The Queen v. Meronek, 82 DTC 6187, [1982] CTC 248 (FCTD)

Smith, DJ:—This is an appeal by the plaintiff, by way of trial de novo from the decision of the Tax Review Board, which allowed the defendant’s appeal from a reassessment of her income by the Minister of National Revenue for the taxation years 1969, 1970, 1971 and 1972.

The issue may be stated simply. Were moneys paid to the defendant in those years, to redeem preferred shares of Equipment Distributors Limited held by her, and to pay parts of a large debt of the said company which had been assigned to her, capital gains on an investment made by her, or were they gains resulting from an adventure in the nature of trade on her part? If the former, they are attributable to capital account and not taxable income under the Income Tax Act. If the latter, they are profits from business and taxable income.

In all cases of this kind the facts and circumstances of the case are of vital importance, because it is from them that the real purpose and intention of the taxpayer must, generally, be ascertained.

The facts in this case, derived from the partial agreed statement of facts (Ex P-6), the examination of the defendant for discovery, her parol evidence at the trial and numerous documents filed as exhibits, may be stated as follows, beginning with a brief description of the persons involved, most of whom were members of the Meronek family group, and of the companies involved. All of the companies are incorporated under the laws of Manitoba.

1. Merstill Management Ltd, (herein referred to as “Merstill”), is a holding and management company the ownership and control of which was shared equally by Harry Meronek (herein referred to as “Harry”), John Meronek (herein referred to as “John”) and Ernest C Stilling (herein referred to as “Stilling”) during the period between January of 1964 and February 20 of 1967.

2. Markwill Industries Ltd (herein referred to as “Markwill”) is a farm implement manufacturing company, of which Merstill acquired 90% voting control in 1961 from John Markiw. It was a wholly owned subsidiary of Merstill during the period between January of 1965 and December 31 of 1972.

3. Keystone Sales Ltd (herein referred to as “Keystone”) was owned and controlled directly or indirectly subsequent to February 20, 1967 by Ann W Stilling (herein referred to as “Ann”), Mary Meronek (herein referred to as “Mary”) and the Defendant.

4. Equipment Distributors Limited (herein referred to as “Equipment”) is an industrial manufacturing company of which the common shares and control passed to Merstill as a result of an agreement dated March 1, 1965.

5. Aerofoam Chemicals Ltd (herein referred to as “Aerofoam”), is a company which during the years 1962 to 1972 inclusive was managed by Harry Meronek and in which Harry, during that period, owned directly or indirectly at least 27% of the issued and outstanding shares.

6. Harry Meronek was a Chemical Engineer by profession and a businessman (herein referred to as “Harry”). The Defendant was his wife. Harry died several years ago.

7. John Meronek, brother of Harry (herein referred to as “John”), lived in Calgary, Alberta and was a Materials Engineer. Mary Meronek, (herein referred to as “Mary”), was his wife.

8. Ernest C Stilling (herein referred to as “Stilling”), was a Chartered Accountant. Ann W Stilling, (herein referred to as “Ann”), was his wife.

9. John Houde and Lyle Cantion, (herein referred to respectively as “Houde” and “Cantion”) were described as Managers.

10. William Henry McWilliams (herein referred to as “McWilliams”) was a businessman. He was the principal shareholder of Equipment until some date prior to March of 1965, at which time his shares were acquired by Houde and Cantlon. McWilliams continued to be the chief financial supporter of Equipment.

According to a statement of the affairs of equipment as of February 28, 1965 (Ex P-1, 43) the share capital of the Company was as follows:

Preferred Shares (5% cumulative redeemable)

Authorized, 50,000, with a par value of $1 each.

Issued, 14,680, fully paid.

Common Shares

Authorized, 50,000, of no par value.

Issued, 36,250 fully paid.

Prior to March 1, 1965, McWilliams had guaranteed the indebtedness of Equipment to the Bank of Montreal to the extent of $185,000, and as of December 31, 1964, Equipment was indebted to the Bank of Montreal in the amount of $173,471.21. The financial situation of Equipment had accumulated losses from operations, according to its financial statements, in the total amount of $149,691.74. For tax purposes it had losses from operations to carry forward to its 1965 taxation year in the total amount of $119,306.90.

On March 1, 1965, an agreement was entered into between Merstill (of the First Part), Houde and Cantion (of the Second Part), Equipment (of the Third Part), Mary, Ann and the defendant (of the Fourth Part), and McWilliams (of the Fifth Part).

Pursuant to this agreement the 36,250 common shares of Equipment were transferred to Merstill for the consideration of $1 and the 14,680 preferred shares of Equipment, together with an assignment by McWilliams of debt in the amount of $147,426.07 owed to him by Equipment were transferred to Mary, Ann and the defendant, equal as to interest, for the consideration of $1 for the shares and $1 for the assignment of debt. Merstill took over Equipment’s inventories and fixed assets at book value not exceeding cost, but Equipment remained responsible for accounts payable and receivable. McWilliams paid Equipment’s debt to the bank, which at that date amounted to $130,086.25 and was relieved of his guarantee. By this payment he became a creditor of Equipment in this amount, which was included in the debt of $147,426.07 assigned to Mary, Ann and the Defendant.

The result of the agreement was that Merstill, which already owned Markwill, acquired complete control of Equipment, and Equipment’s debts had been paid or payment arranged for, with the exception of the large debt to the bank and the additional debt to McWilliams, which were now held by the wives of Harry, John and Stilling. No doubt Harry hoped that the financial pressure on Equipment would be eased and that by having the two manufacturing companies under one management, both would be more successful. Unfortunately, during the next two years, this hope was not realized, as is clear from a letter (Ex D-8), from Harry to John and Stilling, dated January 21, 1967. This letter indicates that the combined results of Markwill and Equipment had been losses in both years and that the Royal Bank had refused to give a $50,000 line of credit. The situation was urgent. The letter states in one paragraph:

It cannot be too strongly stressed that unless a decision is reached by the end of January, 1967 (which I note was only ten days away) we may be forced into bankruptcy.

Harry put forward three possible alternative steps, of which the last was that he buy out the business from them, paying each of them $18,000 over a five year period. This alternative appears to have been the most acceptable. It was carried into effect, along with several other matters, by an agreement dated February 20, 1967 between the following parties: Stilling and John, “Vendors”, of the First Part, Harry, “Purchaser” of the Second Part, Merstill, of the Third Part, Markwill and Equipment of the Fourth Part, Keystone of the Fifth Part, and Ann, Mary and the Defendant of the Sixth Part.

By this agreement Stilling and John sold to Harry all their shares in Merstill, in line with the last alternative put forward in Exhibit D-8. This gave him control of Markwill and Equipment, Merstill’s wholly owned subsidiaries. The only other item in the agreement that is directly relevant to the issue in this case is that Ann and Mary sold to the defendant their interests in the preferred shares and all the balance of the indebtedness owed to them by Equipment for the sum of $1. (Differing small portions of the indebtedness to each of them were retired by Equipment by clause 4 of the Agreement.)

The result of this agreement was not only that Harry owned all the common shares of Equipment but that his wife, the defendant, owned all the remainder of the debt, also all the promissory notes previously held by Ann, Mary and herself. Harry was in complete control. He had been the initiator and driving force in the decision to acquire Equipment. In addition he was

(a) Secretary-Treasurer of Equipment in 1965 and 1966 and President of that company from 1967,

(b) President of Merstill throughout the whole period,

(c) Vice-President and Managing Director of Aerofoam,

(d) President of Markhill from its acquisition.

The evidence of the defendant at the trial before me goes further, indicating clearly that Harry in fact ran all the business since he, John and Stilling agreed to form Merstill Management Ltd in 1959 with a view to purchasing Markwill. This was Harry’s first involvement with John and Stilling in business and the subsequent acquisition of Markwill brought Harry for the first time into the business of manufacturing. The defendant stated that John and Stilling were not interested in the business and that Harry did all the work until he bought them out in 1967.

She said she had never bought a debt with a view to making a profit. She had worked for Markwill, but never for Equipment. Her income tax returns for the four years 1969 to 1972 (Exhibits D-11, D-12, D-13 and D-14) show much the greater part of her income in those years as being earnings from Markwill.

On cross-examination concerning the acquisition of Equipment she said everything was arranged and done by Harry and that she did nothing in connection with the transaction. This evidence is similar to what she stated in her examination for discovery where she was examined at much greater length. On that occasion she was questioned separately about the two agreements, of March 1, 1965, and February 20, 1967, and quite definitely stated that she had nothing to do with the negotiations for either of them. She said also that nobody else explained to her the agreements when they were prepared. When asked if it was fair to say that Harry brought the documents relating the agreements to her attention and asked her to sign them and that was the extent of her participation, she replied: “That was about it, yes”. She was then asked if her husband Harry Meronek had explained to her the result of signing the documents, and replied at some length, as follows:

A Not really. He — well, wait a minute. Well naturally he said we were going to — I guess, I’m not sure, but I guess you might say that he said we would be acquiring Equipment, and, you know, just generally. But no details of anything that I know of. At one point after this with regards to the buying of the indebtedness or whatever you Call it, I don’t recall that, I did give him the dollar and he did — I recall that so distinctly because it was a little thing that I remember — and he said it was worth nothing, but there it was, you know. I remember that very distinctly. But, no, we didn't go into details with any of this stuff. The truth is I was busy with children and although I knew that I was involved with Harry and he was involved with this thing I didn't have anything to do with the running of these businesses. I didn't know anything about them. Now, probably a downfall on my part but I didn't.

Questioned about whether she was involved at all in the decision to acquire the debts of Equipment that were transferred to her by the agréments, she replied: “No”.

The questions and answers then proceeded:

Q Did your husband explain to you the steps that were involved in the acquisition of these debts that ended up in your own name?

A No.

Q Mrs Meronek, did you ask for any explanations from your husband in regard to the acquisition of the debts? Did you ask him to explain anything to you?

A Not really, no.

Q And did anybody explain to you — now, I am using the words formal steps — did anyone say to you these documents had to be signed, or things like that.

A No.

Q Did anybody explain —

A Now, wait a minute. What documents? I mean I had to sign the agreements but nobody explained anything, no. I mean, “Just sign them”.

Q Okay. Now, Mrs Meronek, did anybody discuss with you what would happen to these debts which you were going to be acquiring in your own name once you had acquired them? Did they tell you what would happen down the road?

A No.

Q And you didn’t ask anybody for any explanation? I mean nobody refused any of your questions?

A Well, like I say, there’s one instance, you know, Harry put the documents on the table and he said something “It’s not worth anything”, and we laughed and he said “Yes, that’s a lot for nothing”. But that’s all. I mean what do you ask when something isn’t worth anything? You know, what do you ask when you are up to your neck in debts? No, nobody explained it. It was just part of tying it up.

Q Mrs Meronek, did either your husband or anybody else discuss with you why these debts were not taken in his own name, that means your husband’s name, or why they were not taken in Mr John Meronek’s name?

A No.

Q And Mr Stilling’s name?

A No, I don’t know that.

Q Did anybody ever discuss with you why these debts or these promissory notes

— and by that we mean the same thing — that had originally been owing to Mr McWilliams from Equipment Distributors Ltd, why they were simply not cancelled?

A No.

Q In 1965?

A No, I don’t know anything about that, no.

Q Now, Mrs Meronek, at the time of what we will call the second agreement, that is February 20th, 1967, around the time frame when that agreement was prepared did anybody discuss with you why the debts or the promissory notes which we have been discussing that were in the name of Mary Meronek, that were in the name of Mrs Stilling were not going to be in your name or acquired by you?

A Not specifically. I guess it was just a following through, you know, a carry-on.

Q And again, as I asked you a few moments ago, at the time of this agreement, that is February 20th, 1967, did anybody mention to you anything at all why these debts or promissory notes were not taken in your husband’s name?

A No.

Q And nobody explained to you or discussed with you why they were simply just not cancelled?

A No.

Earlier in the Examination for Discovery she was asked the following question and made the following answer.

Q Did you take, when you received these monies on the payment of the liability under the assignment over the years, the subject of appeal in this case, did you take any part in these decisions whatsoever or did your husband merely bring you or send you a cheque?

A To be perfectly honest we were told when the money became available we would be paid a little more, as it became available, if it wasn’t there we didn’t. It was by working hard, if you were successful, you made sales.

The profit and loss picture of Equipment, according to its income tax returns, was substantially better after 1966 than it had been in previous years, the best years being 1967 and 1968. For the six years 1967 to 1972 inclusive its income for tax purposes totalled about $100,000. The source of much of this income is of some significance. In this connection Harry’s income from Equipment and Aerofoam and money paid by Aerofoam to Equipment are of interest. In the years 1968 to 1971 Harry’s salary from Aerofoam as an employee varied from $11,000 in 1969 to $15,791 in 1971. In the same years he received a salary from Equipment for services as an employee varying from $4,200 in 1968 to $5,400 in 1971. During the period from February 1, 1967 to December 31, 1972 Aerofoam also paid Equipment certain “management and enginerering” fees for services rendered by Equipment to Aerofoam and primarily provided by Harry as an employee of Equipment.

Table 1 shows the importance of these management and engineering fees in the profit and loss picture of Equipment for the years 1967 to 1972.

TABLE 1

			Income (Loss)
	Income for		excluding
Year	Tax Purposes	Fee Income	Fee Income
1967	$24,828	$11,000	$13,828
1968	25,065	14,900	10,165
1969	13,386	19,800	(6,414)
1970	8,318	27,400	(19,082)
1971	11,511	23,300	(11,789)
1972	16,776	18,000	(1,224)
Total	$99,884	$114,400	($14,516)

This table indicates a net loss of $14,516 for those six years if the fees are not included. There had been income for the two years before the fees came into the picture amounting to $20,327. Including that income, but still excluding the fees, there was a net income for the eight years of $5,811.

No dividends were paid by Equipment on its preferred or common shares in any of the years 1965 to 1972. Nor did it pay any interest on the debt to the defendant. What it did with the income earned in those years was to redeem all the preferred shares and to pay off more than half of the debt. All these payments were made to the defendant, over the years 1969 to 1972, as shown on Table 2.

By reason of its continuing tax loss position Equipment had no income tax liability till 1970.

The Minister reassessed the defendant’s income for the four years by adding to each year’s income the amount shown in the foregoing table as having been paid to her in that year. The defendant claims the amounts are capital accretion, not income.

At this point it will be useful to state the assumptions made by the Minister in reassessing the defendant.

In assessing the Defendant for her 1969, 1970, 1971 and 1972 taxation years and in connection with those matters under appeal, the Minister made the following assumptions of fact:

(a) that the Defendant did not acquire the preferred shares and outstanding notes of Equipment as an investment;

(b) that the Defendant acquired the preferred shares and outstanding promissory

notes of Equipment in order to make a profit on their realization;

(c) that the Defendant earned profits from an adventure in the nature of trade as a result of the redemption of the preferred shares of Equipment and as a result of payments on account of the outstanding promissory notes of Equip- ment in each of her 1969, 1970, 1971 and 1972 taxation years, as follows:

1969	$24,999
1970	$17,500
1971	$49,879
1972	$ 8,000

(d) that the principal source of funds enabling Equipment to redeem the preferred shares and make payments on account of the promissory notes was the payment of “management and engineering” fees, by Aerofoam to Equipment in connection with the services and efforts of Harry;

(e) that the only purpose for providing Harry’s services to Aerofoam as an employee of Equipment was to provide funds to Equipment to enable it to redeem the preferred shares held by the Defendant and to enable it to make payments on the outstanding promissory notes held by the Defendant.

The onus is on the defendant to show that these assumptions were incorrect.

Counsel for the defendant, at the beginning of his argument, addressed himself to the question whether things done by Harry affected the tax liability of his wife with respect to the moneys received by her from Equipment as described supra. In his opinion the answer is that they did not affect her liability. He submitted that she was quite capable of making her own decisions with respect to investments. She had invested in corporate shares on other occasions. There was nothing in the evidence to indicate that she did not make her own decisions in this case to buy the preferred shares of Equipment and Equipment’s debt to McWilliams, in equal shares with Mary and Ann, for the consideration of $1, and subsequently to buy the shares of Mary and Ann for a similar consideration. I understand his argument to mean that she was neither Harry’s “alter ego” nor an automaton doing what she was told to do, in accordance with his instructions, to further any plans he might have.

It is clear from the portions of her evidence that have been quoted supra that, though the defendant took no part in the negotiations for or planning of the agreements of March 1, 1965 and February 20, 1967, and the details of those agreements were not discussed with her or their effect explained to her, she did have some general knowledge of their contents. For example, she knew on or before March 1, 1965 that “we would be acquiring Equipment”. She knew that she, along with Mary and Ann, were getting all the preferred shares of Equipment, par value $14,680 and its debts owed to McWilliams totalling $147,426.07, all for the nominal sum of $2, $1 for the shares and $1 for the debts. She knew that at that time the shares and debts “were worth nothing”. She knew, on or before February 20, 1967, that she was acquiring the interest of Mary and Ann in the debts for the sum of $1. She knew that if Equipment, under the new management of Harry, became successful, she would receive payments to redeem the shares and from time to time to reduce the debts. So far as the evidence discloses she asked no questions about how this desirable result might be accomplished, but left everything to her husband Harry. She knew she “was involved with Harry and he was involved with this thing”, but she “didn’t have anything to do with the running of these businesses” and she “didn’t know anything about them”. She knew that Harry made all the decisions — did everything — in connection with the two agreements.

From her evidence before the Tax Review Board, she knew something more about the two agreements (pages 2 and 3 of the transcript, where the following questions and answers appear):

Q What is the commercial necessity to which reference has been made?

A The commercial necessity is if you are going to take it over and make it go (sic: grow), you can't have that kind of debt outstanding, and this large amount that Mr McWilliams would have owed (sic: been owed), you can’t have it stand out, it had to have something done with it.

Q You are saying once Mr McWilliams paid off the bank, the company would have been indebted to that extent?

A What’s the point of taking the company if it's going to owe him, if you are going to make it grow.

It is clear that she knew the large debt that would be owed to McWilliams by Equipment, once he had paid off Equipment’s note to the bank would need to be removed from a position in which it would hang over the company. But it appears that she did not know why it was transferred, first to Mary, Ann and herself, and later to herself alone, instead of being written off as worthless, or alternatively transferred to Merstill or to Harry or John.

She stated, as quoted earlier in these reasons that she was “involved with Harry” and Harry “was involved with this thing”, but that the extent of her involvement was to do whatever Harry asked her to do. In other words she went along with whatever he was trying to accomplish. By paying a total of $3, perhaps $4, to acquire the shares and the debts she was simply assisting her husband to carry out his plans. In this limited sense she was a party to his plans though not privy to many details of them.

Counsel for the defendant, in support of his submission that she had made an investment on which she had made capital gain, and not an adventure in the nature of trade, relied on MNR v Muzly Lawee and Naima E Lawee, [1972] CTC 359; 72 DTC 6342. In that case two well-to-do ladies purchased some farm land in Quebec, for $184,000. It adjoined land which their husbands were subdividing, and at one point was included in a tentative plan of subdivision which was not approved. Nine years after they acquired it they sold it to a development company controlled by their children, for $727,175. Cattanach, J in the Trial Division of the Federal Court held, as stated in the headnote:

The evidence indicated that the respondents acquired the land for the purpose of investment to the exclusion of any purpose of trading therein. That they may have acted on the advice of their husbands did not alter the fact that they were persons capable of making their own decisions. The intention of the husbands was not the intention of the respondents. It followed that the profit realized was not income but an accretion to capital.

On the facts as stated, the judgment of Cattanach, J was, in my opinion, correct, but the facts are clearly distinguishable from those in the present case. In the Lawee case a considerable sum was paid for the land and the land was capable of producing revenue, either as farm land or, if subdivided and built on, by the use or rental of the buildings and land. In our case no dividends or interest had been paid or would be paid on the shares or debts. The only way in which anything could ever be realized on them was that Equipment be rescued from a state of insolvency and made profitable. From Equipment’s record over a number of years the prospect of this happy development occurring was highly speculative.

The facts in MNR v Minden, [1962] CTC 79; 62 DTC 1044, are similar in some respects to those in the case before me. In that case Thorson, P, in the course of his judgment in the Exchequer Court of Canada, said, at 91 [1051]:

The fact that the respondent knew nothing about the matter except that the agreements had been bought for her and that she left everything with her husband cannot exempt her from responsibility for his conduct of the transactions as her agent, for, as Mr Minden said, she knew in a general way what he was doing on her behalf. The reality of the matter is that what Mr Minden did for his wife and on her behalf was “an operation of business in carrying out a scheme of profit making” with the result that the profits realized by the respondent constituted a gain made in such an operation.

The first sentence in the above quotation applies, in my opinion, to the present case.

From a careful consideration of all the evidence related to this point I have concluded that the defendant was involved with Harry to a degree indicating that his purpose and his intenion should be considered also to be hers. Therefore, in my opinion, she does not escape responsibility for his activities.

I turn to a consideration of Harry’s activities and what the facts indicate about their nature.

Several questions require attention. Why were Mary, Ann and the defendant given a part to play and made parties to the two agreements? Why were the preferred shares of Equipment and the debts formerly owed to the bank and McWilliams transferred to Mary, Ann and the defendant, and not to Mer- still (which was acquiring Equipment), or to Harry, John or Stilling or all three of them? Why was the debt not simply cancelled? What was the purpose of keeping it in existence in the hands of Mary, Ann and the defendant? Equipment’s other debts were, under the agreement of March 1, 1965, either paid or payment provided for, but this large debt, which McWilliams assigned to Mary, Ann and the defendant for $1, was kept alive.

The only logical reason that I can see, from the evidence, for singling out this debt and keeping it alive is that Harry intended, from March 1, 1965, that as soon as Equipment should again become a profitable company, payment on its account would be made by Equipment. He further intended that Equipment would redeem the preferred shares as money became available. This was a highly speculative business plan, depending for its achievement on the success of Harry’s efforts to restore Equipment to a profitable condition. There was, practically speaking, no risk involved, as the preferred shares and the debt had been acquired at a total cost of $2, but if Harry’s plans succeeded, the profits would be very large in relation to the cost paid.

We have seen that the combined results of Equipment’s and Markwill’s businesses continued to show losses for the years 1965 and 1966 and that their financial position, along with that of Merstill became at best very precarious, leading to the agreement of February 20, 1967. We have also seen that the result of this second agreement was to consolidate Harry’s position in complete control of all the companies, except, technically, Aerofoam, in which he held less than one third of the voting shares but of which he was Vice-President managing director. A second result was that Harry’s wife, the defendant, became the sole owner of all the preferred shares and of the debt.

I note in passing that Equipment’s business as a manufacturer and seller of industrial equipment continued to decline from 1965 to 1971. According to financial statements filed with the company’s income tax returns the value of its sales in 1965 was $160,498, but the value dropped every year until in 1971 they were only $26,740. The value increased to $35,651 in 1972 and to $47,792 in 1973.

The drastic reductions in Equipment’s sales between 1965 and 1971 did not have a correspondingly disastrous effect on its profit and loss picture. This was largely because Harry made a skilful move. Not long after the agreement of February 20, 1967, was made, he, being managing director of Aerofoam, made an arrangement with Equipment, of which he was president and sole shareholder, under which Equipment provided certain management and engineering services to Aerofoam, for which services Equipment was paid fees. The services were performed primarily, if not entirely, by Harry. Table 1, supra, shows that the fees paid to Equipment for the years 1967 to 1972 inclusive, under this arrangement, totalled $114,400.

Payment of these fees resulted in Equipment having income for tax purposes in each of those years, the total for the six years being $99,884. (See Table 1.) Without the fees Equipment would have had a net negative income for the six years.

In consequence of having income for those six years of $99,884, plus $20,327 for the years 1965 and 1966, Equipment had funds from which payments could be made to redeem the preferred shares in full and greatly reduce the balance of the debt. Table 2, supra shows that, beginning in 1969 and continuing to 1972 Equipment paid the defendant a total of $100,378 for these purposes.

Harry, as stated earlier, was in control of Aerofoam and Equipment, as well as the other associated companies. The arrangement with Aerofoam could have been made between Aerofoam and Merstill, which is a management company, or between Aerofoam and Harry personally. In either case Harry would have done the work, but Equipment would not have been in a position to make substantial payments to the defendant. As I interpret the facts, Harry made the arrangement between Aerofoam and Equipment, not only, or chiefly, because it would improve Equipment’s profit picture, but also because it would enable him to carry out the plan that had been in his mind since March 1, 1965, and cause Equipment to pay the defendant substantial sums to redeem the preferred shares and greatly reduce the debt of Equipment to her.

Counsel for both parties referred to many judicial decisions in the course of their argument, decisions ranging from the Tax Review Board up to the Supreme Court of Canada, plus several decisions of English courts, including the Court of Appeal and one of the House of Lords. I have read and re-read all of those judgments. Many of them had only a peripheral interest in the circumstances of the present cases. Others I found very helpful. I believe it will be useful to refer specifically to two more of them.

The first of these is MNR v Sissons, [1969] SCR 507; [1969] CTC 184; 69 DTC 5152. This is a unanimous decision of the Supreme Court, delivered by Pigeon, J. The respondent, a stamp dealer, carried on his business through a private company controlled by him. In 1961, he acquired from Sonograph and Semko, two related companies on the verge of bankruptcy, inter alia, for the sum of $15,000, $100,000 debentures of Sonograph and $102,000 debentures of Semco, all in default as to interest and approaching maturity. He did not acquire a debt of $112,000 owed by Sonograph to Semco. Respondent’s private company sold its inventory of stamps to Sonograph and was autho- rized to buy and sell stamps for the benefit of Sonograph. In 1962 and 1963 Sonograph profits from the stamp business (which were exempt from tax by reason of the application of past losses) allowed that company to pay off its indebtedness to Semco of $112,000. In turn Semco was able to redeem its debentures held by the respondent in the amount of $102,000. The Exchequer Court had held that the profit of $87,000 ($102,000 less the $15,000 paid) was not income from a business or adventure in the nature of trade. The Minister appealed to the Supreme Court, which allowed the appeal, holding that the profit was realized in an adventure in the nature of trade and was therefore taxable as income from a business. The acquisition of the debentures was part of a profit-making scheme. The purpose of the operation was not to earn income from the debentures but to make a profit on prompt realization. The operation had therefore none of the essential characteristics of an investment, it was essentially a speculation.

One of Pigeon, J’s comments is specifically relevant to this case. Near the bottom of page 511 he said:

(d) As to the fact that the gain arose at least in part from the respondent’s efforts, this clearly tends to show not that it is a capital gain but profit from a “business”, One of the characteristics of income from such a source is that it is essentially the result of the businessman’s efforts.

In the present case the gain was entirely due to Harry’s efforts.

The second case is A Dewar v MNR, [1972] CTC 2499; 72 DTC 1421. This is a decision of the Tax Review Board. The facts are markedly similar to those in the present case. The appellant and his wife, in 1961 acquired from an insolvent limited company, the right to use the company’s trade name, and apparently did use it successfully. The only shareholder of the company was Mrs Hollinrake, to whom it was also indebted in the amount of $86,000. In 1965 the appellant and his wife purchased the common shares of the company and the debt owed to Mrs Hollinrake for $1,500. The company’s position begain to improve until, in 1968-69, it was able to pay to each of the Dewars part of the $86,000 debt. The Minister assessed the appellant for the amount he had received, as income. The appellant claimed it was return of Capital

The Board, following the Sissons decision, dismissed the appeal, holding that the only advantage the appellant and his wife gained from the loan was as a result of their efforts in building up the business to the state it was in 1968-69, when the payments were made and that was clearly an adventure in the nature of trade.

My conclusion in the present case is that the money paid by Equipment to the defendant in the years 1969 to 1972 inclusive, to redeem the preferred shares held by her and to greatly reduce the debt owed to her by the company, became available for these purposes as a result of an adventure in the nature of trade. The acquisition of the shares and debt by the defendant was part of a profit-making scheme or plan initiated and carried through by her husband Harry Meronek, and in which she was sufficiently involved that his purpose and intention should be held also to be hers.

The appeal is allowed with costs.