were not able to give any details about the amounts involved or the dates relating to the opening and closing of the business because the accountant “worked it out” for them. They had no idea how much of the funds were used by the Company in its operation of the Restaurant or whether amounts were gifts or loans.

One witness was called on behalf of the Respondent. The Revenue Canada files were searched and no documents to support the amounts of the losses, debts and capital losses were to be found. Even though proof of the ABIL claimed was requested by Revenue Canada, none was ever provided.

Considering all of the circumstances of these appeals, I am satisfied that the Appellants have not succeeded in establishing on a balance of probabilities that the Minister’s assessments and reassessments for the years in issue were ill-founded in fact and in law. Accordingly, the appeals are dismissed.

Appeals dismissed.