Pratte
J.A.:—This
is
an
appeal
from
a
judgment
of
the
Trial
Division
(McNair,
J.)
dismissing
the
appellant's
appeal
from
a
reassessment
of
his
income
tax
for
the
1979
taxation
year.
That
reassessment
had
been
made
on
the
basis
that,
during
that
year,
the
appellant
had
received
from
a
company
of
which
he
was
a
shareholder
a
benefit
having
a
value
of
$6,526
which,
pursuant
to
paragraph
15(1)(c)
of
the
Income
Tax
Act,
was
to
be
included
in
his
income.
The
appellant
is
a
chartered
accountant
and
a
licensed
trustee
in
bankruptcy.
He
is
one
of
the
main
shareholders
of
Andrich
Developments
Limited,
an
Ontario
company
incorporated
for
a
variety
of
purposes
including
the
development
of
land.
The
appellant
and
his
wife
owned
35
per
cent
each
of
the
shares
of
that
company;
the
rest
belonged
to
their
three
children.
In
1966,
the
company
acquired
a
16-acre
parcel
of
land
in
the
township
of
Guelph,
near
the
city
boundary,
with
the
purpose
of
subdividing
it
into
residential
building
lots.
The
municipal
authorities,
however,
did
not
approve
of
that
subdivision
project
which,
by
the
summer
of
1978,
appeared
doomed
to
failure.
In
1977,
the
appellant
who
resided
with
his
family
in
a
comfortable
house
on
Forest
Hill
Drive,
in
the
city
of
Guelph,
was
thinking
of
moving
into
a
larger
and
more
luxurious
house.
He
conceived
of
the
idea
of
having
his
company
build
a
house
for
him
on
its
land.
He
and
his
wife
designed
the
new
house
and
hired
a
draftsman
to
prepare
the
blueprints
under
their
direction.
In
the
fall
of
1977,
the
company
entered
into
a
cost-plus
building
contract
for
the
construction
of
the
house,
the
cost
of
which,
at
that
time,
was
estimated
at
approximately
$250,000.
On
August
31,
1978,
the
appellant
sold
his
Forest
Hill
home
for
$86,500
which
he
immediately
loaned,
interest
free,
to
his
company
in
order
to
assist
in
financing
the
construction
of
the
new
home;
the
company
had
also
obtained,
for
the
same
purpose,
a
mortgage
loan
in
the
amount
of
$80,000
from
Canada
Trust.
The
house
was
finished
in
December
1978.
Its
final
cost
amounted
to
$395,549.
The
appellant
and
his
family,
who
had
temporarily
moved
into
an
apartment
after
the
sale
of
their
Forest
Hill
home,
then
moved
into
their
new
home
and,
starting
on
February
1,
1979,
the
appellant
paid
his
company
a
monthly
rent
of
$1,100
(including
$300
for
utilities).
In
the
Minister's
view,
the
rent
that
the
appellant
paid
his
company
during
1979
was
too
low
and
did
not
represent
the
real
value
of
the
benefit
or
advantage
that
the
company
had
conferred
on
the
appellant
and
his
wife.
The
Minister
estimated
that
the
value
of
that
benefit
for
the
year
was
$37,251
and,
as
a
consequence,
that
the
appellant
and
his
wife
had
each
received
a
benefit
equal
to
one
half
of
that
amount
(i.e.,
$18,625.50).
As
the
Minister
acknowledged
that
the
appellant
had,
during
the
year,
paid
$12,100
for
rent
and
expenses,
he
valued
at
$6,526
the
amount
that
was
to
be
added
to
the
appellant's
income
under
paragraph
15(1)(c)
of
the
Act.
After
having
unsuccessfully
challenged
that
reassessment
before
the
Tax
Review
Board,
the
appellant
appealed
to
the
Trial
Division
and
alleged
that
the
fair
market
value
of
the
rental
of
the
house
he
had
occupied
in
1979
did
not
exceed
the
rent
that
he
had
paid
and
that,
as
a
consequence,
he
had
received
no
benefit
from
his
company
during
the
year.
In
her
statement
of
defence,
the
respondent
stated
that
in
reassessing
the
appellant,
the
Minister
of
National
Revenue
had
made
the
following
assumptions:
(a)
the
plaintiff,
his
wife
Beatrice,
and
their
three
children
at
all
relevant
times
owned
all
of
the
issued
voting
shares
of
Andrich
Developments
Limited
("the
corporation"),
the
appellant
and
his
wife
holding
1400
shares
each,
and
the
children
400
shares
each;
(b)
in
1978,
the
corporation,
at
the
direction
of
and
for
the
benefit
of
the
plaintiff
and
his
wife,
constructed
a
luxury
single-family
residence
("the
residence")
on
a
16-acre
lot
owned
by
the
corporation,
at
a
cost
of
$395,549.34;
(c)
the
plaintiff,
his
wife
and
his
three
children,
occupied
the
house
in
or
about
January
of
1979,
and
in
February
of
1979
and
throughout
the
rest
of
the
year,
the
plaintiff
paid
rent
to
the
corporation
of
$800.00
per
month,
and
paid
other
expenses
related
to
the
operation
of
the
house,
including
utilities,
of
$300.00
per
month,
a
total
of
$12,100.00
in
the
1979
taxation
year;
(d)
the
residence
was
charged
with
a
first
mortgage
of
$79,413.55;
(e)
the
corporation's
equity
in
the
residence
was
$316,135.79;
(f)
during
the
1979
taxation
year,
the
corporation
paid
mortgage
interest
of
$7,566.00,
municipal
taxes
of
$420.00
and
insurance
premiums
of
$813.00,
a
total
of
$8,799.00,
in
respect
of
the
said
residence;
(g)
a
reasonable
estimate
of
the
value
of
the
benefit
conferred
upon
the
plaintiff
by
the
corporation
in
the
1979
taxation
year
was
$6,526.00;
(h)
in
1977,
an
investor
could
expect
a
9%
return
on
capital
from
an
effectively
risk-free
investment;
(i)
the
corporation
did
not
build
the
residence
for
the
purpose
of
producing
or
gaining
income
from
a
business
or
property.
Moreover,
in
a
schedule
to
the
statement
of
defence,
the
respondent
indicated
that
the
amount
of
the
benefit
allegedly
conferred
on
the
appellant
had
been
calculated
in
the
following
manner:
Corporation's
equity
in
the
residence.
|
$316,135.79
|
Return
on
investment
of
$316,135.79
at
9%
|
$28,452.00
|
Mortgage
interest,
municipal
taxes
and
insurance
|
|
paid
by
the
corporation
|
8,799.00
|
Gross
Benefit
to
Plaintiff
and
wife
received
from
|
|
corporation
|
37,251.00
|
Less:
Amount
of
benefit
attributable
to
Plaintiff's
|
18,625.00
|
wife
|
|
Amount
of
benefit
attributable
to
Plaintiff
|
$18,625.00
|
Less:
Rent
and
expenses
paid
by
Plaintiff
|
12,100.00
|
At
trial,
the
appellant
and
his
wife
testified
as
to
the
circumstances
in
which
the
house
had
been
built.
The
appellant
said
that
the
decision
to
have
his
company
build
that
house
had
been
made
not
only
for
the
purpose
of
providing
him
and
his
family
with
a
bigger
and
better
home
but
also
in
the
hope
that
the
building
of
such
a
nice
home
in
that
area
would
serve
to
eliminate
opposition
to
the
proposed
subdivision
development.
The
appellant
also
introduced
expert
evidence
as
to
the
rental
value
of
the
house.
According
to
one
expert,
the
free
market
rental
value
of
the
house
was
approximately
$800
per
month
plus
utilities;
the
other
expert
fixed
it
at
approximately
$950.
Both
agreed
that
there
was
no
comparable
house
on
the
market
in
the
area.
One
said
that,
in
that
area,
the
free
market
rental
value
of
houses
bore
no
relation
to
their
real
value.
The
appellant's
basic
argument
at
trial
was
that
the
assessment
was
wrong
because,
instead
of
being
based
on
the
value
of
the
benefit
that
the
appellant
had
received
from
his
company—which
value
was
established
by
the
uncontradicted
evidence
of
the
two
experts—it
was
based
on
the
costs
that
the
company
had
incurred
to
provide
him
with
that
benefit.
The
trial
judge
rejected
that
argument.
He
first
found
that
the
appellant's
company
had
not
built
the
house
for
a
business
purpose
since,
in
his
view,
it
had
been,
from
the
outset,
built
for
the
personal
use
of
the
appellant.
He
also
found
that,
in
the
circumstances,
the
fair
market
rental
value
was
totally
inappropriate
for
measuring
the
value
of
the
benefit
conferred
on
the
appellant
because
that
fair
market
rental
value
bore
no
relation
to
the
actual
costs
of
that
benefit.
Counsel
for
the
appellant
renewed,
at
the
hearing
of
the
appeal,
the
submissions
he
had
made
at
trial.
His
main
argument
was
that
the
trial
judge
had
confused,
as
had
the
Minister,
the
value
of
the
benefit
conferred
on
the
appellant
with
its
cost
to
the
corporation.
In
1979,
said
he,
the
appellant
rented
the
house
that
his
company
had
built
for
him;
his
only
interest
in
that
house
was
that
of
a
tenant
and
it
follows
that
the
value
of
the
benefit
conferred
on
the
appellant
must
be
measured
by
comparing
the
free
market
rental
value
of
that
house
with
the
rent
that
the
appellant
paid.
The
appellant's
counsel
also
attacked
the
trial
judge's
finding
that
the
company
had
not
built
the
house
for
any
business
purpose
and
argued
that,
in
any
event,
this
finding
was
completely
irrelevant
since
the
activities
of
a
corporation
cannot
be
said
to
have
benefited
a
shareholder
for
the
sole
reason
that
the
company
did
not
engage
in
these
activities
for
a
business
purpose.
The
appellant
also
submitted
that,
assuming
that
the
real
value
of
the
benefit
conferred
on
the
appellant
was
not
to
be
measured
by
reference
to
the
fair
market
rental
value
of
the
house,
the
Minister
had
the
onus
of
establishing
what
that
real
value
was
since
it
appeared
that
the
assumptions
on
which
the
reassessment
was
based
were
themselves
based
on
an
arbitrary
mathematical
formula.
Another
submission
made
by
the
appellant,
and
one,
I
must
confess,
that
I
do
not
understand,
was
that
the
Minister's
reassessment
was
bad
because
it
was
a
form
of
"imputed
taxation"
on
a
"notional
income”
since
the
reassessment
was
based
on
the
assumption
that
the
company
“should
have
made
at
least
a
nine
per
cent
yield
on
its
investment”.
Finally,
counsel
for
the
appellant
argued
that
in
the
event
that
the
Minister's
approach
to
valuation
was
to
be
retained
by
the
Court,
the
appellant
should
be
given
credit
for
the
fact
that
the
construction
of
the
house
he
occupies
was
financed
in
part
by
interest-free
loans
he
made
to
his
company.
I
will
deal
first
with
the
question
of
onus
of
proof.
The
rule
is
well
known.
When
the
Minister
has,
in
his
pleadings,
disclosed
the
assumptions
of
facts
on
which
the
assessment
was
made,
and
when,
as
is
the
case
here,
it
is
not
contested
that
the
assessment
was
in
fact
based
on
those
assumptions,
the
taxpayer
has
the
onus
of
disproving
the
Minister's
assumptions.
Here,
the
Minister's
basic
assumption
was
that
“a
reasonable
estimate
of
the
value
of
the
benefit
conferred
upon
the
plaintiff
by
the
corporation
in
the
1979
taxation
year
was
$6,526.00”.
The
argument
of
the
appellant
on
this
point,
as
I
understand
it,
is
that
this
assumption
has
been
rebutted
since
the
evidence
shows
that
it
was
made
for
the
reason
that
the
Minister
considered
arbitrarily,
according
to
the
appellant,
that
the
company
that
had
built
the
house
was
entitled
to
a
nine
per
cent
return
on
its
investment.
It
follows,
says
the
appellant,
that
the
only
evidence
as
to
the
value
of
the
benefit
conferred
on
the
appellant
is
that
of
his
experts.
I
do
not
see
merit
in
that
argument.
In
order
to
rebut
the
Minister's
assumption,
the
appellant
had
to
prove
that
the
value
of
the
benefit
in
question
was
less
than
$6,526.
The
assumption
of
the
Minister
could
be
correct
even
if
it
was
made
for
a
wrong
reason.
It
follows,
therefore,
that
the
question
to
be
resolved
in
this
case
is
whether
the
appellant
adduced
evidence
showing
that,
in
1979,
the
appellant
did
not
receive
a
benefit
or
advantage
of
$6,526
from
Andrich
Developments
Limited.
As
to
the
attack
made
by
the
appellant
on
the
trial
judge's
finding
that
Andrich
Developments
Limited
had
not
built
the
house
for
a
business
purpose,
I
shall
simply
say
that
I
cannot
say
that
the
judge
was
plainly
wrong
in
reaching
that
conclusion.
Moreover,
as
will
now
become
apparent,
this
finding
was
not
without
importance.
The
appellant's
main
proposition
is
that,
under
paragraph
15(1)(c),
what
is
to
be
added
to
the
income
of
the
shareholder
is
the
value
of
the
benefit
that
he
received
rather
than
the
cost
of
that
benefit
to
the
corporation.
That
proposition
is
certainly
well
founded.
However,
it
does
not
support
the
appellant's
conclusion.
In
determining
the
value
of
benefit,
one
may
take
its
cost
into
consideration.
Free
market
value
is
not,
in
all
circumstances,
the
sole
indication
of
real
value.
It
is
now
well
settled
that
paragraph
15(1)(c)
applies
only
when
a
shareholder
has
received,
qua
shareholder,
a
benefit
or
advantage
from
a
corporation.
In
valuing
a
benefit
allegedly
received
by
a
shareholder,
it
is
therefore
necessary
to
find
what
the
shareholder
would
have
had
to
pay
for
the
same
benefit
in
the
same
circumstances
if
he
had
not
been
a
shareholder
of
the
company.
A
shareholder
receives
no
benefit
for
the
purposes
of
paragraph
15(1)(c)
if,
in
the
same
circumstances,
he
would
have
received
the
same
benefit
from
a
company
of
which
he
is
not
a
shareholder.
For
instance,
if
a
company
builds
an
expensive
house
with
the
intention
of
selling
it
at
a
profit
and
later,
after
realizing
that
it
cannot
be
sold
for
more
than
half
its
cost,
sells
it
at
that
low
price
to
one
of
its
shareholders,
that
shareholder
in
all
likelihood
certainly
gets
a
benefit
out
of
that
transaction
but
paragraph
15(1)(c)
does
not
apply
to
it.
In
order
to
assess
the
value
of
a
benefit,
for
the
purposes
of
paragraph
15(1)(c),
it
is
first
necessary
to
determine
what
that
benefit
is
or,
in
other
words,
what
the
company
did
for
its
shareholder;
second,
it
is
necessary
to
find
what
price
the
shareholder
would
have
had
to
pay,
in
similar
circumstances,
to
get
the
same
benefit
from
a
company
of
which
he
was
not
a
shareholder.
In
the
present
case,
the
benefit
or
advantage
conferred
on
the
appellant
was
not
merely
the
right
to
use
or
occupy
a
house
for
as
long
as
he
wished;
it
was
the
right
to
use
or
occupy
for
as
long
as
he
wished
a
house
that
the
company,
at
his
request,
had
built
specially
for
him
in
accordance
with
his
specifications.
How
much
would
the
appellant
have
had
to
pay
for
the
same
advantage
if
he
had
not
been
a
shareholder
of
the
company?
Certainly
more
than
what
the
two
experts
referred
to
as
the
free
market
rental
value
since,
in
my
view,
the
company
would
have
then
charged
a
rent
sufficient
to
produce
a
decent
return
on
its
investment.
It
is
impossible
to
determine
with
accuracy
the
amount
of
that
rent.
However,
subject
to
one
important
reservation,
I
cannot
say
that
it
would
have
been
less
than
what
the
Minister
assumed
it
to
be.
That
reservation
is
that
if
the
appellant
had
been
dealing
with
a
company
of
which
he
was
not
a
shareholder,
consideration
would
certainly
have
been
given,
in
determining
the
rent
payable,
to
the
fact
that
he
had
himself
lent
more
than
$100,000
without
interest
to
the
company
in
order
to
help
to
finance
the
construction
of
the
house.
As
long
as
that
loan
remained
outstanding,
the
rent
otherwise
payable
would,
in
my
view,
have
been
reduced
by
an
amount
equal
to
the
interest
that
should
normally
have
been
paid
on
the
balance
of
the
loan.
I
would,
therefore,
allow
the
appeal
and
refer
the
reassessment
back
to
the
Minister
for
reconsideration
and
reassessment
in
accordance
with
these
reasons.
I
would
grant
the
appellant
his
costs
in
this
Court
and
in
the
Trial
Division.
Appeal
allowed.