Les installations de l'Est Inc. v. The Queen, 91 DTC 5185, [1990] 2 CTC 503, [1990] 1 CTC 324 (FCTD)

Rouleau, J. [Translation]: —This is an appeal de novo from a decision of the Tax Court of Canada [reported [1985] 2 C.T.C. 2446] made on December 19, 1985, affirming a decision of the Minister of National Revenue. This matter was heard jointly with Les Entreprises Savino Inc. v. The Queen, T-2599-85. The assessments which are at issue were to the effect that Les Installations de I'Est Inc. and Les Entreprises Savino Inc. should be regarded as associated during 1978 and 1979 pursuant to subsection 247(2) of the Income Tax Act, R.S.C. 1952,

c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

Les Entreprises Savino Inc. is a Canadian corporation which was incorporated on January 3, 1974 under the Quebec Companies Act, R.S.Q. 1977. c. C-38. This business specialized in the sale of fences which it had installed by various subcontractors. These sales were made in two ways, namely over-the- counter sales of the materials necessary for building the fences and deals made by salesmen working for the company who solicited contracts for the sale of fences from possible clients, including installation of the fences. In 1975 the business had serious difficulty with subcontractors responsible for installing the fences it sold. The consequence of this situation was to damage the health and affect the administrative capacity of Mr. Savino Cantatore, principal shareholder and manager of Les Entreprises Savino Inc. To remedy this situation Mr. Cantatore tried to enter into a long-term agreement with a reliable contractor that would make it exclusively responsible for installing the fences sold by his business.

This effort proved unsuccessful because of the conditions required by the contractor. Mr. Cantatore's son and daughter, Giuseppe Jr. and Anna Maria, accordingly suggested that they would take over responsibility for the subcontractors looking after the installation of fences. Les Entreprises de I'Est Inc. was incorporated on August 23,1976 for this purpose pursuant to the Quebec Companies Act. The plaintiffs thus stated that the only reasons for the separate existence of the two corporations had to do with the series of problems encountered by Les Entreprises Savino Inc. and Mr. Cantatore in 1975, and the firm belief by members of the Cantatore family that the maintenance of this separate existence would contribute to the success of their business relations. Further, Mr. Cantatore's son saw this separate incorporation as a means of becoming the head of a business and so providing for his future in the business world.

The defendant submitted to the Court that Les Entreprises Savino Inc. was responsible, first, for the sale and installation of fences, and second, for snow clearance work during the winter. She added that Les Installations de I'Est Inc. continued to operate in the same way as Les Entreprises Savino Inc., in that the work of installing fences was given out to subcontractors. The defendant further stated that Mr. Cantatore was shareholder and director in both companies. She further contended that these two companies had common premises, they used the same telephone number, they had the same auditors and their books were kept by the same people. In short, the defendant submitted that the existence of these two companies produced substantial tax savings and that this was one of the main reasons for making two separate entities of them.

To fully understand the facts relating to this issue, I feel it is crucial to develop a brief background look at the Cantatore family and the plaintiff corporations.

Mr. Savino Cantatore emigrated to Canada in 1953 when he was sixteen years old. He was accompanied by his parents and by four brothers and sisters, all younger. None of the members of the family understood English or French. When he thus left his country of origin Mr. Cantatore had completed only the equivalent of a third primary year of schooling. When he arrived in Canada he worked as a labourer in the construction field for about eight months. He then worked for some years as an employee in the turf business. As this work was seasonal, he tried to take courses as a mechanic during the winter. This effort however proved unsuccessful, since he could neither read nor write either of the official languages. During the winter of 1959 he obtained contracts to clear snow from certain large shopping centres located in northeast Montreal. In 1964, he was briefly associated with another individual in developing a landscaping business. This association did not last more than a year because of the existence of various disagreements between the partners. This experience convinced Mr. Cantatore that business partnerships were not an ideal solution, and that in future it would be greatly preferable to work alone.

During the next few years Mr. Cantatore continued his landscaping business and gradually moved toward the sale of fences. In the early 1970s he bought a piece of land on Jarry Street in north Montreal and built premises which his company still occupies at the present time. It is during this period that he ceased working as a landscaper and went into the fence business, hiring subcontractors to install the fences. The latter worked for themselves but all complaints made by customers were directed to Mr. Cantatore. The gradual success of this business required Mr. Cantatore to hire a secretary, salesman and people to keep the company's books.

In around 1974, seeing how the business had grown, one of Mr. Cantatore's employees suggested that he incorporate so as to limit his civil liability as he was the owner of a house and had various other assets. Mr. Cantatore then consulted Mr. Brosseau, a chartered accountant, who had worked for him for some years since he was responsible for preparing the financial statements and for submitting annual tax returns to the Department of National Revenue. He went with Mr. Brosseau to see a lawyer so as to file an application to incorporate the company Les Entreprises Savino Inc. At that time the Quebec Companies Act required that there be three shareholders and three directors in order to incorporate. It was accordingly decided that Mr. Cantatore's brother and wife would each hold one qualifying share and that Mr. Cantatore, who would have most of the ordinary shares and so control the company, would be responsible for its management.

In the next few months after this incorporation difficulties arose with the subcontractors. As he was determined that his business should succeed, these difficulties were of enormous concern to Mr. Cantatore. He was thus under great pressure and, according to the testimony of his son Giuseppe, even his family life suffered. In the summer of 1975 he tried to obtain the services of Mr. Robert Chagnon, a distributor and installer of fences for the Frost company. He proposed that Mr. Chagnon be exclusively responsible for installing all his fencing sales contracts. Unfortunately, Mr. Chagnon refused such an offer because he and his employees could not be guaranteed that there would be work during the winter. It should be noted that over 90 per cent of the sale and installation of fences takes place between mid-April and mid-September of each year.

During this period Mr. Giuseppe Cantatore Jr., the son of Mr. Savino Cantatore, was a full-time student at the CEGEP. However, he went to his father's business premises early in the morning before his classes to help the employees distribute the material and to give out the work to be done by subcontractors. Further, he also worked there every evening after his classes. In the summer months, he was a full-time employee. Giuseppe studied at the CEGEP until spring 1976 and subsequently enrolled at Concordia University that fall to develop his administrative skills. He graduated in spring 1981. He had to take an additional year of study in order to obtain his diploma, as a result of the large number of hours he spent on the business. It should be noted that Giuseppe Cantatore always worked while he was studying: initially for Les Entreprises Savino Inc. and subsequently for Les Installations de I'Est Inc. This type of business allowed him to have a very flexible schedule, since most of the work with subcontractors was done early in the morning and also because the busiest selling season fell in the school vacation period.

In fall 1975 Giuseppe, realizing the situation that existed at the business and at home and wishing to create a future for himself, suggested he would relieve his father of the burden caused by the installers and take over all of this. At a meeting with the chartered accountant, Mr. Brosseau, he accordingly suggested to his father that he incorporate a business which he would himself manage. At this time Mr. Brosseau confirmed that doing this would protect Mr. Cantatore against any civil action. Accompanied by his father and Mr. Brosseau, Giuseppe Cantatore went to see Judge Macérola, who was then an attorney practising in the Montreal area, and instructed him to incorporate Les Installations de I'Est Inc. It should also be noted that during this period Giuseppe's sister, Anna Maria Cantatore, was taking a general secretarial course in a secondary school. For some years she had also gone to the office of her father's company to assist him. She had also become interested in the business. As Giuseppe only had one sister, he suggested that she become coowner of the new business. Judge Macérola indicated that there were two problems: as Anna Maria was only sixteen years old she could not hold shares and, as we have already mentioned, under the Quebec Companies Act there had to be at least three shareholders and three directors. Judge Macérola suggested that they make an application for tutorship in Mr. Savino Cantatore's name so he could administer Anna Maria's shares until she came of age. Such an application was accordingly made in May 1976 and Les Installations de I'Est Inc. was incorporated. The first shareholders were the following: Giuseppe Cantatore Jr., Giuseppe Cantatore Sr., the grandfather, and Monique Nuckla- Beauchamp, secretary of Entreprises Savino Inc. The last two each held one qualifying share in order to comply with the Quebec Companies Act in respect of the aforementioned requirement.

During the relevant period the ordinary shares of Les Entreprises Savino Inc. were held as follows:

During the same period the ordinary shares of Les Installations de I'Est Inc. were held as follows:

1

To begin with, the banking resolution of Les Installations de I'Est Inc. dated June 1976, authorized Giuseppe Cantatore Jr. or Savino Cantatore to sign or negotiate all transactions. On December 2, 1976 this banking resolution was amended to state that only Savino Cantatore could deal with the bank and that Giuseppe could no longer sign cheques jointly with his father.

It is worth noting certain relevant facts, which were indeed raised by the Department of National Revenue:

— both companies were located in the same building;

— in 1978 and 1979 Les Installations de I'Est Inc. incurred administration expenses of $8,000 and $23,800 payable to Les Entreprises Savino Inc.;

— from 1977 to 1979 the accounts payable by Les Entreprises Savino Inc. to Les Installations de I'Est Inc. increased from $76,171 at December 31, 1977 to $208,840 at December 31, 1979;

— during the relevant period, Mr. Savino Cantatore incorporated Domaine Repentigny Inc. and Les Entreprises Savino Inc. loaned it the sum of $458,338.

In 1980, during a routine audit, a Department of National Revenue representative who was on the premises to check the annual financial statements and tax returns of Les Entreprises Savino Inc. learned from talking with Mr. Savino Cantatore of the existence of Les Installations de I'Est Inc. He then insisted on proceeding with the audit and making an investigation involving the two companies. At the end of his investigation the Department of National Revenue representative informed Les Entreprises Savino Inc. and Les Installations de I'Est Inc. by mail of his intention to obtain a direction from the Minister of National Revenue that the two corporations were associated within the meaning of subsection 247(2) of the Income Tax Act for the 1976,1977,1978 and 1979 taxation years (it should be noted that the deadlines for 1976 and 1977 were later found to have expired and they were excluded).

In connection with his intention to obtain the said direction, the Department of National Revenue auditor arrived at the conclusion that the following facts should be taken into account: the two businesses occupied the same premises, they had essentially the same shareholders, the bank accounts were controlled exclusively by Mr. Savino Cantatore, the fence installation work handled by Les Installations de I'Est Inc. was not done by either of the businesses, since it was given to subcontractors, and a large part of the profits made by Les Installations de I'Est Inc. remained unpaid by Les Entreprises Savino Inc.

The recommendation, as indicated in the letter to the plaintiffs, was submitted to Mr. Kirky, chief of the Tax Avoidance Division of the Department of National Revenue. He reviewed his auditor's submission and submitted his recommendations to the Assistant Deputy Minister, who subsequently made the final decision that the corporations were in fact associated companies pursuant to subsection 247(2) of the Act.

In his testimony, Mr. Kirky added that his recommendation had to be reviewed and considered by at least three or four higher levels before being given final approval stating that the plaintiffs were associated with each other. The submission that Mr. Kirky sent to his superiors explained the work being done by the plaintiff Les Installations de I'Est Inc. and the manner in which the ordinary shares were held during the relevant period. This report also noted the following facts: Les Installations de I'Est Inc. had no source of income other than that from Les Entreprises Savino Inc; Les Installations de I'Est Inc. did not do the work but gave it out to subcontractors, as was the case with Les Entreprises Savino Inc; most of the cheques were signed by Mr. Savino Canta- tore; the latter held the ordinary shares in the two companies, and was also their director; the majority of the subcontractors installing fences were the same as before; the same telephone number was used for both corporations, and Mr. Kirky again mentioned the amounts payable by Les Entreprises Savino Inc. to Les Installations de I'Est Inc.

The report further mentioned the explanations given by the plaintiffs that the installers were not reliable and that as Mr. Savino Cantatore felt hard- pressed by these difficulties he even considered selling his business unless he could make an arrangement such as that he subsequently made with his son Giuseppe. In response to this defence put forward by the two plaintiffs, Mr. Kirky stated that for the most part the subcontractors responsible for installing the fences were the same; Mr. Savino Cantatore was involved in several business enterprises and in December 31, 1979, had made advances of funds amounting to $458,388 to another of his businesses. He concluded that the main reason for the existence of Les Installations de I'Est Inc. was not simply the efficiency and success of the business but that of reducing the amount of tax which would otherwise be payable under the Act. He then referred to the recommendation of the regional auditor, which he quoted in his report, and recommended that a direction be issued that the plaintiffs were found to be associated corporations pursuant to subsection 247(2) of the Income Tax Act.

Before proceeding to consider the decision of the Tax Court of Canada, it will be advisable to reproduce in full subsections 247(2) and (3) of the Income Tax Act, which is the basis of this case, as it read for the 1978 and 1979 taxation years:

(2) Associated corporations. 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,

the two or more corporations shall, if the Minister so directs, be deemed to be associated with each other in the year.

(3) Appeal. On an appeal from an assessment made pursuant to a direction under this section, the Tax Court of Canada or the Federal Court may

(a) confirm the direction;

(b) vacate the direction if

(i) in the case of a direction under subsection (1), it determines that none of the purposes of the transaction or series of transactions referred to in subsection (1) was or is to effect a substantial reduction of, or disappearance of, the assets of a corporation in such a manner that the whole or any part of any tax that might otherwise have been or become payable under this Act in consequence of any distribution of income of a corporation has been or will be avoided, or

(ii) in the case of a direction under subsection (2), it determines that none of the main reasons for the separate existence of the two or more corporations is to reduce the amount of tax that would otherwise be payable under this Act; or

(c) vary the direction and refer the matter back to the Minister for reassessment.

In its reasons for decision the Tax Court of Canada contended that Mr. Savino Cantatore's health problems and the personal ambitions of Giuseppe Cantatore Jr. were not significant enough to justify the creation of a separate corporate entity. Further, the Court added that the plaintiffs had not refuted the fundamental rule that in order to succeed in an appeal before it, the plaintiffs had to show that the presumptions of fact as interpreted by the Minister were wrong and in no way justified the conclusions he had drawn from them.

The Tax Court of Canada accordingly stated that the plaintiffs had to show that the presumptions of fact were doubtful or uncertain, just as they had to prove as irrefutable the evidence presented by the witnesses Savino Cantatore, Giuseppe Cantatore Jr., Mr. Brosseau and Judge Macérola that they in no way discussed reducing taxes as a reason for incorporating the new business, Les Entreprises Savino Inc. However, the Tax Court of Canada agreed that certain testimony or evidence submitted contradicted some conclusions of fact arrived at by them. In its view, however, there was little evidence directly supporting the plaintiff's admission that they did not in any way consider reducing taxes as a reason for incorporating. The Court therefore came to the conclusion that despite the existence of some evidence, the plaintiffs had not succeeded in shifting the burden on them of showing that no reason for incorporating Les Installations de I'Est Inc. originated mainly in a desire to reduce taxes.

After a brief summary of the relevant precedents, the Tax Court of Canada came to the conclusion that when there is a new incorporation the result of which is to reduce taxes otherwise payable by another company, this result is one of the reasons determining the decision to incorporate and it thus becomes one of the “main reasons" in paragraph 247(2)(b) of the Act. The Tax Court of Canada judge said the following at page 2449 (D.T.C. 662-63) of his decision:

I would suggest that whenever the reduction of income tax is one of the reasons for incorporation or for continued existence, it would be a main reason. In my opinion, the circumstances and events recounted in the testimony would support a conclusion that the appellants (or their principals) were, or should have been, or had every reasonable opportunity to be familiar, in an adequate way, with the beneficial income tax results which might flow from the formation of Incorporation. I gather from a review of Alpine Furniture Company Ltd., supra, and Industrial Trailer Rentals Ltd. v. The Queen, [1974] C.T.C. 775 ; 74 D.T.C. 6577, among other case law, that it is open to the Court barring clear evidence pointing in the other direction, to conclude that modern businessmen with professional advisors familiar with the role and function of corporations, should have an adequate knowledge of income tax matters, and would take into account that factor in making a business decision, comparable to the incorporation of a second company or maintaining its existence—it may also be asserted from Stubart, supra, that a competent and prudent businessman should always take into account the effects of income tax on business decisions, an even more positive view.

In its decision, the Tax Court of Canada entirely rejected the explanations put forward by the plaintiffs, since it concluded that the latter did not show that none of the main reasons for the second incorporation was to reduce the taxes that would otherwise have been payable by the first company. It further found that the evidence presented by the plaintiffs that they had not considered reducing tax did not in any way shift the burden of proof imposed on them by the Act. It further submitted that the expression “main reasons" in paragraph 247(2)(b) of the Act is not so conclusive, since if reduction of tax is one of the reasons, then it is certainly the main reason.

Further, according to the reasoning of the Tax Court of Canada judge, the plaintiffs must have anticipated the tax benefits resulting from the second incorporation and so kept the work of installing fences in Les Entreprises Savino Inc., the father's company, even though there were other benefits to be had from the second incorporation.

On considering these various aspects of the Tax Court of Canada decision, this Court must conclude that the decision is based on a misinterpretation of the Act. The words “main reasons" in paragraph 247(2)(b) of the Act cannot be interpreted in the manner indicated in this decision.

Under that section the plaintiffs had to show that, when Les Installations de I'Est Inc. was incorporated, none of the main reasons for the incorporation was to reduce the taxes that would otherwise be payable by Les Entreprises Savino Inc. In the opinion of the Tax Court of Canada, once there is a tax reduction it necessarily follows that this factor is one of the main reasons as provided in the Act. In short, so far as subsection 247(2) of the Act is concerned, what must be decided is not whether in fact the incorporation of the second business had the effect of reducing the first business' taxes, but whether the evidence disclosed that this tax reduction was a main reason leading to the said incorporation.

In this connection it should first be noted that in The Queen v. Covertite Ltd., [1981] C.T.C. 464; 81 D.T.C. 5353, Marceau, J. held that it was the taxpayer's responsibility to present such evidence and so to attempt to refute the conclusions of fact on the basis of which the Minister of National Revenue issued a direction pursuant to subsection 247(2) of the Act. In a highly relevant paragraph of his judgment, Marceau, J. explained just what such a burden of proof imposed on the plaintiffs means (at page 466 (D.T.C. 5355)):

The taxpayer corporation, on its being reassessed pursuant to a direction under subsection 247(2), is given a right of appeal but to succeed it must sap the foundations on which the direction was based, it must refute the conclusion reached by the Minister. The appeal tribunal, the Board or the Court, is entitled to vacate the direction if, but only if, it can determine that none of the main reasons for the separate existence of the two corporations was that of reducing taxes. The onus on the taxpayer appellant is complete and the role of the Court is clear. All that may appear simple but it is so only in theory and not in practice. The difficulty stems from the very nature of the conclusion of the Minister that is put into question and must be verified. It is indeed a conclusion of fact as opposed to a conclusion of law, but one of a purely psychological content, since it refers to the state of mind and the intention of those responsible for the creation and the continued separate existence of the two entities. It is obviously a conclusion that cannot be the object of direct evidence, at least in the absence of a clear prior statement of the parties concerned or an admission made by them afterwards. It must necessarily be based on inferences drawn from a series of material facts directly ascertainable. The Minister has inferred from a certain number of facts that the saving of taxes, which was actually realized, was not a mere side effect but rather one of the main goals contemplated by the individuals acting behind the corporations. In verifying the conclusion, the Court cannot but adopt an approach similar to that followed by the Minister. The mere denial of the taxpayer, whether or not accompanied by a simple indication of the other causes that could have prevailed, can be given no weight. Being a mere assertion of a negative fact, and a fact which has to do with the state of mind of the witness, it can have no convincing probative force; it cannot constitute the proof required to annihilate the conclusion of the Minister.

On appeal, a tribunal may thus vary a direction issued by the Minister of National Revenue if it is satisfied from the evidence presented by the taxpayer that none of the main reasons responsible for the second incorporation was to reduce the amount of tax that would otherwise be payable by a preceding corporation.

In this regard Marceau, J. explained the legal principle that must guide the tribunal hearing this type of appeal (at page 467 (D.T.C. 5355)):

To succeed, the taxpayer must: (a) disprove the facts assumed by the Minister in reaching his conclusion; or (b) convince the Court that the inferences drawn by the Minister from the facts assumed were unreasonable and unwarranted; or (c) add further facts capable of changing the whole picture and leading to different inferences pointing to the conclusion that the other reasons alleged have actually been prevalent.

It appears from this reasoning that para. (c) applies to the case at bar. Accordingly, for me to be able to reverse the direction by the Minister of National Revenue, I must come to the conclusion that the Minister deduced from a number of facts that the tax saving was actually one of the main reasons under consideration, but that the addition of certain other facts, which are highly significant and were not drawn to the Minister's attention, could alter the perception of the situation and so lead to very different deductions, resulting at once in a conclusion other than that made by the Minister of National Revenue.

From this finding you will readily conclude that I am allowing the action brought against the direction by the Minister of National Revenue. In order to arrive at such a decision, needless to say, I must have found the testimony given by various witnesses to be very credible. I should however indicate to some extent the basis for my decision.

To begin with, it should be noted that there is no doubt that the summary of the activities of the two companies, as submitted by the auditor and the head of the Tax Avoidance Division, was correct. However, I consider that they ignored certain relevant facts which might possibly have justified the defence submitted by the plaintiffs and so unavoidably influenced the decision of the Assistant Deputy Minister. These relevant facts may be summarized as follows.

1. There is no explanation regarding the costs paid by Les Installations de I'Est Inc. to Les Entreprises Savino Inc. However, the evidence seems to indicate that this money was paid on account of services rendered by the latter's employees, not to Mr. Savino Cantatore himself. However, Mr. Kirky did not make an exhaustive investigation of this situation.

2. The work done both by Giuseppe and by Anna Maria is not mentioned anywhere in the recommendations submitted to the Assistant Deputy Minister.

3. It is indicated that Les Entreprises Savino Inc. owed bills to Les Installations de I'Est Inc., but no mention is made of the amounts owed by Les Entreprises Savino Inc. to third parties.

4. Nowhere is it mentioned that Mr. Savino Cantatore bought a property at Repentigny, which had the effect of increasing the debt and considerably reducing the liquidity of Les Entreprises Savino Inc.

5. The report indicates that the two corporations had the same auditors and that Mr. Savino Cantatore was president and shareholder of both companies. It was also added that these facts were of little importance.

6. There was no mention of the fact that Anna Maria, Mr. Cantatore's daughter, was only sixteen when Les Installations de I'Est Inc. was incorporated, and that consequently a tutorship application was made for the shares held by her in this corporation.

7. The report does not state that third parties were approached to take over the fence installation operations, and that when they refused the feasibility of incorporating Les Installations de I'Est Inc. was then considered. They simply submitted that Mr. Cantatore had a tax reduction in mind and the purpose of this incorporation was tax avoidance.

8. It was not stated that the greater part of the work of Les Installations de I'Est Inc. was done during the summer months when Giuseppe Cantatore was on leave from school.

9. No mention was made either of the fact that Anna Maria worked in the office.

These facts by themselves could have given the decision of the Minister of National Revenue a completely different aspect. Mention should also be made of various other facts from which it can be concluded that the tax reduction of Les Entreprises Savino Inc. was not the main reason for incorporating Les Installations de I'Est Inc. These facts are as follows:

1. The ordinary share held by Mr. Savino Cantatore in Les Installations de I'Est Inc. was that previously issued for Miss Berthiaume as a participating share. Miss Berthiaume gave it up because she feared the responsibilities attached to being director of a company.

2. This ordinary share, whether held by Miss Berthiaume or by Mr. Savino Cantatore, was only issued to comply with the requirements of the Quebec Companies Act.

3. It is true that the company Domaines Repentigny Inc., in which Mr. Savino Cantatore was a shareholder, owed a very large sum of money to Les Entreprises Savino Inc. However, the latter was not its only creditor.

4. The evidence disclosed that Mr. Savino Cantatore bought a property at Repentigny for a future residential development. This property was subject to the Quebec Act to Preserve Agricultural Land and Mr. Cantatore could not undertake development of it as expected. He accordingly had to deal with various lenders, including Les Installations de I'Est Inc., in order to finance this business until he could obtain permission to proceed with his residential development project.

5. The fact that the banking resolution of Les Installations de I'Est Inc. was altered so that only Mr. Savino Cantatore could sign cheques can be explained as follows: as tutor to his daughter Anna Maria, who held the same number of ordinary shares as her brother Giuseppe, he had to look after her interests as required by his duties as tutor. This change in the banking resolution was not due to the fact that he held a participating share but to the fact that he was tutor for his daughter and had to look after her interests in the company.

6. It should also be noted that Les Entreprises Savino Inc. never installed fences. The installation of the fences was not part of its business activities as such. The cost of installation was included in the total purchase cost of the fences and Mr. Savino Cantatore hired subcontractors to install them. In the event, they caused problems for Mr. Cantatore.

By incorporating Les Installations de I'Est Inc. Mr. Giuseppe Cantatore was not seeking to take over operations previously performed by Les Entreprises Savino Inc., but to control the installations which had not previously been the responsibility of that company. It is true that this new business operation could have been integrated into Les Entreprises Savino Inc., especially as Mr. Savino Cantatore had some hesitation regarding his son getting into business. In his testimony to the Court Judge Macérola, in response to a question regarding Mr. Savino Cantatore's approach to the process of incorporating Les Installations de I'Est Inc., described this as follows:

Q. What was Mr. Savino Cantatore's attitude in this matter?

A. Well, in this matter Mr. Cantatore—it was a period when I think Mr. Savino was encountering problems regarding his health and there was also the fact that he was not too keen on his son being as it were the head, becoming as it were the head of the business. This may be a characteristic of the Italian community, the father of the family is important. . . but I think Mr. Savino realized that his son had decided to do what he wanted to do and he acquiesced, I mean there was not. . . there was no struggle or lengthy discussion, but you could see from his attitude that Mr. Savino would have preferred that his son be less, shall we say, active.

It is also worth reproducing here a large part of the testimony of Judge Macérola, in which he said that at no time were the tax implications one of the reasons for incorporating Les Installations de I'Est Inc., the only legal concern being that of Anna Maria's tutorship. The relevant paragraphs of this testimony read as follows:

Q. In this recommendation and the preparatory work to incorporate Installations de I'Est Inc., did you take into account the tax consequences that would result from a new corporation?

A. Well, I should say, I knew the matter, but I should say that to my short [sic] shame I did not see the tax problem in the creation of the company. I knew it was obvious that Joe wanted to start in business, to be on his own, that Mr. Savino agreed, perhaps with some hesitation, and I remember that Mr. Savino also said that it would be Joe but his daughter, his daughter Anna Maria also, and that it was to be the children and not him alone.

Q. Yes.

A. And the tax consequences, I must tell you that I was unaware at that time of the tax consequences that could result from creating this company.

Q. If I understand correctly the concept of small business deductions and associated corporations at that time were not something with which you were familiar?

A. No, I must say that I did not see it. Of course later I learned of the consequences of creating the company, but not at that time.

Q. Of course; do you remember whether this question was discussed by anyone?

A. The question of taxation?

Q. Of the tax consequences?

A. No, no, I did not discuss it and Mr. Savino did not talk to me about it, that is certain. I remember, in any case I certainly did not talk about it and Mr. Savino did not speak of it, he did not talk to me about taxation.

Q. What about Mr. Brosseau?

A. No.

Q. Did you consult anyone outside about incorporating?

A. No. I think what the problem was in the incorporation, what the problem was, what was perhaps most difficult, what perhaps made it somewhat different from others, was that the daughter was a minor, a tutor had to be appointed for her to have shares in the company, the tutor had to hold the daughter's shares. I think that was the only thing . . .

I should also note that the business ambitions of Giuseppe Cantatore cannot be overlooked. He continued to specialize in administration by pursuing his university studies while operating his business. He obtained his university diploma in 1981 when, according to the evidence in the record, his business was doing well. Further, we should also not forget to mention the success of Anna Maria. By her initial participation in Les Installations de I'Est Inc., Anna Maria Cantatore undoubtedly demonstrated her business sense, since she now has another business responsible for large projects in the metropolitan area.

It is true that these facts may not have the same degree of relevance as those mentioned earlier. However, to my mind they reflect the entrepreneurial spirit which guided Giuseppe and Anna Maria Cantatore in incorporating Les Installations de I'Est Inc., and the Court must unavoidably conclude that at this time they sincerely wished to create their own business and not continue that of their father.

I therefore conclude that the plaintiffs have persuaded me that the Minister of National Revenue did not have before him all the facts allowing him to take a decision. The plaintiffs’ appeal is allowed, the order made by the Assistant Deputy Minister is vacated and the matter will be returned to the Minister of National Revenue for reassessment, the whole with costs.

Appeal allowed.