Bowman
J.T.C.C.:—
This
appeal
is
from
an
assessment
for
the
appellant's
1986
taxation
year
whereby
the
Minister
of
National
Revenue
included
in
the
appellant's
income
$69,263.
The
issue
is
whether
a
bookkeeping
entry
in
the
books
of
a
company
controlled
by
the
appellant
changing
a
designation
from
"bonus
payable"
to
a
designation
"due
to
shareholder"
constitutes
a
receipt
of
an
amount
giving
rise
to
income
in
the
appellant's
hands.
The
appellant
is
the
president
and
controlling
shareholder
of
Trans
World
Oil
&
Gas
Ltd.
The
appellant,
his
brother
and
a
lawyer
were
the
directors.
Although
the
appellant
held
all
of
the
voting
shares
the
equity
of
the
company
was
represented
by
non-voting
shares
which
were
held
by
his
children.
In
1983,
the
company
retained
the
services
of
a
former
Revenue
Canada
employee,
Mr.
Les
Somlyai,
who
appears
to
have
assumed
responsibility
for
the
company's
accounting
and
tax
affairs.
Mr.
Phillips’
evidence
was
not
of
great
assistance
in
clarifying
some
of
the
entries
in
the
financial
statements
of
the
company.
The
facts
however
are
not
substantially
in
dispute.
In
1984,
the
company
declared
a
bonus
of
$330,000
in
favour
of
the
appellant,
described
as
a
"management
bonus
and
director’s
remuneration".
It
was
deducted
in
the
computation
of
its
income
and
declared
in
its
balance
sheet
as
a
"bonus
payable".
It
is
not
disputed
that
of
this
amount
$70,737
was
declared
as
income
by
the
appellant.
In
1985,
a
further
bonus
of
$300,000
was
declared
in
favour
of
Mr.
Phillips.
In
Trans
World's
balance
sheet
a
“bonus
payable”
of
$500,000
is
recorded.
Under
current
liabilities
$30,000
is
shown
as
"due
to
shareholder"
and
another
entry
of
$9,944,278
is
designated
as
"due
to
shareholder".
The
apparent
discrepancy
in
these
figures
may
be
explainable
as
follows.
Of
the
total
bonuses
payable
to
Mr.
Phillips
of
$630,000,
$30,000
was
moved
down
one
line
and
shown
as
"due
to
shareholder".
Also,
note
8
to
the
1985
financial
statements
discloses
that
of
the
$9,944,278
designated
due
to
shareholder
$9,811,899
represented
an
"unsecured,
non-interest
bearing
promissory
note
with
no
fixed
terms
of
repayment".
Mr.
Phillips
testified
that
this
represented
a
loan
he
made
to
the
company.
The
remaining
$132,379
was
described
as
"other
unsecured,
non-interest
bearing
advances
with
no
fixed
terms
of
repayment"
andevidently
included
$100,000
credited
from
the
bonus
payable
at
the
end
of
1984.
It
is
not
disputed
that
of
the
amounts
shown
as
"due
to
shareholder"
the
appellant
declared
$90,000
as
income
in
1985.
The
difference
between
the
$500,000
and
$630,000
lies
in
the
$30,000
and
$100,000
recorded
in
1985
under
the
two
entries
"due
to
shareholder".
In
1986,
the
$300,000
bonus
declared
in
1985
in
favour
of
Mr.
Phillips
was
"reversed
due
to
current
economic
conditions".
It
is
not
really
relevant
to
this
case,
but
it
seems
the
"reversal"
took
the
form
of
an
add-back
to
income,
or
a
reduction
of
expenses,
in
1986
since
no
change
was
made
in
the
1985
deduction
of
$788,066
for
general
and
administrative
expenses
and
I
assume
the
$300,000
was
deducted
under
this
head
in
1985.
This
issue
is
not
before
me
and
I
make
no
further
comment
on
it.
In
any
event,
Mr.
Phillips
included
a
further
$100,000
in
his
income
for
1986
in
respect
of
the
amounts
payable
to
him.
In
the
balance
sheet
for
1986
the
$500,000
bonus
payable
and
the
$30,000
shown
under
current
liabilities
in
1985
as
"due
to
shareholder"
disappeared
and
the
$9,944,278
shown
as
"due
to
shareholder"
in
1985
became
$10,302,580.
Note
5
to
the
1986
financial
statements
indicates
that
the
increase
in
this
amount
by
$358,302
was
attributable
to
an
increase
from
$132,379
shown
in
1985
to
$490,681
in
the
"other
unsecured,
non-interest
bearing
advances
with
no
fixed
terms
of
repayment".
The
Minister’s
assumption,
as
pleaded,
was
that
the
company
credited
the
"shareholder
account”,
i.e.,
the
amount
described
as
"due
to
shareholder"
with
$100,000
in
1985
and
$230,000
in
1986,
thereby
making
up
the
total
of
$330,000
declared
as
a
bonus
in
1984.
The
evidence
seems
more
consistent
with
a
crediting
of
$130,000
in
1985
and
$200,000
in
1986.
It
is
not
disputed
that
the
appellant
declared
$100,000
in
income
as
part
of
the
amount
"due
to
shareholder"
that
had
been
moved
from
the
entry
“bonus
payable".
In
1986,
the
Minister
added
$69,263
to
the
appellant's
income
as
"unreported
salary".
This
amount
was
arrived
at
by
deducting
from
the
bonus
declared
in
1984
of
$330,000
the
amounts
of
$70,737,
$90,000
and
$100,000
declared
by
the
appellant
in
1984,
1985
and
1986
in
respect
of
the
bonus.
Counsel
for
the
respondent
put
in
evidence
(Exhibit
R-1)
a
copy
of
a
document
signed
by
the
appellant
as
creditor
and
the
company
as
debtor.
It
refers
to
an
investment
advisory
fee
of
$200,000
incurred
in
1984.
The
parties
agreed:
THAT
the
unpaid
amount
shall
be
deemed
to
have
been
paid
bythe
debtor
and
received
by
the
creditor
on
the
first
day
of
the
third
taxation
year
following
the
taxation
year
in
which
the
outlay
or
expense
was
incurred;
THAT
the
creditor
shall
be
deemed
to
have
made
a
loan
to
the
debtor
on
the
first
day
of
the
third
taxation
year
equal
to
the
amount
deemed
to
have
been
paid
by
the
debtor,
less
any
tax
deducted
or
withheld
therefrom
by
the
debtor
on
account
of
the
creditor's
tax.
The
document
seems
to
be
appropriate
under
subsection
78(1)
which
deals
with
non-arm's
length
relationships,
rather
than
subsection
78(3)
as
it
read
in
1986
which
deals
with
unpaid
remuneration.
The
effect
of
the
document
would
be
to
deem
Mr.
Phillips
to
have
received
$200,000
in
1987
as
income
and
to
have
reloaned
it
to
the
company
in
that
year.
It
has
no
real
bearing
on
1986,
the
year
under
appeal.
I
cannot
imagine
why
it
was
signed.
By
the
end
of
1986
Mr.
Phillips
had
included
in
income
$260,737
in
respect
of
the
bonus.
Why
he
would
sign
a
document
deeming
him
in
1987
to
have
received
as
income
$200,000
when
only
$69,263
remained
out
of
the
bonus
of
$330,000
remains
a
mystery.
He
seems
to
have
had
a
tendency
to
sign
anything
that
was
put
before
him
in
complete
reliance
upon
Mr.
Somlyai’s
expertise.
I
am
aware
of
no
reason
why
he
included
$70,737,
$90,000
and
$100,000
in
his
income
for
1984,
1985
and
1986.
He
testified,
and
I
accept
his
evidence,
that
he
never
received
any
part
of
the
$330,000
bonus.
The
amounts
included
in
his
income
by
him
do
not
even
correspond
to
the
accounts
transferred
from
"bonus
payable”
to
"due
to
shareholder".
Given
this
manner
of
reporting
it
is
not
surprising
that
the
Minister
on
assessing
should
have
considered
it
a
logical
consequence
to
include
in
1986
the
balance
of
the
bonus
unpaid.
The
unilluminating
and
confusing
method
of
accounting
and
the
lack
of
any
logic
in
the
method
of
reporting
income
cannot
determine
the
outcome
of
this
case.
The
fact
remains
that
the
sum
of
$69,263
which
the
Minister
included
in
his
income
in
1986
was
not
received
by
him
in
that
year.
It
is
true
that
as
controlling
shareholder
he
could
have
required
the
company
to
pay
it
to
him
but
he
did
not
do
so.
Employment
income
must
be
received,
not
receivable,
to
be
taxed.
The
decision
in
M.N.R.
v.
Rousseau,
[1960]
C.T.C.
336,
60
D.T.C.
1236
(Ex.
Ct.),
is
too
firmly
entrenched
in
our
law
to
permit
any
erosion
of
the
principle
for
which
it
stands.
Nor
can
I
accept
that
the
mere
bookkeeping
entry
of
moving
the
amount
of
bonus
owing
to
Mr.
Phillips
from
"bonus
payable”
to
"due
to
shareholder"
connotes
receipt.
Accounting
entries
are
supposed
to
reflect
reality,
not
create
it
and,
as
Lord
Brampton
said
in
Gresham
Life
Society
Co.
Ltd.
v.
Bishop,
[1902]
4
T.C.
464
at
page
476:
But
to
constitute
a
receipt
of
anything
there
must
be
a
person
to
receive
and
a
person
from
whom
he
receives
andsomething
received
by
the
former
from
the
latter,
and
in
this
case
that
something
must
be
a
sum
of
money.
A
mere
entry
in
an
account
which
does
not
represent
such
a
transaction
does
not
prove
any
receipt,
whatever
else
it
may
be
worth.
The
Minister's
assumptions,
as
pleaded,
do
not
include
specifically
an
assumption
that
the
appellant
received
anything,
in
fact
or
even
constructively.
Rather,
I
am
asked
to
infer
from
the
change
in
designation
from
"bonus
payable”
to
"due
to
shareholder"
that
there
had
been
an
actual
payment
to
the
appellant
followed
by
a
reloaning
to
the
company.
That
inference
is
not
warranted.
The
appeal
is
therefore
allowed
with
costs
and
the
assessment
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
to
delete
from
the
appellant's
income
for
1986
the
amount
of
$69,263.
Appeal
allowed.
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