Date: 19991108
Docket: 96-4033-IT-G
BETWEEN:
DINO COLIVIRAS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered orally from the Bench at Toronto, Ontario on September 24, 1999)
Beaubier, J.T.C.C.
[1] This appeal is pursuant to the General Procedure was heard at Toronto, Ontario, on September 22, 1999. The Appellant was the only witness. The Appellant claimed an allowable business investment loss for his 1992 taxation year. It was disallowed. He appealed.
[2] Paragraph 6 to 8 inclusive of the Reply to the Notice of Appeal reads:
6. In reassessing the Appellant for the 1992 taxation year, the Minister disallowed the Appellant's claim for an allowable business investment loss in the amount of $67,311.00.
7. In so reassessing the Appellant, the Minister made, inter alia, the following findings or assumptions of fact:
a) the facts hereinbefore pleaded or admitted;
b) in December of 1989, the Appellant, in trust for a corporation to be incorporated, entered into an agreement of purchase and sale with Steeles-Jane properties inc. ('Steeles-Jane') to buy a piece of commercial property located in the town of Newmarket;
c) in January of 1990, 877297 Ontario Inc. was incorporated and carried on business as Seeban Developments ('Seeban');
d) the Appellant was a shareholder of Seeban, holding 20% of the common shares;
e) Seeban intended to purchase the property owned by Steeles-Jane;
f) on or about the fall of 1992, and prior to the completion of the agreement of purchase and sale, Seeban learned that Steeles-Jane was about to file for bankruptcy;
g) Seeban concluded that it would lose its interest in the property so it decided not to make any further payments towards the balance of the purchase price of the property owned by Steeles-Jane;
h) Steeles-Jane subsequently went bankrupt and 877297 Ontario Inc. ceased to operate;
i) the Appellant claimed an allowable business investment loss with respect to the money loaned to Seeban to purchase the property from Steeles-Jane;
j) 877297 Ontario Inc. has never filed a tax return;
k) 877297 Ontario Inc. Seeban was not involved in an active business; and,
l) the Appellant's loss was not from a business venture in the nature of trade but was a capital loss.
8. The issue to be decided is whether the Appellant is entitled to an allowable business investment loss in the amount of $67,311.66 for the 1992 taxation year.
[3] Assumptions 7(a), (b), (c), (d), (g), (h), (i) and (j) are correct or were not refuted.
[4] The Appellant is, and at all material times was, a real estate broker. He put the Seeban investors together. Seeban paid $50,000.00 as a deposit and $249,918.36 more on interim closing on March 2, 1990, pursuant to its agreement for sale of lots 27 and 28, (Exhibit A-1). This is confirmed by various exhibits, including A-16 and A-17.
[5] More important, the lawyer's reporting letter, dated April 3, 1990, establishes and states that the lawyer has prepared a master agreement of purchase and sale for use in selling 14 condominium lots to be built on the subject property, (Exhibit A-14). In fact, the final plan was to build 25 condominium units. The Appellant proceeded to advertise and sell these. He signed agreements and received deposits for units 1-4 and 13-17; some with Seeban's investors and some with strangers.
[6] On the basis of these documents, the plans and advertisements filed, but particularly exhibit A-14, the lawyer's confirming letter which verifies the Appellant's testimony, the Court finds that Seeban's purpose and intention was to build and sell commercial condominiums in a strip mall on lots 27 and 28. Seeban did this.
[7] The Court also finds that Seeban owned an interest in the real property of lots 27 and 28 after March 2, 1990, when it paid $249,918.36 to Steeles-Jane. Thus, assumptions (e) and (f) are incorrect. Seeban purchased an interest in the real property from Steeles-Jane on March 2, 1990.
[8] On the evidence the Appellant, as a real estate agent for Seeban, sold the condominium units described after preparing advertisements and brochures. The Court finds that the Appellant loaned $10,000.00 plus $50,000.00 to Seeban as his share of the loans for the $50,000.00 deposit and the $249,918.36 payment of March 2, 1990.
[9] With respect to the discrepancy in the bank "Statement of Disclosure" (Exhibit A-19), the Appellant's account of his dealings with The Toronto-Dominion Bank manager respecting the $50,000.00 bears the ring of authenticity and he is believed. A direct loan of $50,000.00 arranged by the manager for an aggressive real estate broker with a business clientele which is papered later is not at all unusual. The manager wanted his business and references which thereby improved the manager's performance.
[10] The Court finds that Seeban was a Canadian- controlled private corporation and a small business corporation which was in the active business of developing condominiums on lots 27 and 28 and selling them in 1990, 1991 and 1992 in Ontario. Due to Steeles-Jane's bankruptcy and the decline in the market value of lots 27 and 28 at the end of 1992, which were then worth less than what Seeban owed on them, Seeban was insolvent at the end of 1992. Lots 27 and 28 were its only assets. It was no longer carrying on business at the end of 1992. Seeban had no value and was reasonably to be expected to wind up.
[11] The Appellant paid interest on the monies he borrowed to lend Seeban of $21,699.13. He claimed this as part of a total of $89,748.88. He also claimed $7,500.00 which he testified that he personally paid, as the real estate agent, for artwork and brochures to sell the condominiums. In addition, the Appellant stated that he paid printing charges of $138.75. These total $89,337.88. The remainder of the total was not accounted for.
[12] Respecting these three items, the Court finds:
(1) The Appellant stated that Seeban would repay him the cost of borrowing the $21,699.13, and it would also pay the other four investors their costs of borrowing. There is no extraneous verification of this claim such as other witnesses, minutes or promissory notes. The alleged agreement does not accord with the usual business practice because each investor would have a different cost of borrowing and some might have none. Therefore, this claim is denied outright.
(2) and (3): There is no extraneous evidence to verify the $7,500.00, and on this basis it is not accepted. The $138.75 is verified by an account to Seeban, A-6. However, both of these items might have been incurred or paid by the Appellant in his capacity as a real estate agent if, in fact, he paid them. Without corroboration from another investor or some suitable independent source, these sums are not found to be part of an allowable business investment loss to the Appellant.
[13] For the foregoing reasons, the Appellant is found to have loaned $60,000.00 to Seeban which constituted a business investment loss in 1992. This matter is referred to the Minister of National Revenue for reconsideration and reassessment of an allowable business investment loss to be calculated by the Minister.
[14] The Appellant has changed solicitors at least once and caused a number of last-minute adjournments to this proceeding before it was finally tried. For this reason, he is granted costs in the fixed sum of $600.00.
Signed at Ottawa, Canada this 8th day of November 1999.
"D.W. Beaubier"
J.T.C.C.