Gibson,
J:—The
five
plaintiff
corporations
other
than
Honeywood
Limited
appeal
from
assessments
for
income
tax
in
respect
to
their
respective
taxation
years
1968
and
1969
and
Honeywood
Limited
appeals
from
an
assessment
for
income
tax
for
its
taxation
year
1969
only.
There
are
nine
appeals.
All
of
them
were
heard
together
on
common
evidence.
What
is
the
essence
of
these
appeals
may
be
stated
in
this
way:
In
the
1968
and
1969
taxation
years,
subsection
39(1)
of
the
Income
Tax
Act
provided
that
a
corporation
was
taxable
at
the
rate
of
18%
on
the
first
$35,000
of
the
amount
taxable
and
47%
on
the
balance
of
the
amount
taxable.
However,
if
two
or
more
corporations
were
“associated”
within
the
meaning
of
subsection
39(4)
of
the
Income
Tax
Act
they
were
required
to
share
the
$35,000
low
taxable
amount.
The
plaintiffs
were
not
associated
within
the
meaning
of
subsection
39(4)
of
the
Income
Tax
Act.
However,
pursuant
to
subsection
138A(2)
of
the
Act,
the
Minister
had
the
power
to
direct
that
two
or
more
corporations
were
associated
in
a
particular
year.
In
order
to
do
so
he
was
required
to
find:
(a)
that
the
separate
existence
of
those
corporations
in
the
year
was
not
solely
for
the
purpose
of
carrying
out
the
business
of
the
corporations
in
the
most
effective
manner,
and
(b)
that
one
of
the
main
reasons
for
such
separate
existence
in
the
year
was
to
reduce
the
amount
of
taxes
that
would
otherwise
be
payable
under
the
Act.
In
1972
the
Minister
(through
the
Assistant
Deputy
Minister
(Taxation))
exercised
this
power
and
directed
that
each
of
the
plaintiffs
was
associated
with
each
other
pursuant
to
the
provisions
of
subsection
138A(2)
of
the
/n-
come
Tax
Act.
The
plaintiffs
were
notified
of
that
direction
by
letter
dated
November
22,
1972.
Subsection
138A(2)
of
the
Income
Tax
Act
reads:
(2)
Where,
in
the
case
of
two
or
more
corporations,
the
Minister
is
satisfied
(a)
that
the
separate
existence
of
those
corporations
in
a
taxation
year
is
not
solely
for
the
purpose
of
carrying
out
the
business
of
those
corporations
in
the
most
effective
manner,
and
(b)
that
one
of
the
main
reasons
for
such
separate
existence
in
the
year
is
to
reduce
the
amount
of
taxes
that
would
otherwise
be
payable
under
this
Act.
As
a
consequence,
by
assessment
the
tax
payable
pursuant
to
subsection
39(1)
of
the
Income
Tax
Act
(in
force
in
1968
and
1969)
by
each
of
these
corporations
was
not
computed
at
the
rates
prescribed
in
that
subsection.
Subsection
39(1)
reads:
(1)
The
tax
payable
by
a
corporation
under
this
Part
upon
its
taxable
income
or
taxable
income
earned
in
Canada,
as
the
case
may
be,
(in
this
section
referred
to
as
the
“amount
taxable”)
for
a
taxation
year
is,
except
where
otherwise
provided,
(a)
18%
of
the
amount
taxable,
if
the
amount
taxable
does
not
exceed
$35,000,
and
(b)
$6,300
plus
47%
of
the
amount
by
which
the
amount
taxable
exceeds
$35,000,
if
the
amount
taxable
exceeds
$35,000.
The
appeals
are
made
pursuant
to
the
provisions
of
subsection
172(1)
of
the
Income
Tax
Act
as
amended
by
SC
1971-72-73
(the
“New
Act’’).
The
plaintiffs
seek
in
these
appeals
in
effect,
to
be
assessed
for
income
pursuant
to
subsection
39(1)
of
the
Act.
Pursuant
to
subsection
138A(3)
of
the
Act
or
section
247(3)
of
the
“New
Act”,
the
court
on
these
appeals
may
make
certain
alternative
determinations.
Mr
Andrea
Ucci
gave
evidence
on
these
appeals
and
described
how
his
father
before
him,
himself,
and
now
his
family
and
a
number
of
other
relatives
were
builders
and
developers
in
the
greater
Toronto
area,
especially
since
World
War
II.
They
were
part
of
the
Italian
community
who
in
large
measure
in
fact
physically
built
the
buildings
and
infra-structures
in
the
greater
Toronto
area
since
World
War
II.
Mr
Ucci
said
he
wanted
his
children
to
take
an
interest
in
real
estate
and
each
to
have
assets
separate
from
each
other
and
from
him.
He
said
that
reduction
of
income
tax
was
not
a
main
reason
for
the
separate
existence
of
these
corporations
which
he
caused
to
be
incorporated.
The
evidence
was
that
each
plaintiff
corporation
had
only
one
beneficial
shareholder
throughout
the
1968
and
1969
taxation
years,
namely:
Skybird
Developments
Limited,
Miss
Karen
Ucci
Sunbird
Developments
Limited,
Miss
Andrea
Ucci
Lynx
Developments,
Peter
Ucci
Honeywood
Limited,
Mrs
Phyllis
Ucci
55-65
Broadway
Avenue
Limited
Mr
Andrea
Ucci
Mr
Andrea
Ucci
is
the
former
husband
of
Phyllis
Ucci
and
the
father
of
Andrea
Ucci,
Karen
Ucci
and
Peter
Ucci.
The
evidence
further
was
that
each
of
the
plaintiff
corporations
was
incorporated
under
the
laws
of
the
Province
of
Ontario
and
engaged
in
real
estate
activities.
55-65
Broadway
Limited
was
incorporated
on
June
14,
1955.
Honeywood
Limited
was
incorporated
December
10,
1958.
Skybird
Developments
Limited,
Sunbird
Developments
Limited
and
Lynx
Developments
Limited
were
each
incorporated
September
9,
1960.
Although
incorporated
September
9,
1960,
their
shares
were
purchased
on
November
1,
1960.
Miss
Andrea
Ucci
was
born
in
April
17,
1956.
Peter
Ucci
was
born
August
30,
1958.
Karen
Ucci
was
born
November
12,
1959.
The
evidence
established
that
the
taxable
incomes
from
the
date
of
incorporation
of
the
respective
plaintiff
corporations
to
1979
were
as
follows:
TAXABLE
INCOMES
FROM
DATE
OF
INCORPORATION
Authorities
supporting
the
application
of
the
relevant
principles
to
particular
facts
of
other
cases
cited
by
the
plaintiffs
for
their
submissions
were:
/RC
v
Brebner,
[1967]
1
All
ER
779;
Doris
Trucking
Company
Limited
v
MNR,
[1968]
2
Ex
CR
501
;
[1968]
CTC
303;
68
DTC
5204;
Holt
Metal
Sales
of
Manitoba
Limited
and
Industrial
Metals
Processing
Limited
v
MNR,
[1970]
Ex
CR
612;
[1970]
CTC
144;
70
DTC
6108;
CP
Loewen
Enterprises
Ltd
v
MNR,
[1972]
FC
773;
[1972]
CTC
396;
72
DIC
6298;
The
Queen
v
Arthill
Enterprises
Limited,
[1975]
CTC
594;
75
DTC
5419;
and
MNR
v
Furnasman
(Metal)
Ltd,
[1973]
CTC
830;
73
DTC
5599.
|
55-65
|
Year
|
Honeywood
|
Lynx
Lynx
|
Skybird
|
Sunbird
|
Broadway
|
1955
|
|
Incorporated
|
1956
|
|
1957
|
|
1958
|
Incorporated
|
|
1959
|
|
1960
|
|
Incorporated
|
Incorporated
|
Incorporated
|
|
1961
|
|
Nil
|
1962
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
1963
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
1964
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
1965
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
1966
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
1967
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
1968
|
Nil
|
12,944
|
13,060
|
13,169
|
25,536
|
1969
|
26,759
|
31,378
|
31,532
|
31,286
|
33,846
|
Amended
|
18,583
|
|
1970
|
Nil
|
32,721
|
32,997
|
32,952
|
21,635
|
Amended
|
|
17,864
|
1971
|
30,094
|
35,000
|
35,000
|
35,000
|
Nil
|
Amended
|
29,994
|
24,603
|
6,330
|
6,339
|
|
1972
|
4,272
|
Nil
|
Nil
|
Nil
|
35,300
|
Amended
|
3,572
|
|
1973
|
8,915
|
30,258
|
12,351
|
12,352
|
41,085
|
1974
|
6,735
|
1,561
|
5,838
|
6,395
|
93,265
|
1975
|
10,415
|
52,195
|
53,549
|
56,438
|
Nil
|
Amended
|
—
|
45,318
|
52,259
|
—
|
|
1976
|
75,343
|
Nil
|
Nil
|
2,758
|
Nil
|
1977
|
7,841
|
Nil
|
6,515
|
6,445
|
187,882
|
1978
|
12,848
|
Nil
|
9,790
|
2,590
|
137,100
|
1979
|
18,324
|
Nil
|
Nil
|
Nil
|
131,676
|
Not
Available.
|
|
And
the
authorities
and
statutory
provisions
cited
by
the
defendant
for
such
purpose
were:
Alpine
Furniture
Company
Limited
et
al
v
MNR,
[1968]
CTC
532;
68
DTC
5338;
Doris
Trucking
Company
Limited
v
MNR
(supra);
Jordans
Rugs
Ltd
et
al
v
MNR,
[1969]
CTC
445;
69
DTC
5290;
CP
Loewen
Enterprises
Limited
v
MNR
(supra);
Holt
Metal
Sales
of
Manitoba
Ltd
et
al
v
MNR
(supra);
The
Queen
v
Decker
Contracting
Limited,
[1976]
CTC
731;
76
DTC
6477;
Decker
Contracting
Limited
v
The
Queen,
[1978]
CTC
5001;
79
DTC
838;
Continental
Stores
(Les
Magazins
Continental
Lteé)
Ltd
v
The
Queen,
[1978]
CTC
688,
79
DTC
5213;
Lenco
Fibre
Canada
Corp
v
The
Queen,
[1979]
CTC
374;
79
DTC
5292;
subsections
39(1)
to
(3)
of
the
Income
Tax
Act;
and
subsection
138(2)
of
the
Income
Tax
Act,
RSC
1952,
c
148
as
amended.
On
the
evidence
and
within
the
meaning
of
paragraph
138A(2)(b)
of
the
Income
Tax
Act,
there
is
no
question
that
the
separate
existence
of
the
respective
plaintiff
corporations
in
the
taxation
years
1968
and
1969
was
not
solely
for
carrying
out
the
business
of
these
corporations
in
the
most
effective
manner
so
that
the
only
matter
left
for
decision
is
whether
or
not,
within
the
sense
of
paragraph
138A(2)(b)
.
.
one
of
the
main
reasons
for
such
separate
existence
in
the
(said
taxation)
year(s)..
.
(was)
to
reduce
the
amount
of
taxes
that
would
otherwise
be
payable
under
this
Act”.
By
reason
of
the
wording
of
paragraph
138A(2)(b)
of
the
Act,
the
plaintiff
corporations
are
required
to
prove
a
negative.
(cf
(a)
Lefeunteum
v
Beaudoin,[1897]
28
SCR
89
per
Taschereau,
J
at
93-4;
J
W
Windsor
Limited
v
Martime
Fish
Corporation
Ltd,
[1926]
Ex
CR
31
per
Audette,
J
at
32;
Vaillancourt
v
His
Majesty
the
King,
[1927]
Ex
CR
21
per
Audette,
J
at
23;
Browns-
tein
v
Barnett
and
Others,
[1939]
77
CS
23
per
McDougall,
J
at
26;
Beaudin
v
Choquetee,
[1949]
SCR
348
per
Rinfret,
J
at
355-56;
and
(b)
Joseph
Constantine
Steamship
Line,
Ltd
v
Imperial
Smelting
Corporation,
Ltd,
[1941]
2
All
ER
165
(HL)).
In
their
appeals,
however,
the
plaintiffs
do
not
have
to
overcome
the
rule
of
presumption
viz,
that
in
the
estimation
of
the
value
of
evidence
of
equal
credibility,
in
ordinary
cases,
the
testimony
of
a
credible
witness
who
swears
positively
to
a
fact
should
receive
credit
in
preference
to
that
of
one
who
testifies
to
a
negative,
because
in
these
appeals
the
defendant
adduced
no
evidence.
Mr
Justice
Marceau
in
Continental
Stores
v
The
Queen
(supra)
in
discussing
the
test
that
should
be
employed
in
determining
cases
such
as
this
Said:
Counsel
for
the
appellants
raised
a
final
argument.
This
multi-company
system
of
growth
was
not
only
adopted
by
the
group
before
any
tax
advantage
resulted
from
it,
but
it
continued
to
be
used
after
this
advantage
had
been
rendered
uncertain
as
a
result
of
the
Minister’s
directions.
He
stated
that
it
is
established
law
that
the
most
suitable
test
to
determine
the
validity
of
a
direction
under
s
139A
is
whether,
without
any
tax
benefit,
the
system
of
separate
companies
would
have
been
adopted
and
maintained
as
such.
In
this
regard,
he
cited
the
reasons
of
Dumoulin,
J,
in
Doris
Trucking
Company
Limited
v
MNR,
68
DTC
5204,
and
subsequently
of
Cattanach,
Sheppard
and
Addy,
JJ,
in
CP
Loewen
Enterprises
Ltd
v
MNR,
72
DTC
6298,
Jordans
Rugs
Ltd
et
al
v
MNR,
9
DTC
5290
and
MNR
v
Furnasman
Ltd
and
Furnasman
(Metal)
Ltd,
73
DTC
5599.
I
made
a
careful
study
of
these
decisions
on
which
the
argument
was
based.
In
my
opinion,
the
reasoning
of
the
judges
is
much
less
clear
cut
than
counsel
for
the
plaintiffs
suggests
for
the
purposes
of
his
argument,
and
the
test
which
they
formulate
must
be
seen
in
the
context
from
which
it
arose
and
in
terms
of
the
conclu-
sion
the
merits
of
which
were
being
examined.
In
any
case
I
think
it
is
clear
that
such
a
test,
taken
out
of
context
as
it
was
by
counsel,
cannot
in
itself
be
decisive.
The
Act
requires
that
the
tax
advantage
be
only
one
of
the
main
reasons;
if
this
were
to
disappear,
it
does
not
necessarily
follow
that
the
others
would
not
suffice
as
a
basis
for
continuing
the
system.
(See,
further,
Alpine
Furniture
Company
Limited
and
Monte
Carlos
Company
Limited
v
MNR,
68
DTC
5338;
MNR
v
Howson
and
Howson
Limited
and
Howson
&
Howson
Company
(Cargill)
Limited,
70
DTC
6055;
Doris
Trucking
Company
Limited
v
MNR,
68
DTC
5024;
Industrial
Trailer
Rentals
Limited
v
Her
Majesty
the
Queen,
74
DTC
6577;
Classic's
Littlebooks
Inc,
73
DTC
5102.)
Mr
Justice
Marceau
then
on
the
facts
of
that
case
decided
that
one
of
the
main
reasons
for
the
separate
existence
of
the
corporations
was
to
reduce
the
amount
of
taxes
that
would
otherwise
be
payable
under
the
Income
Tax
Act.
With
respect,
it
would
appear
to
me
that
the
test
adopted
by
Mr
Justice
Marceau
is
the
applicable
one
to
apply
in
cases
under
this
subsection
of
the
Act.
As
a
consequence,
the
plaintiffs
here
had
the
onus
of
proving
that
none
of
the
main
reasons
for
the
separate
existence
of
the
corporations
was
to
reduce
income
tax
that
would
otherwise
be
payable
under
the
Income
Tax
Act.
“Main”
is
the
key
word
in
this
subsection
of
the
Act.
The
Shorter
Oxford
Dictionary
records
as
some
of
its
meanings
as
follows:
“of
pre-eminent
importance;
principal,
chief,
leading”.
All
the
oral
evidence
adduced
in
these
appeals
was
directed
to
prove
that
the
reduction
of
income
taxes
was
not
one
of
the
main
reasons.
The
documentary
evidence
either
supported
this
proposition
or
was
neutral.
There
was
no
positive
evidence
adduced
to
prove
as
a
fact
that
one
of
the
main
reasons
was
the
reduction
of
income
taxes
that
otherwise
would
be
payable
under
the
Income
Tax
Act.
After
careful
consideration
of
the
evidence
adduced,
the
conclusion
is
that
the
plaintiffs
have
discharged
the
onus
of
proof
on
them
and
have
proven
that
none
of
the
main
reasons
for
the
separate
existence
of
the
subject
corporations
was
the
reduction
of
income
tax
otherwise
payable
under
the
Income
Tax
Act.
Accordingly,
these
appeals
are
allowed,
with
costs,
the
direction
of
the
Minister
is
set
aside,
and
the
matters
are
referred
back
for
further
reassessments
not
inconsistent
with
these
Reasons.