Date: 20010119
Docket: 2000-268-IT-I
BETWEEN:
JENNY M. FRY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
[1] The issue is whether the Appellant is entitled to deduct an allowable business investment loss from income in her 1996 taxation year.
[2] The Appellant, who did not attend on the hearing, was represented by Douglas Fry ("Fry"), her estranged husband.
[3] He testified that a limited company, 888764 Ontario Inc. ("the Company") was incorporated in April, 1990. Respondent's counsel filed as an exhibit, a photocopy of the Articles of Incorporation showing the incorporation date to be April 5, 1990. He initially said that the Appellant loaned money to the Company. He later said that she invested $25,000 in the Company for shares and that "she got them" in May or June, 1990. He stated that she expected to earn dividend income from this Canadian corporation. He also said that each of two lawyers in Sudbury owned 25,000 shares and that he and the Appellant each owned 25,000 shares, the total shares issued and outstanding being 100,000.
[4] He testified that one of those lawyers was arrested and imprisoned and that a Mr. Pope ("Pope"), a Timmins lawyer, was appointed as custodian of documents. He said that Pope suggested that the imprisoned lawyer had burnt corporate documents along with thousands of other documents.
[5] Fry said that he was the sole director and signing officer and that the Appellant was a shareholder of the Company and that a share certificate had been issued to her.
[6] On cross-examination, Fry stated that he bought the Company shares between September, 1989 and May, 1990 and that the Company was then in existence. When shown the copy of the Articles of Incorporation dated April 5, 1990 and asked how he could have bought shares in a company not yet incorporated, he stated that they put up the money to show they would buy.
[7] Fry then said that they operated the Company until May, 1990. Respondent's counsel entered as an exhibit a photocopy of a share certificate bearing the name 889764 Ontario Inc. dated September 25, 1989 showing that Jenny M. Fry was the registered holder of 25,000 common fully paid and non-assessable shares. Fry said the number 889764 was a typographical error and that it had been corrected on an amended certificate.
[8] Fry stated that the Company had been doing home renovation and wholesaling building materials and that it ceased to exist in 1993. He also said that every possible search had been made for the minute book. He said that his share certificate was in the minute book but that the Appellant had her certificate at the office building and that the landlord had seized all documents.
[9] Respondent's counsel entered as an exhibit, Fry's 1992 Income Tax Return with a stamped endorsement showing it as having been received on November 2, 1994. It is undated. It contains a claim for an allowable business investment loss in the sum of $18,750, being ¾ of $25,000.
[10] Annette Paquette, a Canada Customs and Revenue Agency employee testified that she had requested certain information from the Appellant and received nothing. She then stated that she could not accept just her word that documents had disappeared.
[11] At the end of the hearing, I asked the parties for written submissions to be followed by a telephone conference. Fry has not submitted anything to the Court and has not responded to any telephone calls from the Court respecting any submissions and has not returned any telephone call respecting the arrangement of a telephone conference.
[12] Respondent's counsel's submission outlines some of the evidence presented. It then contains the following:
Presumed facts:
The Respondent's submissions are based on the above-mentioned facts and on the following assumption as requested by his Honourable (sic) Judge Bell. However, the Respondent does not consider this assumption as being proven or true.
1. The Appellant purchased 25,000 shares of 888764 Ontario Ltd. for which she paid $25,000 in September, 1989.[1]
ANALYSIS AND CONCLUSION:
[13] Paragraph 38(c) provides that a taxpayer's allowable business investment loss for a taxation year from the disposition of any property is ¾ of the taxpayer's business investment loss for the year from the disposition of that property.
[14] Paragraph 39(1)(c) provides that a business investment loss is the amount of capital loss from a disposition to which subsection 50(1) applies.[2]
[15] Subsection 50(1) reads, in part:
... where
...
(b) a share ... of the capital stock of a corporation is owned by the taxpayer at the end of a taxation year and
...
(iii) at the end of the year
(A) the corporation is insolvent,
(B) neither the corporation nor a corporation controlled by it carries on business,
(C) the fair market value of the share is nil, and
(D) it is reasonable to expect that the corporation will be dissolved or wound up and will not commence to carry on business
and the taxpayer elects in the taxpayer's return of income for the year to have this subsection apply in respect of the ... share ... the taxpayer shall be deemed to have disposed of the ... share ... at the end of the year for proceeds equal to nil and to have reacquired it immediately after the end of the year at a cost equal to nil.
[16] The Appellant's Notice of Appeal states that she claimed "a business investment loss on my 1996 income tax return". Neither that return nor a copy thereof was entered in evidence. The Appellant did not appear in Court and the Court was therefore deprived of the potential benefit of her evidence. Fry's evidence respecting the payment of $25,000 by the Appellant for shares was not supported by any documentation such as a cancelled cheque or bank debit or anything of that nature or any other evidence. Fry's description of the Company's business was fleeting in nature and accompanied by his evidence that it ceased to exist in 1993. He claimed an allowable business investment loss in his 1992 tax return which was filed in 1994. The Appellant allegedly claimed an allowable business investment loss in respect of the same circumstances but not until 1996.
[17] Accordingly, the Appellant cannot succeed because she has failed to comply with the conditions of subsection 50(1)(b)[3] in that if the claim was made in her 1996 taxation year that election was not made in the year described in subparagraph 50(1)(b)(iii).
[18] Accordingly, the appeal is dismissed.
Signed at Ottawa, Canada this 19th day of January, 2001.
"R.D. Bell"
J.T.C.C.