Lapchuk v. The Queen

Lapchuk v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2004-12-22 Neutral citation 2004 TCC 758 File numbers 2003-3888(IT)I Judges and Taxing Officers David W. Beaubier Subjects Income Tax Act Decision Content Citation: 2004TCC758 Date: 20041222 Docket: 2003-3888(IT)I BETWEEN: DAVID LAPCHUK, Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT (delivered orally from the Bench at Regina, Saskatchewan, on August 31, 2004) [1] This appeal pursuant to the Informal Procedure was heard at Regina, Saskatchewan, on August 30, 2004. The Appellant was the only witness. [2] Paragraphs 7 to 26 inclusive of the Reply to the Notice of Appeal outline the matters in dispute. They read: 7. The 1998, 1999, 2000 and 2001 income tax returns were initially assessed as follows: Taxation Year Initial Assessment Date 1998 June 17, 1999 1999 March 27, 2000 2000 March 22, 2001 2001 April 11, 2002 8. In computing income for the 1998 taxation year, the Appellant did not report any interest or other investment income. 9. In computing income for the 1999 taxation year, the Appellant claimed an allowable business investment loss (hereinafter "ABIL") in the 1999 taxation Year, calculated as follows: Business Investment Loss (the "BIL") $69,615.00 x ¾ ABIL $52,211.00 The claiming of the ABIL created a non-capital loss of $24,954.00 in the 1999 taxation year. 10. In computing income for the 2000 taxation year, the Appellant claimed a non-capital loss carry forward from the 1999 taxation year of $22,628.00. 11. In computing income for the 2001 taxation year, the Appellant claimed a non-capital loss carry forward from the 1999 taxation year of $1,403.00. 12. The Minister of National Revenue (the "Minister") reassessed the Appellant for the 1998 taxation year to include unreported interest income received of $516.00 earned on funds held in trust by his lawyer. 13. The Minister reassessed the Appellant for the 1999 taxation year by reducing the BIL to $52,649.00 and the ABIL to $39,487.00. This adjustment reduced the non-capital loss in the 1999 taxation year to $12,230.00 14. As the non-capital loss in the 1999 taxation year was reduced to $12,230.00, the Minister reassessed the Appellant for: (a) the 2000 taxation year to reduce the non-capital loss carried forward from the 1999 taxation year to $12,230.00; and (b) the 2001 taxation year to disallow the non-capital loss carried forward from the 1999 taxation year. 15. The Notices of Reassessment outlined in paragraphs 12, 13 and 14 above for the 1998, 1999, 2000 and 2001 taxation years were dated April 22. 2002. 16. The Appellant filed a Notice of Objection to the 1999 and 2000 reassessments, dated July 18, 2002. 17. By letter dated April 2, 2003, the time period in which to file a Notice of Objection for the 1998 and 2001 taxation years was extended to the date of the letter and the Notice of Objection was deemed to be valid for the 1998 and 2001 taxation years. 18. In response to the Notices of Objection, the Minister confirmed the reassessments for the 1998, 1999, 2000 and 2001 taxation years by means of a Notification of Confirmation dated May 30, 2003. 19. The Appellant filed a Notice of Appeal to the Tax Court of Canada on November 5, 2003. 20. In so reassessing the Appellant for the 1998, 1999, 2000 and 2001 taxation years and in so confirming those reassessments, the Minister made the following assumptions of fact: Interest Income - 1998 Taxation Year (a) on December 31, 1997, December 31, 1998 and on April 28, 1999 the Appellant's trust account with his lawyer's firm of Shumiatcher Hrycan credited the Appellant's trust account with interest of $119.65, $516.69 and $191.26, respectively; (b) the Appellant reported the interest income of $119.65 in the 1997 taxation year and $191.26 in the 1999 taxation year; (c) the Appellant did not report any interest income in the 1998 taxation year; ABIL and non-capital loss application - 1999, 2000 & 2001 Taxation Years (d) the Appellant was a shareholder of SARD; (e) the Sherwood Credit Union (hereinafter the "Credit Union") called in their loans with SARD; (f) the Credit Union seized the assets of SARD; (g) SARD ceased operations in the 1990 taxation year; (h) SARD and the Appellant sued the Credit Union; (i) the law suit began in the 1991 taxation year; (j) the law suit concluded in the 1999 taxation year and the Credit Union was successful; (k) the Appellant claimed an ABIL of $6,649.00 in the 1992 taxation year and an ABIL of $7,006.00 in the 1993 taxation year in respect of SARD; (l) the Appellant was allowed an ABIL of $6,649.00 in the 1992 taxation year and an ABIL of $7,006.00 in the 1993 taxation year in respect of SARD; (m) the Appellant claimed business losses in the 1994 and 1995 taxation years (the "Business Losses") as follows: 1994 1995 Professional Fees $ 235.00 $ 0.00 Rent 1,169.90 999.32 Legal Fees 2,450.00 12,305.50 Management Fees 0.00 195.00 Total $3,854.90 $13,499.82 (n) the Business Losses were incurred by the Appellant on behalf of SARD and constitute shareholder advances to SARD; (o) the Minister reassessed the Appellant for the 1994 and 1995 taxation years disallowing the Business Losses. The Notices of Reassessment were dated April 21, 1997; (p) the Appellant filed Notices of Objection to the reassessments for the 1994 and 1995 taxation years; (q) the Minister confirmed the reassessments for the 1994 and 1995 taxation years by Notification of Confirmation dated September 9, 1997; (r) the Appellant filed a Notice of Appeal to the Tax Court of Canada on October 16, 1997 in respect of the 1994 and 1995 taxation years; (s) a judgment was issued by the Tax Court of Canada on November 30, 1999 dismissing the Appellant's appeal for the 1994 and 1995 taxation years; (t) legal fees paid by the Appellant in relation to the law suit against the Credit Union represented shareholder's advances; (u) legal fees incurred by the Appellant prior to the 1994 taxation year have been allowed on the Appellant's tax returns in taxation years prior to 1994; (v) the Appellant was owed a debt of $52,649.20 by SARD at the end of the 1999 taxation year that was established by the Appellant to have become a bad debt in the 1999 taxation year; (w) the Appellant incurred a BIL in the 1999 taxation year pursuant to paragraph 39(1)(c) of the Income Tax Act in the amount of $52,649.20 calculated as follows: Total of Shumiatcher statements (including interest) $37,793.49 Less: 1992 amounts (800.00) Less: 1993 amounts (2,600.00) Total Shumiatcher payments allowed $34,393.49 Duncan legal fees 2,253.68 Total Legal Fees $36,647.17 1990 Shareholders loan account 15,669.22 Share capital 100.00 Robinson Investigation 125.31 Browns Auction 107.50 Gross Business Investment Loss $52,649.20 B. ISSUES TO BE DECIDED 21. The issues are: (a) whether the interest income has been properly included in the Appellant's income in the 1998 taxation year; (b) whether the amount of the BIL has been correctly calculated with respect to the 1999 taxation year; (c) whether the non-capital loss incurred in the 1999 taxation year and carried forward to the 2000 taxation year has been correctly calculated; and (d) whether there is any portion of the non-capital loss incurred in the 1999 taxation year available to be carried forward to the 2001 taxation year. C. STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT 22. He relies on sections 3, 12 and 39, and subsections 50(1) and 248(1) and paragraph 111(1)(a) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp) (the "Act") as amended for the 1998, 1999, 2000 and 2001 taxation years. 23. He submits that the interest income has been properly included in the Appellant's income in the 1998 taxation year by the Minister pursuant to paragraph 12(1)(c) of the Act. 24. He submits that the Minister correctly calculated the BIL of $52,649.20 pursuant to paragraph 39(1)(c) of the Act in respect of the 1999 taxation year. 25. He submits that the non-capital loss incurred in the 1999 taxation year and carried forward to the 2000 taxation year has been correctly calculated. 26. He further submits that as the entire non-capital loss incurred in the 1999 taxation year of $12,230.00 has been allowed in the 2000 taxation year pursuant to paragraph 111(1)(a) of the Act, there is no amount remaining to carry forward to the 2001 taxation year pursuant to paragraph 111(1)(a) of the Act. [3] In the course of the trial, the Appellant admitted that the interest for 1998 described in paragraph 12 of the Reply was properly assessed. [4] None of the assumptions in paragraph 20 were refuted and, in particular, the Respondent proved the calculations in subparagraph 20(w) to the satisfaction of the Court. [5] During the hearing, the Appellant argued that it was for the Respondent to prove that the expenses claimed by him were not duplicates of expenses claimed and allowed by the Respondent in previous years. That is wrong. The law is that the Appellant bears the onus of proving his allegations in an income tax appeal as was described by the Supreme Court of Canada in Johnson v. MNR. [6] The appeal is dismissed. Signed at Saskatoon, Saskatchewan, this 22nd day of December 2004. "D.W. Beaubier" Beaubier, J. CITATION: 2004TCC758 COURT FILE NO.: 2003-3888(IT)I STYLE OF CAUSE: David Lapchuk v. The Queen PLACE OF HEARING: Regina, Saskatchewan DATE OF HEARING: August 30, 2004 REASONS FOR JUDGMENT BY: The Honourable Justice Beaubier DATE OF ORAL REASONS: December 22, 2004 APPEARANCES: For the Appellant: The Appellant himself Counsel for the Respondent: Penny Piper COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada