Bowman T.C.J.:
1 This is an appeal, Mr. Druce from assessments from the 1992, 1993 and 1994 taxation years. The issue boils down to deductibility as a business expense of the sum of $22,771.26. This is a very, very sad case.
2 The Appellant retired from a successful career in the shipping business, after a career in the military and moved to Victoria. He was looking for an investment and somehow or other he was put in touch with a company called Bicer Medical Limited, a company that had, at least according to the information that he had, carried on business successfully in Argentina as the manufacturer of heart valves. They came to Canada and they were to start the same business, it seems. As it turned out, they did not have the patent in Canada to do this. But nonetheless he was persuaded that the investment was a good one and he put about $800,000 into the company by way of loan but evidently, at least according to the assumptions upon which the Minister proceeded, the loan was convertible into shares and in fact the Minister proceeded on the assumption that the loan was, in fact converted in 1990 into 1,517,663 shares.
3 He then, evidently, invested another $288,000 to purchase 446,547 shares, approximately 2 million altogether. He sold those shares at a loss of — or he sold a portion of those shares at a loss of $424,039. That amount was treated by the Department of National Revenue as being a loan — as being a loss on capital account and the Appellant does not challenge this.
4 However, in the latter days of 1992 the company appears to have fallen upon rather difficult times. Indeed, Mr. Bicer left the country and although there was no formal bankruptcy it appears that by 1992 or thereabouts the company was no longer operating and had no reasonable expectation that it ever would operate.
5 Mr. Druce, in an act of what I have to describe as one of great integrity — because at this point he was a substantial investor in the company — put up another $22,771.26 for the purpose of paying suppliers, I suppose, and paying the staff. And I believe the staff were fully paid. This is a most commendable act on his part but, nonetheless, represented an advance to the company in the nature of a loan.
6 I am not going to get into the question of whether the loan was made for the purpose of gaining or producing income. The Department of National Revenue appears to have accepted that it was and has given him a net capital loss of three-quarters of $424,039 and in 1992 of $17,078 being three-quarters of $22,771.26 on the basis that this is a loss of capital, unfortunately, because he has no capital gains to set these losses off against.
7 I must commend the Appellant for coming forward and presenting his case. He obviously has considerable medical problems with operations on his hip and a tumor and so forth. He has come forward and put forward his case in a most articulate way.
8 But I think that it is a fair statement, based on the evidence and the jurisprudence that a loan of this type and advance of this type is a loan of a capital nature. The reason being that he is not in the money lending business, obviously. The amounts were not brought into income in an earlier year, which is one of the requirements of Section 20(1)(p).
9 Traditionally, loans to a corporation are treated as being on capital account, unless you are a money lender. That was certainly the case here. He was endeavouring to ensure that the employees would be paid, which is a most responsible position, but it is still a loan on capital account.
10 One further point should be mentioned and that is that the company, Bicer, was listed on the Vancouver Stock Exchange, according to the evidence. Accordingly, he is not entitled to treat the loss as an allowable business investment loss, it is not a small business corporation. In the circumstances, therefore, and with great regret, I feel I have to dismiss the appeal.
Email this Content