Roderick J. Mackenzie v. Minister of National Revenue, [1988] 2 CTC 2288, 88 DTC 1645

Brulé, T.C.J.:—This is an appeal from reassessments of the taxpayer's 1981, 1982, 1983 and 1984 taxation years, from six different issues, the particulars of which are set out below.

Facts

The appellant was at all material times a shareholder in Development Facilities (International) Ltd., (hereafter referred to as "the Corporation"). The various issues in this appeal are as follows:

(1) During his 1982, 1983 and 1984 taxation years, the appellant had the use of an automobile leased by the Corporation. As a result of this the Minister assessed a benefit to the appellant amounting to 40 per cent of the expenses in operating the vehicle, being in 1982, $2,156, in 1983, $2,525 and in 1984, $2,515.

(2) During his 1982, 1983 and 1984 taxation years the appellant had the use of a mobile home vehicle owned by the Corporation and the Minister assessed a benefit based on 50 per cent usage by the appellant. This assessed benefit amounted to $1,150 in 1982, $2,000 in 1983 and $2,000 in 1984.

(3) In his 1984 taxation year, the Corporation paid $25,168 for renovations to the lower floor of the appellant’s personal residence and this amount, not repaid by the appellant, was assessed as a benefit.

(4) Certain amounts were paid by the Corporation to the appellant as follows: $10,000 in 1981, $15,000 in 1982, and $10,000 in 1983. These amounts were loaned back to the Corporation by crediting the appellant's shareholder's loan account. On receipt by the appellant, these amounts were not included in income by the appellant. Accordingly, these amounts were considered by the Minister to be deemed salaries and assessed accordingly.

(5) In 1982, 1983 and 1984 the appellant received loans from or was indebted to the Corporation and was assessed on the following amounts: $8,528 in 1982, $4,515 in 1983, and $4,733 in 1984. These amounts were taxed as interest benefits to the appellant.

(6) In 1983 the appellant received a loan from the Corporation of $6,001 and in 1984 a loan of $4,018. No bona fide arrangements were made at the time, and hence these amounts were included in the appellant's income for the relevant taxation years.

Appellant's Position

The appellant took the position that he did not quarrel with the figures produced by the Minister which were verified and explained to the Court by an appeals officer of Revenue Canada. The assessment of the automobile expense was not disputed but the appellant did object to the 50 per cent assessment for the mobile home expenses. He stated that this was really a studio used primarily for business purposes, was not located at his home and at most benefited personally to the extent of not more than three weeks each year or 6 per cent rather than 50 per cent.

As to the renovations to his residence the appellant stated that this area was used for theatre presentations to clients and was not living space but used to conduct business and was so equipped.

Referring to the deemed salaries, loans and interest benefits the appellant believed that he was not receiving personal benefits but the amounts which were paid formed part of a series of moneys put into the appellant's hands to conduct business and were repaid in the shareholder's loan account as funds were received. He admitted that may not have been the correct way to proceed but then he did not have any professional assistance. Minister's Position

There was no need to consider the automobile use by the appellant as the amount charged as a benefit was not in dispute.

The mobile home or mobile office benefit was calculated on the basis of using the prescribed rate of interest multiplied by the cost of the vehicle and this multiplied by an attributed 50 per cent usage by the appellant. This is in accordance with the provisions of paragraph 15(1)(c) of the Income Tax Act.

As to the renovations to the appellant's residence the Minister claimed that there was no agreement in existence between the Corporation and the appellant, and thus the funds expended were lost to the Corporation. The amount involved was properly assessed under the provisions of paragraphs 15(1)(b) and 15(1)(c) of the Income Tax Act. In support of this argument, counsel for the Minister referred the Court to the case of Charles-Edouard St-Germain v. M.N.R., [1969] C.T.C. 194; 69 D.T.C. 5086 wherein the Supreme Court of Canada held that similar improvements by a Corporation to a shareholder's building was a taxable benefit.

The amounts paid to the appellant and then loaned back to the Corporation were included as deemed salary payments because they were claimed as salary expenses by the Corporation but not included in the appellant’s income. This is in accordance with the provisions of subsection 5(1) of the Income Tax Act.

As to the amounts of interest benefits assessed to the appellant the Minister contends that in the absence of any loan arrangement the amounts were properly included under the provisions of the subsections 15(1), 15(9) and 80.4(2) and further supported by the case of Frederic G. Gannon v. M.N.R., [1988] 1 C.T.C. 2422; 88 D.T.C. 1282.

The appellant’s shareholder's loan account had outstanding balances at the end of the 1983 and 1984 taxation years and no arrangements had been made for the repayment of these amounts. Accordingly the net amounts at the end of the years in question were properly assessed to the appellant under the provisions of subsection 15(2) of the Income Tax Act.

Analysis

This is a case of the Minister simply applying the provisions of the Income Tax Act to the conduct of the appellant. There was no quarrel as to the amounts involved and in my opinion the only area in the various assessments wherein the appellant had a legitimate objection was with reference to the use of the mobile home owned by the Corporation. Evidence by the appellant was creditable and his statement that he used the vehicle not more than three weeks per annum for personal use is accepted.

All the other assessments by the Minister were proper. The appellant unfortunately, although quite honest, was unfamiliar with the provisions of the Income Tax Act, did not have nor did probably not seek proper advice. If he had done otherwise a different result may have followed. The matter can best be summed up by what was said by the agent for the appellant quoting from a sign at the University of Alberta “If you think education is expensive, try ignorance".

It was the ignorance of the provisions of the Income Tax Act which spelled trouble for the appellant. His plea for equity, as in all tax appeals, cannot be accepted. One must abide by the strict interpretation of the statute's provisions.

The appeal is allowed to the extent that the benefit assessed by the Minister, for the mobile home, be based at 6 per cent and not 50 per cent. In all other respects the appeal is dismissed and is referred back to the Minister for reconsideration and reassessment.

Appeal allowed in part.