Date: 19990923
Docket: 98-2211-IT-I
BETWEEN:
ROBERT TURCOTTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
(Delivered orally from the bench on August 27, 1999, at Montréal, Quebec, and subsequently revised at Ottawa, Ontario, on September 23, 1999)
Lamarre, J.T.C.C.
[1] This is an appeal under the informal procedure from an assessment made under the Income Tax Act (“the Act”) for the 1996 taxation year. In making the assessment, the Minister of National Revenue (“the Minister”) denied the appellant an allowable business investment loss of $22,500 claimed by him under paragraphs 38(c) and 39(1)(c) of the Act.
[2] The only issue is whether the appellant loaned $30,000 to the Distro-Vend corporation or to its sole shareholder, Robert Ouimet. It goes without saying that the loan must have been made to the corporation for the appellant to be able to deduct a business investment loss under paragraph 39(1)(c) of the Act.
[3] I feel that the appellant has shown on a balance of probabilities that he loaned $30,000 to Distro-Vend and not directly to Mr. Ouimet.
[4] The evidence shows that the appellant, a firefighter, himself borrowed the $30,000 from one Jean P. Houle, a chartered administrator, who was looking after his personal affairs. The appellant told Mr. Houle that he was borrowing the amount for Robert Ouimet’s business. Mr. Houle then issued a cheque for $30,000 directly to Robert Ouimet on April 21, 1995, and Mr. Ouimet deposited the cheque directly in Distro-Vend’s account.
[5] A notarized contract was adduced in evidence showing that the loan was made to Robert Ouimet and not Distro-Vend. According to Mr. Ouimet, the notary hired by Mr. Houle to draw up the deed of loan took the initiative of making the loan to Mr. Ouimet personally rather than making it directly to Distro-Vend. Mr. Ouimet apparently did not react at the time because the financial institutions had always asked him to personally guarantee the loans made for his business. As for the appellant, he said that he signed the notarized contract without the notary present.
[6] In my view, the existence of the notarized contract, which is obviously so irregular that its authenticity can be doubted, since it was signed without the notary present (see Caisse d’Entraide Économique de Charlevoix c. Cloutier Perron, [1984] R.D.J. 360 (Que. C.A.)), does not change the true situation. It is clear that the borrowed money was deposited directly in Distro-Vend’s account, and counsel for the respondent does not deny this.
[7] The evidence actually shows that Mr. Ouimet was acting as a mandatary for Distro-Vend when he received the loan in his name, and the existence of the purported notarized contract does not change this fact. I therefore feel that the appellant had a claim against Distro-Vend.
[8] Moreover, Mr. Ouimet made an assignment of his property on September 13, 1996, and Distro-Vend has not operated since. The appellant’s claim therefore became a bad debt. He borrowed from the bank to repay Mr. Houle the $30,000. The appellant is currently repaying the bank loan gradually over a period of five years. He was therefore the one who had the claim, not Mr. Houle.
[9] Accordingly, the appeal is allowed, with costs if applicable, and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the appellant is entitled to deduct $22,500 from his income for the 1996 taxation year as an allowable business investment loss under sections 38 and 39 of the Act.
Signed at Ottawa, Canada, this 23rd day of September 1999.
“Lucie Lamarre”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 26th day of January 2000.
Stephen Balogh, Revisor