BETWEEN:
and
Heard at Montréal, Quebec, on February 5, 2007.
Judgment delivered from the Bench at Montréal, Quebec, on February 5, 2007.
REASONS FOR JUDGMENT OF THE COURT BY: NOËL J.A.
Date: 20070205
Docket: A-190-06
Citation: 2007 FCA 34
CORAM: DESJARDINS J.A.
NOËL J.A.
PELLETIER J.A.
BETWEEN:
ESTELLE HOPMEYER
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Montréal, Quebec, on February 5, 2007)
[1] The appellant contends that her shares in Aqua Vision Systems Inc. (AVSI) were the subject of a deemed disposition at the end of her 1999 taxation year pursuant to paragraph 50(1)(b) of the Income Tax Act, R.S.C. 1985, c. 1(5th Suppl.)(ITA), which disposition gave rise to a deductible loss, commonly known as an allowable business investment loss (ABIL).
[2] Paragraph 50(1)(b) insofar as it is relevant provides:
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50. (1) For the purposes of this subdivision, where
…
(b) a share (other than a share received by a taxpayer as consideration in respect of the disposition of personal-use property) of the capital stock of a corporation is owned by the taxpayer at the end of a taxation year and
…
(iii) at the end of the year,
(A) the corporation is insolvent,
(B) neither the corporation nor a corporation controlled by it carries on business,
(C) the fair market value of the share is nil, and
(D) it is reasonable to expect that the corporation will be dissolved or wound up and will not commence to carry on business
and the taxpayer elects in the taxpayer's return of income for the year to have this subsection apply in respect of the debt or the share, as the case may be, the taxpayer shall be deemed to have disposed of the debt or the share, as the case may be, at the end of the year for proceeds equal to nil and to have reacquired it immediately after the end of the year at a cost equal to nil. |
50. (1) Pour l'application de la présente sous-section, lorsque, selon le cas: […]
b) une action du capital-actions d'une société (autre qu'une action reçue par un contribuable en contrepartie de la disposition d'un bien à usage personnel) appartient au contribuable à la fin d'une année d'imposition et:
[…]
(iii) soit les conditions suivantes sont réunies à la fin de l'année:
(A) la société est insolvable,
(B) ni la société ni une société qu'elle contrôle n'exploite d'entreprise,
(C) la juste valeur marchande de l'action est nulle,
(D) il est raisonnable de s'attendre à ce que la société soit dissoute ou liquidée et ne commence pas à exploiter une entreprise,
le contribuable est réputé avoir disposé de la créance ou de l'action à la fin de l'année pour un produit nul et l'avoir acquise de nouveau immédiatement après la fin de l'année à un coût nul, à condition qu'il fasse un choix, dans sa déclaration de revenu pour l'année, pour que le présent paragraphe s'applique à la créance ou à l'action.
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[Je souligne]
[3] In order to be entitled to the claimed loss the appellant had to establish, in conformity with this provision, that at the end of 1999: a) AVSI was insolvent, b) AVSI no longer carried on business, c) the fair market value of the AVSI shares was nil, and d) it was reasonable to expect that AVSI would be dissolved or wound up and would not commence to carry on business.
[4] Lamarre Proulx J. of the Tax Court of Canada found as a fact (2006 T.C.C. 185) that at the relevant time, AVSI continued to carry on business and therefore did not meet the requirement set out in clause 50(1)(b)(iii)(B). She went on to dismiss the appeal on that basis.
[5] The appellant contends that the Tax Court judge erred in so concluding since AVSI was carrying on the activities that it did for the sole purpose of repaying its bank loan, and not in the pursuit of profit. Thus, AVSI was not carrying on “business” (Stewart v. Canada [2002] 2 S.C.R. 645 at para. 38).
[6] We are not convinced that Lamarre Proulx J. erred when she held in effect that the survival of AVSI as a profit-marking entity remained possible at the end of 1999 and that its activities were carried on with that end in mind. In our view, the possibility that AVSI would eventually turn a profit, slim as it might have been, could not be excluded.
[7] More importantly, paragraph 50(1)(b) contemplates that an insolvent corporation whose shares are worthless can still carry on business for purposes of that provision.
[8] In this case, counsel for the appellant concedes that except for two accounts, the appellant continued to carry on its operations throughout 1999 as it had in the past. Indeed, the evidence reveals that AVSI continued to develop and market new products, sought accounts, made sales, and hired personnel.
[9] In our view, the requirement that a qualifying corporation no longer carry on business in clause 50(1)(b)(iii)(B) effectively contemplates that the corporation has ceased to conduct, on an ongoing basis, its business activities. Until this happens, the survival of the business cannot be excluded and the legislator, in requiring that a corporation no longer carry on business, was obviously intent on ensuring that the possibility that the corporation might subsist be eliminated altogether before an ABIL can be claimed and deducted. This is the context in which this requirement must be understood.
[10] As in this case, there is no doubt that AVSI continued to carry on business throughout 1999, the Tax Court judge came to the correct conclusion when she held that the requirement of clause 50(1)(b)(iii)(B) had not been met.
[11] The appeal will accordingly be dismissed with costs in favour of the respondent.
“Marc Noël”
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-190-06
(APPEAL FROM A JUDGMENT OF THE TAX COURT OF CANADA, DATED MARCH 30, 2006, DOCKET NO. 2000-2842(IT)(G).
STYLE OF CAUSE: Estelle Hopmeyer v.
Her Majesty the Queen
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: February 5, 2007
REASONS FOR JUDGMENT OF THE COURT BY: DESJARDINS J.A.
NOËL J.A.
PELLETIER J.A.
DELIVERED FROM THE BENCH BY: NOËL J.A.
APPEARANCES:
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FOR THE APPELLANT
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FOR THE RESPONDENT
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SOLICITORS OF RECORD:
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Montréal, Quebec
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FOR THE APPELLANT
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Deputy Attorney General of Canada Montréal, Quebec |
FOR THE RESPONDENT
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