Date: 20000404
Docket: 97-3069-IT-I
BETWEEN:
ROB GASKELL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre, J.T.C.C.
[1] This is an appeal, filed under the informal procedure, from an assessment made by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act") in respect of the appellant's 1992 taxation year.
[2] In the Reply to the Notice of Appeal, the respondent stated the following:
. . .
6. In computing his total income for the 1992 taxation year, the Appellant included a business loss in the amount of $25,000.
7. By Notice of Assessment dated August 3, 1993, the Minister of National Revenue (the "Minister") assessed the Appellant's income tax returns to change the $25,000 business loss to a $25,000 Business Investment Loss for the 1992 taxation year.
8. By Notice of Reassessment dated April 4, 1996, the Minister reassessed the Appellant's income tax return for the 1992 taxation year and disallowed the business investment loss in the amount of $25,000.
9. On August 13, 1996 the Appellant served Notice of Objection on the Minister with respect to the said reassessment for the 1992 taxation year on the basis that he was entitled to an Allowable Business Investment Loss of $18,750.
10. A Notice of Confirmation dated July 11, 1997 was issued in response to the said Notice of Objection for the 1992 taxation year.
11. In so reassessing the Appellant, the Minister made the following assumptions of fact:
a) the facts hereinbefore stated and admitted;
b) the Notice of Reassessment was mailed to the Appellant's last known address on April 4, 1996 to 22 Tamarac Street, Aylmer, Quebec, J9H 6T2;
c) the Notice of Reassessment was not returned to the Minister;
d) the Notice of Reassessment was sent to the Appellant within the three-year period pursuant to subsection 152(4) of the Income Tax Act (the "Act");
e) the Appellant has not provided any documentation to support an alleged investment of $25,000 in Wellington Retirement Centre project;
f) the Appellant did not incur a capital loss from disposition of a property that is a debt owing by, or a share of the capital stock of a small business corporation; and
g) the Appellant did not incur a Business Investment Loss for the 1992 taxation year.
12. In the alternative, the Appellant is entitled to a capital loss.
B. ISSUES TO BE DECIDED
13. The issues are
a) whether the Appellant is entitled to claim an allowable business investment loss pursuant to section 39 of the Income Tax Act (the "Act"); and
b) whether the Respondent correctly reassessed the Appellant pursuant to subsection 152(4) of the Act.
C. STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT
14. He relies on section 3 and subsection 50(1), 152(4) and 248(1), and paragraphs 38(c) and 39(1)(c) as amended for the 1992 taxation year.
15. He submits that the Appellant is not entitled to claim an allowable business investment loss of $18,750 for the 1992 taxation year pursuant to paragraph 39(1)(c) of the Act.
16. He further submits that the Minister correctly reassessed the Appellant within the time frame stipulated under subsection 152(4) of the Act.
[3] The appellant submits first that he never received a Notice of Reassessment for the 1992 taxation year. He submits that if there was a reassessment, it was sent to the wrong address through no fault of his and that he did not become aware of such reassessment until well after the reassessment time limit prescribed by the Act. He therefore claims that the Notice of Reassessment was not sent by Revenue Canada within the three-year period as required by the Act and consequently is not valid. The appellant submits secondly that he made a valid investment in the Wellington Retirement Centre project and that he should be allowed a business investment loss for 1992.
[4] With respect to the first issue, the appellant testified that he believed he moved from his former residence located at 22 Tamarac Street in the month of May 1995. He apparently advised Revenue Canada of his change of address when he filed his 1994 tax return, at the end of April 1995 or later on. However, it is not clear from the evidence that his 1994 tax return was delivered at that time to Revenue Canada.
[5] According to his testimony and a letter he wrote to Revenue Canada on June 11, 1997 (Exhibit A-1), the appellant dropped his 1994 tax return into a box at Revenue Canada on Lisgar Street on the same day as his provincial return was filed. It was only in 1996, when he received his 1995 Notice of Assessment without the refund he expected, that he learned from an agent of Revenue Canada that he had been reassessed for 1992 and that the 1994 tax return was not on file. According to the appellant, he then forwarded to Revenue Canada a copy of his tax return for 1994 claiming a refund of $1,151.57. This 1994 tax return, filed as Exhibit R-1, is undated and shows that Revenue Canada received it in July 1996.
[6] At the hearing, the appellant did not have with him a copy of his 1994 provincial tax return or the Notice of Reassessment apparently issued by the Province of Quebec for his 1994 taxation year, which documents might have supported his allegation that he filed his 1994 federal and provincial tax returns (showing his change of address) in or about the month of April 1995. Although in a letter addressed to Revenue Canada in June 1997 (Exhibit A-1) he referred to a witness who could verify that he had dropped off his federal tax return on the same day as he filed his provincial return for 1994, no one showed up in Court to confirm this.
[7] In the present case, it is not challenged that the Minister sent a first Notice of Assessment to the appellant for his 1992 taxation year on August 3, 1993. The normal reassessment period in which the Minister could make a reassessment and send notice thereof to the appellant expired on August 4, 1996 (pursuant to subsection 152(3.1) of the Act). In his Reply to the Notice of Appeal, the Minister indicates that a Notice of Reassessment was mailed to the appellant's last known address on April 4, 1996, that is, to 22 Tamarac Street, Aylmer, Quebec, and that the Notice of Reassessment was not returned to the Minister.
[8] The appellant submits that Revenue Canada has failed to properly complete the reassessment process within the required period. He submits that his position is reinforced by the decision in Scott v. M.N.R., 60 DTC 1273 (Ex. Ct.) and in McIntyre v. M.N.R., 93 DTC 999 (T.C.C.) which referred to the Scott decision. According to the appellant, these two decisions stand for the proposition that a reassessment sent to the wrong address has not been completed.
[9] With respect, I find that these two cases are not of any help to the appellant as the facts therein can be easily distinguished from the facts here.
[10] In Scott, Thurlow J. said at pages 1280-1281:
I am accordingly of the opinion that the giving of notice of assessment is part of the fixation operation referred to as an assessment in the statute and that an assessment is not made until the Minister has completed his statutory duties as an assessor by giving the prescribed notice. See Y.W.C.A. v. Halifax, (1933) 2 D.L.R. 713.
[Whether mailing of notice to previous attorney an effective mailing]
In this view . . . it remains to be considered whether the re-assessment under appeal was made within four years from ["the day of an original assessment"]. This, it seems to me, turns on whether what was done on May 28, 1957 – which was the last day of the four year period – completed the re-assessment and it raises the question whether the mailing of the notice to the appellant in care of Mr. Wolfe Goodman was a valid discharge of the Minister's duty to give notice to the appellant and thereby to complete the re-assessment. . . . [I]t is in my opinion also to be inferred that Parliament never intended that such a notice could be given effectively by the "mailing" of it to the taxpayer at some wrong or fictitious address and I find nothing in the statute to suggest that Parliament intended that a taxpayer should be bound by an assessment or fixed with notice of an assessment upon the posting of a notice thereof addressed to him elsewhere than at his actual address or at an address which he has in some manner authorized or adopted as his address for that purpose. . . .
In the present case, the notice of re-assessment which was put in the mail on May 28, 1957, while directed to the appellant, was not directed to his actual address nor was it directed to either of the addresses stated in his 1952 income tax return. Had it been so directed – despite the fact that the appellant no longer lived at the residential address or carried on business at the business address – and even despite the fact that the assessor was aware of these facts – it might well be that in the absence of any act on the part of the appellant to notify the Minister of a change of address, he would be bound by the sending of a notice to either of the addresses so given.
[11] I infer from the Scott case that it is the duty of a taxpayer to notify Revenue Canada of a change of address with due diligence. The appellant will be bound by the sending of a Notice of Assessment to his last known address if he has not notified the Minister of his change of address.
[12] In the present case, the appellant claims that he notified the Minister of such change of address when he filed his 1994 tax return in or about the month of April 1995. However, the evidence disclosed that Revenue Canada did not have this 1994 return on file before July 1996. The appellant claims that Revenue Canada lost his 1994 tax return. In his letter dated June 11, 1997 (Exhibit A-1), the appellant said the following:
. . .
I have a verification of my Quebec assessment for the 1994 tax year, and also a witness who can verify that I dropped my Federal return into the drop box on Lisgar St., as encouraged by Revenue Canada, on the same day as the Provincial returned [sic] was filed.
[13] The appellant did not put in evidence the assessment apparently issued by the Province of Quebec for his 1994 taxation year or call that witness to support his position. There is a well-recognized rule that the failure of a witness to give evidence by which the facts might have been elucidated justifies the court in drawing the inference that the evidence of the witness would have been unfavourable to the party to whom the failure was attributed. (See Enns v. M.N.R., 87 DTC 208 (T.C.C.) which refers to The Law of Evidence in Civil Cases by Sopinka and Lederman.)
[14] In the present case, the appellant had the evidentiary burden of establishing that he advised Revenue Canada of his change of address. The absence of the appellant's witness and of the 1994 Quebec assessment leads to the inference that the appellant did not really file his 1994 return in April 1995 as he claims he did. I find that the appellant has not established on the balance of probabilities that he filed with the Minister his 1994 tax return indicating his change of address before the month of July 1996. In the circumstances, I must conclude that the Notice of Assessment dated April 4, 1996 was properly and validly sent by the Minister to the last known address of the appellant within the time limit prescribed by the Act.
[15] With respect to the disallowed business investment loss, the appellant testified that he loaned $25,000 to a person by the name of Gary Simpson. He said that he paid part of that amount up front in cash and that the balance was paid in monthly payments of $100 over a period of two or three years.
[16] The appellant filed in evidence a letter dated March 1, 1990 addressed to him and signed by Gary Simpson for Real Property Investments & Management Ltd. ("RPIM") (Exhibit A-2). That letter confirms that the appellant loaned $25,000 to RPIM to assist in the development of the Wellington Retirement Centre Limited Partnership. This letter also indicates that RPIM was to repay the appellant the principal of the loan together with interest upon receiving its profit from the closing of the Wellington Retirement Centre Limited Partnership. Obviously this letter had at some point been submitted to Revenue Canada as it was given back to the appellant pursuant to the Privacy Act (as shown by the stamp put on the letter). Furthermore, the appellant testified that he met with representatives of Revenue Canada in the presence of Mr. Simpson to discuss the matter of that investment. However, Mr. Simpson was not present at the hearing to testify as to where that money really went.
[17] In view of this evidence, I advised counsel for the respondent that I was satisfied that the appellant invested $25,000 in the Wellington Retirement Centre project. Counsel for the respondent was therefore prepared to concede that the appellant incurred a capital loss in 1992, as pleaded as an alternative argument in the Reply to the Notice of Appeal. I infer from this concession and from the way the Reply to the Notice of Appeal is drafted that there is no issue regarding the fact that the appellant was not able to recover his investment and that it became a bad debt in 1992.
[18] However, the appellant claimed more than a capital loss. He claimed the loss he incurred on his advances for the project as an allowable business investment loss ("ABIL").
[19] The appellant had the burden of showing that he had incurred an ABIL within the meaning of paragraph 39(1)(c) of the Act, which reads:
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 his capital loss for the year from a disposition after 1977
(i) to which subsection 50(1) applies, or
(ii) to a person with whom he 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 owed 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.
[20] Among other conditions he was required to meet, the appellant had to show that he incurred a loss from a disposition of a share of the capital stock of a small business corporation or of a debt owing to him by a Canadian-controlled private corporation. None of this was proven by the appellant as there was no evidence adduced on that particular issue. The appellant put the money into the project but he has not established that the loan was made to a corporation of the type described above. The appellant, therefore, is not entitled to an allowable business investment loss for 1992.
[21] For these reasons, I will allow the appeal and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the appellant did incur a capital loss of $25,000 in his 1992 taxation year. This capital loss, however, does not qualify as a business investment loss within the meaning of paragraph 39(1)(c) of the Act. Each party will bear his or her own costs.
Signed at Ottawa, Canada, this 3rd day of April 2000.
"Lucie Lamare"
J.T.C.C.