Gaudette v. The Queen (2018 TCC 208)


Gaudette v. The Queen


Database – Court (s)Judgments of the Tax Court of Canada
Neutral reference2018 TCC 208
File number2017-961 (IT) I
Judges and Taxing OfficersReal Favreau
TopicsIncome Tax Act

Folder: 2017-961 (IT) I








Appeal heard on June 12, 2018, in Sherbrooke, Quebec.

In front of : The Honorable Justice Réal Favreau

Appearances :


For the appellant:The appellant herself
Counsel for the respondent:e Gregory Cadieux



The appeal against the reassessment under the Income Tax Act dated February 3, 2017 in respect of the Appellant’s 2014 taxation year is allowed and the reassessment is referred to the Minister of National Revenue for reconsideration and assessment to award the Appellant the amount of $ 116,277 granted by the Minister in respect of a business investment loss for her 2014 taxation year in accordance with reasons for judgment attached.

Signed at Montreal (Québec), this 30 th dayofOctober 2018.

“Real Favreau”

Judge Favreau


Reference: 2018 TCC 208

Date: 20181030

File: 2017-961 (IT) I









Favreau JA

[ 1 ]  Mrs. Martha Gaudette is appealing a reassessment made by the Minister of National Revenue (the “Minister”) under the Income Tax Act RSC 1985, c. 1 (5 th  Supp.), As amended (the ”  Act  “), dated 3 February 2017 concerning the 2014 taxation year of the appellant.

[ 2 ]  Under the reassessment of February 3, 2017, the Minister denied the Appellant the amount of $ 430,000 claimed as a business investment loss (hereafter “PTPE”) for its 2014 taxation year.

[ 3 ]  The amount claimed as a PEB is a result of the following loans made by the Appellant to Agora, Research and Communications Inc. (hereinafter the “Corporation”) in the 1996 to 2000 taxation years. , totaling $ 305,000.

1996-11-28$ 50,000
1997-07-29$ 25,000
1997-08-27$ 25,000
1998-06-15$ 25,000
1998-09-01$ 10,000
1998-12-11$ 20,000
1999-01-26$ 10,000
1999-03-12$ 20,000
1999-06-21$ 20,000
1999-10-28$ 15,000
1999-12-16$ 25,000
2000-01-14$ 40,000
2000-01-18$ 20,000
Total$ 305,000

[ 4 ]  At the opposition stage against the initial assessment of June 11, 2015 for the 2014 taxation year, the Appellant confirmed that her CIPT was $ 305,000 and not $ 610,000, as reported, and requested an additional $ 125,000 in respect of a loan it made to the Company on October 6, 2005.

[ 5 ]  The Minister denied the claimed loss as PITC because the loans made by the appellant to the Company did not have any interest or repayment terms and because the Company did not carry on any profitable activity. for several years.

[ 6 ]  At the hearing, counsel for the respondent admitted the existence of the appellant’s claim against the Corporation and admitted that the appellant’s claim became irrecoverable in 2014.

[ 7 ]  Ms. Gaudette testified at the hearing and explained the circumstances surrounding the granting of loans to the Corporation. She worked for twenty years in the field of education at the primary, secondary and college level and she worked for 5 years at the Quebec Ministry of Education by performing, among other things, text correction. school programs. She has been retired since 1978 and receives pension income based on her years of work as a Government of Quebec official.

[ 8 ]  During her working life and during her retirement, for more than 50 years, Ms. Gaudette completed numerous stock market transactions that enabled her to accumulate a significant amount of capital. The gains made on the stock market allowed Ms. Gaudette to make loans and margin loans to the Company whose cause she married. His motivation was to help fight the ignorance that is the source of all evil on earth.

[ 9 ]  The Society publishes a Québec quarterly magazine, founded in 1993, called the Agora, and since 1998 has operated an online encyclopedia, L’Encyclopédie de l’Agora.

[ 10 ]  The shareholders of the Corporation are Jacques Dufresne and his spouse, Hélène Laberge, who hold a 55% and 45% interest, respectively, in the capital stock of the Corporation.

[ 11 ]  Ms. Gaudette admitted that the loans she granted to the Corporation between 1996 and 2000 in the amount of $ 305,000 were interest-free and without repayment terms and that she had no document showing that the amounts advanced were loans to the Company.

[ 12 ]  The transfers of funds mentioned above were made either by personal checks of Mrs. Gaudette to the order of Hélène Dufresne or Hélène Laberge, or by checks payable to the appellant drawn on her margin account. and endorsed by the latter for deposit in the bank account of Jacques Dufresne and Hélène Laberge. In fact, the sums advanced by Ms. Gaudette have never been recorded in the books of the Corporation.

[ 13 ]  Ms. Gaudette had to pay interest on the withdrawals made on her margin account, but she never received any repayments of principal or interest from the Company.

[ 14 ]  According to the correspondence exchanged between Ms. Gaudette and Mr. Jacques Dufresne, it appears that the shareholders of the Corporation considered Ms. Gaudette to be a generous patron of the Agora, Research and Communications Inc. Moreover , Ms. Gaudette acknowledged having rendered services to the Society for 4 years by correcting texts for the encyclopedia and for 2 years as head of the library that the Society opened in North Hatley without receiving any remuneration.

[ 15 ]  With respect to the $ 125,000 loan made by Ms. Gaudette on October 6, 2005 to the Company, Ms. Gaudette demonstrated that:

(a)  Mr. Jacques Dufresne and Ms. Hélène Laberge have signed an acknowledgment of debt for the Company in the amount of $ 125,000;

  1. b)the loan included an interest rate of 6% per annum revised annually according to the prime rate plus one percent (1%) and was repayable in monthly installments of $ 940, starting on 1 st  December 2005;

(c)  the loan was recorded as long-term debt in the Corporation’s financial statements and,

and (d)  the outstanding balance on this loan was $ 116,277 as at August 31, 2014, the date of the end of the Corporation’s fiscal year.

[ 16 ]  Ms. Gaudette further demonstrated that she had retained the services of a lawyer to repay the principal amount of the loans totaling $ 305,000 as well as the principal balance of the loan of $ 125,000 and the unpaid interest. on this loan.

[ 17 ]  The respondent refused the deduction of a CIPT on the amount of $ 305,000 loaned by the appellant because these loans were not made to the Corporation for the purpose of earning property income in accordance with the subparagraph 40 (2) ( g ) (ii) of the Act . On the other hand, the respondent conceded at the hearing that the $ 125,000 loan made in 2005 by the appellant to the Corporation had been granted for the purpose of earning a good income and, therefore, accepted the deduction of a TIP on the unpaid balance of the loan as at December 31, 2014, in the amount of $ 116,277.

[ 18 ]  The relevant provisions of the Act to determine entitlement to a CCTT are reproduced below:

e c-section – Taxable capital gains and allowable capital losses

For the purposes of this Act,


(c) the allowable business investment loss of a taxpayer, for a taxation year, resulting from the disposition of property is one-half of the investment loss of business that this taxpayer has suffered, for the year, at the disposal of the property.

Article 39: Meaning of capital gain and capital loss

For the purposes of this Act,


(c) a business investment loss of a taxpayer, for a taxation year, resulting from the disposition of property, means the amount, if any, by which the taxpayer for the year resulting from a disposition, after 1977:

(i)   to which subsection 50 (1) applies,

(ii)   in favor of a person with whom he dealt at arm’s length, with property that is

(iii)   a share of the capital stock of a small business corporation,

(iv)   a debt of the taxpayer in a Canadian-controlled private corporation (other than a debt, if the taxpayer is a corporation, in a non-arm’s length corporation) that is

(A)   a small business corporation,

(B)   a bankrupt who was a small business corporation at the time he became a bankrupt for the last time,

(C)   a corporation referred to in section 6 of the Winding-up Act that was insolvent within the meaning of that Act and was a small business corporation at the time a winding-up order was made under this Act,

In Article 40: General Rules

( 2) Restrictions. Despite subsection (1):


(g ) the loss to a taxpayer resulting from the disposition of property (other than the calculation of exempt surplus or exempt deficit, hybrid surplus or hybrid deficit and taxable surplus) is nil or the taxpayer’s taxable deficit in respect of another taxpayer, in the case where the taxpayer or, if the taxpayer is a partnership, his or her partner is a foreign affiliate of the other taxpayer, a property that is a excluded, within the meaning of subsection 95 (1), or if the taxpayer were a foreign affiliate of the other taxpayer), to the extent that it is


(ii)   a loss resulting from the disposition of a debt or other right to receive an amount, unless the debt or charge was acquired by the taxpayer for the purpose of earning income (which is not a exempt income) of a business or property, or in consideration for the disposition of capital property to a person with whom the taxpayer was dealing at arm’s length,

rticle 50: Receivables recognized as irrecoverable and shares of a company in bankruptcy

1)  For the purposes of this subdivision, where

(a) a taxpayer establishes that a debt owed to it at the end of a taxation year (other than a debt due to it by the disposition of a personal-use property) has been shown to be to be during the year an unrecoverable debt;

(b) a share of the capital stock of a corporation (other than a share received by a taxpayer in exchange for the disposition of personal-use property) belongs to the taxpayer at the end of a taxation year and,

(i)   the corporation became a bankrupt during the year,

(i i )  whether it is a corporation referred to in section 6 of the Winding-up Act , insolvent within the meaning of this law and in respect of which a winding-up order under that Act was made during of the year,

( I ii)  whether the following conditions are met at the end of the year:

(A)  the company is insolvent,

(B)  neither the corporation nor a corporation under its control carries on a business,

(C)  the fair market value of the share is nil,

(D)  it is reasonable to expect the corporation to be dissolved or wound up and not start a business,

the taxpayer is deemed to have disposed of the receivable or share at the end of the year for zero income and to have acquired it immediately after the end of the year at zero cost, provided that make an election in his return for the year for this subsection to apply to the claim or action.

[ 19 ] In  order to be able to deduct a PITF pursuant to sections 38 and 39 of theAct , the appellant must show that it has suffered a capital loss from the disposition of property. Under section 50 of the Act , a taxpayer is deemed to have disposed of a debt owing to him at the end of the year for a nil product if the debt has been shown to be uncollectible during the year. year.

[ 20 ]  In this case, only subparagraph 40 (2) (g) (ii) of the Act is at stake here and it is clear that the appellant was never a shareholder of the Corporation and did not never had any prospect of realizing dividend income following the granting of loans to the Company.

[ 21 ]  The judgment Byram c. Canada , 1999 CanLII 7428 (FCA) specifically addresses the application of subparagraph 40 (2) ( g ) (ii) of the Act . The review required by this provision relates only to the purpose for which the claim was earned, that is, for the purpose of earning income from a business or property.

[ 22 ]  In Byram , supra, it is not necessary for a taxpayer to directly earn income from the debt, but where the taxpayer does not hold shares in the debtor corporation, evidence of a Sufficient link between the taxpayer and the potential earnings of the debtor company is much more demanding.

[ 23 ]  In this proceeding, the loans were made without documentation (loan agreement or note) and without specific terms as to the annual interest rate, the term of the loans or the terms of repayment. The appellant is not aware of the use of the amounts lent because they do not even appear in the financial statements of the Corporation. Finally, the appellant did not take steps to recover the interest on the loans.

[ 24 ]  In the circumstances, I do not see how I could conclude that the Appellant could expect to derive income from the loans totaling $ 305,000 that she granted to the Corporation. Therefore, the Appellant can not be entitled to the PITT deduction on the amount of $ 305,000 loaned to the Corporation since this loss is deemed to be nil under subparagraph 40 (2) ( g ) (ii) of theLaw .

[ 25 ]  For these reasons, the appeal is allowed and the reassessment is remitted to the Minister for reassessment in order to award the Appellant the amount of $ 116,277 granted by the Minister as a CITT for her year of service. 2014 taxation.

Signed at Montreal (Quebec), this 30 th day of October 2018.

“Real Favreau”

Judge Favreau


N ° OF THE COURT’S FILE:2017-961 (IT) I
TITLE OF THE CAUSE:Martha Gaudette and Her Majesty the Queen
PLACE OF HEARING:Sherbrooke, Quebec
REASONS FOR JUDGMENT BY:The Honorable Justice Réal Favreau
DATE OF JUDGMENT:October 30, 2018



For the appellant:the appellant herself
Counsel for the respondent:e Gregory Cadieux



For the appellant:

For the respondente:Nathalie G. Drouin

Deputy Attorney General of Canada

Ottawa, Canada

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