Tremblay,
T.C.J.:—This
appeal
was
heard
on
November
6,
1986
in
the
City
of
Montréal,
Québec.
1.
The
Point
at
Issue
Pursuant
to
the
notice
of
appeal
and
the
reply
to
the
notice
of
appeal,
the
point
at
issue
is
whether
the
appellant,
a
shareholder
of
Campbell
Electric
Supply
Limited
(the
Company),
is
correct
in
the
computation
of
his
income
for
the
1982
taxation
year,
not
to
include
$22,529
which
was
advanced
to
him
during
the
said
year
by
the
Company.
The
appellant
contends
that
the
Company
owed
to
his
father
$146,427
at
January
31,
1982.
The
latter
has
taken
the
position
that
the
advances
to
the
appellant,
his
son,
should
be
applied
against
the
amount
owing
to
him
by
the
Company,
retroactive
to
the
1981
taxation
year.
Accordingly,
the
advances
to
the
appellant
would
not
be
owing
by
him
to
the
Company
and
should
not
be
assessed
under
subsection
15(2)
of
the
Income
Tax
Act.
The
respondent
contends
among
others,
that
no
part
of
the
advance
of
$22,529
was
off
set
against
amounts
owing
by
the
Company
to
the
appellant's
father
on
or
before
January
31,
1983,
pursuant
to
subsection
15(2)
of
the
Income
Tax
Act
(the
Act).
2.
The
Facts
2.01
At
the
beginning
of
the
trial,
counsel
for
the
parties
filed
an
agreed
statement
of
facts.
It
reads
as
follows:
1.
The
Appellant
is
a
shareholder
of
Campbell
Electric
Supply
Ltd.
(formerly
House
of
Campbell
Electric
Supply
Ltd.)
(the
"Company")
and
in
the
taxation
year
1982
advances
were
made
by
the
Company
to
A.
David
Taylor.
2.
By
Reassessment,
notice
of
which
was
dated
March
29,
1984,
the
Respondent
included
in
the
Appellant's
income
the
amount
of
$22,529.00
to
which
he
was
indebted
to
the
Company
in
which
he
was
a
shareholder,
pursuant
to
subsection
15(2)
of
the
Income
Tax
Act,
1952,
Chapter
148,
as
amended
(the
"Act").
3.
The
taxpayer's
father,
Mr.
Campbell
F.
Taylor,
was
owed
$146,427.00
by
the
Company
at
January
31,
1982.
4.
At
all
material
times,
the
Company
has
owed
Mr.
Campbell
F.
Taylor
in
excess
of
$22,529.00.
5.
In
reassessing
the
Appellant
as
aforesaid,
the
Respondent
relied,
inter
alia,
upon
the
following
findings
or
assumptions
of
fact:
(a)
at
all
material
times
the
Company
was
a
corporation,
incorporated
under
the
laws
of
Ontario
which
was
engaged
in
wholesale
and
retail
sales;
(b)
at
all
material
times
the
Appellant
was
a
shareholder
of
the
Company;
(c)
the
Company
had
a
fiscal
year
end
of
January
31;
(d)
during
the
1982
taxation
year
the
Appellant
received
advances
from
the
Company
totalling
$22,529.00
(the
"advance");
(e)
the
advance
was
not
made
for
the
purpose
of
enabling
or
assisting
the
Appellant
to
acquire
a
dwelling,
fully
paid
shares
of
the
Company
or
an
automobile
to
be
used
in
the
performance
of
his
employment;
(f)
no
part
of
the
advance
was
repaid
by
the
Appellant
to
the
Company
on
or
before
January
31,
1983.
6.
Mr.
Campbell
F.
Taylor
has
taken
the
position
that
the
advances
to
his
son,
A.
David
Taylor,
should
be
set-off
against
the
amounts
owing
to
him
by
the
Company,
retroactive
to
the
1981
taxation
year.
7.
Revenue
Canada
was
informed
of
this
position
by
letter
dated
May
14,
1984
from
Price
Waterhouse,
Chartered
Accountants,
accountants
for
Campbell
F.
Taylor
and
A.
David
Taylor,
a
true
copy
of
which
is
attached
hereto
as
Schedule
"A".
8.
Mr.
Campbell
F.
Taylor's
position
was
confirmed
by
his
letter
dated
November
30,
1984
addressed
to
Revenue
Canada,
District
Taxation
Office,
451
Talbot
Street,
London,
Ontario,
a
true
copy
of
which
is
attached
hereto
as
Schedule
"B".
9.
Mr.
Campbell
F.
Taylor
indicated
his
intention
that
the
loans
to
A.
David
Taylor
by
the
Company
should
be
set-off
against
the
amounts
owing
by
the
Company
to
him
only
after
he
was
made
aware
of
the
Notice
of
Reassessment
dated
March
29,
1984.
It
was
at
that
time
that
he
was
advised
by
his
accountant
of
the
income
tax
implications
for
his
son,
A.
David
Taylor,
of
the
shareholder
advances.
10.
The
Appellant
admits
that
the
position
taken
by
his
father,
Campbell
F.
Taylor,
with
respect
to
set-off
the
said
amounts
was
not
verbalized
nor
was
it
put
into
writing
before
January
31,
1983.
11.
The
only
issue
to
be
adjudicated
upon
in
this
appeal
is
whether
the
set-off
of
the
shareholder
advances
against
the
monies
owing
by
the
Company
to
the
Appellant's
father,
campbell
F.
Taylor,
can
be
effective
retroactively
to
the
1982
taxation
year
in
view
of
the
fact
that
the
intention
of
Campbell
F.
Taylor
to
allow
those
set-offs
was
not
verbalized
or
put
into
writing
prior
to
January
31,
1983.
12.
The
issue
involved
is
a
question
of
law
alone,
no
viva
voce
evidence
is
required
to
determine
the
said
issue,
and
the
appeal
should
be
determined
by
means
of
verbal
argument
made
on
the
hearing
date.
Dated
at
London,
Ontario
this
27th
day
of
October
1986.
Lerner
&
Associates
543
Ridout
Street
North
London,
Ontario
N6A
2P8
Solicitors
for
Appellant
Per:
Sandra
M.
Mitic
Dated
at
Toronto,
Ontario
this
day
of
November
1986.
Dept,
of
Justice
Solicitors
for
Respondent
Per:
2.02
The
letter
of
Mr.
Campbell
F.
Taylor
referred
to
in
paragraph
8
of
the
agreed
statement
of
facts
reads
as
follows:
November
30,
1984
Revenue
Canada
District
Taxation
Office
451
Talbot
St.
London,
Ontario
Attention:
G.
Leitch
—
Appeals
Section
Dear
Sirs:
Please
accept
this
letter
as
my
authorization
and
approval
to
allow
all
loan
and
payable
accounts
of
my
son
A.
David
Taylor
with
Campbell
Electric
Supply
Ltd.
(formerly
House
of
Campbell
Electric
Supply
Ltd.)
to
be
transferred
against,
and
be
offset
by,
loans
and
accounts
payable
by
said
company
to
me,
Campbell
F.
Taylor,
retroactive
to
the
1981
taxation
year.
Should
you
require
any
additional
information,
please
contact
my
accountant,
J.
T.
Hardy
of
Price
Waterhouse
at
679-9160.
Yours
very
truly,
C.
F.
Taylor
/s/
C.
F.
Taylor
3.
Law
-
Cases
at
Law
-
Analysis
3.01
Law
The
main
provision
of
the
Income
Tax
Act
involved
in
the
instant
case
is
subsection
15(2).
It
reads
as
follows:
15.
.
.
.
(2)
Loan
to
shareholder,
etc.
Where
a
particular
corporation,
a
corporation
to
which
the
particular
corporation
is
related
or
a
partnership
of
which
either
or
both
of
the
corporations
is
a
member
has
in
a
taxation
year
made
a
loan
to
a
person
(other
than
a
corporation
resident
in
Canada)
who
is
a
shareholder
of
the
particular
corporation
or
who
is
connected
with
a
shareholder
of
the
particular
corporation,
the
amount
thereof
shall
be
included
in
computing
the
income
for
the
year
of
the
person
to
whom
the
loan
was
made
unless
(a)
the
loan
was
made
(i)
in
the
ordinary
course
of
the
lender's
business
and
the
lending
of
money
was
part
of
its
ordinary
business,
(ii)
to
an
employee
of
the
lender
or
to
the
spouse
of
an
employee
of
the
lender
to
enable
to
assist
the
employee
or
his
spouse
to
acquire
a
dwelling
for
his
habitation,
(iii)
where
the
lender
is
a
corporation,
to
an
employee
of
the
corporation
to
enable
or
assist
the
employee
to
acquire
from
the
corporation
fully
paid
shares
of
the
capital
stock
of
the
corporation,
or
to
acquire
from
a
corpora-
tion
related
to
the
corporation
fully
paid
shares
of
the
capital
stock
of
the
related
corporation,
to
be
held
by
him
for
his
own
benefit,
or
(iv)
to
an
employee
of
the
lender
to
enable
or
assist
the
employee
to
acquire
an
automobile
to
be
used
by
him
in
the
performance
of
the
duties
of
his
office
or
employment,
and
bona
fide
arrangements
were
made
at
the
time
the
loan
was
made
for
repayment
thereof
within
a
reasonable
time;
or
(b)
the
loan
was
repaid
within
one
year
from
the
end
of
the
taxation
year
of
the
lender
in
which
it
was
made
and
it
is
established,
by
subsequent
events
or
otherwise,
that
the
repayment
was
not
made
as
part
of
a
series
of
loans
and
repayments.
3.02
Cases
at
Law
Counsel
for
the
parties
referred
the
Court
to
the
following
cases
at
law:
1.
Oswald
H.
New,
Oswald
H.
New
&
Co.
Ltd.,
William
Arthur
New,
Eva
Viola
New
v.
M.N.R.,
[1975]
C.T.C.
2257;
75
D.T.C.
206
(T.R.B.);
2.
Taggart
v.
M.N.R.,
[1980]
C.T.C.
2322;
80
D.T.C.
1296
(T.R.B.);
3.
Wiseman
et
al.
v.
M.N.R.,
[1982]
C.T.C.
2634;
82
D.T.C.
1633
(T.R.B.);
4.
Kates
v.
M.N.R.,
[1984]
C.T.C.
2681;
84
D.T.C.
1605
(T.C.C.);
5.
D'Astous
and
The
Estate
of
the
late
Pierre
D'Astous
v.
M.N.R.,
[1985]
2
C.T.C.
2086;
85
D.T.C.
440
(T.C.C.);
6.
Hadler
Turkey
Farms
Inc.
v.
The
Queen,
[1986]
1
C.T.C.
81;
86
D.T.C.
6013
(F.C.T.D.);
7.
Montreal
Trust
(The
Estate
of
Lodestar
Drilling
Co.
Ltd.)
v.
M.N.R.,
[1962]
C.T.C.
418;
62
D.T.C.
1242.
3.03
Analysis
3.03.1
The
point
is
whether
it
is
correct
to
accept
retroactively
to
December
31,
1982,
the
agreement
dated
November
30,
1984,
of
the
appellant's
father
to
allow
the
Company
to
set
off
against
the
amount
due
to
him
by
the
Company
the
amounts
that
were
owed
by
the
appellant
to
the
Company.
A.
Appellant's
argument
3.03.2
To
base
his
contention
that
the
retroactive
effect
of
the
agreement
of
the
appellant's
father
is
correct,
counsel
for
the
appellant
first
referred
to
the
letter
dated
November
30,
1984
cited
in
paragraph
2.02.
He
underlined
that
if
this
letter
states
"retroactive
to
the
1981
taxation
year",
it
is
because
the
appellant
was
reassessed
for
1981
and
1982.
The
objection
for
1981
was
subsequently
allowed
but,
counsel
continued,
"from
the
letter
it
can
be
implied
that
it
is
intended
to
take
effect
as
the
day
or
date
which
the
loans
to
the
appellant
were
made
in
1982"
(TS,
p.
3).
3.03.3
Then
counsel
for
the
appellant
referred
the
Court
to
different
cases
at
law,
the
reference
of
which
is
given
in
paragraph
3.02(1)
to
(5).
These
cases
were
summarized
as
follows
by
Dominion
Tax
Cases.
1.
The
Oswald
H.
New
et
al.
case
The
individual
taxpayers
were
the
shareholders
of
the
taxpayer
company,
a
personal
corporation.
During
the
period
1968
to
1970
the
appellants
Oswald
and
Oswald
&
Co.
Ltd.
had
borrowed
sums
of
money
from
one
of
four
companies
owned
and
controlled
by
the
New
family.
To
repay
the
monies
borrowed,
the
personal
corporation
assigned
to
the
creditor
corporation
a
receivable
which
it
had
acquired
as
the
result
of
the
sale
of
assets
to
another
of
the
four
companies.
The
Minister
contended
that
the
assignment
of
a
receivable
to
the
creditor
corporation
did
not
constitute
repayment
of
the
loans
within
the
meaning
of
subsection
8(2)
of
the
former
Act,
and
the
loans
were
deemed
to
be
a
dividend.
The
taxpayer
appealed.
Held:
The
appeals
were
allowed.
The
assignment
of
a
bona
fide
receivable
in
the
circumstances
of
this
case
constituted
repayment
of
the
loans,
and
the
amount
of
the
loans
should
not
be
deemed
to
have
been
paid
to
the
shareholders
of
the
personal
corporation
as
a
dividend.
Whether
or
not
a
completely
independent
company
would
have
accepted
the
receivable
as
repayment
of
the
loans
was
hypothetical
and
immaterial.
It
appeared
from
the
evidence
that
this
type
of
consolidation
of
accounts
had
been
made
use
of
several
times
in
the
past
twenty
years
and
had
not
been
questioned
by
the
Department
of
National
Revenue.
All
the
transactions
involved
here
had
been
carried
out
in
good
faith
and
in
the
genuine
belief
that
such
consolidation
would
constitute
a
valid
repayment
of
the
loans.
2.
The
James
Taggart
case
At
the
end
of
1974,
the
taxpayer
was
indebted
to
the
company
of
which
he
was
the
sole
shareholder
to
the
extent
of
$48,736.
The
debt
remained
unpaid
and
shortly
before
the
end
of
1975,
when
the
debt
was
required
to
be
included
in
the
taxpayer's
income,
his
accountant
devised
a
plan
to
avoid
such
inclusion.
Since
the
company
was
prevented
by
anti-inflation
legislation
from
paying
a
dividend
to
the
taxpayer
in
order
to
allow
him
to
repay
the
debt
before
the
end
of
1975,
the
plan
called
for
the
taxpayer's
wife
to
mortgage
a
home
she
owned
to
the
company
in
exchange
for
$50,000
which
she
would
then
loan
to
her
husband
to
repay
his
debt
to
the
company.
This
was
done,
except
that
the
mortgage
was
not
delivered
to
the
company
until
mid-1976.
The
Minister
included
the
$48,736
loan
in
the
taxpayer's
income
for
1974
and
a
further
$611
of
a
similar
nature
in
1975.
The
taxpayer
appealed
to
the
Tax
Review
Board,
contending
that
no
amounts
should
have
been
added
to
his
incomes,
as
the
effect
of
the
accountant's
scheme
was
that
his
entire
indebtedness
had
been
repaid
by
the
end
of
1975.
Held:
The
taxpayer's
appeal
was
dismissed.
The
Board
observed
that
the
greatest
asset
the
company
had
from
the
taxpayer's
wife
at
the
end
of
1975
was
a
promise
to
repay
$50,000,
not
a
$50,000
mortgage.
Her
promise
to
repay
did
not
constitute
actual
repayment
of
the
taxpayer's
debt
and
the
taxpayer's
appeal
was
therefore
dismissed.
3.
The
Fred
Wiseman
et
al.
case
The
taxpayers
held
shares
in
a
company
as
individual
single
shareholders
and
as
controlling
shareholders
of
the
majority
shareholder
in
the
company.
The
taxpayers
received
a
loan
from
the
company
for
the
purposes
of
the
purchase
of
a
building
and,
within
one
year
from
the
end
of
the
lender's
taxation
year
in
which
the
loan
was
made,
the
taxpayers
substituted
a
loan
guaranteed
by
mortgage
for
the
original
loan.
The
Minister
assessed
the
taxpayers
for
income
from
the
loan.
The
taxpayers
appealed
to
the
Tax
Review
Board
contending
that
they
were
not
shareholders
as
such
of
the
lender
or
that
they
had
repaid
the
loan
within
the
required
time
period
to
allow
exemption.
Held:
The
taxpayers'
appeal
was
dismissed.
The
Board
found
that
the
granting
of
the
mortgage
was
not
repayment
of
the
loan
but,
rather,
was
a
transaction
which
made
the
lender
more
secure
under
the
terms
of
the
loan.
Therefore,
there
was
no
"repayment"
of
the
loan
within
the
meaning
of
the
relevant
statutory
provision
and
the
taxpayers,
as
shareholders,
were
properly
assessed
for
income.
The
taxpayer's
appeal
was
dismissed
accordingly.
4.
The
Stan
Kates
case
The
taxpayer
received
loans
in
his
1975
and
1976
taxation
years
from
a
corporation
of
which
he
was
a
shareholder.
From
the
end
of
1974
to
the
end
of
1977
there
was
a
total
of
81
loans
to
the
taxpayer
and
21
repayments
to
the
company.
The
loans
in
question
were
repaid
within
one
year
of
the
end
of
the
company's
taxation
year
in
which
they
were
made.
At
the
end
of
the
company's
1975
and
1976
taxation
years
there
were
certain
amounts
in
its
shareholder
loan
account
with
the
taxpayer
but
there
were
also
certain
accrued
management
fees
of
greater
amounts
owing
to
the
taxpayer
at
the
end
of
these
taxation
years
which
the
taxpayer
paid
tax
on
in
the
following
year.
The
Minister
included
the
shareholder
loans
in
issue
in
the
taxpayer's
income
on
the
basis
that
they
were
part
of
a
series
of
loans
and
repayments.
The
taxpayer
appealed
to
the
Tax
Court
of
Canada.
Held:
The
taxpayer's
appeal
was
allowed.
The
Court
found
that
the
loans
in
issue
could
be
regarded
as
part
of
a
series
of
loans
and
repayments.
However,
there
would
not
be
a
"series"
within
the
meaning
of
the
relevant
statutory
provision
if
there
were
no
balance
in
the
shareholder
loan
account
at
the
end
of
the
taxation
years
in
issue.
This
was
in
substance
the
case
since
it
would
have
been
possible
to
diminish
the
amount
of
the
accrued
management
salary
outstanding
at
the
end
of
these
taxation
years.
5.
The
Bertrand
D'Astous
et
al.
case
The
taxpayer
PD,
now
deceased,
wanted
to
lend
his
son,
the
taxpayer
BD,
the
sum
of
$43,000
to
purchase
some
land.
However,
instead
of
advancing
his
personal
funds,
PD
chose
to
lend
the
amount
out
of
the
funds
of
a
corporation
of
which
he
was
the
principal
shareholder.
BD
was
also
a
shareholder
of
the
company
at
the
time.
About
six
months
later,
the
taxpayers
signed
a
document
wherein
BD
acknowledged
that
he
was
indebted
to
PD
in
the
amount
of
$43,000.
The
company's
accountant,
in
the
company's
books,
showed
the
loan
as
being
advanced
to
BD
but,
after
seeing
the
acknowledgment
of
debt,
changed
the
entry
to
show
the
estate
of
the
late
PD
as
the
debtor.
The
loan
remained
unpaid
three
years
after
it
was
made
and
the
Minister
included
the
sum
of
$43,000
in
BD's
income.
BD
appealed
to
the
Tax
Court
of
Canada
and,
with
the
consent
of
the
parties,
the
estate
of
PD
was
joined
as
a
party
to
the
appeal.
Held:
The
appeal
of
the
taxpayer
BD
was
dismissed.
The
Court
found
that
the
loan
was
made
by
the
corporation
and
not
by
PD
personally.
BD
had
therefore
received
a
taxable
shareholder
loan.
Neither
the
acknowledgment
of
debt
nor
the
accounting
changes
could
alter
that
fact.
3.03.4
In
those
cases,
the
points
at
issue
were
whether
or
not
a
bona
fide
receivable
(1),
a
promise
to
repay
$50,000
(2),
the
granting
of
a
mortgage
(3),
a
debt
due
by
the
company
to
the
appellant,
etc.
can
be
considered
as
the
repayment
of
the
loan
made
by
a
company
to
the
taxpayer.
In
all
those
cases,
however,
it
is
not
in
dispute
that
the
juridical
fact
(bona
fide
receivable,
etc.)
occurred
within
the
time
limit,
i.e.
within
one
year
from
the
end
of
the
taxation
year
of
the
lender
company.
In
the
instant
case,
the
time
limit
is
at
issue
because
the
decision
of
the
appellant's
father
dated
November
1984
is
retroactive
to
the
end
of
December
1983.
3.03.5
Counsel
for
the
appellant
also
argued
that
the
respondent
had
also
reassessed
his
client
for
the
1981
taxation
year
with
an
amount
being
added
to
his
income
for
the
same
reason
as
for
1982.
The
respondent
allowed
the
notice
of
objection
but
confirmed
his
position
with
respect
to
the
1982
taxation
year.
The
basis
of
the
decision
for
1981
was
not
adduced
in
evidence.
However,
according
to
counsel
for
the
appellant,
the
decision
for
confirming
the
position
for
1982
would
be
due
to
a
change
in
the
respondent's
policy.
He
contends
that
this
creates
the
impression
in
the
appellant's
mind
that
it
is
not
equitable.
The
respondent
seems
to
apply
the
Act
arbitrarily.
This
does
not
give
the
appearance
of
Justice
according
to
counsel
for
the
appellant.
B.
Respondent's
argument
3.03.6
Counsel
for
the
respondent
mainly
based
his
argument
on
the
Hadler
Turkey
Farms
case
(paragraph
3.02(6)).
It
is
summarized
as
follows
by
Dominion
Tax
Cases:
The
taxpayer
corporation,
which
carried
on
a
farming
business,
filed
returns
in
respect
of
its
1973
to
1975
taxation
years
using
the
accrual
method
of
accounting.
In
1977
the
Minister
reassessed
the
taxpayer
for
those
years.
On
receipt
of
those
reassessments,
the
taxpayer
sought
to
elect
to
use
the
cash
method
of
accounting
with
the
result
being
nil
taxable
income
for
all
three
years.
The
Minister
took
the
position
that
the
option
was
not
available
at
that
time
and
the
Tax
Review
Board
(unreported)
dismissed
the
taxpayer's
appeal
from
that
decision.
The
taxpayer
further
appealed
to
the
Federal
Court
—
Trial
Division.
Held:
The
taxpayer's
appeal
was
dismissed.
The
Court
found
that
the
reassessments
did
not
open
the
entire
question
of
taxability
for
those
years.
Therefore,
it
was
not
open
to
the
taxpayer
to
file
new
or
amended
returns.
Furthermore,
the
election
to
use
the
cash
method
of
accounting
could
only
be
made
with
the
filing
of
the
return.
Once
the
taxpayer
filed
his
return
on
the
accrual
basis,
the
cash
option
no
longer
existed
for
that
taxation
year.
The
conclusion
of
Mr.
Justice
Jerome
reads
as
follows:
I,
therefore,
conclude
that
Hadler
Turkey
Farms,
in
filing
its
original
returns
for
the
1973,
1974
and
1975
taxation
years,
lost
any
option
to
elect
to
report
income
on
a
cash
basis
for
those
taxation
years.
On
the
basis
of
the
decision
of
the
Supreme
Court
of
Canada
in
Montreal
Trust
Co.
(Lodestar
Drilling
Co.
Ltd.)
v.
Minister
of
National
Revenue,
the
reassessments
issued
by
the
Minister
in
1977
do
not
resurrect
that
option
to
elect
to
report
on
a
cash
basis.
The
Minister's
reassessment
is,
therefore,
correct
and
the
appeal
must
fail.
The
action
is
dismissed
with
costs.
C.
Courts'
decisions
3.03.7
A
taxpayer
doing
business
through
a
corporation
has
advantages
that
another
taxpayer
does
not
have.
The
possibility
of
having
a
loan
from
the
corporation
is
one
of
these
advantages.
However,
in
view
of
restricting
abuses,
the
legislator
put
strict
requirements
to
the
shareholder
using
such
advantage.
If
those
requirements
are
not
met,
the
taxpayer
shareholder
must
suffer
the
consequences.
Moreover,
despite
it
is
a
legally
different
person
from
its
shareholder,
a
corporation
acts
through
its
shareholders,
through
its
officers.
The
main
decisions
of
the
officers
and
shareholders
on
behalf
of
the
corporation
must
be
registered
in
the
minute
book
and
consequently,
often
in
the
accounting
books.
However,
in
the
administration
of
a
small
family
corporation,
it
often
occurs
that
decisions
be
made
without
registration
of
any
records.
It
is
like
in
business,
where
often
there
is
no
written
agreement
between
parties
as
it
was
underlined
by
Mr.
Justice
Urie
in
the
Massey-Ferguson
Ltd.
v.
The
Queen
case,
[1977]
C.T.C.
6
at
13;
(77
D.T.C.
5013
at
5017).
The
whole
development
of
commercial
law
over
the
centuries
is
replete
with
examples
of
the
Courts
recognizing
that
business
men
do
not
always
depend
on
expert
documentation
to
prove
the
true
characterization
of
their
transactions.
Rather,
they
tend
to
achieve
their
desired
ends,
particularly
when
the
relationships
between
them
are
close,
in
informal
and
expeditious
ways
which
perhaps
are
abhorrent
to
lawyers.
In
doing
so
they
can
[run]
the
risks
inherent
in
such
a
practice
of
determining
their
respective
rights.
Frequently
no
difficulties
ensue,
but
if
they
do,
in
the
absence
of
contracts
or
other
documents,
Courts
must
determine
the
intention
of
the
parties
and
the
nature
of
the
obligations
imposed
on
them
by
reference
to
credible
evidence
of
another
kind.
In
a
small
corporation,
the
absence
of
registration
of
a
decision
is
very
often
without
consequence.
If
a
registration
of
the
decision
is
required,
it
is
done
retroactively.
Then,
indeed,
all
the
interested
parties
are
shareholders
who
have
common
interests.
It
is
different,
however,
when
a
third
party
is
involved
in
the
transaction.
In
my
opinion,
Mr.
Justice
Heald
in
The
Queen
v.
Peter
Neudorf
case,
[1975]
C.T.C.
192;
75
D.T.C.
5213
(F.C.T.D.)
touches
the
actual
point
when
he
stated
at
page
196
in
the
Canada
Tax
Cases
and
page
5215
in
the
Dominion
Tax
Cases
:
It
is
my
further
view
that
since
one
of
the
parties
to
the
arrangement
was
a
corporation,
there
is
more
formality
required
(such
as
corporate
resolutions,
for
example)
than
in
the
case
of
individuals
and
particularly
where
the
details
of
a
relationship
are
important
as
against
third
persons
such
as
the
Revenue.
In
the
instant
case,
the
payments
of
the
loan
to
the
appellant
is
not
registered
in
the
company's
records
neither
by
a
sum
of
money
cashed
by
the
company
nor
by
the
diminution
of
the
account
payable
due
to
Campbell
F.
Taylor,
the
appellant's
father.
The
formality
must
be
more
strictly
followed
when
the
result
is
an
advantage
received
by
the
main
shareholder
(or
one
of
his
relatives
also
shareholder)
because
the
lack
of
a
formality
is
his
or
their
mistake.
In
the
instant
case,
the
third
party
is
the
Department
of
National
Revenue,
that
is
the
administrator
of
the
Income
Tax
Act
which
contains
paragraph
15(2)(b)
requiring
a
payment
of
the
loan
within
one
year
from
the
end
of
the
taxation
year
of
the
lender.
In
the
instant
case,
it
is
within
the
end
of
1983.
In
my
opinion,
the
letter
issued
by
the
appellant's
father
in
November
1984
cannot
be
considered
as
having
a
retroactive
effect
in
the
present
circumstances.
3.03.8
Concerning
the
fact
that
the
respondent
allowed
the
notice
of
objection
for
the
taxation
year
1981
and
not
for
1982,
it
is
the
Court's
opinion
that
if
it
were
part
of
the
instant
case,
that
appeal
for
1981
would
also
have
been
dismissed.
According
to
counsel
for
the
appellant,
indeed,
the
evidence
for
the
1981
taxation
year,
in
substance,
was
the
same
as
for
the
year
1982.
The
only
thing
different
was
another
amount
of
money
borrowed
by
the
appellant
from
the
company.
The
appellant
has
only
to
be
happy
that
the
respondent
has
allowed
the
notice
of
objection
concerning
1981.
The
reassessment
concerning
1982
must
be
maintained.
4.
Conclusion
For
these
reasons,
the
appeal
is
dismissed.
Appeal
dismissed.
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