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Date: 20030403 |
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Docket: 1999-601(IT)G |
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BETWEEN: |
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INDRA DINDIAL, |
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Appellant, |
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And |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Counsel for the Appellant: Patrick Schindler
Counsel for the Respondent: Shatru Ghan
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REASONS FOR JUDGMENT
(Delivered orally from the Bench on
December 18, 2001, at Toronto, Ontario)
McArthur J.
[1] The Appellant appeals the assessment of the Minister of National Revenue denying her claim for a non-capital loss deduction in 1993 pursuant to paragraph 20(1)(j) of the Income Tax Act. The Appellant is the sole shareholder of Globe Insulation Company Limited. In 1989, she and her common-law husband of 15 years, Satnarine Bhansingh, used corporate funds to purchase their principal place of residence on Bancroft Drive in Mississauga. The deed of conveyance was registered in his name alone. Pursuant to subsection 15(2) of the Act, the Minister added the amount of $105,613 to the Appellant's 1990 income.
[2] I will recite and comment on the assumptions of fact contained in paragraph 9 of the Minister's Reply to the Notice of Appeal:
(a) during all relevant periods, the Appellant was a shareholder of Globe Insulation Company Limited ("Globe");
(b) the Appellant reported NIL income from all sources in her 1993 taxation year;
(c) Satnarine Bhansingh ("Bhansingh") was, during all relevant periods, the Appellant's common law spouse;
(d) during the 1993 taxation year the Appellant resided at 1219 Bancroft Drive, Mississauga;
(e) Bhansingh is the registered owner of 1219 Bancroft Drive;
(f) on October 15, 1993, Bhansingh purchased a property located at 2850 Keele Street, Willowdale, Ontario for $555,000;
(g) the purchase price was paid in cash;
(h) there are no mortgages registered against the title to 2850 Keele Street;
(i) at all times, Bhansingh held the legal and beneficial interest to the 2850 Keele Street property;
(j) during 1993, the Appellant did not borrow any funds from the Royal Bank of Canada;
(k) during the 1993 taxation year, the Appellant did not repay any part of the shareholder loan that was included in the computation of her income for her 1990 taxation year pursuant to subsection 15(2) of the Act;
(l) during 1993, the Appellant did not transfer any funds allegedly borrowed from the Royal Bank of Canada to Globe to enable Globe to purchase any property.
Paragraphs (a) to (f) inclusive are accurate. With respect to paragraph (g), whether the purchase price for the Keele Street property was paid in cash or by certified cheque, nothing falls on that. With respect to paragraphs (h) and (i) and the fact that no mortgages were registered against the Keele Street property, one wonders why, when the bank insisted that it be registered in Mr. Bhansingh's name and not the corporation's name. But that is not uncommon for banks. I disagree with paragraph (j) and I will refer to paragraphs (k) and (l) later in this decision.
[3] The only witness was Mr. Bhansingh, the Appellant's husband. The Appellant was in Court throughout the hearing but did not testify. I do not draw an adverse inference from this. Mr. Bhansingh has been in the insulation business since 1970. He commenced Globe in about 1982. He is a signing officer of Globe and very active in its day-to-day operation.
[4] In 1989, the Appellant withdrew the sum of $105,613 from Globe to purchase Bancroft and that amount was added to her income in 1990 pursuant to subsection 15(2). In 1993, Globe entered into an agreement of purchase and sale for an income-producing residential apartment building for $555,000 located on Keele Street in Toronto (the "Property"). Globe was unable to obtain financing on its own, although it did advance $300,000 towards the purchase price. Unfortunately, no evidence with respect to the financial status of the corporation was entered. Mr. Bhansingh borrowed $258,000 on the security of his Bancroft home and the Appellant guaranteed the loan. She was and is jointly and severally liable for the whole amount. There remains owing approximately $240,000 under the mortgage to this date. Mr. Bhansingh testified that it was their intention to purchase the Property in the company name but at the insistence of the bank, he took title in his name alone. There is no indication on the deed to him that he held it in trust.
[5] In April 1994, he signed a Declaration of Trust (Exhibit A-1, Tab 5) wherein he declares that he holds the Property in trust for Globe retroactive to October 15, 1993. He did not convey the Property to the company because he was advised that in such an event, land transfer tax would have to be paid. This is understandable. In April 1995, on the advice of his accountant, he did convey the property to Globe without consideration. In the land transfer tax affidavit attached to the Deed or Transfer of Land (Exhibit A-1, tab 6, page 3), he swore an affidavit that stated the conveyance was from "trustee to beneficial owner". Also, in answer to the question "If the consideration is nominal, is the land subject to any encumbrance?", Bhansingh indicated "Yes". That leaves me somewhat confused because there was no mortgage registered against the Keele Street property, although there was a mortgage registered against Bancroft. Also, Bhansingh stated in the affidavit: "No taxes payable pursuant to a trust agreement. The property is being transferred from trustee to beneficial owner".
[6] The Appellant states that Globe was the beneficial owner of the Property. She repaid her shareholder loan in 1993 by borrowing from the bank in excess of $105,000 owing and advanced it to Globe to acquire the Property. The Appellant argued she paid off the $105,000 in 1993 creating the non-capital loss pursuant to paragraph 20(1)(j) and that pursuant to paragraph 111(1)(a) of the Act, she is entitled to carry back the loss to 1990.
[7] The Respondent's position is that the Appellant did not repay any amount of the outstanding shareholder loan owed to Globe; she is not entitled to deduct any amount pursuant to paragraph 20(1)(j); and that she did not suffer a non-capital loss in 1993; and no amount is available to carry back to her 1990 taxation year pursuant to section 111. The Respondent further submits that there is insufficient evidence to conclude that the Appellant borrowed $258,000 or any part of it from the bank; no conclusive evidence that Mr. Bhansingh held the beneficial interest in the Property in trust for Globe; no evidence that Globe took possession of the Property in 1993; and no evidence that Globe paid $300,000 towards the purchase of the Property.
[8] The pertinent legislation is subsection 15(2), paragraph 20(1)(j) and section 111, which read as follows:
15(2) Where a person (other than a corporation resident in Canada) or a partnership (other than a partnership each member of which is a corporation resident in Canada) is
(a) a shareholder of a particular corporation,
(b) connected with a shareholder of a particular corporation, or
(c) a member of a partnership, or a beneficiary of a trust, that is a shareholder of a particular corporation
and the person or partnership has in a taxation year received a loan from or has become indebted to the particular corporation, any other corporation related to the particular corporation or a partnership of which the particular corporation or a corporation related to the particular corporation is a member, the amount of the loan or indebtedness is included in computing the income for the year of the person or partnership.
20(1) Notwithstanding paragraphs 18(1)(a), (b) and (h), in computing a taxpayer's income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:
(a) ...
(j) such part of any loan or indebtedness repaid by the taxpayer in the year as was by virtue of subsection 15(2) included in computing the taxpayer's income for a preceding taxation year (except to the extent that the amount of the loan or indebtedness was deductible from the taxpayer's income for the purpose of computing the taxpayer's taxable income for that preceding taxation year), if it is established by subsequent events or otherwise that the repayment was not made as part of a series of loans or other transactions and repayments;
111(1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such portion as the taxpayer may claim of the taxpayer's
(a) non-capital losses for the 7 taxation years immediately preceding and the 3 taxation years immediately following the year;
[9] The question boils down to whether Globe purchased the Property on October 15, 1993 and if so, did it use at least $105,000 of the Appellant's money to do so. While I find this case close to the line, I accept the position of the Appellant as ably set out by her lawyer. I believe the uncontradicted evidence of Mr. Bhansingh, although much of it is undocumented and not corroborated.
[10] What we are left with is: (i) a copy of the front page of an Agreement of Purchase and Sale wherein Globe agrees to purchase the Property for $550,000. This corroborates the Appellant's evidence, or at least, Mr. Bhansingh's evidence that Globe was the purchaser; (ii) we have the evidence of Mr. Bhansingh to the effect that the bank would not lend Globe money and insisted the title be registered in his name alone. Although again this does not seem to make much sense, it is not uncommon with banks to demand such action and I accept it; (iii) the Appellant guarantees a $258,000 loan jointly and severally with Mr. Bhansingh and, therefore, she was liable to pay the $258,000 as well; (iv) a certified cheque for this amount was made out to the solicitors for the purchaser of the Property. I have no doubt this $258,000 went towards the purchase price; (v) Globe advances $300,000 in cash or certified cheque towards the purchase of the Property; (vi) I accept Mr. Bhansingh's evidence to the effect that Globe took possession of the Property and managed it; (vii) a Declaration of Trust in April 1994 and I accept the accuracy of its contents; and (viii) a Deed Transfer of Land from Mr. Bhansingh to Globe in April 1995, with Mr. Bhansingh's affidavit that at all times, he held the property in trust for Globe. To disbelieve all this I would have to conclude that Mr. Bhansingh fraudulently created a scheme to deceive Canada Customs and Revenue Agency. The evidence does not support this.
[11] I conclude that Globe owned the beneficial interest in the Property as of October 15, 1993. Why else would Globe advance $300,000 towards the purchase price. While clear documentation would have made my job easier, I find that the Appellant is deemed to have paid back the $105,000. If she is taken to have borrowed this amount from Globe to purchase the home on Bancroft in 1989 by guaranteeing the mortgage, then by permitting that money to be advanced towards Globe's purchase of the Property, I accept that she paid off the loan.
[12] Subsection 15(2) brought the $105,000 into the Appellant's income in 1990 and paragraph 20(1)(j) creates a non-capital loss in 1993 when she advanced the $105,000 to Globe. Interest accruing on the tax owed by the Appellant as a result of the application of subsection 15(2) terminates with her repayment of the loan on October 15, 1993. Paragraph 111(1)(a) permits the Appellant to carry back the non-capital loss to 1990. For these reasons, the appeal is allowed, with costs.
Signed at Ottawa, Canada, this 3rd day of April, 2003.
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"C.H. McArthur" |
J.T.C.C.
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COURT FILE NO.: |
1999-601(IT)G |
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STYLE OF CAUSE: |
Indra Dindial and Her Majesty the Queen |
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PLACE OF HEARING: |
Toronto, Ontario |
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DATE OF HEARING: |
December 18, 2001 |
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REASONS FOR JUDGMENT BY: |
The Honourable Judge C.H. McArthur |
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DATE OF JUDGMENT: |
January 3, 2002 |
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APPEARANCES: |
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Counsel for the Appellant: |
Patrick Schindler |
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Counsel for the Respondent: |
Shatru Ghan |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Patrick Schindler |
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Firm: |
N/A |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |