Tax Court of Canada Judgments

Citation: 2004TCC202

Date: 20040308

Docket: 2003-1805(IT)I

BETWEEN:

IRENE F. STEWART,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Agent for the Appellant: Barclay G. Stewart

Counsel for the Respondent: John Grant

____________________________________________________________________

REASONS FOR JUDGMENT

(Delivered orally from the Bench

at Toronto, Ontario, on December 15, 2003)

Bowie J.

[1]      The facts of this case are clear. The Appellant filed her income tax return for 1999, and in doing so, she declared on page 2, where items of income are listed, interest and other investment income of $1,825.86. As the bracketed words on that line indicate, the taxpayer is required to give particulars of that on Schedule 4. On Schedule 4, there are no particulars other than this: one line following the word "specify" has been inserted: "interest, $27,351.94, minus investment loss, $25,526.08", and then entered on the schedule across from that line, the net difference, which is $1,825.86. That is the amount carried by the taxpayer to line 121 on page 2.

[2]      Now, it is quite clear to me from all of the evidence that I have heard, and particularly from the back of page 12 of Exhibit A-1 that I just referred to, and from page 14 of Exhibit A-1, that the Appellant arrived at the numbers she put in there on the basis that she did have total investment income - total interest income - which, when aggregated, came to $27,351.94.

[3]      I will not go through the particulars, other than to say that it came from the Toronto-Dominion Bank in an amount in excess of $15,000 and from Ontario Savings Bonds in an amount of $10,135. There were also several smaller items of interest. The Appellant, in filing her return, assumed that she was entitled to set off against these an amount of $25,526.08, which she characterized as an investment loss, a term, I might add, that is totally unknown to the Income Tax Act. There are a number of types of loss. There is a non-capital loss, which can be set off against income. There is an allowable business investment loss, which also can be set off against income. Dr. Stewart (agent for the Appellant) has, several times in the course of the hearing, disavowed any such claim. Finally, there are capital losses, of which this is one.

[4]      As I understand Dr. Stewart's argument, it is essentially that the investment by his mother of $20,000 in a syndicated mortgage was a business, and that the loss of that $20,000 is therefore a business loss. The fallacy in this is the suggestion that the Appellant, in taking $20,000 and investing it in a syndicated mortgage, was carrying on a business. This was quite clearly a capital investment. The taxpayer was not in the business of lending money in the ordinary sense of that expression as it is understood in the jurisprudence. She had a substantial amount of capital, and she invested that capital in a number of places. She invested it in Ontario Savings Bonds. She invested it in deposits with the Toronto-Dominion Bank and Canada Trust, and she invested it in a mortgage loan through a firm whose business it was to receive such investments and relay them, if I can use that verb, to somebody who was in the business of developing real estate, for the purpose of capitalizing that person's business. That does not constitute the business of money-lending, nor any other business. It is properly characterized as nothing other than making capital investments for the purpose of producing interest income. The amount is not deductible from income, because it is a loss of capital, not a loss on income account.

[5]      The Minister has conceded that at least the unpaid principal amount of $14,547.13 of that loan constitutes a capital loss and is, therefore, available for set-off another day against capital gains. I will not venture an opinion with respect to the $10,978.95 of arrears of interest, that were also lost by the taxpayer when this loan went into default. It is not immediately apparent to me why that too would not be capital loss, but it is not a matter that is before me, and I offer no opinion on it. It may come into issue in a different taxation year if there are capital gains against which it might be set off, but that is not an issue in the appeal before me. The present appeal is a simple case of a taxpayer, no doubt through misunderstanding of the difference between that which is on capital account and that which is on income account, seeking to set off the mortgage loan loss against interest income. The mortgage loan loss, whatever its amount, is not on income account. It is on capital account.

[6]      The fact that a person makes repeated investments does not turn those investments into a business. There is no suggestion in the evidence that this taxpayer was purchasing securities for the purpose of turning them over for a profit. That would be an adventure, in the nature of trade. What we have is pure and simple investments in securities for the purpose of producing income. One of those investments went bad and was lost, and the loss is quite clearly a capital loss. The appeal is therefore dismissed.

Signed at Ottawa, Canada, this 8th day of March, 2004.

"E.A. Bowie"

Bowie J.

CITATION:

2004TCC202

COURT FILE NO.:

2003-1805(IT)I

STYLE OF CAUSE:

Irene F. Stewart and Her Majesty the Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:

December 15, 2003

REASONS FOR JUDGMENT BY:

The Honourable Justice E.A. Bowie

DATE OF JUDGMENT:

December 22, 2003

APPEARANCES:

Agent for the Appellant:

Barclay G. Stewart

Counsel for the Respondent:

John Grant

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada