Ron Miller Realty Ltd. v. R., [1998] 1 CTC 2892, 98 DTC 1201

Lamarre Proulx T.C.J.:

This is an appeal for the Appellant’s 1986 taxation year. Mr. Ronald Miller is the Appellant’s sole shareholder and its president. He was authorized by an order of this Court, dated June 10, 1997, to act on the Appellant’s behalf.

The grounds for appeal raised in the Notice of Appeal prepared by the Appellant’s then counsel are:

D. (i) The Appellant says that it did not have taxable income of $438,570.00 in its 1986 taxation year.

(ii) the Appellant further says that it had a bad debt expense of $125,180.00 and had other losses, of which it is still obtaining the details, which should be deducted from the above noted amount.

E. The company had a bad debt expense of $125,180.00 attributable to its 1986 taxation year and suffered other losses which are also attributable to the said taxation year. The company’s accountants are still engaged in computing the said losses, but, at the present time, conclude that said losses may further substantially reduce the amount of taxable income of the company in its 1986 taxation year or leave it with no taxable income in the said year.

The Notice of Objection (Exhibit R-1, Tab 3), signed by Mr. Miller, raises the following grounds:

The original return for 1986 has been assessed as filed.

The above noted notice of reassessment has not been issued within the three year time limit and should therefore be statute barred.

Ron Miller Realty Ltd. does not have any cash or assets of any value.

In reassessing the Appellant, the Minister of National Revenue (the “Minister”) made the following assumptions of fact in paragraphs 4 to 10 of the Reply to the Notice of Appeal:

4. The Appellant late filed its tax return for its 1986 taxation year and reported a loss of $173,799.00 for the said year.

5. On August 30, 1990, the Minister of National Revenue served the Appellant with requirements to file income tax returns and financial statements for the years 1984, 1985, 1988 and 1989, which had never been filed, and financial statements for the taxation years 1986 and 1987.

6. In approximately January, 1991, the Appellant retained an accountant to prepare the items which the Minister required.

7. On or about July 10, 1992, the accountant provided, inter alia, an income tax return and financial statements for the Appellant’s 1986 taxation year to the Minister.

8. The financial statements for the 1986 taxation year disclosed that the Appellant’s net income was $438,570.00.

9. By Notice of Reassessment dated October 6, 1992, the Minister reassessed the Appellant in respect of its 1986 taxation year.

10. In so reassessing, the Minister assumed that the taxable income of the Appellant in its 1986 taxation year was $438,570.00.

Mr. Ronald Miller, Mr. J.P. Voldock, the Appellant’s accountant, and Mr. S. Ghuman testified on behalf of the Appellant. Mr. Ross Phillips testified on the Respondent’s behalf.

Mr. Miller explained in his testimony that the corporation was in existence since 1981. Its principal activity is the making of loans and the provision of interim financing to businesses. The Appellant’s fiscal year end is May 31.

At the hearing, two points were raised by the Appellant’s representative: firstly that the Appellant was entitled to some form of reduction of its income, in view of an alleged investment in a certified production of a film in the amount of $265,000, and secondly, that the Appellant was entitled to a deduction for a bad debt in the amount of $125,180.

With respect to the first point, Mr. Miller produced, as Exhibit A-1, a faded copy of a statement issued by Brant Productions, 177 Nepean Street, Ottawa, Ontario, KIP 0B4, for a film entitled “Raven Transforming” (Form Tl-CP). The copy that was filed at the hearing is the copy which is ordinarily retained by the taxpayer for his records. It states that for the year 1985, the investor’s share of production costs were in the amount of $265,000, that the production began November 3, 1982 and, as of December 31, 1985, was 100 percent completed. However, the investor’s Surname and full address is Miller, Ron, 978 Alenmede Crescent, Ottawa, Ontario, K2B 8K5. Mr. Miller testified that the name and the address were in error and that the Appellant’s name and address should have appeared on the statement. He also produced an Affidavit that stated the following:

I, RON MILLER of the City of Ottawa, in the Regional Municipality of Ottawa- Carleton, MAKE OATH AND SAY:

1. In the 1985 Taxation Year, I was the recipient of a Tax Credit in the amount of $265,000.00.

2. Through the inadvertence of Brant Productions, the aforementioned tax credit was issued in the name of Ron Miller rather than Ron Miller Realty Ltd.

3. I assigned my interest in the tax credit to the company of Ron Miller Realty Ltd., in 1985. Unfortunately, a copy of that letter can no longer be located.

4. I make this Affidavit believing it to be true and in support of transferring my tax credit to my company and for no other improper purpose.

SWORN before me at the City of )

Nepean in the Regional Municipality )

of Ottawa-Carleton this 11th day )

of July, 1997 ) (signature)

) RON MILLER

(signature) )

A Commissioner, etc. )

Regarding the existence of a bad debt in the amount of $125,180, which is the Appellant’s second point, the Appellant’s representative produced an unsigned copy of an agreement between the Appellant and two individuals by which the individuals undertook to repay the Appellant the sum of $85,179.77, and interest thereon, at the rate of 59.9 percent per annum, the said principal sum and interest to be paid in equal consecutive monthly payments of $5,000, beginning February 1986. It was agreed that the monthly payments were required only if the promisors failed to provide a first mortgage on their home and office before February 15, 1986. Both Mr. Voldock and Mr. Miller, in cross-examination, admitted that a mortgage agreement had been entered into and that payments in the amount of $48,000 and $60,000 were made for the years 1990 and 1991.

To arrive at the amount of $125,180, the Appellant’s representative mentioned another debt, in the amount of $57,000, from another individual without producing any documentation to this effect.

Mr. Ross Philips, an auditor at Revenue Canada, explained to the Court the circumstances surrounding the Appellant’s reassessment. In the year 1989, a well-known person became bankrupt in Ottawa and the newspaper reported that among that person’s debts, there was a debt owed to the Appellant in an amount of approximately $900,000. Pursuant to this information, the Minister began an investigation of the Appellant’s accounts. The Appellant was asked to send its financial statements for 1984 and the following years. Mr. J.P. Voldock, C.G.A., was hired by the Appellant to prepare the required financial statements and the accountant provided the Minister’s agents with the financial statements. In a letter dated January 17, 1991, addressed to Revenue Canada, Mr. Ron Miller authorized Mr. Voldock to act on his behalf, on all matters relating both to his personal income tax as well as the Appellant’s (Tab 5 of Exhibit R-1). No amended income tax returns were filed with the Minister. The Minister reassessed the Appellant on the basis of the financial statements prepared by Mr. Voldock.

In 1987, the Appellant filed an income tax return for the year 1986 (Tab 1 of Exhibit R-l) showing losses in the amount of $173,799. On October 6, 1992, the Appellant was reassessed on the basis that it had understated its income by $612,369 (Tab 2 of Exhibit R-1).

The financial statement prepared by Mr. Voldock for the Appellant’s 1986 taxation year (Tab 6 of Exhibit R-1) shows the following as current assets:

Ron Miller Realty Ltd.

Balance Sheet As at May 31, 1986 (unaudited)

Current assets

Counsel for the Respondent referred to the decision of Thorson, P. of the Exchequer Court in Dezura v. Minister of National Revenue (1947), 3 D.T.C. 1101 (Can. Ex. Ct.), and more particularly to pages 1103 and 1104, where he discussed the making of arbitrary assessments by the Minister under s. 47 of the Income War Tax Act, now paragraph 152(7) of the Income Tax Act, and the taxpayer’s burden of proof:

… rhe onus of proof of error in the amount of the determination rests on the appellant.

If the taxpayer makes no return or gives incorrect information either in his return or otherwise he can have no just cause for complaint on the ground that the Minister has determined the amount of tax he ought to pay provided he has a right of appeal therefrom and is given an opportunity of showing that the amount determined by the Minister is incorrect in fact. Nor need the taxpayer who has made a true return have any fear of the Minister’s power if he has a right of appeal. The interests of the revenue are thus protected with the rights of the taxpayers being fully maintained. Ordinarily, the taxpayer knows better than any one else the amount of his taxable income and should be able to prove it to the satisfaction of the Court. If he does so and it is less than the amount determined by the Minister, then such amount must be reduced in accordance with the finding of the Court. If, on the other hand, he fails to show that the amount determined by the Minister is erroneous, he cannot justly complain if the amount stands. If his failure to satisfy the Court is due to his own fault or neglect such as his failure to keep proper accounts or records with which to support his own statements, he has no one to blame but himself....

The Appellant has not succeeded in bringing forward evidence satisfactory to the Court on either of the two points raised by its representative. There is no dispute as to the calculation of the Appellant’s income. The dispute was based on whether the Appellant was entitled to claim a capital cost allowance in respect of an investment in the production of a film and on the existence and amount of a bad debt.

Regarding the first point on the investment in the production costs of a film, the certificate was made in the name of the Appellant’s president and representative in this appeal. No evidence was adduced that the capital cost allowance had not been taken by Mr. Miller himself. He did not produce his personal income tax return for the 1985 taxation year to demonstrate that the capital cost allowance had not been taken into account in his own income tax return. Moreover, the certificate was not mentioned in the Notice of Objection nor in the Notice of Appeal even though the Notice of Objection was signed by Mr. Miller himself (Tab 3 of Exhibit R-l) and the Notice of Appeal was prepared by the Appellant’s counsel. Hence, in view of an evidence that is clearly deficient, I can only conclude that the statement was properly made in Mr. Miller’s name and not the Appellant’s.

As to the second point, there was no evidence that the debt had become a bad debt in the year 1986. The evidence rather led to the contrary, in that, the debtor was complying with the terms of the loan agreement, at the least, in the years 1990 and 1991.

The Appeal is therefore dismissed, with costs in favour of the Respondent.

Appeal dismissed.