O’Connor,
J.T.C.C.:—These
appeals
were
heard
in
Ottawa,
Canada
on
April
11
and
12,
1994
pursuant
to
the
General
Procedure
of
this
Court
and
relate
to
the
appellant’s
1986,
1988
and
1989
taxation
years.
The
year
1987
was
also
originally
in
issue
but
counsel
for
both
parties
confirmed
at
the
hearing
that
the
matters
in
the
1987
year
had
been
settled.
The
appellant
is
the
president,
full-time
employee
and
the
primary
shareholder
of
Alpha
Stereo
and
T.V.
Ltd.
(the
"corporation").
Although
the
notice
of
appeal
and
the
reply
address
several
issues,
it
was
agreed
at
trial
that
there
were
only
three
issues
outstanding.
The
first
involved
an
amount
of
$37,851
which
the
Minister
of
National
Revenue
(“Minister”)
included
in
the
appellant's
1988
income
under
the
heading
"Year-end
accounts
receivable
wrongly
credited
to
shareholder".
The
second
issue
related
to
the
Minister
including
in
the
appellant's
income
for
the
1986
taxation
year
an
amount
of
$10,000
as
unreported
salary.
The
third
issue
relates
to
the
inclusion
by
the
Minister
under
paragraph
6(1
)(e)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
of
“standby
charges
on
automobile”
in
the
amount
of
$1,269
in
1988
and
$4,350
in
1989.
On
the
first
issue
there
was
agreement
that
the
actual
amount
of
accounts
receivable
at
the
end
of
the
1988
year
was
$37,851.
The
corporation
was
involved
in
the
sale
and
repair
of
electronic
equipment
including
televisions
and
VCRs
as
well
as
the
rental
of
movies.
The
extensive
documentary
evidence,
as
supported
by
the
verbal
testimony
of
the
appellant,
indicates
that
during
the
1988
year
the
corporation
made
a
decision,
that
to
remain
competitive
with
deals
being
offered
by
companies
engaged
in
similar
activities,
the
corporation
would
have
to
grant
liberal
credit
terms.
To
this
end,
when
sales
were
made,
in
many
cases
the
corporation
would
only
demand
from
the
customer
minimal
or
in
some
cases,
no
down
payments
with
the
balances
being
paid
over
varying
periods
of
time.
The
appellant
however
would
"finance"
these
receivables
or
balances
by
making
deposits
into
the
corporation's
bank
accounts
of
amounts
such
that
at
the
end
of
each
week
the
cash
in
the
corporation's
accounts
would
match
the
total
sales.
From
time
to
time
there
were
discrepancies
in
this
matching
but
these
were
very
minor.
As
at
the
end
of
1988
the
balances
so
financed
by
the
appellant
totalled
$37,851.
The
accountant
for
the
corporation
entered
this
amount
in
the
books
of
the
corporation
as
a
year-end
accounts
receivable
credited
to
shareholder.
The
Minister
took
issue
with
this
treatment
and
considered
the
said
amount
as
a
benefit
by
the
corporation
to
the
appellant
as
a
shareholder
and
consequently
included
same
in
his
income
for
19'88.
One
of
the
respondent's
principal
concerns
was
that
the
deposits
made
by
the
appellant
were
almost
always
of
cash.
The
respondent
apparently
did
not
believe
that
these
amounts
of
cash
actually
were
personal
funds
of
the
shareholder
but
rather
argued
that
the
cash
represented
amounts
which
the
appellant
withdrew
or
siphoned
off
somehow
from
the
corporation.
Counsel
for
the
respondent
was
also
suspicious
of
the
entire
procedure
because
he
doubted
the
credibility
of
the
appellant
on
how
the
cash
arose
and
why
he
stored
cash
in
large
amounts
not
only
in
his
home
but
in
a
strong
box
at
the
corporation's
place
of
business.
In
other
words,
why
would
someone
store
cash
rather
than
invest
it
in
term
deposits
or
similar
instruments
which
would
earn
income.
The
appellant
stated
that
storing
cash
stemmed
partly
from
his
background,
that
he
acquired
the
cash
from
the
sale
of
certain
properties
and
that
he
intended
to
use
some
of
it
someday
for
the
purchase
of
real
estate.
The
Court
accepts
the
testimony
of
the
appellant
that
the
cash
had
been
raised
by
him
by
the
sale
of
certain
properties
in
Florida
and
in
Ontario
and
that
the
cash
deposits
ne
made
in
the
corporation's
accounts
were
truly
his
personal
funds.
Counsel
for
the
respondent
also
argued
that
since
in
many
cases
the
balances
owing
were
actually
collected
by
the
appellant
directly
from
the
customers
this
is
an
indication
that
the
corporation
had
nothing
to
do
with
the
balances
and
that
in
effect
the
appellant
in
charging
interest
in
some
cases
on
the
balances
was
carrying
on
a
separate
financing
business.
This
ignores
the
fact
however
that
the
amounts
were
actually
deposited
by
the
appellant
in
the
corporation's
bank
accounts.
The
Court
finds
that
the
appellant
did
use
his
own
personal
funds
to
cover
the
balances
due
to
the
corporation,
that
this
was
done
by
him
depositing
moneys
in
the
bank
accounts
of
the
corporation.
Consequently
the
corporation
became
a
debtor
to
the
appellant
in
the
amount
of
$37,851
and
this
conclusion
is
not
altered
by
the
fact
that
the
appellant
may
have
made
direct
collections
at
a
subsequent
date
from
the
customers.
In
other
words
he
put
the
moneys
into
the
corporation,
the
corporation
owed
him
for
these
moneys
and
it
does
not
change
the
creditor/
debtor
relationship
if
the
corporation
permits
the
appellant
to
be
paid
directly
by
the
customers.
Consequently
the
Court
concludes
that
the
said
amount
of
$37,851
was
not
a
shareholder
benefit
and
should
not
have
been
included
in
the
appellant's
income
in
1988.
On
the
second
issue
with
respect
to
unreported
salary
of
$10,000
in
1986
the
evidence
is
extremely
sketchy.
The
appellant
himself
essentially
declares
ignorance
of
the
matter
and
indicates
that
it
was
his
accountant
of
the
time,
Mr.
Marcel
Castonguay,
who
was
responsible.
Mr.
Castonguay’s
evidence
is
that
there
certainly
was
unreported
administrative
salary
in
the
amount
of
$10,000
but
he
offered
the
suggestion
that
this
should
be
divided
$5,000
to
the
appellant
and
$5,000
to
the
appellant’s
wife
who
was
actively
involved
with
the
corporation.
The
principal
(if
not
the
only)
written
evidence
is
contained
in
a
letter
dated
December
27,
1989
of
Hamel
Martel,
an
accounting
firm
where
Mr.
Castonguay
worked
at
the
time
addressed
to
Revenue
Canada
which
contains
the
following
statement:
Mr.
Dieter
Franke:
(a)
1986
—
Unreported
salary
of
$9,405
There
was
an
amended
T4
prepared
for
Mr.
Franke
which
shows
the
additional
$10,000
as
reported
salary.
In
the
absence
of
any
clearer
evidence
to
the
contrary
and
notwithstanding
the
fact
that
the
letter
in
question
apparently
was
written
by
a
Miss
Susan
Phipps,
a
subordinate
of
Mr.
Castonguay,
the
Court
concludes
that
the
Minister
was
correct
in
including
the
said
$10,000
in
the
income
of
the
appellant
for
the
1986
taxation
year.
On
the
third
issue
of
the
automobile
standby
charges
of
$1,269
and
$4,350
included
by
the
Minister
in
the
income
of
the
appellant
for
the
1988
and
1989
taxation
years
respectively
the
evidence
is
essentially
as
follows.
During
the
years
in
question
the
appellant
owned
personally
a
1980
Eldorado
and
his
wife
owned
a
1979
Malibu.
The
corporation
owned
a
delivery
van
and
on
September
12,
1988
it
purchased
a
1988
Pontiac
6000
station
wagon
(the
“station
wagon")
at
a
total
cost,
including
finance
charges,
of
$18,000.
The
appellant
testified
that
he
never
used
the
station
wagon
for
personal
reasons.
In
some
cases
it
would
be
used
to
drive
customers
to
and
from
the
corporation's
place
of
business
—
this
was
particularly
so
in
relation
to
a
program
for
seniors
which
the
corporation
had
initiated.
The
appellant
further
testified
that
he
himself
almost
always
drove
the
corporation's
van
(not
the
station
wagon)
to
and
from
the
place
of
business
and
that
the
station
wagon
was
available
for
other
employees
especially
the
appellant’s
wife
and
that
it
was
used
to
make
deliveries
and
service
calls.
Also
because
of
lack
of
storage
space
at
the
corporation's
place
of
business
at
the
corner
of
Bank
and
5th
Avenue
in
Ottawa,
in
many
cases
products
were
stored
at
the
appellant’s
home
and
from
time
to
time
would,
using
the
station
wagon,
be
moved
from
there
to
the
place
of
business
or
directly
to
customers.
Counsel
for
the
respondent
points
to
the
advanced
years
of
the
two
personal
cars,
namely
the
Eldorado
and
the
Malibu,
and
argues
that
it
is
incredible
that
the
appellant
would
not
make
use
of
the
new
station
wagon
for
personal
purposes
from
time
to
time.
The
appellant’s
testimony
with
respect
to
the
car
is
corroborated
in
part
by
the
testimony
of
Marcel
Castonguay
who
also
testified
that
the
appellant
worked
almost
at
all
times
on
a
six
day
a
week
basis
from
Monday
through
Saturday
and
in
many
cases
twelve
hours
a
day.
In
other
words
he
had
very
little
time
for
personally
using
the
station
wagon.
Counsel
for
the
Minister
further
argues
that
the
car
was
“available”
to
the
appellant
and
suggests
that
perhaps
that
is
enough
even
if
personal
use
cannot
be
established.
He
further
points
out
that
the
appellant
should
have
filed
the
appropriate
information
establishing
that
his
(and
his
wife's)
personal
use
of
the
station
wagon
was
less
than
1,000
kilometres
per
month.
The
Court
accepts
the
testimony
of
the
appellant
as
partially
corroborated
by
Marcel
Castonguay,
concludes
that
the
station
wagon
was
not
available
for
personal
purposes
as
contemplated
in
paragraph
6(1
)(e)
of
the
Act
and
that
consequently
the
standby
charges
in
question
should
not
have
been
included
in
his
income
for
the
years
1988
and
1989.
Consequently
the
appeals
are
allowed
with
respect
to
the
accounts
receivable
of
$37,851
in
1988
and
with
respect
to
the
standby
charges
of
$1,269
and
$4,350
in
the
years
1988
and
1989
respectively,
but
the
appeal
is
dismissed
with
respect
to
the
$10,000
unreported
salary
in
1986.
As
the
appeals
have
been
successful
in
the
main,
costs
will
be
allowed
to
the
appellant.
Appeal
allowed
in
part.