Date: 20020919
Docket: 2001-3723-IT-I
BETWEEN:
DOUGLAS A. BENDER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
2001-3722(IT)
AND BETWEEN:
JANET M. DAY
Appellant,
and
HER MAJETY THE QUEEN,
Respondent.
Reasons for Judgment
Beaubier, J.T.C.C.
[1] These appeals were heard together on common evidence at Regina, Saskatchewan, on September 12 and 13, 2002, by consent of the parties. Both Appellants testified.
[2] The evidence before the Court confirmed both Appellants' claims for allowable business investment losses respecting a disallowance by the Respondent of values which were agreed upon by the Appellants with the Bank of Montreal respecting property taken by the Bank of Montreal on account of a loan by it to Bender Transport (1995) Ltd. ("Transport"). In view of the fact that the Appellants and the Bank of Montreal were at arm's length, those values claimed by the Appellants are confirmed by the Court and their appeals are allowed respecting that portion of the appeals.
[3] The parties agreed that on the foregoing basis, the only matters remaining in dispute related to Janet Day. Therefore, Mr. Bender's appeal is allowed and he is also awarded his disbursements for copying, postage and travel to prosecute his appeal, which are fixed at $100.
[4] The matters remaining in appeal for 1998 and 1999 claimed by Janet Day relate to funds she paid to the Receiver General in 1998 and 1999 on account of:
1. withholdings due on employees' wages from Transport and, she believes,
2. GST, due from Transport, of which she was a director.
[5] In the Court's view, Transport's withholdings liability arose as a deductible part of its wages due to employees (and employer's contributions thereon) on account of their services in a business for the purpose of earning business income. Payment by Transport of employee withholdings and associated employer's contributions are deductible for income tax purposes.
[6] GST is different. The Excise Tax Act is specific. GST was paid to Transport as a tax levy of which Transport was a trustee. GST was not received by Transport as income. Nor was GST in any way a part of Transport's income earning process; rather it was a levy on Transport's customer. Payment of GST is not a deductible expense to Transport. It was never income to Transport, nor was it part of Transport's income earning process. It is merely a collection of GST (Excise Tax Act, Sections 221 and 222).
[7] According to the Reply, the only amount assessed upon Janet Day was assessed under the Income Tax Act. Subparagraph 40(2)(g)(ii) of the Income Tax Act states that a taxpayer's loss in respect of a debt is nil, unless that debt was acquired for the purpose of gaining or producing income from a business or property. Mr. Bender testified that Transport failed when one or more of its customers failed and did not pay receivables due to Transport. As a result, Transport could not pay monies due to its employees or the Bank of Montreal. That is how the withholdings came due when they were not paid.
[8] As a result, the directors, including Janet Day, fell within subsection 227.1(1) of the Income Tax Act, which provides:
... the directors of the corporation at the time the corporation was required to deduct, withhold, remit or pay the amount are jointly and severally liable, together with the corporation, to pay that amount ...
[9] However, the amounts which Janet Day paid out as part of her director's liability do not fall within subparagraphs 39(1)(c)(i), (ii), (iii) and (iv) of the Income Tax Act which read:
39.(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,
(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
[10] Therefore her claim for an allowable business investment loss or any other form of business expense or deduction respecting her assessment under section 227.1 is dismissed. In particular, paragraph 16 of the judgment of Bowman, A.C.J. in Poirier v. Her Majesty the Queen, [2000] T.C.J. No. 672 describes a situation similar to Janet Day's. It reads:
16. That is not the situation here. I agree with the submission by counsel for the respondent that when the appellant made the payments in question the company was no longer in operation. It had ceased operations and was insolvent. There is a world of difference between making good under a guarantee of a corporation that was given when it was in operation, with a view to enhancing its income earning potential, and paying an obligation imposed by law or to remove a lien after there is no possibility of earning income from the corporation. I would compare this with the situation where a business has ceased but an obligation that results from the business that was previously carried on arises and must be satisfied. The fulfilment of that obligation would seem to me to be for the purpose of gaining or producing income from a business. Here, however, the obligation to pay the company's indebtedness arose after the company has ceased operations.
[11] These matters are referred to the Minister of National Revenue for reconsideration and reassessment pursuant to the findings in paragraph [2] hereof.
Signed at Vancouver, British Columbia, this 19th day of September, 2002.
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J.T.C.C.COURT FILE NO.: 2001-3723(IT)I and 2001-3722(IT)I
STYLE OF CAUSE: Douglas A. Bender v. The Queen
Janet M. Day v. The Queen
PLACE OF HEARING: Regina, Saskatchewan
DATE OF HEARING: September 12 and 13, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge D. W. Beaubier
DATE OF JUDGMENT: September 19, 2002
APPEARANCES:
Agent for the Appellant: Barry D. Sullivan
Counsel for the Respondent: Lyle Bouvier
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-3723(IT)I
BETWEEN:
DOUGLAS A. BENDER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of
Janet M. Day (2001-3722(IT)I) on September 12 and 13, 2002
at Regina, Saskatchewan, by the Honourable Judge D. W. Beaubier
Appearances
Agent for the Appellant: Barry D. Sullivan
Counsel for the Respondent: Lyle Bouvier
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1998 and 1999 taxation years are allowed, and the reassessments are referred to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 19th day of September, 2002.
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J.T.C.C.
2001-3722(IT)I
BETWEEN:
JANET M. DAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of
Douglas A. Bender (2001-3723(IT)I) on September 12 and 13, 2002
at Regina, Saskatchewan, by the Honourable Judge D. W. Beaubier
Appearances
Agent for the Appellant: Barry D. Sullivan
Counsel for the Respondent: Lyle Bouvier
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1998 and 1999 taxation years are allowed, and the reassessments are referred to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 19th day of September, 2002.
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J.T.C.C.