Ward v. Minister of National Revenue, (1988) 18 F.T.R. 161 (TD)

• Judge: Reed, J.
• Court: Federal Court (Canada)
• Case Date: September 29, 1987
• Jurisdiction: Canada (Federal)
• Citations: (1988), 18 F.T.R. 161 (TD)

Ward v. MNR (1988), 18 F.T.R. 161 (TD)

MLB headnote and full text

John F. Ward (plaintiff) v. Her Majesty the Queen (defendant)

(T-234-84)

Dr. John W. Ward (plaintiff) v. Her Majesty the Queen (defendant)

(T-2837-83)

Indexed As: Ward v. Minister of National Revenue

Federal Court of Canada

Trial Division

Reed, J.

February 23, 1988.

Summary:

The plaintiff was one of a number of individuals who put money into a joint venture golf course operation supposedly as an income tax reducing technique. The property was to be leased with each individual claiming his share of the rental revenue as income for tax purposes and deducting the carrying charges respecting the purchase of the property, thereby creating a loss. A mortgage on the property was foreclosed and the individuals lost their investments. This case involved the issues of (1) the deductibility by the plaintiff of the carrying charges in light of s. 18(2) of the Income Tax Act, which limited the deduction in certain circumstances to the amount of revenue received from the property, and (2) whether the plaintiff could claim his respective share of the noncapital loss on the disposition of the property as a result of the foreclosure and how to calculate the loss.

The Federal Court of Canada, Trial Division, determined the issues.

Income Tax - Topic 1130

Income from business or property - Deductions - Expenses incurred in borrowing money (carrying charges) - A group of individuals, including the plaintiff, as a joint venture purchased a 167 acre golf course - The Federal Court of Canada, Trial Division, examined the circumstances surrounding the purchase and held that s. 18(2) of the Income Tax Act applied to limit the carrying charges deductible by the individuals to the amount of income received from the property - Section 18(2) applied because the property was purchased for resale and development in the near future and the purchase was considered to be an adventure in the nature of a trade, rather than the carrying on of a business - The court ordered a reassessment, however, respecting the portion of the golf course which was exempt from s. 18(2) as being necessary for the use of the buildings on the land (Income Tax Act, s. 18(3)).

Income Tax - Topic 1148

Income from business or property - Deductions - Where taxpayer involved in joint venture - The Federal Court of Canada, Trial Division, discussed whether members of a joint venture could claim as expenses incurred by the joint venture, amounts in excess of what they actually paid out of their pockets - See paragraphs 27 to 31.

Income Tax - Topic 1154

Income from business or property - Deductions - Noncapital losses - Where property foreclosed - A group of individuals, including the plaintiff, agreed through trustees to purchase a golf course (a joint venture) - The agreement provided for financiers - The individuals would make partial payments to the financiers to cover operating costs - After three years the financiers would get a 75% interest in the property - The financiers never got their interest because a mortgage on the property was foreclosed and the individuals lost their investments - The Federal Court of Canada, Trial Division, held that the plaintiff was entitled to claim his respective share of the noncapital loss which resulted from the disposition of the golf course (the foreclosure) in accordance with ss. 9(2), 10(1) and 79 of the Income Tax Act - The court discussed how the proceeds of disposition should be calculated - See paragraphs 35 to 48.

Income Tax - Topic 7061

Computation of tax - Rules - Mortgage foreclosure and conditional sales repossessions - [See Income Tax - Topic 1154 above].

Cases Noticed:

Edmund Peachey Limited v. Minister of National Revenue, 77 D.T.C. 410, refd to. [para. 19].

Kensington Land Developments Limited v. Minister of National Revenue, 79 D.T.C. 5283 (F.C.A.), refd to. [para. 19].

Tara Exploration and Development Co. Ltd. v. M.N.R., [1970] C.T.C. 557 (Ex. Ct.), affd. [1972] C.T.C. 328 (S.C.C.), refd to. [para. 22].

Birmount Holdings Limited v. Minister of National Revenue, [1978] C.T.C. 358; 21 N.R. 451 (F.C.A.), refd to. [para. 22].

R. v. Gelber, 83 D.T.C. 5385 (F.C.A.), refd to. [para. 28].

Reed (H.M.I.T.) v. Young, [1986] B.T.C. 242 (H.L.), refd to. [para. 28].

Tobias v. Minister of National Revenue, 78 D.T.C. 6028, refd to. [para. 31].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 9, sect. 10 [para. 43]; sect. 18(2), sect. 18(3) [paras. 14-24]; sect. 53(1) [para. 41]; sect. 53(1)(f) [para. 37]; sect. 79 [paras. 35-47]; sect. 96(2.1), sect. 96(2.2), sect. 96(2.3), sect. 96(2.4), sect. 96(2.5), sect. 96(2.6), sect. 96(2.7) [paras. 27, 28].

Authors and Works Noticed:

Grover and Iacobucci, Materials on Canadian Income Tax, p. 904 [para. 29].

Hansen, Krishna and Rendall, Canadian Taxation (1981), p. 238 [para. 23].

Watkins, The Demise of the "Equity Interest" Rule? (1984), 1 Cdn. Current Tax [para. 27].

Counsel:

John P. Bell, M. Peters and S.M. Quigley, for the plaintiff;

M. Boris and F. Bhabha, for the defendant.

Solicitors of Record:

Shibley, Righton & McCutcheon, Toronto, Ontario, for the plaintiff;

Frank Iacobucci, Q.C., Deputy Attorney General of Canada, Ottawa, Ontario, for the defendant.

This case was heard in Toronto, Ontario, on September 29, 1987, before Reed, J., of the Federal Court of Canada, Trial Division, who delivered the following decision on February 23, 1988: