Federal Court of Appeal - Darling v. Canada (Attorney General)

[1] By judgment of the Ontario Court (General Division) in 1996 (see: [1996] O.J. No. 1036), the applicant and his brother were ordered to repay a portion of funds advanced by investors in 1991 for the acquisition of a farm property. The General Division found that both the applicant and his brother were liable for the actions of the applicant's brother in fraudulently misleading the investors, pursuant to subsection 15(1) of the Partnership Act, R.S.O. 1990, c. P-5. In 1998, in dismissing the applicant's appeal from the judgment of the General Division, the Ontario Court of Appeal characterized the applicant's actions as a breach of trust (see: [1998] O.J. No. 2259).

[2] In computing his taxable income for his 1999 taxation year, the applicant deducted the sum of $10,737, which was the subject of a garnishing order against his earnings in that year, in respect of the General Division's judgment. The Minister of National Revenue disallowed the deduction and the Tax Court of Canada upheld the disallowance.

[3] On appeal to this Court, the applicant argues that on the basis of the judgment of this Court in McNeill v. Her Majesty the Queen, 2000 D.T.C. 6211, he should be entitled to the deduction.

[4] Even if the McNeill case supported the applicant's position, and we do not say it does, we are of the opinion that the application must fail on other grounds. The amount the applicant was ordered to repay to the investors by the General Division, as affirmed by the Ontario Court of Appeal were funds advanced on account of capital, that is, for the acquisition of farm property. The repayment ordered was a repayment of capital. Indeed, on the basis of the judgment of the Ontario Court of Appeal, the funds ordered to be repaid might be considered to have been trust funds. However, it is not necessary for us to decide that question.

[5] The repayment ordered was a payment on account of capital. By virtue of paragraph 18(1)(b) of the Income Tax Act, R.S.C. 1985 (5^th Supp.), c.1, such payments are not deductible in computing the income of a taxpayer "except as expressly permitted by this Part". The applicant does not argue that the deduction is expressly permitted.

[6] The application will be dismissed with costs.

"Marshall Rothstein"

J.A.

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-587-02

STYLE OF CAUSE: DWIGHT LEWIS DARLING v. ATTORNEY GENERAL OF CANADA

PLACE OF HEARING: Ottawa, Ontario

DATE OF HEARING: June 24, 2003

REASONS FOR JUDGMENT

OF THE COURT: (Linden, Rothstein, Pelletier JJ.A.)

RENDERED FROM THE BENCH BY: Rothstein J.A.

APPEARANCES:

Mr. Dwight Lewis Darling Applicant on his own behalf

Mr. John Shipley for the Respondent

Mr. Tony Chambers

SOLICITORS OF RECORD:

Mr. Dwight Lewis Darling Applicant on his own behalf

Brockville, Ontario

Mr. Morris Rosenberg for the Respondent

Deputy Attorney General of Canada