Date: 20021220
Docket: 2002-39-IT-I
BETWEEN:
VITANDREA SCUCCIMARRI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1] These appeals are from assessments for the appellant's 1996 and 1997 taxation years. The issue is the computation of the amount of a business investment loss ("BIL") and therefore of an allowable business investment loss ("ABIL") sustained by the appellant in 1996. Originally the appellant claimed a BIL in 1996 of $108,045 and this was accepted by the Minister in the initial assessment, except that it was reduced to $70,573 by the application of a capital gains exemption claimed in prior years. The result was an ABIL of $52,929 and a loss carry-forward from 1996 to 1997 of $18,068.
[2] On March 1, 2001 the Minister reassessed the appellant for 1996 to reduce the BIL to $21,000 and the ABIL to nil. The 1997 taxation year was also reassessed to reduce the loss carry-forward to nil.
[3] The 1996 reassessment was outside the normal reassessment period on the grounds that the appellant had made misrepresentations in his return attributable to neglect and carelessness. Wilful default and fraud, the other two factors mentioned in subparagraph 152(4)(a)(i) of the Income Tax Act that would permit re-opening an otherwise statute-barred year, are not alleged.
[4] In 1989 the appellant, his daughter Rosangela Scuccimarri and Roberto Marvento purchased the shares of Good Bye Montreal Travel Agency Inc. (the "company") from Natale Interdonato. The proportions stated in the agreement were: the appellant 60%, his daughter 20% and Roberto Marvento 20%. The price paid was $25,000.
[5] The $108,045 claimed by the appellant as a BIL was made up as follows. (Schedule A to Exhibit A-2). The references in the middle column are to the schedules to Exhibit A-2.
Vitandrea Scuccimarri
Investment in Good-Bye Montreal
Cost Summary
Reference $
12-Dec-89 Purchase of shares E to E5 25,000
22-Dec-89 Advances F5/1 2,000
27-Dec-89 Advances F5/2 & F5/6 3,000
01-Dec-89 Rental deposit paid by Vitandrea F5/7 & F5/8 550
05-Feb-90 redeposited payroll cheques F5/3 947
15-Feb-90 Advances F5/4 & F5/6 3,000
30-Jun-91 Net Payroll credited to Advances F4 to F4/6 2,536
08-Mar-90 Advances F4/2 1,000
31-Jul-90 Advances F4/4 3,000
11-Jan-91 Advances F4/1 1,000
04-Feb-91 Advances deposited in trust account F4/3 1,000
27-Jan-93 Advances F2/1 3,000
30-Jun-93 Expenses paid cash by shareholder F2/2 2,954
30-Jun-94 Expenses paid cash by shareholder F1 & F1/2 1,260
30-Jun-94 Reimbursed expenses paid cash F1 (1,000)
30-June-95 Federal DAS paid by Shareholder F 452
30-Jun-95 GST & QST paid by Shareholder F 1,164
30-Jun-95 Bank proceeds credited to Shareholder F (6,266)
44,595
30-Sep-90 Payment of balance of subscription G1 to G5 27,500
SUB-TOTAL 72,095
12-Dec-89 Opening balance of shareholder loan F5 35,950
TOTAL 108,045
[6] Before I consider which, if any, of these amounts properly form part of the debts owing by the company to the appellant or the cost of shares of the company that can enter into the computation of the appellant's BIL, it is necessary that I determine whether there was any misrepresentation attributable to neglect or carelessness that would allow the Minister to reopen the 1996 taxation year. I am satisfied that there was. The appellant in claiming a BIL of $108,045 for 1996 represented that the cost of the shares to him was $25,000. I accept that he paid $15,000 for his own shares and $5,000 for his daughter's shares. I do not think he paid Roberto Marvento $5,000 for his shares. I am not persuaded by Mr. Marvento's testimony that he sold his shares and advances to the appellant for $7,000. This transaction was said to be in cash. When substantial amounts of money are said to have been paid in cash I tend to be a little sceptical. What makes the payment to Mr. Marvento even more doubtful is that Mr. Marvento claimed a BIL on $6,000 ($5,000 for shares and $1,000 for advances) and an ABIL of $4,500 in 1990. Since he testified that he had never previously been involved in the ownership of corporate shares or advancing money to companies and so he must have been claiming the ABIL on the shares of and advances to the company.
[7] It has therefore been demonstrated on a balance of probabilities that the appellant overstated his cost of the shares by $5,000 and that this was a misrepresentation attributable to neglect or carelessness and that therefore the Minister was entitled to reopen 1996.
[8] I turn now to the amount of the business investment loss.
[9] The first item that I think should be excluded from the appellant's calculation is $35,950, the opening balance of shareholder's loans. This represents the total of advances made by the previous shareholder to the company. I do not think that merely because all of the shares of the company change hands the purchaser inherits the loans made by the previous shareholder in the absence of a specific assignment. Moreover, even if the appellant did become the owner of the debts owing by the company to the previous shareholder there is nothing in the evidence to indicate that anything was paid for them.
[10] So far as the other amounts making up the remainder of $72,095 are concerned the amounts are allowed or disallowed as follows.
12 Dec. 89 purchase of shares $20,000 allowed
22 Dec. 89 advances $1,000 allowed
($1,000 was advanced by Mr. Marvento)
27 Dec. 89 advances $3,000 allowed
01 Dec. 89 rental deposit paid by Vitandrea $550 not allowed
I am not satisfied that his was advanced to the company.
05 Feb. 90 redeposited payroll cheques $947 allowed
15 Feb. 90 advances $3,000 allowed
30 June 91 net payroll credited to advances $2,536 not allowed
The journal entry does not provide sufficient support that this amount was paid to the company as an advance.
08 Mar. 90 advances $1,000 allowed
31 July 90 advances $3,000 allowed
11 Jan. 91 advances $1,000 allowed
04 Feb. 91 advances $1,000 allowed
27 Jan. 93 advances $3,000 allowed
30 June 93 expenses paid in cash by shareholder $2,954 allowed
30 June 94 expenses paid cash by shareholder $1,260 not allowed
30 June 94 reimbursed expenses ($1,000)
Since I am not allowing the preceding item of $1,260 I am not deducting this amount.
30 June 95 Federal DAS paid by shareholder $452 allowed
30 June 95 GST & QST paid by shareholder $1,164 allowed
30 June 95 Bank proceeds credited to shareholder ($6,266)
The total of the above items that I think form part of the amounts owing by the company or the cost of shares of the company to the appellant is $41,517.
[11] The next item is $27,500 in respect of a share subscription for 135 shares, the balance of the amount of the price of 135 shares, $53,081.50. The accounting entry is a little unusual. It shows 135 shares issued for $53,081.50 of which $25,581.50 was paid from shareholder advances. If this amount of $25,581.50 forms part of the shareholder advances listed above in paragraph [10] the amount of advances should be reduced accordingly as having been satisfied by the issuance of shares. It has however no practical consequence because these would be an equal and corresponding increase in the cost of the shares. The evidence does not support the conclusion that there were other shareholder advances independent of those already referred to. I can therefore treat only the amount of $27,500 as forming an additional cost of shares.
[12] Unlike the appeals assessor I am satisfied on the evidence that Mr. Scuccimarri deposited $27,500 to the bank account of the company. The bookkeeping entries were made by Mr. Scuccimarri's daughter Rosangela. She testified and her credibility was not impugned and I have no reason to question it.
[13] It was not contended that the debts did not become bad debts in 1996 or that the shares of the company were not disposed of for nil proceeds.
[14] The result is that the appellant sustained a Business Investment Loss of $69,017 in 1996, less the previous capital gains exemption of $37,473 = $31,544. His ABIL in 1996 is $23,658. If there is any loss left over from 1996 it can be carried forward to 1997.
[15] The appeals are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant sustained a business investment loss of $69,017 in 1996, less the previous capital gains exemption of $37,473, with the result that the appellant's allowable business investment loss in 1996 was $23,658. If there remains any loss from 1996 that can be carried forward to 1997 it should be applied to 1997.
[16] The appellant is entitled to his costs, if any, in accordance with the tariff.
Signed at Ottawa, Canada, this 20th day of December 2002.
|
"D.G.H. Bowman" |
A.C.J.COURT FILE NO.: 2002-39(IT)I
STYLE OF CAUSE: Between Vitandrea Scuccimarri and
Her Majesty The Queen
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: November 8, 2002
REASONS FOR JUDGMENT BY: The Honourable D.G.H. Bowman
Associate Chief Judge
DATE OF JUDGMENT: December 20, 2002
APPEARANCES:
Agent for the Appellant: Romualdo Biancardi
Counsel for the Respondent: Alain Gareau, Esq.
COUNSEL OF RECORD:
For the Appellant:
Name: --
Firm: --
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-39(IT)I
BETWEEN:
VITANDREA SCUCCIMARRI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on November 8, 2002, at Montréal, Quebec, by
The Honourable D.G.H. Bowman,
Associate Chief Judge
Appearances
Agent for the Appellant: Romualdo Biancardi
Counsel for the Respondent: Alain Gareau, Esq.
JUDGMENT
It is ordered that the appeals from assessments made under the Income Tax Act for the 1996 and 1997 taxation years be allowed and the assessments be referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant sustained a business investment loss of $69,017 in 1996, less the previous capital gains exemption of $37,473, with the result that the appellant's allowable business investment loss in 1996 was $23,658. If there remains any loss from 1996 that can be carried forward to 1997 it should be applied to 1997.
.../2
The appellant is entitled to his costs, if any, in accordance with the tariff.
Signed at Ottawa, Canada, this 20th day of December 2002.
|
"D.G.H. Bowman" |
A.C.J.