Ludco Enterprises Ltd. et al. v. Ministre du Revenu national, (1999) 240 N.R. 70 (FCA)

• Judge: Marceau, Desjardins and Létourneau, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: January 26, 1999
• Jurisdiction: Canada (Federal)
• Citations: (1999), 240 N.R. 70 (FCA)

Ludco Ent. Ltd. v. MNR (1999), 240 N.R. 70 (FCA)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [1999] N.R. TBEd. AP.015

Dans une affaire concernant la Loi de l'impôt sur le revenu

Les Enterprises Ludco ltée/Ludco Enterprises Ltd. (appelante/demanderesse) v. Sa Majesté la Reine (intimée/défenderesse)

(A-884-97)

David Ludmer (appelant/demandeur) v. Sa Majesté la Reine (intimée/défenderesse)

(A-885-97)

Brian Ludmer (appelant/demandeur) v. Sa Majesté la Reine (intimée/défenderesse)

(A-886-97)

Cindy Ludmer (appelante/demanderesse) v. Sa Majesté la Reine (intimée/défenderesse)

(A-887-97)

Indexed As: Ludco Enterprises Ltd. et al. v. Ministre du Revenu national

Federal Court of Appeal

Marceau, Desjardins and Létourneau, JJ.A.

March 30, 1999.

Summary:

Revenue Canada reassessed the taxpayers for the taxation years 1981-1985, disallow­ing their deduction of interest costs on monies borrowed to purchase shares. The taxpayers appealed.

The Tax Court of Canada affirmed the reassessments. The taxpayers appealed.

The Federal Court of Canada, Trial Divi­sion, in a decision reported 139 F.T.R. 241, dismissed the appeals. The taxpayers appealed.

The Federal Court of Appeal, Létourneau, J.A., dissenting, dismissed the appeals.

Editor's Note: For related proceedings invol­ving these parties see 72 F.T.R. 175 and 182 N.R. 125.

Income Tax - Topic 1129

Income from a business or property - De­ductions - Requirement that expense be incurred for producing income - [See Income Tax - Topic 1130 ].

Income Tax - Topic 1130

Income from a business or property - De­ductions - Expenses incurred in borrowing money - Revenue Canada reassessed the taxpayers for the taxation years 1981-1985, disallowing their deduction of interest costs on monies borrowed ($6.5M) to purchase shares in two Panamanian companies which invested in Canadian and American securities - The trial judge (Federal Court), dismissed the taxpayers' appeals - The borrowed funds were not used for the purpose of earning income within the meaning of s. 20(1)(c)(i) of the Income Tax Act - The real purpose of the use of the borrowed funds was to accumu­late and reinvest earnings which, upon disposition of the shares, would be taxed as capital gains - The Federal Court of Appeal reviewed s. 20(1)(c)(i) and dis­missed the taxpayers' appeals.

Cases Noticed:

Bronfman (Phyllis Barbara) Trust v. Min­ister of National Revenue, [1987] 1 S.C.R. 32; 71 N.R. 134; 87 D.T.C. 5059, dist. [paras. 16, 68, footnotes 1, 41].

Phyllis Barbara Bronfman Trust - see Bronfman (Phyllis Barbara) Trust v. Minister of National Revenue.

74712 Alberta Ltd. v. Minister of National Revenue (1997), 208 N.R. 348; 97 D.T.C. 5126 (F.C.A.), dist. [paras. 16, 67, footnotes 2, 40].

Robitaille v. Minister of National Revenue (1997), 97 D.T.C. 1286 (T.C.C.), dist. [para. 16, footnote 3].

Mark Resources Inc. v. R. (1993), 93 D.T.C. 1004 (T.C.C.), dist. [paras. 17, 71, footnotes 4, 44].

Canwest Broadcasting Ltd. v. Canada (1996), 96 D.T.C. 1375 (T.C.C.), dist. [para. 17, footnote 5].

Tonn et al. v. Minister of National Rev­enue, [1996] 2 F.C. 73; 191 N.R. 182 (F.C.A.), dist. [paras. 18, 72, footnotes 6, 45].

Hickman Motors Ltd. v. Minister of National Revenue, [1997] 2 S.C.R. 336; 213 N.R. 81, dist. [paras. 18, 50, 86, foot­notes 8, 32, 54].

Moldowan v. Minister of National Rev­enue, [1978] 1 S.C.R. 480; 15 N.R. 476; [1977] C.T.C. 310; 77 D.T.C. 5213; 77 D.L.R.(3d) 112, dist. [para. 18, footnote 9].

Bolus-revelas-Bolus Ltd. v. Minister of National Revenue (1971), 71 D.T.C. 5153 (Ex. Ct.), refd to. [para. 27, foot­note 13].

Irrigation Industries Ltd. v. Minister of National Revenue, [1962] S.C.R. 346, appld. [para. 30, footnote 16].

Continental Bank Leasing Corp. v. Minis­ter of National Revenue, [1998] 2 S.C.R. 298; 229 N.R. 58; 98 D.T.C. 6505 (S.C.C.), refd to. [para. 62, footnote 36].

Minister of National Revenue v. Duha Printers (Western) Ltd., [1998] 1 S.C.R. 795; 225 N.R. 241; 98 D.T.C. 6334 (S.C.C.), refd to. [para. 62, footnote 36].

Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241; 84 D.T.C. 6305; [1984] C.T.C. 294, refd to. [para. 62, footnote 36].

Tennant v. Minister of National Revenue, [1996] 1 S.C.R. 305; 192 N.R. 365; 96 D.T.C. 6121, refd to. [paras. 67, 94, footnotes 40, 61].

Lipson v. Deputy Minister of Revenue of Quebec, [1979] 1 S.C.R. 833; 29 N.R. 335, refd to. [para. 73, footnote 46].

Canderel Ltd. v. Minister of National Revenue, [1998] 1 S.C.R. 147; 222 N.R. 81; 155 D.L.R.(4th) 257, appld. [para. 83, footnote 53].

Antosko v. Minister of National Revenue, [1994] 2 S.C.R. 312; 168 N.R. 16; [1994] 2 C.T.C. 25; 94 D.T.C. 6314, appld. [para. 93, footnote 60].

Interprovincial Pipe Line Co. v. Minister of National Revenue (1959), 59 D.T.C. 1229 (S.C.C.), refd to. [para. 96, foot­note 62].

Minister of National Revenue v. M.P. Drilling Ltd. (1976), 12 N.R. 17; 76 D.T.C. 6028 (F.C.A.), refd to. [para. 101, foot­note 66].

Mattabi Mines Ltd. v. Ontario (Minister of Revenue), [1988] 2 S.C.R. 175; 87 N.R. 300; 29 O.A.C. 268, refd to. [para. 101, footnote 68].

Minister of National Revenue v. Fording Coal Ltd., [1996] 1 F.C. 518; 190 N.R. 186 (F.C.A.), appld. [para. 105, footnote 71].

Minister of National Revenue v. Central Supply Co. (1972) Ltd., [1997] 3 F.C. 674; 215 N.R. 46 (F.C.A.), appld. [para. 106, footnote 72].

Minister of National Revenue v. Shell Canada Ltd., [1998] 3 F.C. 64; 223 N.R. 122 (F.C.A.), appld. [para. 106, footnote 72].

Bradford v. Pickles, [1895] A.C. 587, refd to. [para. 111, footnote 76].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 20(1)(c) [para. 2].

Authors and Works Noticed:

Canada, Revenue Canada, Declaration of Taxpayer Rights, generally [para. 62].

Krishna, Vern, The Fundamentals of Can­a­dian Income Tax (5th Ed. 1995), pp. 46, 47 [para. 51, footnote 33].

Petit Robert, Dictionnaire de la langue française (1991), pp. 34, 2121 [para. 69, footnote 42].

Counsel:

Guy DuPont and François Barette, for the appellant;

Pierre Cossette and Nathalie Labbé, for the respondent.

Solicitors of Record:

Goodman, Phillips & Vineberg, Montreal, Quebec, for the appellant;

Morris Rosenberg, Deputy Attorney Gen­eral of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard on January 26, 1999, in Ottawa, Ontario, before Marceau, Desjardins and Létourneau, JJ.A., of the Federal Court of Appeal. The judgment of the court was delivered on March 30, 1999, including the following opinions:

Marceau, J.A. - see paragraphs 1 to 31;

Desjardins, J.A., concurring - see para­graphs 32 to 53;

Létourneau, J.A., dissenting - see para­graphs 54 to 121.