Delmer
E
Taylor:—This
is
an
appeal
heard
in
Victoria,
British
Columbia,
on
January
1,1980
against
income
tax
assessments
for
the
years
1975
and
1976.
In
1975,
the
Minister
of
National
Revenue
increased
the
taxable
income
of
the
appellant
by
an
amount
of
$50,645,
with
the
following
explanation
on
the
assessment
notice:
Adjustment
under
subsection
15(2)—
Shareholder
Loan,
Springwood
Construction
Ltd—$50,645.
No
specifics
were
provided
by
the
appellant
with
regard
to
the
basis
of
the
appeal
for
the
year
1976
and
since
no
notice
of
objection
had
been
filed
for
that
year,
the
Board
granted
the
Minister’s
motion
to
quash
the
appeal
as
it
related
to
that
year—1976.
The
balance
of
this
decision
therefore
will
deal
with
the
year
1975.
In
assessing
the
appellant,
the
respondent
relied,
inter
alia,
upon
sections
3,15
and
169
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended.
Background
At
all
times
material,
the
appellant
was
the
principal
shareholder
of
Springwood
Construction
Ltd
(“Springwood”
or
“the
Company”),
a
company
incorporated
under
the
laws
of
British
Columbia,
with
a
fiscal
period
ending
December
31,
1975.
The
appellant
was
an
officer
and
director
of
the
company
and
directed
its
affairs
and
business.
During
the
said
fiscal
period,
he
caused
the
company
to
advance
on
his
behalf
funds
totalling
$50,645,
the
amount
of
which
was
charged
to
a
shareholder’s
loan
account
maintained
by
him
with
the
company.
Contentions
For
the
appellant:
—An
amount
of
$16,522.02
was
repaid
against
the
above
$50,645;
—the
$16,522.02
came
from
the
sale
of
a
house
into
which
the
$50,645
was
placed
during
its
construction;
—the
company
which
did
the
accounting
for
Springwood
has
been
sold
twice,
making
it
very
difficult
to
provide
information
regarding
the
transactions.
For
the
respondent:
—Since
the
appellant
has
not
shown
himself
to
come
within
the
excepting
provisions
of
subsection
15(2),
the
amount
of
$50,645
loaned
to
him
by
the
company
was
correctly
included
in
his
income
for
the
1975
taxation
year
as
provided
by
that
subsection.
—
In
the
alternative,
the
amount
assessed
was
properly
included
in
income
as
benefits
conferred
upon
the
appellant
qua
shareholder
by
the
company
within
the
meaning
of
subsection
15(1)
of
the
Income
Tax
Act.
Evidence
and
Argument
The
pertinent
facts
established,
as
I
see
them,
were:
—Springwood
did
advance
to
the
appellant
the
amount
of
$50,645.
in
1975;
—the
advance
which
was
in
the
form
of
construction
material
and
labour
went
into
the
building
of
a
personal
residence
for
the
appellant
(the
house);
—even
before
it
was
completed,
the
house
was
encumbered
by
further
obligations—at
least
a
first
mortgage
of
$60,000
and
a
second
mortgage
of
$35,000;
—
no
amounts
were
repaid
to
Springwood
in
1976;
—
no
arrangements
were
made
with
Springwood
to
repay
the
advances;
—
in
1977
the
house
was
sold,
and
the
$16,522.02
noted
above
was
all
that
remainded
available
to
pay
off
any
part
of
the
obligation
to
Springwood.
The
appellant
claimed
that
he
lost
the
house,
still
owes
Springwood
about
$34,000
and
now
faces
an
income
tax
bill
totaling
some
$30,000,
of
which
the
major
portion
is
tax
on
the
$50,645
at
issue—and
he
has
neither
earned
that
money
nor
has
assets
to
show
for
it.
The
respondent
essentially
recognized
these
factors,
but
pointed
out
that
the
law
was
clear
on
the
point
at
issue.
Findings
While
this
subject
has
been
reviewed
many
times
before
at
the
Board
level
and
by
the
Courts,
it
may
be
useful
to
quote
the
two
sections
of
the
Act
involved.
15.
Appropriation
of
property
to
shareholder.
(1)
Where
in
a
taxation
year
(a)
a
payment
has
been
made
by
a
corporation
to
a
shareholder
otherwise
than
pursuant
to
a
bona
fide
business
transaction,
(b)
funds
or
property
of
a
corporation
have
been
appropriated
in
any
manner
whatever
to,
or
for
the
benefit
of,
a
shareholder,
or
(c)
a
benefit
or
advantage
has
been
conferred
on
a
shareholder
by
a
corporation,
otherwise
than
(d)
on
the
reduction
of
capital,
the
redemption,
cancellation
or
acquisition
by
the
corporation
of
shares
of
its
capital
stock
or
the
winding-up,
discontinuance
or
reorganization
of
its
business,
or
otherwise
by
way
of
a
transaction
to
which
section
88
applies,
(e)
by
the
payment
of
a
dividend
or
a
stock
dividend,
or
(f)
by
conferring
on
all
holders
of
common
shares
of
the
capital
stock
of
the
corporation
a
right
to
buy
additional
common
shares
thereof,
the
amount
or
value
thereof
shall,
except
to
the
extent
that
it
is
deemed
to
be
a
dividend
by
section
84,
be
included
in
computing
the
income
of
the
shareholder
for
the
year.
(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
land
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
officer
or
servant
of
the
lender
to
enable
or
assist
him
to
purchase
or
erect
a
dwelling
house
for
his
own
occupation,
(iii)
where
the
lender
is
a
corporation,
to
an
officer
or
servant
of
the
corporation
to
enable
or
assist
him
to
purchase
from
the
corporation
fully
paid
shares
of
the
capital
stock
of
the
corporation,
or
to
purchase
from
a
corporation
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
officer
or
servant
of
the
lender
to
enable
or
assist
him
to
purchase
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
a
part
of
a
series
of
loans
and
repayments.
(Italics
mine).
The
subsections
of
the
Act
(15(1)
and
15(2))
at
issue
here
were
obviously
placed
therein
at
least
in
part
for
the
purpose
of
dissuading
taxpayers
from
using
the
funds
of
corporations
in
which
they
were
shareholders
for
purposes
and
in
ways
materially
different
from
those
to
which
such
funds
would
be
put
by
them
in
the
regular
business
operations
of
the
corporation.
The
risk
in
perceiving
a
closely-held
private
corporation
as
a
mere
business
extension
or
alter
ego
of
a
shareholder
taxpayer
personally
must
be
avoided,
or
the
penalty
paid.
There
are
only
a
limited
number
of
mechanisms
by
which
a
shareholder
may
legitimately
put
himself
personally
in
control
of
funds
of
a
corporation—salary,
dividends,
and
interest
primarily.
Any
other
procedures
must
be
carefuly
scrutinized
by
the
shareholder
to
ensure
that
he
is
not
also
assuming
an
income
tax
liability
personally.
The
lack
of
proper
advice,
or
a
lack
of
understanding
by
the
taxpayer
does
not
absolve
him
of
the
results
however
unfortunate
or
oppressive.
The
Board
is
not
insensitive
.o
the
plight
of
this
taxpayer,
as
he
portrays
it—owing
some
$30,000
on
a
loan
of
$50,645
to
build
a
house
he
has
lost,
in
addition
to
having
repaid
some
$16,522
of
the
amount.
There
is
little
in
the
way
of
explanation
which
can
be
provided
to
this
taxpayer
to
assuage
his
displeasure
at
such
a
situation,
but
a
comment
to
be
found
in
a
decision
of
the
Board
(Dramar
Investments
Limited
v
MNR,
[1978]
CTC
2936;
78
DTC
1675),
more
particularly
at
2940
and
1678
respectively,
would
bear
repeating:
.
.
.
I
Would
point
out
that
while
the
corporate
format
for
business
operations
is
recognized
and
acclaimed
by
investors
and
businessmen
alike
for
its
convenience
and
advantageous
characteristics,
its
use
for
such
commerical
purposes
carries
with
it
the
distinct
obligation
for
the
same
parties
to
understand
and
accept
the
restrictions
and
parameters
inherent
in
the
corporate
structure,
from
a
taxing
perspective.
Also,
this
taxpayer
has
laboured
under
the
impression
that
if
some
“paper”
had
been
drawn
up
between
himself
and
the
company
dealing
with
a
repayment
program
before
December
31,
1976,
the
matter
would
have
been
regulated.
The
Board
is
not
called
upon
to
determine
any
of
the
questions
which
would
then
have
arisen
(from
some
“paper”)
but
suffice
it
to
say
that
the
question
of
whether
or
not
the
$50,645
transaction
(or
series
of
transactions
in
1975)
indeed
represented
a
“loan”,
or
whether
it
would
be
more
appropriately
termed
a
“benefit
or
advantage”
would
have
been
pertinent
indeed,
and
might
not
have
been
easily
resolved
in
the
appellant’s
favour.
Decision
The
appeal
for
1975
is
dismissed
and
the
appeal
for
1976
is
quashed.
Appeal
dismissed.
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