Canada v. Loewen
T-819-90
Dubé J.
8/2/93
15 pp.
Appeal from Tax Court of Canada decision as to whether $40,000 gain on redemption of Scientific Research Tax Credit debenture (SRTC) income or capital gain-Taxpayer, general accountant, seeking tax shelter-SRTC debenture purchased in July 1984 from Dynaflex Industries (Dynaflex) for $200,000 with redemption price of $140,000 and deemed cost of $100,000 under Income Tax Act, s. 127.3(6)-On demand, Dynaflex would pay $140,000 in full to taxpayer-Designation made by Dynaflex in August 1984 under Act, s. 194(4) allowing taxpayer to use tax credit of $102,000 for 1984 taxation year-Taxpayer asking redemption on January 2, 1985-Amount of $140,000 paid to him from lawyer's trust account-Late filing of prescribed election forms with respect to disposition of SRTC debenture-Out-of-pocket cost to taxpayer for Dynaflex debenture $60,000 for tax credit of $102,000-Four Tax Court of Canada decisions involving SRTC program, evenly divided as to nature of gain-English decisions relied on by TCC judge involving forward stripping of dividends, not determinative as question raised distinguishable-Taxpayer herein not retaining debenture to earn interest income, requesting redemption as soon as debenture paid in full-Final payment representing bulk of purchase price never in hands of Dynaflex to be invested in operations-Purchase of debenture intended to earn profit-Transaction not investment, rather legitimate profit-making scheme, adventure in nature of trade-Sum of $40,000 taxable income in taxpayer's 1985 taxation year-Act, s. 39(4) not allowing late filing of election-Taxpayer's late election not valid-Appeal allowed-Income Tax Act, S.C. 1970-71-72, c. 63, ss. 39(4) (as enacted by S.C. 1977-78, c. 1, s. 16(2)), 127.3(2)(a) (as enacted by S.C. 1983-84, c. 1, s. 73(1)), 127.3(6) (as enacted idem), 194(4) (as amended idem, s. 95(1)), 248(1) (as am. by S.C. 1979, c. 5, s. 66(3)).