This
appeal
relates
to
the
taxation
years
1984
and
1985.
The
appellant
and
his
brother,
Robert
Gondosch,
and
another
person
operated
Pasta’s
Pizza
commencing
in
1977.
They
had
three
locations
and
were
apparently
operating
a
very
successful
business.
The
appellant
and
his
brother
bought
out
the
other
party
and
it
was
operated
as
a
fifty-fifty
partnership.
In
1982,
the
partnership
decided
to
incorporate
as
Pasta
Holdings
Ltd..
All
the
assets
and
liabilities
of
the
partnership
became
assets
and
liabilities
of
Pasta
Holdings
Ltd..
At
the
time
of
incorporation
the
liabilities
exceeded
the
assets
by
a
considerable
amount.
A
major
portion
of
the
liabilities
were
bank
loans
to
the
partners
used
in
operating
and
building
up
the
business.
As
a
result
of
an
audit
commenced
in
1985,
with
respect
to
the
appellant's
personal
income
tax
it
was
determined
Pasta
Holdings
was
involved.
The
above-mentioned
loans
were
treated
by
the
auditor
as
personal
loans
and
were
shown
as
such
in
the
shareholder's
loan
account
of
Pasta
Holdings
Ltd.
As
a
result
of
this
a
reassessment
was
done
with
respect
to
the
taxation
year
1984,
for
the
appellant
and
his
brother
Robert
Gondosch.
The
amount
included
in
income
for
the
appellant
for
that
year
was
$26,131.32
(Exhibit
A-5)
and
for
Robert
Gondosch
$26,239.29
(Exhibit
A-6)
There
was
considerable
evidence
with
respect
to
an
automobile
owned
by
the
corporation
and
operated
by
the
appellant.
Counsel
for
the
Minister
withdrew
that
reassessment
at
the
hearing
and
thus
the
only
question
before
the
Court
insofar
as
the
appellant
is
concerned
is
with
respect
to
the
shareholder's
loan.
Mr.
Baker,
who
acted
on
behalf
of
the
appellant
at
the
hearing,
was
the
accountant
for
the
appellant
and
the
corporation
at
all
material
times.
There
was
a
good
deal
of
evidence
and
argument
with
respect
to
proper
accounting
procedures
as
to
how
these
loans
should
have
been
set
up
in
the
company's
books.
It
was
however
perfectly
clear
on
the
evidence
that
the
auditor,
in
setting
up
the
shareholders'
loan
account,
handled
the
two
loans
in
question
exactly
as
he
was
advised
to
do
by
Mr.
Baker.
It
was
only
at
the
hearing
the
question
of
goodwill
being
considered
was
brought
up
by
Mr.
Baker.
I
am
satisfied
on
the
evidence
before
me
that
the
auditor
followed
the
correct
procedure
in
the
audit
and
the
figures
arrived
at
for
the
appellant
and
Robert
Gondosch
insofar
as
the
shareholders'
loans
were
concerned
were
correct.
Furthermore,
I
am
satisfied
the
appellant
was
estopped
from
trying
to
change
the
basis
on
which
the
audit
was
performed.
Mr.
Baker
made
representation
to
the
auditor
as
to
how
these
loans
should
be
handled.
The
auditor
followed
this
representation.
Revenue
Canada
is
now
statute
barred
from
reassessing
the
taxation
years
in
question.
I
am
satisfied
on
the
evidence
the
question
of
including
goodwill
was
not
raised
with
Revenue
Canada
prior
to
the
reassessment
being
statute
barred.
See
Heald,
J.'s
judgment
in
Wilchar
Construction
Ltd.
v.
The
Queen,
[1981]
C.T.C.
415,
81
D.T.C.
5318,
page
416
(D.T.C.
5318).
For
the
above
reasons
I
dismiss
the
appeal
of
Michael
Gondosch
insofar
as
it
relates
to
the
reassessment
with
respect
to
the
$26,131.32
figure
for
the
year
1984.
I
grant
the
appeal
of
Michael
Gondosch
with
respect
to
the
standby
charges
for
the
years
1984
and
1985.
I
order
that
this
matter
be
referred
back
to
the
Minister
for
reconsideration
and
reassessment.
There
will
be
no
costs.
Appeal
dismissed.
Email this Content