Heald, J (concurred in by Ryan, J and MacKay, DJ):—This is an appeal from a judgment of the Trial Division, the effect of which was to restore the reassessments issued by the respondent in respect of the 1968 and 1969 taxation years of the appellant. By an order made on consent, all relevant evidence adduced at the trial of the action MNR v Ablan Leon (1964) Limited (Court File A-226-74)* applies to this action.
The appellant is a nephew of the five Leon brothers (Anthony, Lewie, Edward, George and Joseph, who were involved in Court Action A-226-74 referred to supra), being the son of an older, deceased Leon brother. Appellant has been engaged in the furniture business for about 25 years. Prior to 1956 he assisted his father on a part-time basis while at school, and subsequently was employed in the furniture business carried on by his uncles Anthony, Lewie, Edward and George, in stores located in Welland, Fort Erie, Port Colbourne ana Niagara Falls. During the period from 1956 to October of 1962 the appellant owned, managed and operated the Fort Erie store as a sole proprietor. During this same period, the appellant also continued to assist his uncles in their furniture business operations by managing certain stores in the Niagara area. In October of 1962 Nor-Mar Projects Limited (hereafter Nor-Mar) was incorporated. The appellant at ail material times was the president of Nor-Mar and owned substantially all of the issued and outstanding shares in the capital of Nor-Mar.
The items at issue in this appeal are the payments by Ablan Leon Distributors of $8,000 in 1968 and $39,000 in 1969 to Nor-Mar, which,
See p 506.
by the reassessments earlier referred to, the Minister deemed to be income of the appellant.
It is the Minister’s position that Norman Leon, having devoted his full time during the 1968 and 1969 taxation years to the management, supervision, overseeing and superintending of the operations of certain stores of Ablan Leon Distributors, became entitled to receive the above-stated amounts from Ablan Leon Distributors for his services; and that Ablan Leon Distributors, at his resquest, paid those amounts to Nor-Mar.
It is the appellant’s position, on the other hand, that during the 1968 and 1969 taxation years he was employed by and received a salary from Nor-Mar and that company had an arrangement with Ablan Leon Distributors to provide management services to Ablan Leon Distributors for which services it received management fees. The appellant further submits that, as an employee of Nor-Mar, he devoted time to the management, supervision, overseeing and superintending of the operations of certain stores of Ablan Leon Distributors and that Nor-Mar was paid the above-stated amounts for said services.
The learned trial judge, on the evidence before him, made findings of fact, inter alia, which I summarize as follows:
(a) Nor-Mar had no employee of significance other than the appellant who controlled it.
(b) Nor-Mar was without some of the common and usual facilities of a business.
(c) The person actively performing services for Ablan Leon Distributors was Norman Leon. That which was important to the business of Ablan Leon Distributors was the services of Norman Leon, the appellant herein, as distinguished from Nor-Mar.
(d) One difference between the Norman Leon matter on the one hand, and the Anthony Thomas Leon, the Lewie Leon and the Edward Leon, on the other hand, was that Norman Leon was not a shareholder of Ablan Leon (1964) Limited.
(e) The sole purpose of the interposition of Nor-Mar was to reduce the liability for income tax of Norman Leon and those in control of Ablan Leon (1964) Limited were willing to co-operate with the appellant Norman Leon to that end.
It is interesting to observe that the learned trial judge found in the case of Norman Leon, as well as in the case of Anthony, Edward and Lewie, that the sole purpose of the interposition of the respective management companies was to reduce the liability for income tax of Norman, Anthony, Edward and Lewie. Notwithstanding this identical finding of fact, the learned trial judge found for the individual taxpayers in the case of Anthony, Edward and Lewie while finding for the Minister in the case of Norman.
Quite apart entirely from several factual differences which distinguish the case of Norman Leon from those of Anthony, Edward and Lewie Leon, it is my view that the complete absence of a bona fide business purpose for the interposition of Nor-Mar into the provision of Norman Leon’s services to Ablan Leon Distributors is sufficient to stamp that transaction a sham and is a circumstance which prevents the appellant from succeeding in this appeal.
There can be no doubt, on the evidence in the case, that there were a number of bona fide business purposes for the incorporation of Nor-Mar as indicated by the several other business activities engaged in by it. However, as I said in my judgment in the cases of Anthony, Edward and Lewie Leon (Court Files No A-232-74; A-233-74; A-234- 74),* it is not enough to establish a bona fide business purpose for the incorporation of the entity being interposed, it is also necessary to establish a bona fide business purpose for the transaction or agreement into which the entity is being interposed and that bona fide business purpose is lacking in the case of Norman Leon as it was in the cases of Anthony, Edward and Lewie Leon. Therefore, on this ground alone, the appeal must be dismissed.
I said earlier that there were several factual differences distinguishing the case of Norman Leon from those of Anthony, Edward and Lewie Leon. The learned trial judge dealt with those factual differences at pages 14, 15, 16 and 17 [[1974] CTC 588 at 595] of his judgment as follows:
Nor-Mar Projects Limited entered into an employment agreement dated May 1, 1964 in which the named employers were the same as in the Anthony Thomas Leon, the Edward Leon and Lewie Leon matters. The Nor-Mar Projects Limited agreement is not the same as the agreement in those three other matters.
The services to be rendered by Nor-Mar Projects Limited as set out in its employment agreement are:
“1. Leon shall employ Nor-Mar to take charge of and be responsible for all promotion and public relation work which may be required in connection with the operation of any stores owned by Leon whether these stores may be owned at this date or may be hereafter acquired.
2. Nor-Mar shall devote its full time and effort to properly complete and fulfill all duties which are normally allocated to a person or corporation charged with promotion and public relations work and specifically in connection with stores engaged in the business herein above referred to.
3. Nor-Mar shall be fully responsible for all decisions which shall be made as to any promotion or public relation activities but in the event there may be a conflict between Leon and Nor-Mar as to a particular course of conduct or operation in connection with any of the stores, the decision of Leon shall always prevail.”
Accordingly the total responsibility of Nor-Mar Projects Limited had to do with promotion and public relations and nothing else.
I find that the services which were performed by Norman Leon went far beyond the services (promotion and public relations) which Nor-Mar Projects was to supply pursuant to its agreement. I find that Norman Leon also managed, supervised, oversaw and superintended the operation of some stores.
See p 532.
it might also be pointed out that the respondents’ pleading indicates that the services actually performed by Norman Leon were more than matters relating to promotion and public relations.
Paragraph 4 of the Reply to Notice of Appeal in the Norman Leon matter is:
“With respect to paragraph 3 and 4 of the Notice of Appeal, the Respondent says that he, as an employee of Nor-Mar Projects Limited devoted time to the management, supervision, overseeing and superintending of the operations of certain stores of Ablan Leon Distributors and Nor-Mar Projects Limited was paid for those services the sum of 1968 — $ 8,000 1969 — $39,000”
Of course the Nor-Mar Projects Limited agreement did not provide for supply of services for “the management, supervision, overseeing and superintending of the operations of certain stores”.
The provision for remuneration of Nor-Mar Projects Limited In accordance with its agreement was:
“Nor-Mar shall be paid for the above services the sum of twelve hundred and fifty dollars ($1,250.00) per month and it shall In addition be paid a bonus based on the volume of sales achieved in the said stores or any of them, such bonus to be worked out and completed in accordance with a subsequent agreement between the parties hereto.”
The “above services” referred to in the remuneration provision would, of course, be the promotion and public relations work which Nor-Mar Projects Limited was to supply. It would not be for managing, supervising, overseeing and superintending the operations of stores.
lt Is not to be assumed that the services rendered by Norman Leon in managing, supervising, overseeing and superintending operations were done or intended to be done gratuitously. One is impelled to the conclusion that the items of payment by Ablan Leon Distributors which are in issue, namely $8,000 in the taxation year 1968 and $39,600 in the taxation year 1969, were for all services performed by Norman Leon including those which were managerial.
If there were services solely within the category of promotional and public relations along with the managerial services so as to indicate what might be the appropriateness of an apportionment between them no attempt was made at such apportionment. In my opinion the onus for establishing both a right to apportionment and what the apportionment should be would rest on the respondent. He had not met that onus.
I find that the respondent Norman Leon has not discharged the onus which is on him to establish that the position of the appellant in connection with the assessments in the Norman Leon matter, the basis for making them or the appellant’s relevant assumptions were wrong.
The appeal of the Minister of National Revenue in the Norman Leon matter is allowed. The assessments by the appellant :in that. matter are restored. The appellant will have his costs in that matter here and below.
In my view, the above findings of the learned trial judge are justified on the evidence before him and represent an additional reason for dismissing the appeal.
For the foregoing reasons, the appeal is dismissed with costs.
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