[2012] 4 F.C.R. D-4
Income Tax
Income Calculation
Deductions
Appeal from Tax Court of Canada decision (2011 TCC 148) dismissing appeal from reassessment disallowing deductions in respect of loan on basis loan capital in nature, in respect of interest on basis amount not previously included in computing appellant’s income—Whether appellant entitled to those deductions—Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 18(1)(b) preventing taxpayer from deducting loss of capital, or payments on account of capital, from revenue when calculating profit from business or property—Loss of capital, or payment on account of capital not defined in Act—Case law instructing determination is in each case fact-driven—No single test is controlling—Two exceptions rebutting general presumption shareholder loan advanced on account of capital—First exception relevant herein, i.e. cases where advance or outlay made for income-producing purposes related to taxpayer’s own business—Tax Court Judge finding purpose of loan not relating to appellant’s income-producing activities, advances in respect of loan were for purpose of, resulted in, appellant acquiring assets of enduring benefit—Judge committing no reviewable error in finding loan capital in nature—Judge alive to evidence relevant to appellant’s intention when entering into loan agreement—Articulating correct legal test—As to contention Minister understating amount of deduction appellant entitled to under Act, s. 20(1)(p)(i) by $156 888, that section requiring taxpayer establish debt has become bad, debt had been included in income for taxation year in question or proceeding taxation year—No dispute in present case loan becoming uncollectible—Issue pertaining to Judge’s conclusion appellant not presenting sufficient evidence to prove it included $156 888 of accrued interest in income for period prior to August 1, 1989— Minister assuming appellant only entitled to deduct $183 336 in interest income as bad debt—This assumption precluding further deduction of $156 888 in accrued interest income—Appellant adducing evidence to demolish assumption—In present circumstances, no evidence on which to impugn appellant’s evidence—Judge thus committing reviewable error in rejecting evidence for reasons he gave—Settlement Agreement combined with appellant’s evidence, auditor’s concession sufficient to demolish Minister’s assumption—Appellant entitled to deduct $156 888—Appeal allowed in part.
Newmont Canada Corporation v. Canada (A-155-11, 2012 FCA 214, Dawson J.A., judgment dated July 27, 2012, 32 pp.)