Lamarre
Proulx
T.C.J.:
The
appellant
is
appealing
a
reassessment
by
the
Minister
of
National
Revenue
(“the
Minister”)
for
its
1989
taxation
year.
The
issues
are:
(1)
whether,
within
the
meaning
of
s.
12(
1
)(Z)
of
the
Income
Tax
Act
(“the
Act”),
the
appellant
received
an
amount
in
1989
on
account
of
a
debt
in
respect
of
which
a
deduction
for
bad
debts
had
been
made
in
1988.
The
appellant
maintains
that
the
amount
was
received
in
1990
while
the
respondent
contends
that
it
was
received
in
1989.
The
respondent
relies
on
the
fact
that
in
1989,
as
the
result
of
a
giving
in
payment,
the
appellant
acquired
ownership
of
an
immovable
given
as
security
and
that
the
debt
was
thereby
extinguished.
The
appellant
submits
that
the
debt
was
not
extinguished
by
the
giving
in
payment
because
the
giving
in
payment
was
not
yet
effective.
The
transfer
of
ownership
was
finalized
only
in
the
following
year
when
the
immovable
in
question,
which
was
acquired
by
means
of
a
giving
in
payment
of
uncertain
validity,
was
sold
in
accordance
with
a
plan
adopted
by
the
appellant;
(2)
and
whether
the
aforesaid
giving
in
payment
also
barred
the
appellant
from
deducting
interest
on
the
principal
debt
in
1989.
The
facts
in
support
of
the
appeal
are
set
out
in
paragraphs
4
to
12
of
the
Notice
of
Appeal:
[TRANSLATION]
4.
THAT
on
or
about
December
4,
1987
Courtage
Plus
Abitibi
Inc.
(“Courtage”)
by
notarial
contract
gave
a
hypothecary
security
in
the
amount
of
$250,000
to
the
APPELLANT
in
respect
of
certain
purchases
of
building
materials
supplied
or
to
be
supplied
to
COURTAGE
by
the
APPELLANT;
5.
THAT
on
or
about
February
8,
1988
COURTAGE
sold
to
Pierre
Dubuc
the
immovable
hypothecated
to
the
APPELLANT;
6.
THAT
on
or
about
November
22,
1988
a
60-day
notice
was
served
by
bailiff
on
COURTAGE
and
Pierre
Dubuc
as
a
consequence
of
their
failure
to
perform
their
obligations
to
the
APPELLANT
under
the
hypothecary
security;
7.
THAT
on
or
about
October
2,
1989
the
APPELLANT
made
a
proposal
in
writing
to
the
other
creditors
of
COURTAGE
and
Pierre
Dubuc
who
had
security
interests
in
the
hypothecated
immovable;
8.
THAT
by
that
proposal:
(a)
the
APPELLANT
would
bring
an
action
for
giving
in
payment
against
COURTAGE
and
Pierre
Dubuc;
(b)
the
APPELLANT
would
sell
the
immovable
to
a
company
to
be
incorporated
with
as
its
shareholders
certain
creditors
of
COURTAGE
and
Pierre
Dubuc;
(c)
the
purchase
price
would
be
financed
by
means
of
a
hypothecary
loan
of
$656,000
from
a
financial
institution
and
of
shares
to
be
issued
in
the
new
corporation;
(d)
$330,050
in
debts
owed
to
the
creditors
would
accordingly
be
paid
and
315,000
shares
in
the
new
corporation
would
be
issued
to
eight
creditors
including
the
APPELLANT,
who
was
to
receive
$205,000
and
58,475
shares;
and
(e)
each
of
the
creditors
would
stand
surety
for
the
hypothecary
loan
for
up
to
the
amount
corresponding
to
the
shares
they
held
in
the
new
corporation:
9.
THAT
on
or
about
November
22,
1989
COURTAGE
and
Pierre
Dubuc
conveyed
the
immovable
to
the
APPELLANT
under
the
giving
in
payment;
10.
THAT
according
to
a
deed
of
sale
dated
March
27,
1990
the
new
corporation
was
named
2745-8017
Québec
Inc.
and
had
been
incorporated
on
January
4,
1990;
11.
THAT
on
March
27,
1990
the
APPELLANT
sold
the
immovable
to
2745-8017
Québec
Inc.
for
an
amount
equal
to
its
adjusted
cost
base,
or
$263,475,
payable
by
means
of
$205,000
in
cash
and
$58,475
in
the
form
of
58,475
shares
in
the
purchaser’s
capital
stock;
12.
THAT
by
the
contract
of
March
27,
1990
2745-8017
Québec
Inc.
would
pay
certain
debts
to
18
other
creditors
in
the
following
manner:
|
(a)
|
cash
payments
to
16
creditors:
|
$198,430
|
|
(b)
|
issuing
of
shares
to
7
creditors:
|
$256,525
|
The
total
cost
of
the
immovable
thus
came
to
$718,430....
Of
the
facts
on
which
the
Minister
relied
in
arriving
at
his
reassessment,
I
will
reproduce
only
those
set
out
in
paragraphs
6
and
7
of
the
Reply
to
the
Notice
of
Appeal
(“the
Reply”).
The
facts
set
out
elsewhere
in
the
Reply
are
not
really
different
from
those
presented
by
the
appellant.
[TRANSLATION]
6.
for
its
1988
taxation
year
the
appellant
claimed
as
a
deduction
for
bad
debts
certain
amounts
owed
by
Logements
RPG
2
Inc.,
Maison
Gobeil
Inc.,
Dion
Philippe
Géo
Lab
Ltée
and
Pierre
Dubuc
totalling
$188,517.80;
7.
for
its
1989
taxation
year
it
also
claimed
as
a
deduction
for
bad
debts
an
amount
of
$42,634.57
owed
to
it
by
the
same
five
debtors
although
these
debts
were
not
even
doubtful
and
had
been
extinguished
by
the
exercise
of
the
giving
in
payment
clause
....
The
assessment
referred
to
the
recovery
of
a
bad
debt
of
$131,106
claimed
as
a
deduction
in
1988.
This
therefore
is
the
amount
at
issue,
not
the
amount
of
$188,517.80
mentioned
in
paragraph
6
of
the
Reply.
Jean-Guy
Roberge
has
been
the
appellant’s
president
since
1964.
In
1987
one
Pierre
Dubuc
was
a
debtor
of
the
appellant.
Pierre
Dubuc
was
the
principal
shareholder
in
several
businesses
which
on
various
accounts
had
purchased
building
materials
from
the
appellant.
These
businesses
and
Pierre
Dubuc
himself
owed
the
appellant
a
large
sum
of
money.
In
order
to
protect
the
appellant’s
debt
Mr.
Roberge
obtained
from
Courtage
Plus
Abitibi
Inc.
(“Courtage
Plus”),
in
which
Mr.
Dubuc
was
the
sole
shareholder,
a
hypothecary
security
of
$250,000
on
an
immovable
owned
by
Courtage
Plus.
This
hypothecary
security
was
dated
December
4,
1987
and
registered
on
December
9,
1987.
The
debtor
undertook
to
repay
the
sum
loaned
on
request
and
the
agreement
contained
a
giving
in
payment
clause.
The
document
was
filed
as
Exhibit
A-l.
The
hypothecary
security
contained
inter
alia
the
following
clauses
at
pp.
1-2:
[TRANSLATION]
The
debtor
acknowledges
that
it
owes
the
creditor
the
sum
of
$250,000
on
a
loan
in
that
amount
made
to
it
by
the
creditor,
of
which
the
debtor
acknowledges
receipt
to
its
complete
satisfaction
and
gives
release
therefor.
The
parties
herein
appearing
do
depose
and
agree
that
this
hypothecary
security
is
given
only
to
secure
accounts
payable
for
the
purchase
of
materials,
total
existing
and
future
accounts,
up
to
the
amount
of
the
said
hypothecary
security,
which
the
parties
declare
that
they
are
fully
acquainted
with
and
accept
as
such.
According
to
Mr.
Roberge
and
Mr.
Doré
(Jean-Claude
Doré
is
a
chartered
accountant
who
has
been
the
appellant’s
auditor
since
1976),
these
allegations
raised
concerns
for
counsel
for
the
appellant,
who
wondered
whether
the
security
could
be
valid
for
debts
other
than
those
of
Courtage
Plus
and
whether
this
corporation’s
other
creditors
might
not
object
to
it.
In
an
effort
to
resolve
this
problem
a
document
was
signed
by
Courtage
Plus
and
Pierre
Dubuc
in
September
1988
acknowledging
that
the
security
had
been
given
to
secure
the
debts
of
five
other
corporations
and
his
own
personal
debts.
It
was
filed
as
Exhibit
I-1.
Dated
August
20,
1988,
the
docu-
ment
acknowledged
that
the
total
amount
owed
by
Pierre
Dubuc
and
his
businesses
came
to
$229,549.52.
It
was
agreed
between
the
parties
by
the
same
document
that
the
60-day
notice
would
not
be
registered
before
October
21,
1988.
The
60-day
notice
was
signed
on
November
14,
1988
and
registered
on
the
16th
of
that
month.
At
that
point,
according
to
clause
10
of
the
notice,
the
debtor’s
debt
was
$242,994.63.
This
document
was
filed
as
Exhibit
A-2.
Mr.
Roberge
and
Mr.
Doré
explained
that
around
that
time
Mr.
Dubuc
had
drawn
up
and
proposed
a
plan
to
retain
part
ownership
of
the
immovable
given
as
security.
The
plan
provided
that
the
creditors
would
become
owners
of
the
building
by
agreeing
to
exchange
part
of
their
debt
for
shares
in
a
corporation
that
would
hold
the
immovable.
This
corporation
would
obtain
a
hypothecary
loan
which
would
enable
it
to
repay
the
other
part
of
the
debt.
Mr.
Roberge
did
not
believe
that
this
proposal
could
be
carried
through
to
completion
by
Mr.
Dubuc.
He
accordingly
took
over
the
proposal
himself
and
undertook
to
negotiate
with
the
lending
institution
and
the
creditors
either
personally
or
through
his
accountant
Mr.
Doré.
On
June
22,
1989
La
Financière
submitted
a
financing
offer.
This
document
was
filed
as
Exhibit
A-3.
The
amount
of
the
loan
would
be
$656,500.
The
security
would
be
a
first
hypothec
on
the
building,
the
personal
but
not
joint
and
several
guarantees
of
all
the
shareholders
for
the
amounts
stated
in
the
document
and
a
withdrawal
of
$100,000
to
cover
the
monthly
payments.
Before
the
lending
institution
made
any
disbursements,
the
privileges
and
hypothecs
would
have
to
be
cancelled
and
the
shareholders
would
have
to
submit
their
financial
statements.
There
was
also
a
list
of
other
conditions,
such
as
a
firm
quotation
by
a
bidder
for
repairs
and
an
option
to
withdraw
the
financing
offer
if
the
financial
statements
were
not
to
the
satisfaction
of
the
lending
institution.
Exhibit
A-4
is
the
agreement
negotiated
between
the
creditors
registered
for
the
immovable
in
question
and
the
appellant.
The
agreement
was
dated
October
2,
1989
and
the
latest
date
for
acceptance
was
October
19,
1989.
This
agreement,
the
purpose
of
which
was
to
avoid
a
judicial
sale,
involved
several
stages.
The
appellant
would
use
the
giving
in
payment
clause
to
become
owner
of
the
immovable.
The
immovable
would
then
be
conveyed
to
a
new
company
which
would
borrow
$656,500.
The
new
company
would
pay
the
appellant
and
seven
creditors,
either
in
cash
or
in
shares.
The
appellant,
for
its
part,
would
receive
$205,000
in
cash
and
$58,475
in
shares.
An
amount
of
$109,100
would
be
set
aside
for
repair
work,
$6,500
for
loan
charges
and
$30,000
for
professional
fees.
In
addition,
$100,000
would
be
deposited
in
a
trust
account
to
secure
payments
on
the
hypothec.
Exhibit
A-5
is
the
document
by
which
the
giving
in
payment
clause
was
exercised.
It
was
dated
November
22,
1989
and
registered
the
same
day.
The
appellant
became
the
owner
as
of
December
4,
1987.
Certain
passages
from
the
document
must
be
reproduced
here:
[TRANSLATION]
4.
The
creditor
has
caused
the
60-day
notice
to
be
registered
against
the
said
immovable
....
6.
As
it
does
not
wish
to
incur
court
costs
or
other
costs,
the
debtor
hereby
acknowledges
that
the
giving
in
payment
clause
is
now
effective....
THESE
FACTS
HAVING
BEEN
STATED,
the
creditor
declares
that
it
is
exercising
the
option
of
becoming
owner
of
the
immovable
....
This
giving
in
payment
is
made
in
consideration
for
the
full
and
final
release
by
the
creditor
of
the
debtor
for
all
sums
owed
to
it
in
principal,
interest,
costs
and
incidentals,
under
the
following
deeds:
AMOUNT
OF
CONSIDERATION
$250,000
Exhibit
A-6
is
the
bid
for
repair
work.
It
is
not
dated
but
its
date
of
acceptance
does
appear
on
it.
It
was
accepted
on
February
7,
1990
by
2745-
8017
Québec
Inc.,
a
company
incorporated
on
January
4,
1990
as
attested
to
by
Exhibit
A-l
1.
Exhibit
A-7
is
an
extract
from
the
land
register
applicable
to
the
immovable
in
question.
It
can
be
seen
that
as
of
December
9,
1987,
the
date
the
hypothecary
security
was
registered,
several
privileges
for
substantial
amounts
were
registered
against
the
immovable.
Exhibit
A-8
is
a
motion
dated
December
18,
1989,
probably
made
ex
parte,
to
cancel
the
January
18,
1989
registration
against
the
immovable
of
a
judgment.
That
judgment
directed
Pierre
Dubuc
to
pay
Mines
Assay
Supplies
the
sum
of
$19,989.77.
Exhibit
A-9
is
a
certificate
attesting
that
the
judgment
to
cancel
rendered
on
February
19,
1990
would
not
be
appealed.
The
certificate
is
dated
March
21,
1990.
Exhibit
A-10,
dated
March
27,
1990,
is
the
contract
of
sale
of
the
immovable
by
the
appellant
to
2745-8017
Québec
Inc.
The
sale
price
was
$263,475,
of
which
$205,000
was
payable
out
of
a
loan
yet
to
be
obtained
and
$58,475
was
payable
in
shares
in
the
purchaser.
Additionally,
the
purchaser
assumed
responsibility
for
and
paid
certain
registered
creditors,
partly
in
cash
and
partly
in
shares.
Other
creditors
were
paid
only
in
cash.
Exhibit
A-l
1
is
the
deed
of
hypothec
dated
March
27,
1990
between
La
Financière
Prêts-Épargne
Inc.
and
2745-8017
Québec
Inc.
The
amount
of
the
loan
was
$656,500.
The
witnesses
pointed
out
that
the
deed
clearly
stipulated
that
the
amount
of
each
advance
and
the
date
on
which
it
would
be
made
were
left
to
the
lender's
discretion.
The
personal
guarantees
of
the
purchasers
in
the
amounts
they
had
already
committed
themselves
to
pay
were
attached
to
this
deed.
The
lending
company’s
initial
disbursements
began
in
May
1990
and
ended
in
August
1990,
as
can
be
seen
from
Exhibit
A-
12.
Exhibit
A-13
is
a
deed
of
sale
of
the
immovable
in
question
by
the
lending
institution,
dated
January
15,
1994.
The
price
is
$65,000.
The
lending
institution
had
become
the
owner
as
the
result
of
a
giving
in
payment
judgment
dated
June
8,
1993.
Exhibit
A-15
is
a
letter
of
explanation
sent
to
the
Minister’s
auditors
by
the
appellant’s
accountant.
In
it
he
indicated
that
there
was
an
appraisal
report
which
had
been
prepared
at
the
time
of
the
proposed
agreement
between
the
creditors
(Exhibit
A-4).
The
value
was
$900,000
if
the
building
was
completed
and
had
a
100
percent
occupancy
rate.
However,
the
building
had
not
been
completed
at
the
time
and
was
not
rented.
On
the
1989
deduction
for
the
bad
debt,
this
is
what
the
accountant
said:
[TRANSLATION]
Recovery
of
bad
debt
Roberge
&
Fils
Inc.
entered
a
bad
debt
of
$188,517.80
in
its
books
in
1988.
No
recovery
was
entered
in
the
books
in
1989
following
the
giving
in
payment.
Instead
it
was
registered
in
1990
when
the
amount
was
actually
received.
The
giving
in
payment
was
only
one
stage
in
the
process
of
eventually
obtaining
the
money
owed,
and
the
building
had
no
value
per
se
as
it
had
not
been
completed
and
rented.
Roberge
&
Fils
acted
only
as
a
“vehicle”
for
the
eventual
transfer
to
2745-8017
Québec
Inc.
What
is
more,
the
hypothec
held
by
Roberge
&
Fils
Inc.
could
have
been
challenged,
as
therefore
could
the
giving
in
payment.
That
is
why
the
recovery
was
entered
in
1990
at
the
time
the
file
was
closed
and
the
money
actually
received.
Mr.
Roberge
stated
that
recovery
of
the
immovable
was
not
the
objective:
a
judicial
sale
of
it
would
have
brought
in
nothing,
as
its
value
was
questionable.
A
number
of
privileges
involving
substantial
amounts
had
been
registered
and
in
the
opinion
of
the
appellant’s
counsel
its
very
title
to
the
immovable
was
not
very
clear.
Only
the
performance
of
the
agreement
and
obtaining
of
the
hypothecary
loan
had
any
meaning.
As
to
the
additional
amount
deducted
as
a
bad
debt
in
1989,
Mr.
Doré,
the
appellant’s
accountant,
explained
that
this
was
interest
on
the
principal
debt
and
that
since
the
principal
debt
had
been
deducted
as
a
bad
debt
in
1988
it
was,
in
his
opinion,
logical
to
deduct
interest
and
incidental
costs
amounting
to
$42,635
in
1989.
Arguments
and
conclusions
Counsel
for
the
appellant
submitted
that
the
validity
of
the
hypothecary
security
was
uncertain,
because
it
could
have
been
challenged
by
the
other
privileged
or
hypothecary
creditors.
Because
of
this
uncertainty
assuming
ownership
of
the
immovable
was
an
integral
part
of
a
plan
to
resell
it
to
a
corporation
in
which
the
appellant
and
the
debtor’s
other
creditors
would
be
shareholders.
The
plan
also
involved
financing
from
a
financial
institution.
It
was
a
complex
plan
and
was
not
finalized
until
1990.
Counsel
for
the
appellant
therefore
submitted
that
in
1989
the
appellant
did
not
have
beneficial
ownership
of
the
immovable
within
the
meaning
of
s.
79
of
the
Act.
Section
248(3)
of
the
Act
defines
what
the
term
beneficial
ownership
must
be
understood
to
mean
in
the
Quebec
context.
He
argued
that
the
appellant
had
not
acquired
full
ownership
of
the
immovable
in
question
because
it
could
not
dispose
of
the
immovable
as
it
saw
fit,
in
view
of
the
uncertainty
of
title
which
had
compelled
it
to
reach
agreement
with
the
debtor’s
other
real
creditors.
In
this
connection
he
referred
to
the
decision
of
Judge
Tremblay
of
this
Court
in
Larose
v.
M.N.R.,
92
D.T.C.
2055,
in
particular
at
p.
2064.
He
also
noted
that
the
immovable
did
not
have
the
value
of
the
debt
of
approximately
$250,000,
and
that
it
would
have
no
value
unless
it
was
purchased
by
the
company
that
was
to
be
incorporated,
in
which
the
creditors
were
to
be
shareholders.
Counsel
for
the
respondent
maintained
that
s.
79
of
the
Act
applied
in
1989
since
the
appellant,
which
was
a
hypothecary
creditor,
had
acquired
beneficial
ownership
of
the
immovable
in
that
year
by
means
of
the
giving
in
payment.
He
also
referred
to
s.
248(3)
of
the
Act,
which
states
that
the
meaning
of
“beneficial
ownership”
in
the
Quebec
context
is
“full
ownership”.
As
to
the
debt
of
$131,106
which
was
claimed
as
a
bad
debt
in
1988,
counsel
for
the
respondent
argued
that
it
had
been
paid
in
full
by
means
of
the
giving
in
payment
of
the
immovable.
Accordingly,
under
s.
12(
1
)(z)
of
the
Act
the
amount
should
be
included
in
the
year
of
receipt,
namely
1989,
the
year
in
which
the
debt
was
paid
by
the
debtor
by
transferring
its
ownership
of
the
immovable
in
lieu
of
the
debt.
Nor
are
the
interest
and
charges
in
the
amount
of
$42,634.57
resulting
from
the
principal
debt
deductible
since
they
were
paid
by
the
debtor
when
it
gave
its
immovable
in
payment.
Sections
79
and
248(3)
of
the
Act
read
as
follows:
[TRANSLATION]
79.
Mortgage
foreclosures
and
conditional
sales
repossessions.
Where,
at
any
time
in
a
taxation
year,
a
taxpayer
who
(a)
was
a
mortgagee
or
other
creditor
of
another
person
who
had
previously
acquired
property,
or
(b)
had
previously
sold
property
to
another
person
under
a
conditional
sales
agreement,
has
acquired
or
reacquired
the
beneficial
ownership
of
the
property
in
consequence
of
the
other
person’s
failure
to
pay
all
or
any
part
of
an
amount
(in
this
section
referred
to
as
the
“taxpayer’s
claim”)
owing
by
that
person
to
the
taxpayer,
the
following
rules
apply:
(c)
there
shall
be
included,
in
computing
the
other
person’s
proceeds
of
disposition
of
the
property,
the
principal
amount
of
the
taxpayer’s
claim
plus
all
amounts
each
of
which
is
the
principal
amount
of
any
debt
that
had
been
owing
by
the
other
person,
to
the
extent
that
it
has
been
extinguished
by
virtue
of
the
acquisition
or
reacquisition,
as
the
case
may
be,
(d)
any
amount
paid
by
the
other
person
after
the
acquisition
or
reacquisition,
as
the
case
may
be,
as,
on
account
of
or
in
satisfaction
of
the
taxpayer’s
claim
shall
be
deemed
to
be
a
loss
of
that
person,
for
that
person’s
taxation
year
in
which
payment
of
that
amount
was
made,
from
the
disposition
of
the
property,
(e)
in
computing
the
income
of
the
taxpayer
for
the
year,
(i)
the
amount,
if
any,
claimed
by
the
taxpayer
under
subparagraph
40(
1
)(a)(iii)
in
computing
the
taxpayer’s
gain
for
the
immediately
preceding
taxation
year
from
the
disposition
of
the
property,
and
(ii)
the
amount,
if
any,
deducted
under
paragraph
20(1
)(«)
in
computing
the
income
of
the
taxpayer
for
the
immediately
preceding
year
in
respect
of
the
property,
shall
be
deemed
to
be
nil,
(f)
the
taxpayer
shall
be
deemed
to
have
acquired
or
reacquired,
as
the
case
may
be,
the
property
at
the
amount,
if
any,
by
which
the
cost
at
that
time
of
the
taxpayer’s
claim
exceeds
the
amount
described
in
subparagraph
(e)(i)
or
(ii),
as
the
case
may
be,
in
respect
of
the
property;
(g)
the
adjusted
cost
base
to
the
taxpayer
of
the
taxpayer’s
claim
shall
be
deemed
to
be
nil,
and
(h)
in
computing
the
taxpayer’s
income
for
the
year
or
a
subsequent
year,
no
amount
is
deductible
in
respect
of
the
taxpayer’s
claim
by
virtue
of
paragraph
20(
1
)(/)
or
(p).
248(3)
References
to
property
beneficially
owned
and
to
beneficial
owner
of
property.
In
its
application
in
relation
to
the
Province
of
Quebec,
a
reference
in
this
Act
to
any
property
that
is
or
was
beneficially
owned
by
any
person
shall
be
read
as
including
a
reference
to
property
in
relation
to
which
any
person
has
or
had
the
full
ownership
whether
or
not
the
property
is
or
was
subject
to
a
servitude,
or
has
or
had
a
right
as
a
usufructuary,
a
lessee
in
an
emphyteutic
lease,
an
institute
in
a
substitution
or
a
beneficiary
in
a
trust,
and
a
reference
in
this
Act
to
the
beneficial
owner
of
any
property
shall
be
read
as
including
a
reference
to
a
person
who
has
or
had,
accordingly
as
the
context
requires,
such
ownership
as
a
right
in
relation
to
that
property.
Section
12(l)(z)
of
the
Act
reads
as
follows:
12.
Income
inclusions.
(1)
There
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
as
income
from
a
business
or
property
such
of
the
following
amounts
as
are
applicable:
(i)
Bad
debts
recovered
—
any
amount,
other
than
an
amount
referred
to
in
paragraph
(7.1),
received
in
the
year
on
account
of
a
debt
or
a
loan
or
lending
asset
in
respect
of
which
a
deduction
for
bad
debts
or
uncollectable
loans
or
lending
assets
was
made
in
computing
the
taxpayer’s
income
for
a
preceding
taxation
year
....
In
my
view,
the
appellant’s
proposition
that
its
ownership
did
not
become
beneficial
in
1989
is
not
supported
by
either
the
facts
or
the
law.
The
meaning
in
taxation
law
of
the
term
“beneficial
ownership”
is
not
narrower
than
that
of
“ownership”
as
understood
in
the
civil
law
of
Quebec.
There
is
no
other
way
to
interpret
s.
248(3)
of
the
Act.
The
fact
that
someone
undertakes
to
dispose
of
property
even
before
acquiring
it
does
not
mean
that
the
person
does
not
become
the
owner
thereof
at
the
time
of
acquisition.
How
could
the
person
dispose
of
the
property
without
having
acquired
it?
The
instant
case
concerns
the
application
of
ss.
12(1
)(/)
and
79
of
the
Act
in
the
year
in
question.
The
deed
of
giving
in
payment
was
valid
in
1989.
No
court
had
ruled
it
to
be
invalid
and
no
action
in
nullity
had
been
brought
(if
such
an
action
could
have
affected
its
application,
which
is
a
point
on
which
I
do
not
have
to
rule).
I
refer
to
Volume
11
of
the
Traité
du
Droit
Civil
du
Quebec,
L.
Faribault,
at
p.
520,
regarding
the
nature
and
effect
of
giving
in
payment:
[TRANSLATION]
Giving
in
payment
has
much
in
common
with
a
sale,
when
something
is
given
in
lieu
of
a
sum
of
money.
In
this
case
two
legal
operations
are
merged
into
one.
Once
the
giving
in
payment
has
been
accepted
by
the
creditor
the
parties
are
in
the
same
position
as
if
the
debtor
had
paid
his
debt
with
money
and
the
creditor
at
-once
u^ed-
the
money
to
purchase
for
cash
the
thing
offered
by
his
or
her
former
debtor.
However,
Pothier
observes
that
there
is
a
difference
between
an
agreement
to
sell
something
to
a
creditor
for
a
price
which
will
offset
what
is
owed
and
an
agreement
to
give
something
to
the
creditor
in
payment
of
what
is
owed.
In
a
sale
the
extinction
of
the
debt
of
the
former
creditor
is
only
incidental,
while
in
a
viving
in
payment
it
i
the
primary
result
sought
he
¢
.
The
comparison
between
the
two
contracts
results
from
the
wording
of
our
article
1592.
(Emphasis
added.)
The
deed
of
giving
in
payment
mentioned
in
paragraph
15
of
these
reasons
says
nothing
to
the
contrary.
The
debtor’s
debt
is
extinguished.
By
means
of
the
giving
in
payment
the
appellant
received
payment
of
the
debtor’s
debt,
in
principal
and
interest.
Under
s.
12(l)(0
of
the
Act,
therefore,
it
must
include
in
its
income
the
payment
of
the
debt
deducted
as
a
bad
debt
in
1988
and
is
also
barred
from
claiming
$42,000
in
interest
on
the
debt.
The
Act
lays
down
special
rules
for
mortgage
foreclosures.
The
process
set
out
by
Parliament
must
be
followed.
Section
79(f)
of
the
Act
provides
that
the
taxpayer
is
deemed
to
have
acquired
the
property
at
the
cost
of
the
claim
on
that
date.
Section
79(^)
does
not
apply
here,
since
what
is
at
issue
is
not
be
repossession
of
property
formerly
owned
by
the
appellant.
Nor
does
section
79(h)
apply
since
the
original
debt
was
extinguished
by
the
giving
in
payment.
It
is
quite
possible
that
but
for
execution
of
the
plan
proposed
by
the
appellant
to
the
other
creditors
the
appellant
would
not
have
been
in
a
favourable
position
and
could
not
have
resold
the
immovable
at
a
good
price.
The
loss
would
then
have
been
calculated
by
applying
s.
79
and
the
other
relevant
provisions
of
the
Act.
The
acquisition
of
an
immovable
is
a
legal
act
distinct
from
that
of
its
sale
and
has
different
legal
effects
both
in
civil
law
and
in
tax
law.
The
fact
that
there
is
a
close
relationship
between
the
two
acts
alters
neither
their
nature
nor
their
effects.
The
giving
in
payment
took
place
in
1989
and
that
is
the
taxation
year
in
which
its
effects,
namely
the
payment
of
the
debt
and
the
acquisition
of
ownership,
must
be
taken
into
account.
The
appeal
is
accordingly
dismissed
with
costs.
Appeal
dismissed.
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