http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/179870/index.do
DiCienzo v. The Queen (August 26, 2016 – 2016 TCC 187, Jorré J.).
Précis: The taxpayer claimed an allowable business investment loss (“ABIL”) in 2010 after he and his wife sold their shares in a motor inn they had jointly owned with other shareholders. The taxpayer claimed to have advanced money to the corporation over the years and that the debt owing at the date of the sale was in excess of $500,000.
[26] The Appellant filed on the basis that the corporation owed the Appellant $567,731. The Minister accepted that there was an amount of $106,000 owing.
He claimed the ABIL in 2010 resulting in a non-capital loss a portion of which he sought to carry forward to 2011. (It is not clear whether the Minister allowed any portion of the $106,000 as a deduction, but does seem to have denied the excess). In any event the Tax Court held that the loan was not established to be either disposed of or bad in 2010 or 2011. The appeal was accordingly dismissed. There was no order as to costs since this was an informal procedure appeal.
Decision: This decision was simply based on a factual determination that the loan in question was not established to be disposed of in 2010 or bad in either 2010 or 2011:
[14] The only thing in the other documents that would support the notion that there was a disposition of the debt is a letter of the 29th day of November 2013 to the Appellant from the lawyer for the company and the purchaser at the time of the share sale.[5] Part of the letter relates to a letter of the 15th of November 2013 from the CRA to the Appellant that asked, among other things, for the following information at b): “Explanation as to why the share sales agreement did not address the shareholder loan balance still outstanding at the time of the sale.”
[15] The 29 November 2013 letter from the lawyer to the Appellant states at b): “I can confirm that the sale proceeds received by you at the time of the sale of your shares included all outstanding debt (shareholders, loans).”
[16] No objection was made to the filing of the letter. However, neither the lawyer who wrote the 29 November 2013 letter nor the Appellant’s lawyer for the share sale transaction were called to testify and explain the basis for the statement.
[17] Given that, given the fact that the 29 November 2013 letter appears to be in response to an email sent to the lawyer on 22 November 2013 by a chartered accountant acting for the Appellant which stated with respect to item b) of the CRA request:
“You must provide CRA/Phyllis with a letter as the corporate solicitor for Pilgrim/PHI that the sale proceeds Luciano received was for his shares and for the debt (shareholder loans). Please clarify this matter for CRA.”
and given the fact that none of the documents filed suggest that the debt was disposed of, I am not prepared, on the basis of the short statement in the letter of 29 November 2013, to conclude that there was some sort of agreement disposing of the debt from the Corporation to the Appellant.
[18] I am reinforced in this conclusion by the fact that there appears to have been care taken to protect the Appellant and his wife as much as possible in the transaction. At Tab 21 of Exhibit A-9 there is a document entitled “Full and Final Release” whereby the company releases the Appellant and his wife from any claims that the company may have had or may subsequently have against them. One would expect that if the intention was that the Appellant was to release the company from any debts owed by the company to the Appellant there would have been some document at the time of the sale of the shares that released the company from any claims by the Appellant for debts owing to him.
[19] Consequently, I conclude that there was no disposition of the debt.
[20] As to the possibility that the debt owing to the Appellant became a bad debt in either 2010 or 2011, there is nothing in the evidence to suggest that in those years any efforts were made to collect the debt nor is there any evidence to suggest that the company was unable to pay.
[21] The Appellant spoke at length about the Company’s losses over the years but I have no evidence as to the company’s prospects at the time of purchase or after in 2010 or 2011. Obviously, the purchaser thought there was value in the company and was willing to pay the price he did. The company owned the motor inn, the land it was on and two adjoining parcels of land.
[22] Accordingly, I am unable to conclude that the amount owing by the company to the Appellant was established to be a bad debt and thereby gave rise to a deemed disposition in either 2010 or 2011.
[Footnote deleted]
The appeal was accordingly dismissed. There was no order as to costs since this was an informal procedure appeal.