[OFFICIAL ENGLISH TRANSLATION]
1999-3011(IT)G
BETWEEN:
PIERRE DUFOUR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Claude Boulanger (2000-3681(IT)G) on June 12 and 13, 2002, at Ottawa, Ontario, by
the Honourable Judge Lucie Lamarre
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Daniel Bourgeois
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1996 and 1997 taxation years are dismissed.
The respondent is entitled to her costs. However, since the appeals were heard on common evidence with the appeals of Claude Boulanger (2000-3681(IT)G), costs will be limited to those that would be applicable in a single appeal.
Signed at Ottawa, Canada, this 4th day of July 2002.
|
"Lucie Lamarre" |
J.T.C.C
Translation certified true
on this 23rd day of September 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-3681(IT)G
BETWEEN:
CLAUDE BOULANGER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Pierre Dufour (1999-3011(IT)G) on June 12 and 13, 2002, at Ottawa, Ontario, by
the Honourable Judge Lucie Lamarre
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Daniel Bourgeois
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1995 and 1996 taxation years are allowed, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that he will be allowed the deduction of a mining business loss of $7,447.00 for the 1996 taxation year and the deduction of a rental loss of $31,783.00 and of $17,320.00 for the 1995 and 1996 taxation years respectively, which losses were conceded by the respondent in the Amended Reply to the Notice of Appeal.
In all other respects, the assessments remain unchanged.
The respondent is entitled to her costs. However, since the appeals were heard on common evidence with the appeals of Pierre Dufour (1999-3011(IT)G), costs will be limited to those that would be applicable in a single appeal.
Signed at Ottawa, Canada, this 4th day of July 2002.
|
"Lucie Lamarre" |
J.T.C.C.
Translation certified true
on this 23rd day of August 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020704
Docket: 2000-3681(IT)G
BETWEEN:
CLAUDE BOULANGER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND BETWEEN:
1999-3011(IT)G
PIERRE DUFOUR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre, J.T.C.C.
[1] The appellant Claude Boulanger appeals from assessments made by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act") whereby, for the 1996 taxation year, the Minister refused to consider a capital loss of $140,143.83 as a business investment loss and disallowed a mining business loss of $7,447.00 and a rental loss of $17,320.00 for that same year. Furthermore, the Minister also disallowed the deduction of a rental loss of $31,783.00 for the 1995 taxation year.
[2] The respondent no longer disputes the deduction of the mining business loss and rental losses, as a result of which the sole outstanding issue is now whether the capital loss was deductible as a business investment loss for the 1996 taxation year.
[3] As to the appellant Pierre Dufour, he appeals from assessments made under the Act by the Minister refusing to treat as a business investment loss a capital loss of $63,233.33 incurred by his spouse, Valérie Dufour, and attributed to him for the 1996 taxation year. Furthermore, the appellant had previously been able to deduct a business investment loss of $35,331.00 in 1996. The point for determination then is whether the three-quarters of the capital loss of $63,233.33 (that is $47,425.00), which is attributed to him, may be added to the loss of $35,331.00 as a business investment loss for 1996 and be carried over to 1997. If so, in calculating the balance of the available non-capital losses for the 1997 taxation year, that loss will have to be included as an additional business investment loss, the whole in accordance with the provisions of the Act.
[4] The parties filed a partial agreement on the facts that restated the amounts that are still in issue. That partial agreement on the facts is reproduced below:
[TRANSLATION]
1. Claude Boulanger incurred a capital loss of $140,143.83 during the 1996 taxation year.
2. The point for determination is whether Claude Boulanger may deduct three-quarters of the amount of $140,143.83, that is, $105,107.87 as an allowable business investment loss ("ABIL") in computing his income for the 1996 taxation year.
3. Valérie Dufour incurred a capital loss of $63,233.33 in the 1996 taxation year. That loss must be attributed to Pierre Dufour for his 1996 taxation year and may be carried over to the following years as needed in accordance with the provisions of the Income Tax Act.
4. The point for determination is whether Pierre Dufour may deduct three-quarters of the sum of $63,233.33, that is, $47,425.00 as an ABIL in computing his income for the 1996 taxation year.
5. To the extent that the amount of $47,425.00 is deductible as an ABIL in computing Pierre Dufour's income for the 1996 taxation year, that amount is added to the amount of $35,331.00 previously allowed by the Minister of National Revenue for 1996.
6. To the extent that the amount of $47,425.00 is deductible as an ABIL in computing Pierre Dufour's income for the 1996 taxation year, the calculation of the balance of available non-capital losses for Pierre Dufour's 1997 taxation year will have to take into account that additional ABIL and the calculations stated by the Income Tax Act for 1997 and the following years will be made as required.
Point at Issue
[5] The only point at issue is whether the capital loss of $63,233.33 incurred by Pierre Dufour and of $140,143.83 incurred by Claude Boulanger, resulting from the disposition of their respective shares of a mortgage claim on a lot belonging to 170663 Canada Inc. ("Corporation") may be considered as a loss three-quarters of which would be deductible as a business investment loss ("BIL") within the meaning of paragraph 39(1)(c) of the Act.
Facts
[6] The appellants testified that, in 1989, they developed a plan in which a full range of automobile-related services, such as sales by various dealers, after-sales service, bodywork, painting and window tinting services and administrative and other services, would be offered at a single location. The plan was conceived for the purpose of bringing together the various businesses relating to the automotive sector and of allocating operating expenses.
[7] The appellants, both lawyers, were not the only persons involved in this project. They were supported by a certain Roch Potvin, owner of a car dealership (Normandie Jeep Eagle) and Rock Dompierre, a real estate agent who, like the appellants, had clients in the automotive field.
[8] According to the appellants, this was a new concept by which they intended to make a profit by eventually reselling their shares in the project. A plot of land formed from three lots was thus acquired by the Corporation created for that purpose to be operated under the name "Carrefour de l'automobile" the shares of which had been issued to the management companies belonging to each of the four investors. The land was located on St-Joseph Blvd. at the Hull city limit, in the area where there were already a number of automotive businesses.
[9] At that time (1989), the investors met with an engineer to ensure that the land was not polluted and with an architect, Pierre Cayer, to develop the concept. An overall plan was then drawn up.
[10] Construction of a three-storey building was planned to house the administrative services and a sketch was prepared to carry out the project on the three assembled lots in accordance with the preliminary plans prepared by the architect Cayer. Mr. Cayer was apparently paid by the appellant Boulanger on behalf of the Corporation. An exterior development plan showing the various ground levels was prepared along with surveys to ensure that the land was solid, in order to verify that the project as a whole could be carried out. A progress report for the project's construction was prepared by a general contractor (Exhibit A-2, Tab P-8), but no agreement was signed.
[11] To finance construction of the project's first phase, the investors subsequently applied for a loan from the Caisse Populaire that already held the hypothec on the lots acquired by the Corporation (see Exhibit A-2, Tab P-3). The Caisse Populaire refused to grant the loan since the additional guarantees it had requested were not given. According to the appraisal report required by the Caisse Populaire, the loan application was likely turned down around June 1990 (Exhibit I-1, Tab 6). The investors thus attempted to find another partner. In the meantime, on July 11, 1990, Rock Dompierre, who was in serious financial difficulty, resold to the appellants' management companies the shares that his management company held in the Corporation as well as the $54,375.00 claim he held against the Corporation as a result of advances that he had made, the whole for the value of the claim (see Exhibit I-2). He declared bankruptcy shortly thereafter.
[12] Lastly, the construction company Taillefer Développement Inc. ("Taillefer") purchased a portion of the land (130,000 square feet) for approximately $900,000.00 according to the appellants, in December 1990 (the date corresponds to the date of the transfer to the Caisse Populaire of a debt that Taillefer owed to the Corporation on the balance of the selling price (Exhibit A-2, Tab P-3).
[13] Taillefer then financed construction of a 13,000 square-foot building in accordance with the plans prepared by another architect (which construction plans partly incorporated architect Cayer's preliminary plans) and for which a building permit had already been granted. According to the architect Cayer, it was the portion of his preliminary plan that provided for the installation of a car dealership that was built. Taillefer took advantage of this to extend the water and sewer services to the portion of the land still belonging to the Corporation (82,000 square feet) in anticipation of the entire project's completion. Once the building was completed, Taillefer, wishing to ensure that it produced income from its building, leased an area of 8,000 square feet to Roch Potvin's management company for the operation of its automobile dealership. The appellants had to ensure that the rest of the area would be rented. It appears that the appellants convinced the Lada dealership ("Lada") to set up shop on the premises and to sublet the area not occupied by Roch Potvin's business. Lada thus purportedly paid rent of $63,000.00 a year, which rent was guaranteed by the appellants. According to the appellants, that was how their initial plan started to materialize. Unfortunately, all this was short-lived since, first, the City of Hull made a zoning change and, second, Lada experienced financial problems, then Roch Potvin declared bankruptcy in July 1996, dragging Taillefer in his wake into bankruptcy as well.
[14] One or two years earlier, the appellants had purportedly attempted to sell their land but to no avail. In December 1996, the appellants finally resigned themselves to transferring, for $100, their claims and the shares their management companies held in the Corporation to a certain Jean-Pierre Lacasse, a person with whom they were dealing at arm's length. Mr. Lacasse had previously (in 1994) redeemed a portion of the claim that the appellant Dufour had transferred to his spouse. Mr. Lacasse wished to continue in the venture alone. By that transaction, he assumed all the Corporation's debts. The appellants thus incurred a loss they now claim as a BIL, which is at issue in the instant case.
[15] According to the Corporation's financial statements at October 31, 1992, the Corporation's sole assets were the unsold portion of the land and the balance of the selling price that Taillefer owed the Corporation. The Corporation's only income during that same period was rental income from the subletting of the building constructed on that land and interest income from the balance of the selling price paid by Taillefer at the time the other portion of the land was sold. The rental expenses represented the amount of rent for which the Corporation had given Taillefer a guarantee in respect of the area not leased to Roch Potvin.
[16] According to the financial statements at October 31, 1993, the Corporation held the same assets and produced only rental income during that period. According to the financial statements produced by the Corporation for its fiscal years ending on October 31, 1994, 1995 and 1996 (Exhibit I-1, Tab 5), the Corporation earned no income in 1994 and 1995 and income whose source was not identified of $20,000.00 in 1996. The assets for those same years also consisted of the unsold portion of the land and the debt payable by Taillefer at the time of the sale of the other portion of the land as well as an account receivable for which no explanation was given at the hearing.
[17] The architect Cayer testified, repeating much of what the appellants had stated in their testimony with respect to the conceptualization of the project. His role ended after he had completed the first preliminary plans. He said that he had considered buying shares in the project, but he ultimately did not invest since, in his view, there was a risk the project would take a certain amount of time before actively starting up.
Arguments of the Parties
[18] The appellants contend that the Corporation constituted a qualified business entitling them to a BIL under the conditions set by paragraph 39(1)(c) of the Act, which reads as follows:
SECTION 39: Meaning of capital gain and capital loss.
(1) 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,
. . .
[19] The sole point for determination is whether the Corporation, in the year of the loss, was a small business corporation, as required by clause 39(1)(c)(iv)(A) of the Act.
[20] The appellants assert that that is the case. In their written argument, they contend as follows at pages 2 and 3:
[TRANSLATION]
We humbly submit to the Court that the evidence brought by the appellants shows on the contrary that the Corporation did not carry on a property rental business but that its purpose and activity were to group together within itself automotive services companies to enable those companies to achieve savings and enhance their efficiency by pooling a number of services (administrative, accounting, advertising, customer reception and so on) and equipment (lifts, lubrication and oil-changing devices, painting, body work tires, windows, etc.). The evidence showed that the Normandie Jeep Eagle dealer (property of one of the corporation's shareholders) and the Lada dealer shared services and equipment in the way intended by the corporation.
The corporation's officers undertook significant planning and made many efforts to carry out the corporation's objectives. In material terms, plans were prepared for construction of the first phase of the project, development of the land and so on. In other areas, the work was planned at length and steps were taken to implement the corporation's mission first and to solve the problems that emerged thereafter as a result of the inability of the group of shareholders and officers to provide the additional guarantees requested by the lending institution because of the economic crisis it apprehended.
The shareholders and officers, including the appellants, not only devoted considerable time and effort to meet the corporation's objectives but also invested significant amounts of money according to their means.
The corporation did not lease properties to third parties; it owned no properties for lease. It earned some income from subletting a lease that it had been required to take back when it sold the first phase of the project to the Taillefer group. One stream of that sublease income (approximately $40,000.00) came from Canada Post, which had subleased the premises for the length of the strike by its employees. We humbly submit that that unexpected and incidental income cannot vitiate the corporation's purpose. The Lada dealership also occupied the premises on which the corporation guaranteed the rent to the owner Taillefer. The income earned from that transaction was modest and, like the previous income, was used to alleviate to some degree the corporation's obligations.
In addition, all the corporation's assets were used in its business. Even the hypothec of $310,000.00 payable by the Taillefer group as the balance of the selling price of a portion of the land was used by the business and had been given as security to the corporation's financial institution, replacing the hypothec that the banking institution had lost on the portion of the land that was sold.
Even the portion of the land sold to the Taillefer group and the building that Taillefer built and which constituted the first phase of the project was consistent with the initial concept of development put forward by the corporation. The overall project launched by the corporation could still be realized with the Taillefer group, if all the conditions were met.
The evidence also showed that, despite the economic crisis that hit the corporation hard (bankruptcies of Rock Dompierre, Roch Potvin, Jeep Eagle dealership, and Lada; the Caisse Desjardins' refusal to provide financing), the corporation continued looking for partners in the automotive and finance fields. In the circumstances, however, the corporation also decided to sell the remaining portion of the land at a profit.
The Supreme Court attaches considerable importance to the taxpayer's intention. It even speaks of subjective intention. This is the case in Stewart v. Canada, a judgment rendered on May 23, 2002, . . . . The intention of 170663 Canada Inc. and its shareholders and officers in this case was clearly to organize a pool of goods and services of automobile-related businesses. The intention was not at all to carry on a property rental business.
[21] In their written argument, the appellants also relied on the decisions in Klein v. R., [2001] 3 C.T.C. 2200 (T.C.C.); Turner v. R., [2000] 3 C.T.C. 460 (F.C.A.); Vogel v. R., 96 DTC 1321 (T.C.C.); and Brown v. R., 96 DTC 6091 (F.C.T.D.) in concluding that the fact that the Corporation's objectives could not be fulfilled because of unfavourable economic conditions in no way altered the Corporation's primary purpose of operating a business related to the automobile business. According to the appellants, the Corporation was a qualified corporation within the meaning of paragraph 39(1)(c) of the Act.
[22] For her part, the respondent argues not that the Corporation was a property rental corporation but that it never began operating an active business or, at the very least, that it did not constitute a small business corporation since all or substantially all of the fair market value of its assets were not attributable to assets that were used principally in an active business, as required by the definition of "small business corporation" in subsection 248(1) of the Act, which reads as follows:
ARTICLE 248: Definitions.
(1) In this Act,
. . .
"small business corporation"¾"small business corporation", at any particular time, means, subject to subsection 110.6(15), a particular corporation that is a Canadian-controlled private corporation all or substantially all of the fair market value of the assets of which at that time is attributable to assets that are
(a) used principally in an active business carried on primarily in Canada by the particular corporation or by a corporation related to it,
(b) shares of the capital stock or indebtedness of one or more small business corporations that are at that time connected with the particular corporation (within the meaning of subsection 186(4) on the assumption that the small business corporation is at that time a "payer corporation" within the meaning of that subsection), or
(c) assets described in paragraphs (a) and (b),
including, for the purpose of paragraph 39(1)(c), a corporation that was at any time in the 12 months preceding that time a small business corporation, and, for the purpose of this definition, the fair market value of a net income stabilization account shall be deemed to be nil;
[23] In the respondent's view, the rental income generated by the Corporation merely constituted very incidental income, not in any way active business income. Counsel for the respondent contends that the appellants' project always remained at the project stage because the structure of the projected business was never put in place. The respondent contends that, after the land was purchased in 1990, the elements on which the project was based collapsed. The loan for construction of the building was not granted, one of the investors had to withdraw at the outset (in July 1990), the Corporation had to sell a substantial portion of the land to Taillefer, which financed the construction of the building, although it refused to become a partner in the Corporation, and the Corporation emerged from that with a small portion of the land and a hypothec claim given by Taillefer when the other portion of the land was sold. Shortly thereafter, another investor went bankrupt, and then Taillefer went into bankruptcy, as a result of which the project remained inactive. The respondent contends that all the steps taken, such as the acquisition of the land and the making of the preliminary plans, were merely intended to bring together the basic elements of the structure of a new business, which was never actually put in place. Counsel contends that the expenses relating to preliminary stages in establishing a business that does not exist do not give rise to a business loss if those steps do not go beyond the project stage (see Samson et Frères Ltée v. Canada, [1995] T.C.J. No. 1385 (Q.L.)).
[24] The respondent submits that the Corporation did not begin any activity giving rise to business income. The purpose of all its activities was to establish the structure of the business itself, which ultimately never saw the light of day. Moreover, it was Taillefer, not the Corporation, that constructed the building. Taillefer was not a partner in the Corporation. It is difficult in the circumstances to contend that the Corporation had commenced the process of operating a business (see Goren v. Canada, [1997] T.C.J. No. 391 (Q.L.)).
[25] Lastly, counsel for the respondent contends that the recent judgment by the Supreme Court of Canada in Stewart v. Canada, 2002 S.C.C. 46, [2002] S.C.J. No. 46 (Q.L.), in no way alters the point at issue here. The point for determination in the instant case is whether the Corporation had started the business and, if so, whether that business was active. According to counsel for the respondent, Stewart deals with the tests for determining whether there is a source of income. Here, it is undisputed that there was a source of income. It is the respondent's view that the Corporation produced income from property, not income from an active business, as a result of which it does not qualify for the purposes of the BIL.
Analysis
[26] First of all, I agree with counsel for the respondent that Stewart, supra, cannot assist the appellants in the instant case. In that case, the Supreme Court of Canada established that "in order to determine whether a particular activity constitutes a source of income, the taxpayer must show that he or she intends to carry on that activity in pursuit of profit and support that intention with evidence. The purpose of this test is to distinguish between commercial and personal activities..." (see paragraph 5 of Stewart).
[27] That approach based on the taxpayer's intention serves above all to determine whether the taxpayer has a source of income consisting either of a business or of a property for the purpose of computing income, as defined in section 9 of the Act. Moreover, the Supreme Court of Canada also referred to the fact that "business income is generally distinguished from property income on the basis that a business requires an additional level of taxpayer activity" (see Stewart, paragraph 51).
[28] Thus, in the instant case, the respondent does not contend that the Corporation did not have a source of income. The Corporation in fact reported rental and interest income. What the respondent contends in this case is that the Corporation did not qualify as a small business corporation within the meaning of subsection 248(1) of the Act for the purposes of converting a capital loss to a BIL in accordance with paragraph 39(1)(c) of the Act. I therefore reject the appellants' argument that the mere intention to operate a business is sufficient to qualify the Corporation as a small business corporation for the purposes of deducting a BIL.
[29] In the instant case, the point for determination is whether the Corporation operated or had previously operated an active business in the 12 months before the appellants disposed of the hypothec claim they had on the Corporation in December 1996.
[30] In my view, the appellants failed to show that the commercial structure of a business had taken shape at any time, as was the case, for example, in M.N.R. v. M.P. Drilling Ltd., 76 DTC 6028, in which Judge Urie considered in obiter the question of when a corporation begins operating a business.
[31] In M.P. Drilling Ltd., it was held that a corporation constituted for the purpose of marketing liquefied natural gas, which had begun negotiations on markets and supply and conducted technical studies through consultants, could be considered as having commenced its business operations at that moment. The Court considered the fact that the company was already in existence and had done everything that any new business normally had to do to market its merchandise. The Court also considered the ongoing efforts to make available to clients the company hoped to attract by its promotional campaign the products it hoped to obtain from its suppliers through negotiations. All this, in Judge Urie's view, constituted commercial activity relating to the existence of a business. In M.P. Drilling Ltd., however, it must be emphasized that the company had begun talks with a number of suppliers and potential foreign clients, had opened its own office and hired its first employees, and had hired a full-time general manager to develop a market and negotiate with actual and potential suppliers. Thus, in the Federal Court's view, there was a structure, a market and products, and thus a business. Even though the operation had not begun to produce income, it could be said that the process of operating a profit-making entity had commenced (see Goren, supra, paragraph 9).
[32] A similar question was raised in Hudon v. Canada, 2001 F.C.A 320; [2001] F.C.J. No. 1616 (Q.L.). Although land, buildings and hydro-electric assets had been transferred to the corporation in question in 1969, it was held that that corporation had not begun to operate a business up until a first market study was commissioned in 1978 to determine whether it could proceed to develop a waterfall for the purpose of supplying power. The shareholders of the corporation had previously prepared a business plan for the company, which involved the sale of lots, some of which were moreover sold. Subsequently, starting in 1978, extensive efforts were made to promote the development of the hydro-electric potential. It was therefore held that a business was operated from that point on, even though satisfactory arrangements had not yet been made respecting the price of the sale of electricity.
[33] In the instant case, the appellants prepared a preliminary plan in an attempt to develop a business that offered various services in the automotive field. The Corporation had been created for that purpose and land had been bought. However, the only activities carried on for the Corporation consisted of the production of preliminary sketches, supported by a construction progress report, but for which no contract had been entered into. The architect Cayer moreover was not paid by the Corporation but by the appellant Boulanger, who considered the payment as an advance to the Corporation. Although the appellants obtained a building permit, the Corporation had no employees or office and no market or profitability study had been conducted.
[34] I agree with counsel for the respondent that the elements essential to the project's implementation collapsed even before the project saw the light of day. The Corporation did not obtain the necessary financing to start its project, and the Corporation was unable to conduct any major transaction with respect to the type of business it was supposed to carry on. No sufficient organizational structure was established that could enable the Corporation to commence activities relating to the operation itself, such as looking for suppliers, developing markets for products, and looking for the necessary labour. All this simply did not exist and, in that sense, it is hard to conceive, as stated in Samson et Frères Ltée, supra, that a business had begun even before those essential elements relating to the structure of such a business were brought together.
[35] Moreover, the Corporation transferred most of its land in 1990 to Taillefer, which constructed a building in accordance with its own building plan to house an automobile dealership. Taillefer refused to take shares in the Corporation, and the appellants cannot claim that their project began with the construction of that building. That was not their project but indeed the project of Taillefer, which had no interest in the Corporation. It is difficult to claim that the Corporation actively operated an automotive centre in 1996, when the only building constructed on the land purchased for that purpose did not even belong to the Corporation (see on the subject Goren, supra). In my view, the Corporation was, to all intents and purposes, merely an inactive corporation without the capital needed to implement the automotive services project it intended one day to operate.
[36] In that sense, it cannot be said that the Corporation carried on an active business and thus that it was a small business corporation at the time the appellants disposed of their claims in the Corporation in 1996. That is an essential condition set by paragraph 39(1)(c) and subsection 248(1) of the Act for entitlement to deduct a BIL and that condition was not met in the circumstances.
[37] Furthermore, the other decisions to which the appellants referred in their written argument also fail to support them. They are all decisions on specific cases the facts of which distinguish them from one another.
[38] In Klein, supra, the point for determination was whether a corporation had ceased to operate a business, not, as in the instant case, whether a business had commenced doing business. The organizational structure of the business was already in place, and it had to be decided whether the operations were still being carried on actively, which was demonstrated in the circumstances of that case. In Turner, supra, the issue was whether it was reasonable to expect, at the end of a taxation year, that a corporation would be dissolved or wound up and would not begin to operate a business, for the purpose of determining whether there was a disposition of a share of that corporation in accordance with clause 50(1)(b)(iii)(D) of the Act. That same question does not arise here since it was admitted that a claim was disposed of to a person dealing at arm's length, thus ruling out the application of section 50 of the Act.
[39] In Vogel, supra, the evidence showed that, in installing an office and hiring staff, the corporation in question had begun to operate an active business. That case, which was heard under the informal procedure, differs from the instant case in its factual situation.
[40] Lastly, in Brown, supra, the point at issue was whether the taxpayer had advanced money to a corporation of which he was a shareholder in order to gain or produce income from a business or property for the purposes of subparagraph 40(2)(g)(ii) of the Act (which determines whether the loss incurred may be considered nil). Once again, that is not the question I must ask myself here since the capital loss has been recognized.
[41] I therefore find that none of those cases is relevant in deciding the instant case.
[42] Accordingly, I will confirm the assessments made by the Minister for both appellants having regard to the refusal to consider as a BIL the capital loss that each incurred, that is, $140,143.83 for Mr. Boulanger and $63,233.33 for Mr. Dufour, during the 1996 taxation year.
Decision
[43] The appeals of Claude Boulanger are allowed for 1995 and 1996 merely to allow him the mining and rental losses, which were conceded by the respondent in her Amended Reply to the Notice of Appeal. In all other respects, the assessments remain unchanged. The appeals of Pierre Dufour from the assessments made for the 1996 and 1997 taxation years are dismissed.
[44] The respondent is entitled to her costs. However, since the appeals were heard on common evidence, costs will be limited to those that would be applicable in a single appeal.
Signed at Ottawa, Canada, this 4th day of July 2002.
|
"Lucie Lamarre" |
J.T.C.C.
Translation certified true
on this 23rd day of September 2003.
Sophie Debbané, Revisor