Date: 20010629
Docket: 2000-4092-IT-I
BETWEEN:
ALWYN B. GILL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
__________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: John O'Callaghan
____________________________________________________________________
Reasons for Judgment
(Delivered orally from the Bench at Edmonton, Alberta, on Tuesday, February 27, 2001)
Margeson, J.T.C.C.
[1] The matter before the Court for decision at this time is that of Alwyn Gill and Her Majesty the Queen, 2000-4092(IT)I. The sole issue before the Court is whether or not the Appellant has satisfied the Court on a balance of probabilities that he was entitled to the Allowable Business Investment Loss ("ABIL") that was sought in reporting his income tax for the 1998 taxation year.
[2] The Court would note that a very important witness in this case would have been the wife herself. If she had testified, she may have been able to corroborate the testimony of her husband as to the intention of the parties. She may have explained why there was no paper trail setting out the terms of the alleged trust including the purpose of the loans.
[3] Counsel for the Minister did not raise this but it is something that one might reasonably expect that the Appellant would have done. She was not present and there was no explanation as to why she was not here to buttress the evidence of the Appellant himself. There was very feeble evidence of any trust agreement or what the terms might have been.
[4] The only evidence of a trust is what the Appellant himself said. The only documentary evidence of any trust agreement, (which the Court does not consider a trust agreement), is the document referred to in the Appellant's exhibits at pages 53-54. It was nothing more than an indication of an intention of the parties that the shares might be held in trust, but there was no Declaration of Trust and there was no specificity with respect to what the trust was. It is necessary to be able to show what the purposes of the trust were.
[5] Because the Appellant's spouse did not testify one might conclude that her evidence might have been detrimental to the Appellant's case.
[6] The Court carefully listened to the evidence of the Appellant and gave him every opportunity to produce evidence which would have met the burden that is upon him of establishing that the Minister's assessment was incorrect.
[7] The arguments made by counsel for the Respondent in his summary were both detailed and weighty, as far as the Court is concerned, and he referred to a number of cases to support his position.
[8] There are two problems that the Appellant has as far as the Court is concerned. He must show that he was a shareholder. Secondly, with respect to the characterization of the loan, he must show that the loan was made and that it was made for the purposes of gaining or producing income. It is the Appellant's duty to show that.
[9] The Court is not satisfied that the Appellant has met the burden of showing that he was a shareholder. First of all, there is no trust agreement which the Court can rely upon as setting out clearly and specifically that there was a trust and what the purpose of the trust was. The Court does not accept the document in the Appellant's exhibit at pages 53 or 54 as being sufficient for those purposes. It is nothing more than a declaration of intention. It is not sufficient to meet the requirements of a satisfactory trust agreement.
[10] Further, there is evidence which seems to contradict the Appellant's position that he was indeed the shareholder and his wife was not. Again, on that issue, she was not here to confirm that she was the shareholder. There are some legal documents in the Appellant's own exhibit list that would contradict that. One was a defence which indicates that the wife was the seller of the shares and the Appellant was not the seller of the shares.
[11] It would appear on the basis of the evidence that the Appellant regarded the shares as being his rather than those of his wife or being held in trust for his wife when it was convenient to do so, but when it was not convenient to do so the documents refer to the shares as being sold by the wife and being those of the wife. There is nothing in those documents which would satisfy the Court that the shares were intended to be and were indeed the husband's but, through negligence, oversight or some other reason were not specifically declared to be what they were intended to be. As a matter of fact, there are documents which tend to indicate the contrary.
[12] The reasons that the Appellant gave initially as to why he would make an investment really do not answer the questions that have been posed. It may very well be that he expected in due course that the business would make money and that he would profit from it, but there was nothing in any declaration or otherwise which would indicate that that was the purpose for which he made the loan or any portion of it.
[13] Counsel for the Respondent referred to the decision of Cadillac Fairview Corp. Ltd. v. The Queen, 1999 CarswellNat 75 and argued that on the basis of the facts in that case, the Appellant has a problem here. The Court would have to be satisfied that there was a payment arrangement made by the Appellant when he made the loan, as to how he was going to get paid back, where the money was coming from, what the interest rate would be, what he could reasonably expect to gain from it and be able to show that the guarantees that were given and the loan which was subsequently made had as their purpose, the production of income. The Court is not satisfied as to why the loan was made or that the loan was made in order to produce income.
[14] Counsel also referred to the case of Helen Lepp v. The Queen, 1999 CarswellNat 2897. In that particular case the Court held that there must be no doubt as to the purposes for which the loan is made in order for the interest to be deductible. There, the Court concluded that "the granting of the guarantee was not, in fact or in law, for the purpose of gaining or producing income. It was done simply to assist the Appellant's husband and his company." In the case at bar, in order for the loan to give rise to an ABIL, it must be established that the money that was obtained as a result of the guarantee, was used for the purposes of earning income.
[15] It is the duty of the Appellant to establish that that was the purpose for which the loan was made. It is possible to do this by proper documentation. In this particular case we have a dirth of evidence to establish the purpose for the loan. There are other purposes for which a loan might be made other than to produce or gain income. You might loan the money to establish a capital base. You might loan the money to make sure the company keeps going. It is the duty of the Appellant to establish that it was for the purpose of gaining or producing income.
[16] On the facts in the case at bar, the Court is satisfied that this was not an adventure in the nature of trade. The Appellant himself was not in the business of loaning money, and it is his job to establish that the money was loaned for the purpose of gaining or producing income. The Court is not satisfied that he has done that.
[17] In the case of John Strecker v. The Queen, 1994 CarswellNat 1085, the Court held that it was not satisfied that there was any business purpose in the granting of the guarantee. When you give a guarantee, when you loan money to a business, when you loan money to your own company or you loan money to another company, when you invest in a business, the stock market or something else, it should be relatively simple to establish what the purpose was in giving the guarantee, in loaning the money or in investing the money. It is not sufficient to make a general allegation that the Appellant anticipated some participation in the profits at some unstated time in the future or to argue that some consideration for the guarantee existed. That is not enough. One has to be able to show with specificity what the purpose was, that there was default and that the taxpayer who is seeking the deduction has suffered a loss as a result thereof.
[18] Here, as in the Strecker case, supra, the Court is satisfied that there was no oral or written agreement setting out the terms and conditions of the Appellant's participation and what the purposes of the loan might have been.
[19] The case of The Queen v. Edwin Byram, 1999 CarswellNat 77, involved dividend income. It seems clear from the cases that if you can show that your purpose in investing the money in the company in which you were a shareholder was for the purpose of producing dividend income, that would satisfy the requirements. But here, again, there was insufficient evidence before the Court from which it could safely conclude that the purpose of the Appellant in loaning the money, advancing the money or guaranteeing the loan was for the purpose of producing income. The Appellant himself said that they had not decided on all of the facts and all the conditions, how they would take the money out or how they thought that they might make money. Those omissions are fatal to the Appellant's case here.
[20] The case of William J. McKissock v. The Queen, 1996 CarswellNat 2190, dealt with the situation that even though all of the amounts might not be deductible, some of it might be. But again, here it is the responsibility of the Appellant to establish what is deductible. The Appellant was seeking to satisfy the Court that he was entitled to deduct the whole amount advanced. The evidence showed quite clearly that of the amount of money that was advanced, part of it came out of the shares of the Appellant and his spouse from the sale of the matrimonial home. It is hardly sufficient under such circumstances to merely say that the wife had agreed to pay him back and then to come to Court and say that he has not been paid back yet.
[21] Even if the Court could find that part of it would qualify for an ABIL rather than the whole amount, the Court would still have to be convinced that the Appellant in this particular case was a shareholder. The Court has found already that that was not the case.
[22] The case of Barnes v. M.N.R., 1986 CarswellNat 424, makes it clear that for a trust to come into existence there must be three essential conditions satisfied: (a) a certainty of intention, (b) a certainty of subject matter, and (c) a certainty of object. The Court agrees with counsel for the Respondent in this, that the certainty of intention has not been established on the balance of probabilities. The certainty of the subject matter is probably there, because it had to do with the ownership of the shares if anything, but then there is some question about the certainty of the object or what the purpose or object was in making the trust agreement in the first place and secondly what was the purpose or object in making the loan?
[23] For the Appellant; he agreed that he did not cross all of his t's or dot all of his i's. He said that perhaps when he filed the income tax return he did it improperly but surely when the return is filed it is essential to know whether the shares are held in trust or outright. If there were to be a capital gain, who would claim it? If there were an adequate trust agreement, that question would be answered. How would the Minister know who was supposed to claim the capital gain otherwise?
[24] The Court finds it very difficult to believe that a chartered accountant with experience in such matters would allow an income tax return to be filed in the way that it was filed here, bearing in mind that there was a possible ABIL available, bearing in mind also that somebody has to report the capital gain, if any, if the Appellant's position were tenable.
[25] There is also some question about the amended return. The Appellant said that he filed an amended return. There is some question that the amended return was merely a request to allow the ABIL to be calculated and then to allow the ABIL to take care of the capital gain which would have accrued as a result of the sale of the shares. But there again the Court is not satisfied as to exactly what was filed and what was not filed. If the Appellant had filed an amended return he could have provided us with a copy of that return to show the Court what has been done, but that was not done here.
[26] The Court is not satisfied that the Appellant has established on a balance of probability that he was a shareholder as he indicated. It is not satisfied that he has shown that the debt that was incurred was created for the purpose of gaining or producing income.
[27] It is not for the Court to decide at this particular point in time whether the wife is entitled to an ABIL or not. But the Court is satisfied that the evidence indicates to its satisfaction that the wife was the holder and the owner of the shares and it was not the husband. It would be up to the Appellant's wife to take whatever action she sees fit under the circumstances. There is substantial evidence here to indicate that she was indeed the shareholder. The Court is not deciding that she was entitled to an ABIL as that is not before it.
[28] On that basis then the Court finds that the Appellant has not met the burden upon him showing that the Minister's assessment was wrong. The Court will confirm the Minister's assessment and dismiss the appeal.
Signed at Sydney, Nova Scotia, this 29th day of June 2001.
J.T.C.C.
COURT FILE NO.: 2000-4092(IT)I
STYLE OF CAUSE: Alwyn Gill and Her Majesty The Queen
PLACE OF HEARING: Edmonton, Alberta
DATE OF HEARING: February 27, 2001
REASONS FOR JUDGMENT BY: The Honourable T.E. Margeson
DATE OF JUDGMENT: March 6, 2001
DATE OF WRITTEN REASONS: June 29, 2001
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: John O'Callaghan
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada