The taxpayer's company acquired a property at a net cost of $159,000 and converted it for use in a car dealership at a cost of $185,000, so that its total cost was $359,000. In 1965 the taxpayer acquired the property from the company in consideration for the assumption of $311,000 of mortgages, and was issued a promissory note of the company for $53,000, so that his net cost was $259,000, i.e., $85,000 less than the company's cost. He then leased the premises back to the company on a 4 1/2 year lease. In 1966 the company expended $42,000 in making improvements.
The Minister assessed a shareholder benefit of $85,000 for 1965, and of $42,000 for 1966.
Respecting the 1965 assessment, the Trial Court's finding that the value of the property was at least $359,000 was appropriate as "it is to be assumed, in the absence of evidence to the contrary, that an experienced business man such as the appellant does not make business expenditures that are not calculated to produce results at least equal in value to the amounts expended" (pp. 5362-5363). In rejecting an argument that the promissory note did not give rise to a benefit in the year of issuance, Jackett CJ stated (at p. 5361):
[W]hen a debt is created from a company to a shareholder for no consideration, or inadequate consideration, a benefit is conferred. ...On the other hand, when a debt is paid, assuming it was well secured, no benefit is conferred because the creditor has merely received that to which he is entitled.
Respecting the 1966 assessment, the value of the benefit was not simply the amont of the expenditure but, rather "the present value, as of the time that the 1966 improvement was completed, of the respective amounts that [the taxpayer] would have been able to add to the rental payments covered by the lease but could not add because of the existence of the lease" (p. 5363).
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