The taxpayer was a co-owner in a clothing manufacturing company. He acquired a gem inventory over several years. A business contact informed him of an interested offshore purchaser, and offered to sell the gems on his behalf at approximately a tenfold profit in exchange for substantial up-front fees, variously described as performance bonds, insurance, shipping, sales commissions and administration charges.
The business contact was a rogue, and absconded with the fees, which exceeded $1.6 million, and the gems. The Minister allowed a business loss for the gems but not for the professional fees.
Noël JA dismissed the taxpayer's appeal. He stated (at para. 28):
A fraudulent scheme from beginning to end or a sting operation, if that be the case, cannot give rise to a source of income from the victim's point of view and hence cannot be considered as a business under any definition.