Date: 20020523
Docket: 1999-1112-IT-G
BETWEEN:
JEFFREY WHITE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Bowie J.
[1] These appeals are from reassessments of income tax for the 1994 and 1995 taxation years. In dispute is the Appellant's claim that he is entitled to deductions for interest under paragraph 20(1)(c) of the Income Tax Act (the Act) in the amount of $24,900 in 1994 and $41,700 in 1995. The Appellant also claims to be entitled to deduct legal fees of $13,943.75 in 1995. He contends that he paid these amounts of interest on funds borrowed by him and used for the purpose of earning income from a business or property. His claim in respect of the legal fees is advanced on the basis that they were incurred in the course of business, and so are deductible pursuant to subsection 9(1) of the Act "in computing the Appellant's profit from a business or property in accordance with ordinary commercial principles and generally accepted accounting principles".[1]
[2] The Minister of National Revenue (the Minister) has disallowed the deductions on the basis that the amounts claimed as interest were not paid, or payable, by the Appellant pursuant to a legal obligation to pay interest on borrowed money used for the purpose of earning income from a business or property; nor were they paid or payable pursuant to a legal obligation to pay interest on an amount payable for property acquired for the purpose of gaining or producing income. As to the legal fees, the Minister's position is that the amount was not an expense incurred by the Appellant, or alternatively, it was not incurred for the purpose of gaining or producing income from a business or property.
[3] The Appellant is an insurance broker. In about 1975, his parents purchased some 150 acres of land in Muskoka, Ontario, on which they lived and operated a campground. In the late 1980s the Appellant, his parents and his two sisters decided that they wished to turn this property into a residential, recreational and commercial development. The interest that the Appellant claims to be entitled to deduct under paragraph 20(1)(c) of the Act was, according to his evidence, paid by him in respect of amounts that he borrowed and contributed to the joint effort of the members of his family to bring about such a development. Some of it was purchase money in respect of certain parcels of land bought by the Appellant to be included in the project. He estimated in his evidence that, in all, he and his family spent approximately $1.3 million in attempting to develop the property, and that he personally invested $1.1 million of that amount, most of which he raised through borrowings of one kind or another. The history of the matter, as recited by the Appellant in his evidence, follows.
[4] The concept that the Appellant and his family envisaged for this property included a residential complex of condominium units, a hotel and conference centre, and an 18-hole championship golf course. The Appellant testified that, on the advice of his accountant, he registered the "White Family Partnership" (the Partnership), which was to be the vehicle by which the project would be brought into existence. The intention was that once the complex had been developed and reached commercial viability, all of the property would be conveyed to a new corporation, of which the family members would become shareholders. No Partnership agreement was put into evidence, and I am uncertain as to whether any written Partnership agreement was ever drawn up. A bank account was opened in the name of the Partnership, however.
[5] The Appellant purchased two additional parcels of land to complement the original acreage, and a friend of his, Joe Davies, agreed to purchase two others. Their intention was to incorporate these four parcels into the project. All these parcels were of relatively small acreage, but they were either within the boundaries of, or contiguous to, the original acreage, and it was thought that their acquisition would enhance the project. Two of the parcels were bought and paid for by the Appellant, who took title in his own name "In Trust". The other two were bought by Davies, also in trust. When the time came to close one of these purchases, Davies was unable to pay the purchase price, and the Appellant paid it from money that he had borrowed, secured by a second mortgage on his home.[2] They both considered that the money spent to purchase these properties was in the nature of a contribution of capital to the Partnership, according to the Appellant's evidence.
[6] The evidence includes a cheque ledger for a bank account at the Toronto-Dominion Bank in the name of "White Family Partnership", bank statements for the period between December 29, 1989 and December 31, 1990 for an account in the name of "White Family Partnership" at the Bank of Nova Scotia, and unaudited financial statements for the three years ending December 31, 1989, 1990 and 1991 for "the White Family - Joint Venture", which the Appellant testified was in fact the Partnership. It appears from these financial statements that the only two partners were the Appellant and one of his sisters, Julie Ground. Ms. Ground apparently had some experience in relation to the acquisition of the necessary approvals required to undertake a land development project. Although the Appellant's evidence was often vague and confused, I accept that both he and his sister spent considerable time, effort and energy attempting to obtain the various municipal and provincial approvals, and contracting for the necessary soil, water and other tests required for that purpose. They also appear to have spent considerable money on this, although unfortunately no proper books of account were ever kept. The Appellant's estimate that he spent $1.1 million is simply that. I do accept, however, that he invested a considerable amount of money, much of which was raised through borrowing. His evidence suggests that his parents and Mr. Davies were also to be considered members of the Partnership, as they were contributing land to the project. However, the Partnership's financial statements do not show any of them as having an interest in the Partnership.
[7] By 1992 the necessary government approvals had, for the most part, been obtained, and the new project might have proceeded to fruition, but for two unfortunate events. One of those was the election of a new provincial government in Ontario, which was less cooperative with the developers of such lakeside recreational developments than the previous government had been. The other was the onset of a serious economic recession. The result of these two events, together with the family's inability to obtain outside financing for the hotel and conference centre, was that the Appellant and his family decided to scale the project back substantially. The concept was changed to provide for the sale of prefabricated mobile homes installed on concrete pads, rather than the townhouses originally planned, and to provide a 9-hole golf course rather than the originally planned 18-hole course. Plans for the hotel and conference centre were scrapped. It appears to have been at about this time that a corporation called "The Maples of Muskoka Inc." (Maples of Muskoka) was incorporated to own the trailer park, and another corporation called Diamond in the Ruff Inc. was incorporated to own the golf course. According to the Appellant's evidence, he and the other four members of his family received 90% of the shares of Maples of Muskoka, divided evenly among them, so that each held 18%. Diamond in the Ruff was to be owned by the Appellant and four other partners, each of whom would put in $185,000. According to his evidence, the interest for which he claims the deductions was not related to his investment in the golf course, but only to Maples of Muskoka.
[8] Soon after Maples of Muskoka was incorporated a rift developed in the family, according to the Appellant's evidence. His sister Julie Ground and her husband effectively assumed control of the company. They brought in a new partner who was to contribute additional financing to the project. As time went on this rift became more serious. The Grounds made frequent calls for cash to finance the project, and the Appellant was forced to borrow money from various sources as he endeavoured to keep it afloat. The Grounds refused to let him have access to the financial records of Maples of Muskoka. Eventually a complete impasse was reached and the Appellant stopped contributing funds to the project, and as a result it foundered. His evidence was vague as to how the project was terminated. He said simply "I brought the project down", but he did not explain exactly what that meant. I take it, however, that some kind of involuntary liquidation took place, and that the shares ceased to have any value. By this time, all the real estate (other than the golf course) was owned by Maples of Muskoka. The Appellant, his parents and Mr. Davies apparently lost everything they had put into the venture.
[9] As I have said, the Appellant's evidence was imprecise. However, I am satisfied that during the period between 1989 and 1992, or even later, he borrowed large amounts of money which he put into the project. I am satisfied, too, that the assets of the Partnership were used for the purpose of acquiring the shares of Maples of Muskoka, at a time when it was reasonable to expect that company to produce dividend income for the Appellant in due course. Although it was not well documented, I believe that the Appellant's oral evidence has established a link between the borrowed funds that he put into the Partnership and his shareholding in Maples of Muskoka. His difficulty in this branch of these appeals is to establish the extent of his borrowings for that purpose, and the amount that he paid in each of the years under appeal as interest on those borrowings. Without evidence to trace the borrowed funds to the Partnership, and ultimately the corporation, the Appellant cannot establish the right to deduct the interest.
[10] I turn now to a consideration of the specific items that the Appellant seeks to deduct. His claim is quantified this way in paragraph 21 of the Notice of Appeal:
|
|
1995 |
1994 |
|
Legal Fees |
13,943.75 |
-- |
|
Interest |
|
|
|
- Second Mortgage on 30 Owlsfoot Cres. |
14,700.00 |
14,700.00 |
|
- Third Mortgage on 30 Owlsfoot Cres. |
-- |
10,200.00 |
|
- Credit card interest |
27,000.00 |
_________ |
|
Total carrying charges claimed |
55,643.75 |
24,900.00 |
|
Total carrying charges allowed |
________ |
________ |
|
Total carrying charges disallowed |
55,643.75 |
24,900.00 |
legal fees
[11] Tab 50 of Exhibit A-1 is a handwritten list of items which add up to $13,943.75. The first five items are unrelated to the matter of legal fees, so far as I can tell. They include such things as a hydro bill and a bill for hardware at Raymond's General Store. The last three items in that list are:
McPherson, Shugart 5,000 - 12/8/94
McPherson, Shugart 2,500 - 1/11/94
McPherson, Shugart 2,500 - 15/12/94
At Tabs 67, 71 and 73 of that exhibit are photocopies of three cheques bearing those dates and drawn on the account of the Partnership at the Bank of Nova Scotia, 3169 Yonge Street at Lawrence, in the amounts of $5,000, $2,500 and $2,500 respectively, payable to McPherson, Shugart.
[12] McPherson, Shugart is the firm of lawyers that was retained by Mr. White and the other members of the Partnership to defend a number of actions brought against them. These included:
i) a claim of some kind by Joe Davies, presumably having to do with the parcel of land which he purchased and which was to be included in the resort development;
ii) a claim by a numbered company, apparently having to do with funds to be invested in the Maples of Muskoka project, or perhaps the golf course;
iii) a claim by Terra-Tory Management Ltd., the Appellant's sister's company, for loss of profits in connection with the project;
iv) a defamation action against the Appellant brought by his brother-in-law; and
v) a claim by an investor for damages arising out of a refusal to sign a joint venture agreement.
[13] With the exception of the defamation action, these proceedings were brought against all the members of the Partnership, and the Partnership paid the legal bills. Mr. White's evidence was that payments were made on a regular basis to McPherson, Shugart against their account for litigation services to the Partnership, because there simply was not enough cash to pay the accounts in full as they were rendered. To a considerable extent, the source of those funds used by the Partnership to pay McPherson, Shugart was Mr. White. He obtained funds, mostly by borrowing, which he deposited to the Partnership account. The litigation costs, however, were those of the Partnership, not of Mr. White personally, except for the defamation action.
[14] The position taken by the Minister in assessing the Appellant, and by counsel at trial, is that these amounts were not expenses of the Appellant, and in any event they were not incurred for the purpose of producing income from a business or property. Mr. White's evidence as to the litigation, like most of his evidence, was both rambling and imprecise. However, it was consistent with the Minister's assumption that the expenses, if incurred at all, were incurred for the purpose of preserving capital rather than to gain income from a business or property. In fact, the Appellant did not personally have a business that could be considered a source of income against which legal expenses might be charged, at the relevant time. His insurance business was conducted through a corporation, Jeffrey H. White and Associates Insurance Agencies Inc. The development in Muskoka was never his business; if it was a business at all, it was that of the Partnership, and later Maples of Muskoka.
[15] Finally, I note that the Appellant appears to be claiming amounts paid by the Partnership in 1994 as deductions from his own income in 1995. I should note, however, that behind Tab 77 in Exhibit A-1 are photocopies of three cancelled cheques, drawn on the Partnership account, dated February 14, 1995, March 31, 1995 and August 3, 1995 and payable to McPherson, Shugart, for $2,500, $2,000 and $2,205.45. There was no explanation in the evidence as to why the amount paid in 1994 was claimed in 1995, and the amount paid in 1995 was not claimed in that year. However, that is of no consequence, as the Appellant's claim to deduct any legal fees must necessarily fail because the Appellant had no business in the course of which he could claim to have incurred the expenses, and also because the sole purpose for which he engaged counsel to oppose these suits was not to gain income, but to preserve his capital assets.
interest
i) the second and third mortgages
[16] On May 26, 1989, the Appellant and his wife borrowed $138,100 from the Bank of Nova Scotia, secured by a second mortgage on their home at 30 Owl's Foot Crescent in Aurora. He claims to deduct interest of $14,700 on this mortgage in each of 1994 and 1995. The interest rate during 1994 was 7.5% and during 1995 it was 10.5%. According to an amortization table at Exhibit A-1, Tab 19, the total interest payable in 1994 was $11,535.58, and in 1995 it was $14,207.27.
[17] Exhibit A-1, Tab 36 is a photocopy of the passbook for a chequing account covering the period May 26, 1989 to January 9, 1991. The account was in the name of the Appellant and his wife. It shows the deposit to that account of the second mortgage proceeds on May 26, 1989. On May 30, 1989, a cheque was written against this account for $50,000, which according to the Appellant's evidence went to pay off his line of credit at the CIBC. On July 10, 1989, the account was debited $27,000, which the Appellant said went to purchase the Roosen property. This was a parcel of land adjacent to the Whites' property in Muskoka which was acquired in January 1990 in the name of "Joe Davies in Trust". The Appellant stated in a general way in his evidence that this account was used by him to fund the Partnership account. Apparently there was an arrangement with the bank that when cheques were written on the Partnership account for which there were no funds on deposit they were paid by a transfer from this account to the Partnership account. By July 10, 1989 the opening balance of $137,950 had all been disbursed from the account, along with some $350 interest credited to it, by 13 transactions. As to this, the following exchange took place between the Appellant and his counsel at the trial:[3]
Q. Okay. Can you - there's cheque numbers here 1 to 11.
A. M'hmm.
Q. The second one is a big item, it's $50,000.00. Do you remember where that money went?
A. Yes. It went to repay the line of credit at the CIBC.
Q. Subsequently did you use that CIBC line of credit again?
A. Oh yes, definitely.
Q. Did it ever get back up to maximum again?
A. Yes, almost immediately.
Q. The others in various amounts, cheques 1 through 11 -
A. M'hmm.
Q. -- can you remember anything about what those cheques were about?
A. I would suggest to you that they were servicing or consultant fees that had been incurred at that date.
Q. On July 10th there's an item -
A. M'hmm.
Q. -- with a CTD beside it and $27,000.00 and that brings the account down to about $150.00. What was that $27,000.00?
A. That was an internal transfer and that monies were for the Roosen property.
Q. Internal transfer for what?
A. That would go to the White Family Partnership account which is 227-13. What happened was, in those days you couldn't make an instant teller, you know, deposit to a corporation, you could only do it to a personal account.
Q. Yes.
A. So what would happen is, I would write cheques on the White Family Partnership account and then, as soon as they came into the bank to be cleared, the bank would automatically debit this 8004420 to cover off the outstanding obligation.
[18] The Appellant and his wife borrowed a further $85,000 from private lenders, secured by a third mortgage on their home. The proceeds, $80,198.71, were deposited to their account No. 10-29932 at the CIBC on February 5, 1990. On February 9 a cheque for $50,081.06 was drawn on that account to pay down the Appellant's line of credit. Cheque No. 591 for $16,000 dated February 12, 1990 and drawn on that account, was deposited to the account of the White Family Trust.
[19] Cheque number 567 for $1,800 dated January 23, 1990 and payable to the Partnership was drawn on this account and cleared on January 24. However, these funds could not have come from the proceeds of the second mortgage, which had been fully disbursed by July 1989, or from the proceeds of the third mortgage, which were not credited to the account until February 5, 1990. I am simply unable to tell from the evidence where they came from.
[20] A hand-written single entry ledger purports to show the disbursements from the Appellant's account No. 10-29932. Photocopies of the entries from June 1989 to August, 1995 are found at Tabs 37 to 41 of Exhibit A-1. The only cheques payable to the Partnership that are recorded there are:
January 23, 1990 $ 1,800
February 12, 1990 $16,000
June 26, 1990 $10,000
Many of the other cheques, but by no means all of them, were written in favour of the Appellant. His oral evidence was that much, if not all, of those cheques, as well as many internal bank transfers, went to satisfy the cash requirements of the Partnership.
[21] The Appellant also testified that his line of credit, which was paid off at least twice, once with proceeds of the second mortgage and once with proceeds of the third mortgage, had been used to fund the various studies required in connection with the development project. He had little or no specific recollection of the details of these transactions, and virtually no useful corroborating evidence to establish these expenditures. Cheque No. 591 was drawn against the account on February 12, 1990, payable to the Partnership for $16,000. The next cheque payable to the Partnership is No. 693 on June 26 for $10,000. However, the account was overdrawn before the end of February,[4] so that amount cannot be traced back to the third mortgage.
[22] It is possible, therefore, to trace $27,000 of the proceeds of the second mortgage and $16,000 of the proceeds of the third mortgage to the Partnership account. Although there is no corroborating document, I accept the Appellant's statement that it went to that account and was used for the purchase of part of the property eventually transferred to Maples of Muskoka. As to the rest of the proceeds, the Appellant's evidence is much too vague to convince me that any specific amount went to the Partnership account. Of the $50,000 applied to the Appellant's line of credit, there is no way to know how much went to pay interest and how much went to pay principal; nor does the evidence give any reliable information as to the use made of the borrowings against that line of credit that were repaid. The Appellant's simple averments that the borrowed funds were put into the project is insufficient.
[23] In Bronfman Trust v. Canada,[5] Dickson C.J.C. said, for the Court:
... The statutory deduction thus requires a characterization of the use of borrowed money as between the eligible use of earning non-exempt income from a business or property and a variety of possible ineligible uses. The onus is on the taxpayer to trace the borrowed funds to an identifiable use which triggers the deduction. Therefore, if the taxpayer commingles funds used for a variety of purposes only some of which are eligible he or she may be unable to claim the deduction: ...
Counsel for the Appellant argued that in order to succeed, the Appellant need only give an oral account of the use of the funds, and be found to be a credible witness. In a case involving only a few relatively straight-forward transactions that might be so. However, in this case there are hundreds of transactions undertaken over a period of several years, and the Appellant's record-keeping and that of the Partnership have been woefully inadequate. No records at all from Maples of Muskoka were produced, nor was there any attempt to subpoena them. The Appellant did not, I think, set out to deceive in giving his evidence. Nonetheless, I do not find that his bald assertions that the borrowed funds all went into the project are adequate to permit a finding that all of the interest on the second and third mortgages is deductible. It was clear from his evidence as a whole that he made little or no distinction in his mind between his personal transactions and those of the Partnership. Nor did he show any appreciation of the distinction between his own funds and those of Aurora Financial Management Inc. I have said more than once that the Appellant's evidence was vague. This is perhaps not surprising, given the large number of transactions, the lapse of time since they took place, and the emotional consequences of the family disagreements and resulting financial disaster. At one point in his evidence the Appellant referred to the ongoing series of transactions as a financial juggling act. At another point he said: "I was just scrambling at that time to sort out the financial jumble".[6] All of these factors disincline me to accept the Appellant's evidence as to the use of borrowed money where it is not corroborated by documentary evidence. His oral evidence is simply not sufficiently reliable.
[24] The only amounts satisfactorily traced to the mortgages, therefore, are:
Second mortgage: $27,000
Third mortgage: $16,000
Applying the interest rates of 7.75% for 1994 and 10.5% for 1995 to the amount of $27,000, and the rate of 12% for 1994 to the amount of $16,000, the Appellant is entitled to deductions of
1994 $2,095 + 1,920 = $4,015
1995 $2,835
[25] I should note here that Mr. Sood argued on behalf of the Respondent that any interest deduction, at least in respect of the $27,000 that was used for the purchase of land, is precluded by subsection 18(3) of the Act. There is a precise factual basis required for that subsection to disentitle a taxpayer who would otherwise be entitled to a deduction for interest. No attempt was made in the Reply to plead that factual foundation. Indeed, subsection 18(3) is not given even a passing mention in the Reply. Contrary to what seems to be a common belief among those drawing pleadings for the Crown, pleadings are still an important element of litigation. They draw the lines of battle, and a taxpayer cannot be expected to respond at trial to legal or factual issues not raised in the Reply. Whatever the merit of this argument might have been, it is not available to the Respondent because it has not been pleaded.
credit cards and lines of credit
[26] The Appellant stated candidly that his claim for interest in respect of his many credit card accounts and lines of credit was arrived at simply by assuming that at all times during 1995 these accounts were all borrowed upon to their maximum permissible limits, that that limit was $150,000, and that interest was paid on them at 18% per annum. This led to a claim for $27,000. The Appellant gave a long and imprecise oral account of the flow of at least some of the borrowings on these accounts through various bank accounts to be deposited in the Partnership account, or to pay bills on behalf of the Partnership. The claim to deduct this interest must fail for at least two reasons.
[27] The first and most obvious reason is that the claim is not based upon any records that could be said to establish either the use to which the funds were put or the interest charges actually paid. A lot of copies of statements of account bank statements, and cheques were included in Exhibit A-1. Exhibit A-2 is a large bundle of cancelled cheques drawn on the account of the Partnership between December 1989 and November 1993. Exhibit A-3 is a summary of the various institutions and private lenders to whom the Appellant owed money on June 27, 1996, which is said to represent his investment in Maples of Muskoka. It shows, among others, this item:
Detail Start Rate Balance Interest
Various credit cards 1990 18% $150,000 $27,000
[28] Although nothing in this case is clear, except that the Appellant has no meaningful records of his investment, it is not really disputed that of the $150,000 debt which is said to give rise to the claim to deduct $27,000 in 1995, $50,000 was borrowed by the Appellant's mother. Even if he could establish that he paid $9,000 interest in respect of it, it clearly was not an amount that he was under a legal obligation to pay. No deduction is permitted for voluntarily discharging another person's obligation to pay interest.
[29] The forlorn nature of this aspect of the Appellant's claim is evident from the following excerpt from the argument of his counsel:[7]
... The credit cards are problematic. They are problematic for a couple of reasons. One, the Scotia line of credit was in the name of Anne White, but the funds were put into the project and Jeffrey White serviced the interest. Unfortunately that may not be an eligible use.
His Honour: As you say, the mortgages on the house are clear, but there was obviously money being borrowed to pay interest as all this was going on, and it is a little difficult to trace just where the money came from to pay his mother's line of credit and where the money came from that paid Mr. Davies' mortgage. How do I sort that out?
Mr. Langley: Well, credit card interest is a problem. The accountants obviously threw up their hands.
My friend, in his cross-examination, said, "Why didn't you sit down and try and figure out where every dollar was". And obviously nobody was able to come to grips with that. So they made a ballpark estimate that the amount of borrowings on some 16 credit cards was at least $150,000.00 and they did a calculation of 18%. And they came up with the figure which is in the appeal which is $27,000.00.
We cannot account for every dollar; it is impossible. We haven't attempted to do that at this trial.
And my friend, in his cross-examination, did pick away at different parts of it and perhaps the $50,000.00 part of it that is paying interest for Anne White is not going to be sustainable.
Nevertheless, the evidence of the taxpayer was that he did take all of his credit cards, his own credit cards, up to the limit and put all of that money into the project in some fashion, running it through the accounts and into accounts that paid suppliers.
Except for his Laurentian Visa, which we produced the records of, and if we look at those you will see that is the one he segregated for his personal use. And if you look at those statements you will see it paying for Sunoco gas and pet food and so on.
We have to fall back, I think, on the words at the end of 20(1)(c), the usually forgotten words, "or a reasonable amount in respect thereof, whichever is the lesser", and ask the court to consider that if the accountant's estimate of $27,000.00 is too generous, that the court come to a conclusion that there is some portion of an interest component there on his own credit cards that he did pay in 1995 that should be deductible.
If the Anne White credit card is one-third of that, because it is a $50,000.00 debt, then perhaps the figure is about 14 or $15,000.00 is the balance. Because all the rest of the credit cards, I believe, are in his name.
I dislike having to do so, but like the accountant I too must throw up my hands. I simply cannot tell from the evidence what amounts were borrowed on these accounts and invested by Mr. White in the Partnership or in Maples of Muskoka. Nor do I believe that the evidence is sufficient to allow me to make a reasonable estimate. Like the accountant, who understandably did not testify, I could only guess.
[30] Equally problematic is that the Appellant did not actually make the payments to the credit cards and the line of credit. They were made by Aurora Financial Management Inc. on his behalf. The Appellant and his counsel seemed to take the view that this was an unimportant detail. The Appellant said that he supplied Aurora Financial with the funds to make the payments. Mr. Sood suggested to him that the funds came not from himself personally, but from his operating company, J.W. White Associates. Mr. White denied that, but it is a point on which the evidence is simply not there. I accept that if, for some reason, a taxpayer chooses to borrow money, incurring an obligation to pay interest, and then puts funds in the hands of a corporation with which it, as his agent, discharges that obligation, then the taxpayer has made the payment and is entitled to the deduction. Here, however, the fact that the payments were made by Aurora Financial came out only in cross-examination, and I was shown no evidence to establish where it obtained the funds with which it made those payments. The Appellant testified that Aurora Financial was a corporation owned by him which he used in connection with this development project. He should be in a position to show where it obtained its funds, but that was not done.
[31] I am not unsympathetic to the position in which this Appellant finds himself. He is, I think, essentially an honest person who attempted to carry out this development project for the benefit of his parents as well as for himself. Events beyond his control caused it to fail, or at least contributed substantially to that failure. As I have explained, I have not accepted much of his evidence, not because he was deliberately untruthful, but because I find that his vague generalizations were not adequately corroborated; they were self-serving, and they frequently appeared to be founded more on what he thinks is fair and reasonable than on a clear recollection of what actually happened. In short, his evidence was based largely on guesswork. He is, unfortunately, a victim of his own failure to keep proper records from which his borrowing, the application of the borrowed funds, and the payment of interest in respect of those borrowings could be demonstrated. By moving funds about through numerous bank accounts, by failing to have proper books for the Partnership to record his investment in it, and by failing to have proper records of his own, he made it impossible to prove his case. I am, of course, empowered to make reasonable estimates based on evidence sufficient to support them. However, I am not empowered to allow deductions based on what would be no more than a slightly educated guess.
[32] The appeals will be allowed and the assessments referred back to the Minister for reconsideration and reassessment on the basis that the Appellant is entitled to deductions from income under paragraph 20(1)(c) in the amount of $4,013 for 1994 and $2,835 for 1995. Counsel may make submissions in writing as to costs, to be filed with the Registry on or before June 24, 2002.
Signed at Ottawa, Canada, this 23rd day of May, 2002.
"E.A. Bowie"
J.T.C.C.
COURT FILE NO.: 1999-1112(IT)G
STYLE OF CAUSE: Jeffrey White and
Her Majesty the Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: June 6 and 7, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge E.A. Bowie
DATE OF JUDGMENT: May 23, 2002
APPEARANCES:
Counsel for the Appellant: Douglas D. Langley
Counsel for the Respondent: Bobby Sood
COUNSEL OF RECORD:
For the Appellant:
Name: Douglas D. Langley
Firm: Wilson, Vukelich
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-1112(IT)G
BETWEEN:
JEFFREY WHITE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on June 6 and 7, 2001, at Toronto, Ontario, by
the Honourable Judge E.A. Bowie
Appearances
Counsel for the Appellant: Douglas D. Langley
Counsel for the Respondent: Bobby Sood
JUDGMENT
The appeals from assessments of tax made under the Income Tax Act for the 1994 and 1995 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to deductions from income under paragraph 20(1)(c) of the Act in the amounts of $4,015 for 1994 and $2,835 for 1995.
Signed at Ottawa, Canada, this 23rd day of May, 2002.
|
"E.A. Bowie" |
J.T.C.C.