Date: 20021211
Docket: 2002-724-IT-I
BETWEEN:
LOCKLYNN T. CRAIG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] The Appellant owned shares in Fiji Tan (Edm) Inc. ("Fiji Tan") and was owed $11,176.30 by Fiji Tan. The other shareholder in Fiji Tan was Robert J. McKendry.
[2] In the fall of 1997 the assets of Fiji Tan were seized by its landlord and the landlord purported also to terminate the lease with Fiji Tan.
[3] From the date of that seizure and continuing after the date of a claim by the Alberta Treasury Board, Fiji Tan was never able to take possession of its assets nor carry on any business nor earn any income. Fiji Tan was struck from the corporate registry system of Alberta on August 1, 1999.
[4] Although unable to carry on its business Fiji Tan, principally through the efforts of Mr. McKendry and to a certain extent, the Appellant, attempted to find other premises, visited various sites and discussed possible leases with other landlords, but nothing came of this. The hope of the two shareholders was that if the business could be re-established in another location and a lease signed they would continue the business, but this did not occur.
[5] The Appellant realized in the spring of 1998 that the business could not be continued and he assigned his shares and shareholder loan to his co-shareholder, Robert J. McKendry.
[6] Exhibit A-1 is an acknowledgment of this assignment. It reads as follows:
October 31, 2001
Re: Fiji Tan (Edm) Inc.
I, Robert J. McKendry acknowledge that Locklynn T. Craig and I agreed to an assignment of the shares and shareholders' loans in Fiji Tan (Edm) Inc. in 1997 subject to the opening of a new store. It was clear by the spring of 1998 that a new store for Fiji Tan (Edm) Inc. would not be opened and accordingly the assignment was thereafter documented.
Another portion of Exhibit A-1 entitled "Assignment" reads as follows:
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby assigns and transfers unto Robert J. McKendry the beneficial interest in 16 Class "A" Common shares in the capital stock of FIJI TAN (EDM) INC. (the "Corporation") represented by Share Certificate No. CA-3 which shares the said Robert J. McKendry previously held for me in trust pursuant to a Declaration of Trust dated the 1st day of April, 1994, and my loans to the Corporation and hereby irrevocably constitutes and appoints any director or officer of the Corporation as attorney to transfer the said shares on the books of the Corporation with full power of substitution in the premises.
"Locklynn T. Craig"
The above Assignment is hereby acknowledged this 9 day of December, 1998.
"Robert J. McKendry"
[7] The shares had no value so the only question is whether the Appellant is entitled to claim a business investment loss of $11,176.30 representing the amount of the loans by the Appellant to Fiji Tan.
[8] If Fiji Tan, at the relevant time, was a small business corporation as defined in subsection 248(1) of the Income Tax Act (the "Act") the Appellant will be entitled to his business investment loss whereas if Fiji Tan was not a small business corporation as so defined he will not be able to claim the loss. Counsel for both parties agreed that if Fiji Tan carried on an active business it qualified as a small business corporation all other requirements having been met. Counsel for the Appellant points out that the Appellant did not actually give up on the business until it became certain in the spring of 1998 that it could not be revived. Also Fiji Tan had been successful in defeating the landlord's seizure (hiring a lawyer for this purpose), apparently on the basis that the landlord could not seize assets and terminate the lease at the same time. This was the contention of the Appellant although no record of the seizure and its defeat was filed in evidence. Counsel for the Appellant contends that the action of retaining lawyers to defeat the seizure and to continue looking for alternate premises was sufficient activity to meet the qualifications of running an active business.
[9] So far as applicable "small business corporation" is defined in section 248 of the Act as follows:
"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;
Further, "active business" is defined in section 248(1) of the Act as follows:
"active business", in relation to any business carried on by a taxpayer resident in Canada, means any business carried on by the taxpayer other than a specified investment business or a personal services business;
ANALYSIS
[10] There are some authorities that suggest that an active business can be considered to be carried on by a corporation even though there are no business activities of the same nature as those formally conducted and even in some cases where there is no business and no income.
[11] In my opinion however, something has to be done to enable a corporation to qualify as carrying on an active business and in my opinion the defeating of the seizure and searching for other premises unsuccessfully are not sufficient acts to constitute the carrying on of an active business.
[12] When only these activities are carried on how can one say that all or substantially all of the fair market value of the assets were used principally in an active business carried on primarily in Canada. The reference is to assets being used and in the present case because of the seizure it was impossible to use the assets in the business.
[13] For these principal reasons the appeal is dismissed.
Signed at Ottawa, Canada this 11th day of December, 2002.
|
"T. O'Connor" |
J.T.C.C.COURT FILE NO.: 2002-724(IT)I
STYLE OF CAUSE: Locklynn T. Craig v. The Queen
PLACE OF HEARING: Calgary, Alberta
DATE OF HEARING: November 21, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge T. O'Connor
DATE OF JUDGMENT: December 11, 2002
APPEARANCES:
Counsel for the Appellant: Robert D. McCue
Counsel for the Respondent: Elena Sacluti
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-724(IT)I
BETWEEN:
LOCKLYNN T. CRAIG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on November 21, 2002 at Calgary, Alberta by
the Honourable Judge Terrence O'Connor
Appearances
Counsel for the Appellant: Robert D. McCue
Counsel for the Respondent: Elena Sacluti
JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 1998 taxation year is dismissed, with costs, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 11th day of December, 2002.
|
"T. O'Connor" |
J.T.C.C.