https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/310465/index.do
Emjo Holdings Ltd. v. The Queen (May 22, 2018 – 2018 TCC 97, Smith J.).
Précis: The taxpayer corporation sought to deduct life insurance expenses of $8,612, $8,556 and $8,556 for each of the 2013, 2014 and 2015 taxation years. Two separate life insurance policies were involved, each on the life of the corporation’s president, Lee Rusnak. One universal policy in the amount of $1,000,000 (later increased to $2,000,000) was acquired in 2002 and the other, a term policy in the amount of $3,000,000, was acquired in 2011. In both cases the Tax Court held that the evidence adduced did not support the deductions claimed. As a result the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.
Decision: The Court found that the claim in respect of the universal life policy was defective on the evidence:
[26] Despite the foregoing, I have several concerns. Firstly, the Notice of Appeal suggests that the policy amount was $1 million (later increased to $2 million) when the Credit Union only required life insurance of $500,000. As a result, the amount of the deduction would have to be adjusted accordingly.
[27] Secondly, the statutory provision requires that the deduction must be correlated to the amount of the loan “owing from time to time”. Since the amount owed had been reduced to approximately 10% of its original amount, the Appellant would only be entitled to a corresponding deduction of the life insurance premium which could be calculated as follows:
$66,152 x ($376.65 x 12) = $149.50
$2,000,000
[28] Thirdly, the Bank statement indicates that the balance outstanding was to be repaid in full by February 1, 2013. The Appellant’s year end was February 28 suggesting that for the 2014 and 2015 taxation years, the balance owed to the lender was nil. As such, the Appellant would not be entitled to a deduction of life insurance premium for those years.
[29] The final concern is that the Appellant has not adduced any evidence to distinguish between the cost of the “universal life” policy in question and “the net cost of pure insurance”, the cost of which would be deductible pursuant to subparagraph 20(1)(e.2)(ii).
With respect to the term policy the Court also found the evidence lacking:
[30] With respect to the second loan transaction, I accept that a credit facility was made available to the Appellant through the HeadStart on a Home lending program, that an assignment of life insurance was required as collateral and that the assignment was effectively carried out.
[31] The difficulty with the second loan is that Mr. Rusnak indicated that the credit facility was never fully drawn down, suggesting that the Appellant only borrowed what was required from time to time. It is likely that as homes were built and sold by the Appellant, the credit facility was repaid on a rolling basis.
[32] The evidence suggests that the balance outstanding on December 31, 2012 was $417,554, but there is no evidence of any indebtedness for the 2013, 2014 and 2015 taxation years. In other words, with regards to the second loan transaction, it is not possible for the Court to correlate the life insurance premiums paid with the balance due on a loan for the taxation years in question.
Finally, the Court rejected the submissions of the agent for the taxpayer that a less stringent evidentiary standard should be applicable in an informal procedure appeal:
[33] The Appellant’s agent argued in closing that the proceeding was governed by the informal procedure and that, all things considered, sufficient evidence had been adduced to support the expenses being claimed.
[34] In essence, the Appellant is arguing that the Court should consider the evidence on a less onerous and technical standard in accordance with the objective of the informal procedure: subsection 18.15(3) of the Tax Court of Canada Act, R.S.C. 1985, c. I‑2. While that provision governs the admissibility of evidence in the informal procedure, it has been held that “it does not entitle the appellant to a more favourable weighing of certain portions of his evidence — i.e. the oral evidence”: Barnwell v. Canada, 2016 FCA 150 (para. 13).
[35] In this instance, the oral testimony focused on the lending transactions but fell short of addressing all the requirements of the Act for the taxation years in issue.
[36] In the end, a minimum of evidence is required, particularly where the Court is dealing with a statutory provision that contains technical rules governing a taxpayer’s entitlement to a deduction.
As a result the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.