The Minister of National Revenue added a large amount (the "Amount") to the client taxpayer’s 1990 income pursuant to subsection 15(2) of the Income Tax Act and denied the taxpayer’s claim for a non-capital loss deduction in 1993 pursuant to paragraph 20(1)(j) of the Act. The taxpayer was the sole shareholder of a corporation (the "Corporation"). The Amount was withdrawn from the Corporation in 1989 to purchase property, title to which was taken in the name of the taxpayer’s husband. In 1993 the Corporation entered into an agreement of purchase and sale for another property, the financing for which was arranged by the taxpayer’s husband by arranging a mortgage, guaranteed by the taxpayer, on the first-mentioned property. Title was again taken in the husband’s name. A year after the purchase the husband executed a retro-active declaration of trust of the second-mentioned property in favour of the Corporation and subsequently conveyed the property to the Corporation. On behalf of the taxpayer, Patrick argued that the Corporation was always the beneficial owner of the property and that the advance of the Amount created a shareholder loan which the taxpayer paid off in 1993 by creating a non-capital loss pursuant to paragraph 20(1)(j) and that pursuant to paragraph 111(1)(a) she was entitled to carry back this loss to 1990.
The Tax Court judge decided the case as follows:
"The question boils down to whether [the Corporation] purchased the Property on October 15, 1993 and if so, did it use at least [the Amount] of the Appellant’s money to do so. While I find this case close to the line, I accept the position of the Appellant as ably set out by her lawyer."