http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/144194/index.do
Barnwell v. Canada (May 13, 2016 – 2016 FCA 150, Boivin (author), Rennie, Gleason JJ. A.).
Précis: The taxpayer was a lawyer and a CGA. He extended loans aggregating $73,000 to a business acquaintance, Mr. Austin. The loans were made by means of a number of cheques, all payable to Mr. Austin and commencing in 2007. In 2011 Mr. Barnwell claimed an ABIL in the amount of $39,150 (later reduced at trial to $36,500). CRA denied the deduction on the basis that the loans were made to Mr. Austin, not a CCPC. Mr. Barnwell claimed that Mr. Austin acted as the alter ego of the Whitesand Group of Companies Inc., a CCPC, which was the true debtor. The Tax Court rejected the argument that Mr. Austin was a mere agent for Whitesand. As a result the appeal was dismissed, but without costs. Mr. Barnwell’s appeal to the Federal Court of Appeal was also dismissed, again without costs.
Decision: Unfortunately for Mr. Barnwell the Court of Appeal found that he was simply attempting to attack findings of fact that were open to the Tax Court Judge to make on the evidence before him:
[14] The appellant further emphasized at the hearing that the Judge ignored the “commercial reality” of his “arrangement” with Mr. Austin and that the “mindset, all along, was that the monies were going to the Whitesand magazine”. In other words, although the appellant did not provide the funds directly to Whitesand, they were provided to Mr. Austin for the benefit of Whitesand. On this basis, the appellant submits that the debt was owed to him by Whitesand and not by Mr. Austin. Again, this argument is without merit. The clear language of subparagraph 39(1)(c)(iv) of the Act requires that the debt be “owing to the taxpayer by a Canadian-controlled private corporation [CCPC]”. Since Mr. Austin testified that the debts were owed by him personally (Judge’s reasons at paras. 28, 52 and 58), there is evidence in the record to support the judge’s conclusion that Mr. Austin, and not the CCPC, owed the appellant the debt.
[15] Finally, the appellant argues that the Judge erred when he relied on Friedberg v. Canada (F.C.A.), 135 N.R. 61, [1991] F.C.J. No. 1255 (QL) for the proposition that in tax law subjective intent cannot displace the characterization of a transaction for tax purposes (Judge’s reasons at paras. 53-56). The appellant insists that the circumstances of the present case are distinguishable as “the cheques and the promissory notes were subjected to the orally expressed intention of the parties” (appellant’s memorandum of fact and law at para 22). In so doing, the appellant is merely again asking this Court to prefer his after-the-fact explanation of the evidence. However, I am of the view that the Judge’s conclusion was open to him on the basis of the facts established by the record.
As a result the appeal was dismissed, but without an award of costs.