Digests

Canada v. Furukawa

A-80-99

Evans J.A.

9/11/00

16 pp.

Appeal from T.C.C. decision ((1999), 99 DTC 474) allowing respondent's appeal against assessment for 1992 taxation year--T.C.C. held Minister wrong to have disallowed claim by taxpayer for $7,500 deduction in respect of investment made to finance oil and gas exploration by Lumberton Mines Ltd.--Taxpayer claimed had acquired shares in Lumberton that qualified as "flow-through shares" under ITA, and that accordingly entitled to deduct $7,500 from income tax liability, being portion of company's exploration costs that it had renounced in his favour--Taxpayer's claim disallowed on ground that, in addition to shares in Lumberton, other benefits offered to investors (1/4 acre building lot at golf course; 2 lifetime playing privileges at golf course; interest in B.C. Grassy pipeline), thereby making shares "prescribed shares", thus excluded from statutory definition of "flow-through shares"--Issue whether additional benefits "may reasonably be considered to be . . . repayment or return by the corporation . . . of all or part of the consideration for which the share was issued" within Income Tax Regulations, s. 6202.1(1)(b)(iii)--T.C.J. held benefits could not be so considered, and, since shares not "prescribed shares", qualified as "flow-through shares" and taxpayer entitled to $7,500 deduction--Appeal dismissed--T.C.J.'s omission to discuss Lumberton's letter to unit holders about benefits not fatal--While letter undoubtedly some evidence of seriousness of company's intention to provide promised benefits, pertinent question not whether Lumberton intended to deliver benefits to unit holders, but whether its financial position realistically enabled it to do so--Progress described in letter vague and preliminary in nature--No evidence even modest steps towards eventual delivery had been taken in May 1991 when taxpayer acquired his share in unit--T.C.J.'s findings of fact did not contain any overriding and palpable error--Uncertainty as to whether or when golf course and building lots benefits would materialize, and small sum actually received on Grassy pipeline interest supporting T.C.J.'s finding additional benefits could not reasonably be considered by reasonable investor as return of $7,500 paid by taxpayer for shares--T.C.J. also relied on earlier finding ([1996] 2 C.T.C. 2641 (T.C.C.)) intrinsic value of some of these benefits very little at time Lumberton shares purchased--Since primary facts not in dispute, case involving application of statutory standard ("may reasonably be considered a return of part of the consideration for the shares") to facts found by T.C.J.--Question of mixed fact and law--As T.C.J. formulated legal test correctly, and did not otherwise misstate law, Court should not intervene unless can be inferred from result reached that he must have taken into consideration irrelevant factors, omitted those he ought to have considered, or weighed relevant factors in unreasonable manner--Evidence herein all of investment used for exploration--Here, since facts found by T.C.J. reasonably supported inferences he drew from them and did not misstate law, no basis for concluding his decision erroneous in law--On facts of case, would not be inconsistent with statutory purpose underlying "flow-through share" provisions to allow $7,500 claimed by taxpayer--Promised benefits might "reasonably be considered", not as "a return of part of the consideration" to investors who purchased units, but as sales gimmicks or "sweeteners" offered in crowded market as marketing tool to distinguish Lumberton's offering--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1--Income Tax Regulations, C.R.C., c. 945, s. 6202.1(1) (as enacted by SOR/90-86).