Singleton v. MNR, (1999) 243 N.R. 110 (FCA)

• Judge: Linden, Rothstein and McDonald, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: April 26, 1999
• Jurisdiction: Canada (Federal)
• Citations: (1999), 243 N.R. 110 (FCA)

Singleton v. MNR (1999), 243 N.R. 110 (FCA)

MLB headnote and full text

Temp. Cite: [1999] N.R. TBEd. JN.058

John R. Singleton (appellant) v. Her Majesty the Queen (respondent)

(A-686-96)

Indexed As: Singleton v. Minister of National Revenue

Federal Court of Appeal

Linden, Rothstein and McDonald, JJ.A.

June 11, 1999.

Summary:

Singleton was a partner in a law firm. On October 27, 1988, he was paid $300,000 from his capital account at the firm. He used the $300,000 to purchase a home. Later on October 27, 1988, Singleton borrowed money from a bank which he used to pay $300,000 back into his capital account at the law firm. Singleton deducted interest paid on the bank loan under s. 20(1)(c)(i) of the Income Tax Act. The Minister denied the deduction. Singleton appealed.

The Tax Court of Canada, in a decision reported at 96 D.T.C. 1850, dismissed the appeal. The court concluded that the funds borrowed by Singleton were used for the purpose of purchasing the home and not for the purpose of earning income from his law firm. Singleton appealed.

The Federal Court of Appeal, Linden, J.A., dissenting, allowed the appeal.

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 - Singleton, a partner in a law firm, was paid $300,000 from his capital account at the firm - He used the $300,000 to purchase a home - On the same day, Singleton borrowed money from a bank which he used to pay $300,000 back into his capital account at the law firm - The Tax Court of Canada held that interest paid on the bank loan was not deductible under s. 20(1)(c)(i) of the Income Tax Act because the borrowed funds were used for the purpose of pur­chasing the home and not for the purpose of earning income from the law firm - Singleton appealed - The Federal Court of Appeal, allowed the appeal - The court held that the transac­tions at issue must be viewed independent­ly and not as a con­nected series of transac­tions - See para­graphs 10 to 15.

Income Tax - Topic 8002

Returns, assessments, payment and appeals - Appeals to courts - General - Standard of review - Singleton, a partner in a law firm, was paid $300,000 from his capital account at the firm - He used the $300,000 to pur­chase a home - On the same day, Singleton borrowed money from a bank which he used to pay $300,000 back into his capital account at the law firm - The Tax Court of Canada held that interest paid on the bank loan was not deductible under s. 20(1)(c)(i) of the Income Tax Act because the bor­rowed funds were used for the purpose of pur­chasing the home and not for the pur­pose of earning income from the law firm - Singleton appealed - The Feder­al Court of Appeal held that the question of how to treat the transactions for the purposes of s. 20(1)(c)(i), i.e., indepen­dently or as a connected series of transac­tions, was a question of law - As what was at issue was a question of law, it was not inappro­priate for the court to re-examine the Tax Court judge's conclusion on the question of purpose for which Singleton borrowed the funds - See paragraph 9.

Cases Noticed:

R. v. Van der Peet (D.M.), [1996] 2 S.C.R. 507; 200 N.R. 1; 80 B.C.A.C. 81; 130 W.A.C. 81, refd to. [para. 6, foot­note 2].

Director of Investigation and Research, Competition Act v. Southam Inc. et al., [1997] 1 S.C.R. 748; 209 N.R. 20, refd to. [para. 7, footnote 3].

Continental Bank Leasing Corp. v. Minis­ter of National Revenue, [1998] 2 S.C.R. 298; 229 N.R. 58, consd. [para. 12, footnote 4].

Bronfman (Phyllis Barbara) Trust v. Min­ister of National Revenue, [1987] 1 S.C.R. 32; 71 N.R. 134; 87 D.T.C. 5059, consd. [para. 16, footnote 5].

Zwaig v. Minister of National Revenue, [1974] C.T.C. 2172; 74 D.T.C. 1121 (T.R.B.), consd. [para. 22].

Antosko v. Minister of National Revenue, [1994] 2 S.C.R. 312; 168 N.R. 16, consd. [para. 23, footnote 9].

Neuman v. Minister of National Revenue, [1998] 1 S.C.R. 770; 225 N.R. 190, refd to. [para. 25, footnote 10].

Ludco Enterprises Ltd. et al. v. Ministre du Revenu national (1999), 240 N.R. 70 (F.C.A.), consd. [para. 34, footnote 13].

Smith and Hogan Ltd., Re, [1932] S.C.R. 661, refd to. [para. 36, footnote 15].

Wildenburg Holdings Ltd. v. Ontario (Minister of Revenue) (1998), 67 O.T.C. 179; 98 D.T.C. 6462 (Gen. Div.), refd to. [para. 36, footnote 15].

R.P.M. Tech Inc. v. Harvey & Co. (1993), 111 Nfld. & P.E.I.R. 12; 348 A.P.R. 12; 105 D.L.R.(4th) 746 (Nfld. T.D.), refd to. [para. 36, footnote 15].

Milos Equipment Ltd. v. Insurance Corp. of Ireland Ltd. (1988), 34 C.C.L.I. 102 (S.C.), revd. (1990), 47 B.C.L.R.(2d) 296 (C.A.), refd to. [para. 36, footnote 15].

Ryan v. Victoria (City) et al. (1999), 234 N.R. 201; 117 B.C.A.C. 103; 191 W.A.C. 103, refd to. [para. 36, footnote 16].

Robitaille v. Minister of National Revenue (1996), 97 D.T.C. 1286 (T.C.C.), consd. [para. 38, footnote 17].

Mark Resources Inc. v. Canada (1993), 93 D.T.C. 1004 (T.C.C.), refd to. [para. 39].

Tennant v. Minister of National Revenue, [1996] 1 S.C.R. 305; 192 N.R. 365, refd to. [para. 45, footnote 23].

Canada Safeway Ltd. v. Minister of Na­tional Revenue, [1957] S.C.R. 717, refd to. [para. 47, footnote 27].

Chisholm v. Canada (1998), 99 D.T.C. 150 (T.C.C.), refd to. [para. 53, footnote 33].

Chase Manhattan Bank of Canada v. Canada (1997), 97 D.T.C. 349 (T.C.C.), refd to. [para. 53, footnote 33].

Gibson Petroleum Co. v. R. (1997), 97 D.T.C. 1420 (T.C.C.), refd to. [para. 53, footnote 33].

Canwest Broadcasting Ltd. v. Canada (1995), 96 D.T.C. 1375 (T.C.C.), refd to. [para. 53, footnote 33].

Garneau v. Canada, [1995] 1 C.T.C. 2978 (T.C.C.), refd to. [para. 53, footnote 33].

Mara Properties Ltd. v. Canada (1993), 93 D.T.C. 1449 (T.C.C.), refd to. [para. 53, footnote 33].

Ludco Enterprises Ltd. et al. v. Ministre du Revenu national (1998), 139 F.T.R. 241; 98 D.T.C. 6045 (T.D.), refd to. [para. 53, footnote 33].

Minister of National Revenue v. Shell Canada Ltd., [1998] 3 F.C. 64; 223 N.R. 122 (F.C.A.), consd. [para. 53, footnote 33].

74712 Alberta Ltd. v. Minister of National Revenue (1997), 208 N.R. 348; 97 D.T.C. 5126 (F.C.A.), refd to. [para. 53, footnote 33].

Minister of National Revenue v. Fording Coal Ltd., [1996] 1 F.C. 518; 190 N.R. 186 (F.C.A.), refd to. [para. 53, footnote 33].

Statutes Noticed:

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

Authors and Works Noticed:

Felesky, Brian and Jack, Sandra, Is There Substance to "Substance Over Form" in Canada, [1992] Can. Tax Found. 50:1, 50:33 [para. 22, footnote 8].

Krishna, Vern, The Fundamentals of Can­a­dian Income Tax (5th Ed. 1995), pp. 1274 [para. 28, footnote 11]; 1371 [para. 12, footnote 4].

Counsel:

John H. Saunders, for the appellant;

Donald Gibson, for the respondent.

Solicitors of Record:

Davis & Company, Vancouver, British Columbia, for the appellant;

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

This appeal was heard at Vancouver, British Columbia, on April 26, 1999, by Linden, Rothstein and McDonald, JJ.A., of the Federal Court of Appeal. The decision of the Court of Appeal was delivered on June 11, 1999, and the following opinions were filed:

Rothstein, J.A. (McDonald, J.A., concur­ring) - see paragraphs 1 to 29;

Linden, J.A., dissenting - see paragraphs 30 to 64.