Date: 19991022
Docket: 81-180-IT-O
BETWEEN:
NATHAN REIBER,
Appellant,
and
MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
ISSUE:
[1] The issue is whether the Appellant was properly assessed
for his 1974 taxation year for:
(a) Appropriations from Reiber Estates Limited
in the amount of $242,294.10 pursuant to section 15 of the
Income Tax Act ("Act").[1] The Notice of Assessment
included an amount in respect of a benefit arising from the use
of a Florida condominium. However, that is not, according to
statements at the hearing, included in this appeal. The Reply
also sets forth a number of other amounts which were not
contained in the Notice of Assessment. I am proceeding,
therefore, on the basis that the only amount in issue is the sum
of $242,294.10. Although other numbers were referred to at the
hearing, no assessment other than the one appealed from was
made.
[2] The Appellant was a lawyer in the City of Toronto until
his resignation from the Law Society of Upper Canada in 1979 or
1980. He was president of a company known as Reiber Estates
Limited ("Reiber Estates") and was, presumably, the
principal, if not the only, shareholder.
[3] The Appellant testified that he had owned several boats, a
25 foot Chris-Craft, a 31 foot boat, and a 47 foot boat before
the purchase of a boat referred to in this appeal known as the
Rye-Bar IV ("Rye-Bar), a 60 foot Roamer. He said that he had
originally intended to own the Rye-Bar personally. He said that
one Harold Blatchley ("Blatchley") approached him
respecting putting all boats into a company and going into the
business of buying and selling boats. The Appellant testified
that he caused Keystone Yacht Sales Inc. ("Keystone")
to be incorporated in Florida, U.S.A.. He said that Reiber
Estates, a 65 percent shareholder and Blatchley, a
35 percent shareholder, decided that Rye-Bar would be put
into Keystone for resale. He then said,
... and we had bought other boats afterwards and put them in
Keystone Yacht Sales and so it was buying and selling boats. It
was like a business.
[4] The Appellant testified that he took delivery of the
Rye-Bar in his name because he had to get a radio licence and
said that in the United States, where the boat was located, a
boat owner had to be a U.S. citizen in order to obtain a radio
licence. He also said that if the owner was a corporation it must
be controlled by a U.S. citizen.
[5] Appellant's counsel produced a photocopy of a document
entitled TRUST ACKNOWLEDGMENT. That photocopy is dated June 21,
1974 and bears a copy of the signature of the Appellant. Attached
to it was a photocopy entitled Combined Builder's Statement
and Bill Of Sale and a Bill Of Sale bearing date the
16th day of May, 1974. The first of these two
documents stated that:
IN CONSIDERATION of the sum of One Dollar ($1.00) and other
valuable considerations, paid this 16th day of May,
1974, Chris-Craft Corporation of Pompano Beach, Florida, sole
owner of the vessel described in the above "Builder's
Statement" hereby sells and transfers the entire vessel to
Bay Haven Marina of Holland, Mich.
[6] The second document, a photocopy of the Bill Of Sale,
provided that in consideration of the sum of one dollar and other
valuable consideration, Bay Haven Marina Inc. transferred all its
right, title and interest in the vessel to the Appellant, showing
a Toronto address.
[7] The TRUST ACKNOWLEDGMENT document reads as follows:
KNOW ALL MEN BY THESE PRESENTS: WHEREAS, NATHAN REIBER took
title on the 16th day of May, 1974, to a certain
Chris-Craft 60 foot vessel, as more particularly described in the
Bill of Sale, a copy of which is attached hereto and expressly
made a part hereof; and
WHEREAS, title to said vessel was taken by said NATHAN REIBER
as Trustee for the entire use, benefit and interest of KEYSTONE
YACHT SALES, INC., a Florida corporation.
NOW, THEREFORE, the said NATHAN REIBER does hereby acknowledge
and declare that he took title solely as Trustee on behalf of
said named corporate beneficiary; that he does not claim any
right, title or interest in and to said vessel, and that he shall
hold the same solely for the use and benefit of said
corporation.
The said NATHAN REIBER does further acknowledge and agree that
any income of proceeds received from or in connection with said
vessel shall pass and enure to the benefit of said KEYSTONE YACHT
SALES, INC.
IN WITNESS WHEREOF, said NATHAN REIBER has affixed his hand
and seal this 21st day of June, 1974.
"Nathan Reiber"
(seal)
NATHAN REIBER
STATE OF FLORIDA)
SS:
COUNTY OF DADE )
BEFORE ME, the undersigned authority, this day personally
appeared NATHAN REIBER, to me well known to be the individual who
executed the foregoing instrument on behalf of said corporation,
who upon oath by me duly administered, acknowledged before me
that he executed same for the purpose therein expressed.
IN WITNESS WHEREOF, I have hereunto affixed my hand and
notarial seal at said County and State, this 21st day
of July, 1974.
"Stanley Joel Levine"
NOTARY PUBLIC, State of Florida At Large
My Commission Expires: 11/16/75
[8] The Appellant did not remember when he signed it but said
he had signed it at the office of his lawyer, one Stanley Joel
Levine ("Levine") in Miami, that he left the documents
at his office and
then when I came back I got them back and I just took
them.
He had no recollection of what day he went back. He testified
that the document was in the form of the copy produced when he
obtained it. He stated that the date had been inserted in the
document and that he had not done so. He assumed that it was
either Levine or his secretary who had filled in the date.
[9] The Appellant testified that a cheque was issued from the
Toronto-Dominion Bank either to the builder of the boat or to
himself. He said that the cheque was not paid out of Reiber
Estates or Keystone because it would have taken too long to
clear. He stated that it was an advance to Keystone and was so
reflected on the books of Reiber Estates. The boat was delivered
in Holland, Michigan and ended up at Keystone docks in Miami. He
said that the boat was registered in Canada with the Registrar of
Shipping. He did not know whether it was in Toronto or in Ottawa.
He testified that it was registered in his name and in response
to a query as to why he didn't register it in his name in
trust he said:
Well, being a trustee, if I put the name in trust they would
want to know who owns the boat and as a trustee I didn't feel
that I had to tell them who owns the boat because I am a
trustee.
[10] He said that he had taken many real estate parcels in his
name and many mortgages in his name acting as a trustee.
[11] The radio licence was also in his name. He said that the
purpose of the boat was "to bring it down to Florida and try
and sell it". He said that although it was insured in his
name he did not tell the insurance company that he held the boat
in trust.
[12] The Appellant said that two boats, strictly for charter,
had been bought and sold since the acquisition of Rye-Bar IV. He
said that they were in the names of two different corporations,
being "Subchapter S Corporations" giving
"corporate protection but you file your income tax on a
personal basis." He then testified that the boat was sold
under PURCHASE AGREEMENT dated November 6, 1978 for $325,000. He
said that Keystone made a profit which was reflected in its
income tax return. He said that the agreement did not show that
the boat was owned by "Nathan Reiber In Trust" giving
the reasons above stated. He said that the proceeds of sale would
reduce the amount of shareholder loans from Reiber Estates. The
Appellant said that one Howard Blatchley ("Blatchley")
owned 35 percent of the shares of the company and that:
"he was buying boats, selling boats, repairing boats that
we had purchased ready for sale."
implying that Keystone was not incorporated simply for the
purpose of buying the Rye-Bar IV. Although the boat was used for
personal purposes the Appellant said that he paid the expenses of
fuel, dockage, et cetera.
[13] The Appellant filed unaudited financial statements of
Reiber Estates for the periods ending August 31 in each of 1974,
1975, 1976, 1977, 1978 and 1979. A note to the financial
statements for August 31, 1974 indicated an investment in
Keystone Yacht Sales Inc. - Miami of $131 described by the
Appellant as being for the shares of Keystone owned by Reiber
Estates. Another note showed an advance to Keystone of $260,209
U.S. (being $253,939 Canadian). The Appellant said that no
interest was charged on that loan. He also said no paperwork such
as a promissory note or notes or any other documentation
evidencing same was prepared. He stated that Blatchley had
unlimited signing authority for Keystone. The Appellant
reiterated that the purpose of that advance was to enable
Keystone to buy the boat. The financial statements for subsequent
years showed an advance to Keystone as follows:
1975 $258,525
1976 $275,485
1977 $316,644
1978 $363,716
1979 $ 78,963
1980 $ 33,911
[14] The 1978 statements show that Reiber Estates received
$311,000 U.S. on December 1, 1978 but there was no explanation as
to why the number of $363,000 remained owing to it. The Appellant
testified that the reduction arose from the sale of the Rye-Bar
IV.
[15] A document entitled U.S. Corporation Income Tax Return of
Keystone for the period ending October 31, 1974 showed gross
sales of $328,619.64 less Cost of Goods Sold in the sum of
$278,327.50 yielding a gross profit of $50,292.14. The 1973
document shows no inventory at the beginning of the year and
merchandise bought for manufacture or sale of $585,057.60 during
the year. When asked what that inventory would be the Appellant
replied:
I guess whatever we bought we sold.
He later said that it would be the "various boats"
and that he didn't think that Rye-Bar IV was included in
that.
[16] For the 1974 year, a document being a photocopy of
Keystone's U.S. Corporation Income Tax Return showed gross
sales of $430,870.45 and cost of goods sold in the amount of
$343,733.81 producing a gross profit of $87,136.64. The Appellant
testified that the Rye-Bar IV would be included in that
inventory. The Appellant also testified that with respect to the
1974 taxation year the amount of $289,582.75 at the beginning of
the year and the sum of $309,432.75 at the end of the year
represented advances from Reiber Estates to Keystone. For the
1975 year the equivalent amounts were $309,132.75 at the
beginning of the year and $356,604.50 at the end of the year. The
Appellant also testified that from Keystone's 1976 tax return
the loan from stockholders was $356,604.50 at the beginning of
the year and was $384,925.07 at the end of the year. A copy of
the return for 1977 showed Loans from Stockholders of $384,925.07
at the beginning of the year and $410,741.75 at the end of the
year. He said that the latter figure still included the Rye-Bar
IV. The 1978 return of Keystone shows Loans from Stockholders at
the beginning of the year of $410,741.75 and at the end of that
year the sum of $119,516.75. The Appellant stated that the big
decrease was because the Rye-Bar IV was sold in 1978 and that
loans were repaid to Reiber Estates.
[17] A portion of the transcript with respect to documentation
reads as follows:
Q. Okay. Is there any reason why you never backed up this
trust agreement with any kind of a mortgage or promissory note or
any other documentation?
A. This is the way we did all our business. All our other
companies, the same thing. It was not backed up by a note or
anything else. Just advances to companies.
Q. And all of this was disclosed -- who did you disclose these
transactions to?
A. To the accountants, both of them.
Q. And who were your accountants?
A. Springer -- at that time it was Springer, Chapman -- no,
Springer Lucas & Company.
Q. Okay. And was Ambrose Lucas, was he one of the people that
was involved in both your personal and Reiber Estates?
A. Yes.
Q. To your knowledge is he one of the people responsible for
the preparation of all the books and records of Reiber Estates
Limited?
A. Yes.
[18] On cross-examination the Appellant stated that he had
applied for a radio license for himself in Canada and had not
told the Canadian authorities that the boat was held in
trust.
[19] The Appellant testified that a Declaration of Ownership
by Individual Owner or Transferee identifying the Rye-Bar IV was
signed by him but was in the handwriting of someone whose name he
could not remember. He said that he filed it with the Canadian
registration authorities to register the ship. In answer to a
query from Respondent's counsel the Appellant read a portion
of that Declaration as follows:
... I am a British subject. The above general description of
the Ship is correct ... whose Certificate of Competency or
Service is No. ____________ is the Master of the said Ship. I am
entitled to be registered as Owner of 64 shares in the ship. To
the best of my knowledge and belief, no person or body of persons
other than such persons or body of persons as are by the Canada
Shipping Act, qualified to be Owners of British Ships is
entitled, as Owner, to any interest whatever, either legal or
beneficial, in the said Ship. And I make this solemn Declaration
conscientiously believing the same to be true.
[20] The Appellant testified that he understood the concept of
beneficial interest and stated again that Keystone had the
beneficial ownership of the Rye-Bar IV. The following exchange
reads:
Q. So when you state that no other person is entitled to any
interest whatever, either legal or beneficial, that is not true;
correct?
A. The way you put it, it's not true.
Q. And this is a solemn declaration, sir, that is being made
conscientiously believing the same to be true on the 14day of
May, 1974?
A. That's what it says.
Q. And that's your signature there you've already
identified?
A. Yes.
[21] The Appellant then said that he did not have to divulge
on the Bill of Sale that he was a trustee and affirmed that in
the declaration of ownership he stated that he was the owner and
no one else had a legal or beneficial interest. He also said that
the insurance on the yacht indicated that he was the owner.
[22] The Appellant then testified that the Trust
Acknowledgment was kept by Mr. Levine, his solicitor in Florida.
When asked by Respondent's counsel whether he was aware that
she and Revenue Canada had, during the course of the litigation,
asked for production of the original Trust Acknowledgment he
stated that he had been looking for it as well. He said he had no
reason to dispute the suggestion that no one from the
Respondent's side had ever seen the original of that
document. The Appellant said that he could not remember when he
received a copy of the Trust Acknowledgment from Mr. Levine. He
stated that he thought he had given the copy to his accountants
in Toronto.
[23] On re-examination the Appellant said that as far as he
was concerned there was no significance in registering the Trust
Acknowledgement. He also stated that to his knowledge all the
transactions were recorded in the books and records of Keystone
and Reiber Estates. The Appellant also said that he had given no
indemnity with respect to his trusteeship.
[24] Ambrose Lucas ("Lucas") testified that he was
the accountant for Reiber Estates and prepared accounting and
personal income tax returns for the Appellant. He testified that
Reiber Estates advanced money to Keystone. He stated that
the records ... are written up by a bookkeeper in our office,
the records are then given over to one of the accountants in our
office and then -- who prepares the financial statement, and then
the working papers and the financial statements are given to me
for review ...
[25] With respect to the amounts said to have been loaned by
Reiber Estates to Keystone, Lucas said that they were advanced to
a limited company in Florida as a loan receivable and that no
interest was charged on them. He stated that all the advances
over the years would be backed up by cheques and bank statements
and that the books were written up by their bookkeeper who had
the original documents. He also said that if the advance was
repaid there would be a bank deposit and that would be recorded
in the books.
[26] On cross-examination Lucas said that he took his
instructions from the Appellant in regard to the affairs of
Reiber Estates and that he had not performed an audit. He said it
was the accountant in Florida who provided any and all
information concerning Lucas' task of matching the books and
records of Keystone to Reiber Estates. He stated that he did not
remember the Trust Acknowledgment in any way. He also said that
if there were any questions they would be directed to the
Appellant. On re-examination he said that he would have the
original books of entry as well as cheque stubs and that the
records were written up from scratch, a trial balance was
prepared, a general ledger was prepared and then the financial
statements were prepared with schedules to back them up.
[27] One Andre A. Verschoore, an official of Revenue Canada
then gave evidence. He stated, in answer to questions posed by
Respondent's counsel that he could not remember whether he
had seen the Trust Acknowledgment prior to a trip to Florida to
investigate certain tax matters concerning the Appellant. He
testified that Mr. Levine had produced a file folder containing
documents which he described as having been kept in a normal way.
He then said:
... the oldest were at the bottom, the oldest-dated, and as
time goes on the more current -- the last documents in there
would be the more current dates. I believe it was the third
document down was this trust agreement, which was dated in
'94.
[28] He then agreed with counsel's suggestion that it was
'74. He stated that documents were built up in the folder
from 1974 but that the Trust Agreement was third down from the
top, Verschoore having stated that that file ended in 1978 or
1979. In this regard he said,
When I first looked at it what really struck me, it was out of
place for a built-up file. I figured it should have been at the
top. The document looked too new to be that high in the file.
When you looked at the rest of them they were quite aged, you
know, for -- it will age that much, and right away it struck both
Mr. Callsen and I. We just -- as we walked out, said "Did
you notice," or "I noticed", and we both said the
same thing. "What's that file doing at the top? It looks
too new". Or that document. It struck us both at the same
time.
[29] He then said that Mr. Levine did not have the original
and that Mr. Levine had told him that Mr. Reiber would have
signed it. Mr. Verschoore then testified that Revenue Canada
wanted the original to have it submitted for forensic examination
in order to have the document dated. It was never produced to
Revenue Canada
[30] He also testified that Revenue Canada attended at the
Keystone offices and that there was a folder type file in which
the Trust Acknowledgment was probably the top document in the
file. He said that it "seemed to be out of place again"
and that below it were documents relating to repairs to the boat,
et cetera, dating back to 1974. He then said that he could not
recall whether he had asked for the original of the trust
agreement. He testified that at the time of the purchase of the
boat, Mr. Reiber had made a downpayment of $30,000 and then
there was a transfer from a corporate account to Mr. Reiber of
two hundred and some odd thousand dollars.
[31] Mr. Verschoore said that he thought the boat was Mr.
Reiber's personal boat because of the payment by him
personally, the transfer from the company to him personally
and
... we talked to several people at ... that told us it was Mr.
Reiber's boat including the purchaser of the yacht in 1978,
Mr. Haggerty.
He referred to the Purchase Agreement dated November 6, 1978
between Nathan Reiber and Max Haggarty.
[32] With respect to Canadian registration of the boat he
said,
I believe we have some documents of that.
He also said that he had seen the "Declaration of
Ownership by an Individual Owner or Transferee" and that it
had a bearing on his conclusions. He stated that he expected the
name of the registered owner to be Keystone and that the sale
document was significant in forming his conclusions. When asked
about an application for a radio licence he said:
We did get some documents. I'm not sure what they
were.
[33] A document entitled Application for a Licence to Install
and Operate a Transmitting and Receiving Station on Board a Ship
Registered or Licenced in Canada was produced. In respect of a
question as to whether he had received other documents in regard
to this application for a radio licence he replied, "I
believe so. I can't be sure". This was followed by:
Q. And in whose name were they all?
A. Everything was in Mr. Reiber's name.
[34] He also said that the companies who insured the boat were
Canadian companies, stating that the insured was Nathan
Reiber.
[35] Mr. Verschoore said that he did not recall ever seeing
any U.S. tax returns of Keystone. With respect to the financial
statements of Reiber Estates, when he was asked by
Respondent's counsel if during meetings with the accountants
the financial statements of Reiber Estates were
"raised" he responded:
I can't recall to be honest with you.
[36] After a line of questioning respecting Keystone and
Reiber Estates Mr. Verschoore said that:
Well, some of the money came directly from Reiber Estates. For
instance, the downpayment or the final payment of the boat and
after that any repairs or anything else would actually be
advanced to Keystone and they would pay the bill.
In response to a suggestion from Respondent's counsel that
the appropriations were from both companies he replied:
That's correct.
[37] Mr. Verschoore's evidence was vague respecting
financial statements, visits at Mr. Levine's office and at
Keystone's office. The following exchange on
cross-examination underlines same:
Q. You said that during the investigation you were not aware
of the shareholder advances from Reiber Estates to Keystone
Yachts?
A. Well, I'm referring to the ... okay ... this
investigation started with a lead, all right, and I say
information came in about not related to the boat. It was to do
with other false contracts which Mr. Reiber was involved with and
we didn't do nothing about the boat at that time so
that's ... yeah. What did you ask me?
[38] Further evidence indicated that Mr. Verschoore had made
no enquiries as to boat registration procedure and sought no
legal advice with respect to the legal significance of a trust.
In response to a query as to whether he understood the difference
between legal and beneficial ownership he replied:
Not really.
CONCLUSION:
[39] Obviously, the Appellant's credibility is elastic.
His evidence was sometimes quite vague and his manner evasive
even though the relevant events took place somewhere between 1974
and 1979.
[40] His failure to produce the original Trust Acknowledgment
and the total absence of any attempt to explain its
non-production fosters suspicion about the actual date of
preparation.
[41] The fact that the Appellant registered the boat and
obtained a radio licence in his own name for the reasons outlined
is consistent with either of his two different positions being
accepted, namely,
1. That he owned it personally (Declaration of Ownership by
Individual Owner or Transferee produced in evidence not by
the Appellant but by the Respondent), and
2. That he owned it on behalf of Keystone (Trust
Acknowledgment certified by his lawyer, Levine, to have been
executed "upon oath by me duly administered").
[42] The fact that the Appellant stated at the trial, under
affirmation and under cross-examination, that his statement in
the Declaration was untrue clearly indicates the level of his
ethic and reliability. Add to this the fact that Levine was not
called to shed any light upon the missing Trust Acknowledgment
and that Blatchley was not called with respect to the fact of a
loan made by Reiber Estates to Keystone or with respect to the
Trust Acknowledgment. Appellant's counsel, his son, attempted
to minimize the import of that document by saying:
The registration of this boat is nothing more than an
administrative function.
[43] His counsel also, in an effort to show why the radio
licence had to be procured in Canada, produced a photocopy of
"regulations ... from the Federal Communications
Commission" from the "1995 Edition" saying
"that nobody was able to find the actual regulations that
were in force at the time".[2] He read part of section 80.15 to the Court,
namely:
A station licence for a public coast station or an Alaska
public fixed station cannot be granted or held by an alien in a
foreign government...
This transparent, non-applicable irrelevancy (there was no
evidence that the Appellant applied for any such station) was
followed by counsel's statement that,
there's not a scintilla of evidence to negate the Trust
Agreement, the Trust Acknowledgment.
That statement completely ignores the questionable accuracy of
its contents.
[44] In spite of all the foregoing, the question to be decided
is whether, in 1974, there was an appropriation by Reiber Estates
in the amount of $242,294.10 under section 15 of the Income
Tax Act. It is noted that neither counsel referred to this
section in submissions. That section provides that where a
corporation's funds have been appropriated in any manner to
or for the benefit of a shareholder otherwise than in certain
specified fashion, the amount or value thereof shall be included
in computing the income of the shareholder for the year.
[45] The unaudited financial statements of Reiber Estates for
the periods ending August 31, 1974 to August 31, 1979,
unchallenged by the Respondent, were introduced. They show an
advance to Keystone as at August 31, 1974 of $253,939, the
amounts of same in subsequent years being set forth above. This
amount was reduced on December 1, 1978, and according to
Appellant's testimony, such reduction arose from the sale of
the Rye-Bar IV by Keystone and a payment from Keystone to Reiber
Estates. The accountant, Lucas, described his office's
accounting procedures, having been backed up by cheques and bank
statements et cetera.
[46] In addition, copies of U.S. corporation income tax
returns of Keystone for 1974 and subsequent taxation years,
although without specifics as to amounts paid, show a reduction
in loans from stockholders in 1978 in an amount in excess of the
loan initially said to have been made by Reiber Estates to
Keystone.
[47] In the respect of that evidence, without any suggestion
from Respondent's counsel about the validity of those
documents having been prepared on a timely basis for the years
described, I am persuaded that their contents indicate that an
amount of at least $242,294.10 was advanced from Reiber Estates
to Keystone in 1974 and was later repaid. The manner in which
this was done, including the lack of appropriate documentation,
and with questionable documentation, although professionally and
ethically bereft, cannot alter the fact that the above documents
support the contention of loan and repayment. The result of this
is that no benefit was conferred by Reiber Estates on the
appellant in 1974.
[48] That being the only issue outstanding, the appeal is
allowed. In the circumstances, no costs are awarded.
Signed at Ottawa, Canada this 22nd day of October, 1999.
"R.D. Bell"
J.T.C.C.
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