Date: 20010222
Docket: 1999-5020-IT-I
BETWEEN:
TERESA, EYNAN
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] This is an appeal by way of the informal procedure concerning the 1992 to the 1995 taxation years.
[2] The questions at issue are whether the Appellant is entitled to: a) an allowable business investment loss regarding an alleged capital loss incurred in the years 1992 and 1993; and b) business losses for the years 1992 to 1995 regarding a work carried on as a hostess at the Dome Stadium.
[3] The assumptions of fact made by the Minister of National Revenue (the "Minister") in reassessing the Appellant are described at paragraph 6 of the Reply to the Notice of Appeal (the "Reply") as follows:
(a) the Appellant stated that she invested $40,000 in horses with Silver Unicorn Inc. and the company was bankrupt;
(b) the Appellant claimed an allowable business investment loss (the "ABIL") in the amounts of $20,162 and $7,401 in the 1992 and 1993 taxation years, respectively but the Minister denied her claim on a basis that the Appellant failed to provide documentation such as share certificates, contractual agreements or correspondences from Silver Unicorn to support her claim;
(c) at all relevant times, the Appellant was not self-employed;
(d) the T4 slips were issued by Dome Stadium Hostessing Services Inc. ("Dome") to the Appellant for the years in question;
(e) Dome's response on September 1, 1998 to our questionnaire indicates that the Appellant was hired by them as an employee only, and she did not earn commission income nor was she required to incur any business expenses on behalf of her employer;
(f) the Appellant was not able to provide a T2200 to support that she was required to incur expenses on behalf of her employer;
(g) no contract was provided to support the allegation that the Appellant was hired on a contract basis with Dome;
(h) the Appellant was not required to work away from her employer's place of business;
(i) the Appellant was not eligible for employment expense deductions during the 1992, 1993, 1994 and 1995 taxation years as she was not required to incur any expenses for her employer;
[4] In the Notice of Appeal, the only ground of appeal was that the Minister's agents had not been objective in their review and had not taken into account the documentation that had been provided to them. At the time of the hearing, the Appellant's representative presented to the Court a written statement. I will quote the last two paragraphs:
The matter before the Court today is one of circumstances and we will prove to the Court that these expenses were incurred. The expenses incurred were not personal or living expenses but were incurred to earn income.
The investments were made on trust. This trust was abused and created severe financial and emotional hardships, including marital. As for her part time job, to the best of her knowledge, it was as and when available - commission basis. Again, these are matters of circumstances, and in part based on trust.
[5] The Appellant testified that on the advice of a person whom she trusted, Nadir S. Zulqernain, on December 9, 1988, she borrowed money from a bank to invest in Silver Unicorn Inc. the amount of $40,000. She produced as Exhibit A-1 a faded photocopy of a personal cheque made to the order of Silver Unicorn Inc. There is no document showing the receipt of this payment. Attached to the cheque, are the advertising sheets of a few related corporations about the purchase of Egyptian Arabian horses. (Silver Unicorn Inc. seems to have been a subsidiary of Smart Financial Services Inc. SMART was an acronym for Save Money and Reduce Taxes).
[6] Previously, in 1986, she had made an investment on the advice of that same person in the amount of $35,000 (Exhibit A-2). This investment appears to have been in mutual funds. According to the Appellant, this investment generated good results.
[7] Documents and letters from SMART to the Appellant were produced as Exhibit A-4. On reading these documents, it would appear that the Appellant had purchased horses or rather acquired partial ownership of them and that the registration of these horses remained in the name of Silver Unicorn Inc. That same company was authorized to act on her behalf to monitor the board and care of the horses and to trade them when appropriate. For example, Exhibit A-9 is an invoice from Silver Unicorn Inc. for the insurance and board of a horse, "La Rasmonique." There is no evidence of purchase of shares.
[8] Exhibit A-11 is a form filled by Silver Unicorn International Inc. for the Ontario Securities Commission. This is Form 20. It is dated January 13, 1992. The person acting as agent was Nadir S. Zulqernain. The description of the securities traded are: 16 1/16th interests of a Syndicated holding of a pool of 19 Straight Egyptian Arabian Horses.
[9] Schedule A to the form gives the names and addresses of purchasers. There are nine individuals who have purchased one unit for $45,000 and the 10th individual is Nadir S. Zulqernain for 15 units at a cost of $675,000. The name of the Appellant does not appear. She could not explain why her name did not appear on the schedule.
[10] There is a memorandum from Mr. Zulqernain to the Appellant, dated July 15, 1991. It reads in part as follows:
...
Dear Theresa,
Following our previous conversations, I am now in a position to provide you with some more specifics. It may be possible to liquidate your horse ownership for a total amount of $34,000 with the first payment being $14,000 and two subsequent payments of $10,000 each commencing from August 15th. Each payment will be made 45 days apart, i.e. August 15th, September 30th and November 15th. These payments would be net to you of any expenses. If this is acceptable to you, please confirm to me in writing so I may proceed. Please note, that this is not a confirmed offer but once I have your written approval, I will then confirm to you upon other requirements having been completed.
To draw comparison as to the outcome of this investment, please note that a total of $33,750 was invested at the end of 1988. You have been charged a total of $5,550 in insurance, board & care, and other related costs, making your total "out of pocket" cost to be $39,300. You have been paid $2,275 from the proceeds of one of the sales and you have deducted $23,750 which represents at least $9,500 in tax savings. Thus, making your net return from this investment of $11,775 which makes it a return of approximately 30% over a period of 2 years. In these very difficult times and economic complications, I would humbly suggest that this is pretty good.
...
[11] This letter is confirmed by the balance sheet for the years 1989 to 1991 established by Silver Unicorn for the purposes of determining the losses to be claimed by the Appellant for the maintenance of the horses.
[12] Exhibit A-6 is a letter to Nadir S. Zulqernain from the Appellant asking for a repayment of the amount invested. It is dated July 25, 1991. She mentioned that she was ready to accept $34,000 on the total amount of $40,000 (Exhibit A-6). The Appellant also said that, in the year 1992, Mr. Zulqernain would have told her that he had changed her investment into shares.
[13] The Appellant produced as Exhibit A-8 two newspaper clippings. One of them reads as follows:
Horse dealer fined $50,000 by OSC for illegal trading
An Ontario horse dealer has been slapped by the Ontario Securities Commission with one of the largest-ever fines for a single violation of the Securities Act.
The commission has convicted Nadir Zulqernain of illegally selling interests in straight Egyptian-Arabian horses in December, 1988.
His company, Silver Unicorn Inc., pleaded guilty to trading in securities without being registered to do so and was fined $50,000.
Zulqernain pleaded guilty to being a Silver Unicorn officer and director who permitted the illegal trading of securities. He too was fined $50,000.
David Lang, a lawyer with the OSC, said approximately 85 investors put a total of $4.7 million dollars into the securities, which enabled them to own a piece of horseflesh.
[14] She produced as Exhibit A-10 the Certificate of Status of Silver Unicorn Inc., dated December 5, 2000. It states that this corporation came into existence April 6, 1988 and had not been dissolved. It has received a Notice of Intention to Dissolve and is subject to cancellation.
[15] Regarding the Appellant's claim for business losses, the Appellant produced as Exhibit A-13 the agreement between herself and the Dome Stadium Hostessing Services Inc. dated July 3, 1992. She was paid on an hourly basis and she kept her tips. Deductions were made at source and a percentage for vacations was paid. At the time of the hearing, there was no representation made by the Appellant or her representative that this was not an employment agreement. The only expense the Appellant thought of that was related to the work was the uniforms. In the expense accounts produced as Exhibit A-14, the Appellant could not point to that item.
[16] The expenses described for each of the years under appeal, that is 1992 to 1996, the expenses are described in the same manner: Accounting, Legal and Collections; Adv & Prom. Rd. Ex.; Meals, Hotel, etc.; Bank charges and interest; Administation, General & Office; Auto. Exp. Repairs, Rentals, Ins., Fuel; Telephone.
[17] For the years under appeal, the Appellant earned the income and claimed the expenses in the following amounts: 1992, income $2,998, expenses, $3,456; 1993, income $5,118, expenses $5,321; 1994, income $4,490, expenses $4,710; and 1995, income $6,335, expenses $6,604.
[18] The Appellant's representative submitted that the Appellant had borrowed money for the purpose of earning income and that she had incurred expenses for the purpose of her work. The Appellant's representative did not refer the Court to any section of the Income Tax Act (the "Act") pursuant to which he was claiming the deductions.
[19] Counsel for the Respondent submitted that what appears to have been claimed is an allowable business investment loss and that the conditions attached to such a claim were not fulfilled. She referred to paragraph 39(1)(c) of the Act:
For the purposes of this Act,
...
(c) a taxpayer's business investment loss for a taxation year from the disposition of any property is the amount, if any, by which the taxpayer's capital loss for the year from a disposition after 1977
(i) to which subsection 50(1) applies, or
(ii) to a person with whom the taxpayer was dealing at arm's length
of any property that is
(iii) a share of the capital stock of a small business corporation, or
(iv) a debt owing to the taxpayer by a Canadian-controlled private corporation (other than, where the taxpayer is a corporation, a debt owing to it by a corporation with which it does not deal at arm's length) that is
(A) a small business corporation,
(B) a bankrupt (within the meaning assigned by subsection 128(3)) that was a small business corporation at the time it last became a bankrupt, or
(C) a corporation referred to in section 6 of the Winding-up Act that was insolvent (within the meaning of that Act) and was a small business corporation at the time a winding-up order under that Act was made in respect of the corporation,
exceeds the total of
[20] With respect to the expenses claimed against the employment income she referred to section 8 of the Act. She stated that this being the only provision of the Act regarding the deductions allowed against the employment income, the expenses claimed by the Appellant must come within their scope. She submitted that none of the expenses came within that provision.
[21] Counsel for the Respondent referred to two decisions of this Court, Gaskell v. R., [2000] 2 C.T.C. 2726 and Kornelow v. M.N.R., [1991] 1 C.T.C. 2403. From the decision of Gaskell (supra) she referred to paragraphs 18 to 20 as follows:
18 However, the appellant claimed more than a capital loss. He claimed the loss he incurred on his advances for the project as an allowable business investment loss ("ABIL").
19 The appellant had the burden of showing that he had incurred an ABIL within the meaning of paragraph 39(1)(c) of the Act, which reads:
...
20 Among other conditions he was required to meet, the appellant had to show that he incurred a loss from a disposition of a share of the capital stock of a small business corporation or of a debt owing to him by a Canadian-controlled private corporation. None of this was proven by the appellant as there was no evidence adduced on that particular issue. The appellant put the money into the project but he has not established that the loan was made to a corporation of the type described above. The appellant, therefore, is not entitled to an allowable business investment loss for 1992.
[22] From the decision of Kornelow (supra) she referred to paragraphs 5 and 6:
5 With respect to the deductions for allowable business investment losses that are still in dispute the onus is on the appellant to establish that the reassessments in this regard are in error; Anderson Logging Co. v. The King, [1925] S.C.R. 45; [1917-27] C.T.C. 198; 52 D.T.C. 1209, and Johnston v. M.N.R., [1948] S.C.R. 486, [1948] C.T.C. 195, 3 D.T.C. 1182. This onus can be discharged by the appellant adducing evidence that satisfies the court on a balance of probabilities of the existence of such error.
6 I am in agreement with the submissions made by counsel for the respondent in argument that there was no satisfactory substantiation of the existence of the alleged allowable business investment losses. ...
[23] Regarding the claim for a business investment loss, it is difficult from the Appellant's testimony to know what in fact and in law really happened. It is also difficult to comprehend what it is that she in fact claims. It is unfortunate that the relevant facts were not, at least in some summary form, described in the Notice of Appeal prepared by her representative. It would appear from the balance sheet for the years 1989 to 1991 and from some other documents, that the Appellant had acquired partial ownership of horses and that she had claimed business losses in those years. It is surprising that she now claims a capital loss on the acquisition of shares. As mentioned in the above decisions, claims of allowable business investment loss, regarding a capital loss, have to fulfill the terms and conditions of paragraph 39(1)(c) of the Act. It belongs to the Appellant to adduce the accurate and relevant evidence. This evidence was not adduced.
[24] Respecting the employment expenses, they were clearly unreasonable as to their amount and not related to the employment income. They were not comprised in any of the deductions provided for by section 8 of the Act.
[25] The appeals are therefore dismissed.
Signed at Ottawa, Canada, this 22nd day of February, 2001.
"Louise Lamarre Proulx"
J.T.C.C.