A W Prociuk (orally):—At the hearing of this appeal on January 22 last, the matters respecting certain pension plan contributions for the taxation years 1964 to 1967, inclusive, were adjourned to the next sittings at Winnipeg, scheduled to be held on April 2, 1973, unless sooner settled. The other issue of disallowance by the Minister of the sum of $21,000 as a reserve for a doubtful debt in the taxation year 1965 was proceeded with and fully argued. It was conceded by counsel for the respondent that the appellant was a money-lender within the meaning of paragraph 11 (1 )(e), which reads as follows:
11. (1) . . . the following amounts may be deducted in computing the income of a taxpayer for a taxation year:
(e) a reasonable amount as a reserve for
(i) doubtful debts that have been included in computing the income of the taxpayer for that year or a previous year, and
(ii) doubtful debts arising from loans made in the ordinary course of business by a taxpayer part of whose ordinary business was the lending of money;
Accordingly, the sole issue to determine is whether or not the loan herein was “in the ordinary course of business’’ of the appellant.
Briefly, the facts are as follows: The appellant’s principal officer and president, Sidney L Morantz, of Winnipeg, Manitoba, discussed with his friend, A V Cham, also of Winnipeg, Manitoba, an executive in the financial field, the possibility of purchasing a shopping centre at St Clair Shores, Michigan, USA. Having agreed that this would be a beneficial and viable project, they incorporated a company in Michigan, USA, known as St Clair Shores Shopping Centre Inc, both being the principal officers thereof. The appellant, through the instrumentality of its president, Sidney L Morantz, aforesaid, advanced or loaned certain sums of money to the American corporation, totalling some $81,000, more or less. No security, collateral, nor any documentation relative hereto was obtained for this loan by the appellant, with the exception of three demand promissory notes signed by the above gentlemen as officers of the St Clair corporation. No interest was charged nor stipulated.. Both men stated that the reason for such procedure was the fact that they controlled St Clair and the money would be repaid as soon as it became available from its business operation. Unfortunately, the St Clair project shortly thereafter showed every indication of financial failure; and, in 1965, the appellant set up a reserve for doubtful debts of $21,000, which was disallowed. The fact of the matter is that subsequently the American corporation met with total failure, and the appellant had lost beyond recovery approximately $44,000. This, of course, is most unfortunate.
In listening to the testimony of Messrs Morantz and Cham, which was at once admirably credible and forthright, one cannot help but conclude that the poor state of documentation of the financial transactions, or the total lack of same, is to be found among good friends and close associates.
I have also read the judgment of Mr R S W Fordham, QC in Shaw v MNR, 39 Tax ABC 326; 65 DTC 682, which in certain respects is not dissimilar to the instant case before the Board.
Having given the matter my best consideration, I must conclude that this transaction was more in the nature of an accommodation to an associate or a capital investment by the appellant. Having regard to its other loan transactions it is clear that this was not a loan “in the ordinary course of its business” as a money-lender.
The appeal, accordingly, is dismissed.
Appeal dismissed.