Mary Jane Stephens and the Estate of William R. Stephens v. Minister of National Revenue, [1988] 1 CTC 2249, 88 DTC 1170

Kempo, T.C.J.:— The respective appeals of Mary Jane Stephens and of the Estate of William R. Stephens were, on application and by consent, joined and heard on common evidence.

Mary Jane Stephens ("Mrs. Stephens") appeals from the respondent's notice of assessment number 420279 made pursuant to paragraph 160(1)(d) of the Income Tax Act (the "Act") dated May 16,1979 for $56,832.64 respecting property transferred to her of that value by her now deceased husband, William R. Stephens ("Mr. Stephens"). This assessment was predicated on the respondent's reassessment of Mr. Stephens for amounts of tax and penalty owing for his 1973 to 1975 inclusive taxation years aggregating $104,202.50 for those years. Appellants' counsel has conceded in written argument that the section 160 assessment of Mrs. Stephens would depend on and fall, in full or pro tanto, with the outcome of the appeals of Mr. Stephens. The sum total of the evidence heard in common confirms this position. If the unpaid fiscal liability of Mr. Stephens aggregates less than $56,832.64 as at May 16, 1979 then Mrs. Stephens' liability would be reduced accordingly.

Background

Both Mr. and Mrs. Stephens had always retained their citizenship of the United States of America. Mr. Stephens died a resident of Ontario on March 12, 1980 at the age of 64 years. He and his wife had enjoyed formal landed immigrant status in Canada since 1974. Mrs. Stephens returned to the United States in 1983 following the sale of the matrimonial home located near Woodstock, Ontario. She was appointed administratrix of her deceased husband's estate by letters dated August 14, 1980. At the time of trial Mrs. Stephens was 72 years of age.

In 1973 the Stephens' residence was in Troy, Ohio, U.S.A. Mr. Stephens was then employed by and was working out of the head office of the U.S. corporation, Hobart Bros. A.G. ("Hobart U.S."). He made frequent trips to the Hobart plant in Woodstock, Ontario ("Hobart Canada") during that year for his U.S. employer. The Troy, Ohio residence was sold at the end of December 1973 followed by a move to a rental property in Woodstock pending finalization of the construction of their new home. Mr. Stephens became an employee of Hobart Canada in 1974 pursuant to a written employment contract dated June 14, 1974 for a period of seven years which was to terminate in 1981. Although it was not specified in the employment contract, Mr. Stephens took full charge of the operations of Hobart Canada and was for all intents and purposes its general manager. Mr. Peter C. Hobart was the president of both Hobart U.S. and its subsidiary, Hobart Canada. He had executed Mr. Stephens' contract of employment in that capacity on behalf of both corporate entities as both were included and referred to therein collectively as the employer.

Mr. Stephens' 1973 salary was paid to him by Hobart U.S. Without his knowledge it had been journalled into the books of Hobart Canada which in turn had not issued a Canadian T-4 statement of remuneration therefor. The 1973 salary was reported by Mr. Stephens in his U.S. return; he did not file a 1973 Canadian return of income. Hobart Canada had neither withheld nor remitted any Canadian withholding tax in respect of any of the 1973 salary.

A full audit of Hobart Canada was instituted by the special investigations section of Revenue Canada, Taxation, in or about July of 1978. Records were seized in July of 1978 and an order for retention was applied for in or about October of 1978. The investigation spilled over into the financial affairs of Mr. Stephens because he had transacted a number of personal items through Hobart Canada during the period under appeal, being 1974 to 1978.

A large number of the personal items purportedly paid for by Hobart Canada related to the construction of the Stephens' matrimonial home being built on Braemar Road in Hickson, Ontario (the “Hickson home"). The house was large and took three to four years to construct. Both Mr. Stephens and his son, William R. Stephens III ("Mr. Stephens Jr.") acted essentially as general contractors throughout.

Mr. Stephens Jr. was a U.S. attorney at law. He was admitted to the state bar of Georgia in 1973, holding an inactive membership during 1974 and an active one in 1975. He travelled frequently to Ontario and lived with his parents while in Canada. Not only did he assist materially in the construction of the Hickson home but he also rendered consultative advice to Hobart Canada with respect to its labour matters. He was also instrumental in Hobart Canada obtaining some office furniture in 1974.

The Hickson home was completed by the end of 1977. Following the fiscal investigation of both Hobart Canada and Mr. Stephens, the latter's employment was terminated near the end of 1978. Apparently the Hickson home was thereafter put up for sale and the respondent caused the subject reassessments of both Mr. and Mrs. Stephens to be issued in March of 1979 for protective reasons based on the evidence available at the time.

In August of 1979 a tornado struck the area. It caused considerable destruction to the company plant and the loss of books and records that may have then been on the plant premises. The records that had been seized in 1978 were returned to the company in 1980. Mr. Stephens died in March of 1980. Hobart Canada was reassessed on June 23, 1980 for its 1974 to 1978 inclusive fiscal years following consultations, meetings and settlements between its own professionals and the respondent's officials in that respect.

The final piece of significant background information concerns the respondent's inability to produce the books, records, working papers, sup- porting material and information garnered by Mr. Wilkie, the respondent's field auditor, respecting these appeals. Prior to his leaving special investigations in 1982 he had catalogued and cross-referenced all this material in preparation for a prosecution to be launched under section 239 of the Act against Hobart Canada. All of this had been put in a box, marked and placed in a storage room. However the intended prosecution was aborted. Mr. Wilkie said the reason for this decision was occasioned by the intervening death of Mr. Stephens (who was perceived to have run all corporate affairs) and because the bulk of the matters to be prosecuted involved allegations of his own appropriations and unreported benefits. When Mr. Wilkie looked for the box containing his evidentiary materials in order to prepare himself for the hearing of these appeals, it could not be found. Therefore much of his testimony was derived from his seven to nine year old recollection of documents, conversations and events. He was able to produce a few documents which he found in another file. He admittedly relied extensively on the statements made by him in his affidavit made in support of the 1978 record retention order.

The appellants’ viva voce evidence to refute the reassessments was solely that of Mrs. Stephens. For the respondent, the witnesses were Mr. Wilkie and Hobart Canada's in-house accountant and finance manager, Mr. Stoll, and its outside professional auditor, Mr. Findlay.

Counsel have formulated the five issues in the appeals of the Estate of Mr. Stephens thusly:

5. Penalties

Their resolution turns essentially on their respective facts. I have endeavoured to avoid repetition of the facts and matters already set out in the background.

1. Residence

During the 1973 taxation year Mr. Stephens resided with his wife in Troy, Ohio but, for his employer's purposes, he was required to travel frequently to Canada. Hobart U.S. had its home office in Troy. It operated its subsidiary, Hobart Canada, in Woodstock, Ontario and it was concerning this business that Mr. Stephens' presence was required in Canada. His 1973 salary was paid by Hobart U.S. and, as stated earlier, it was journalled to its Canadian subsidiary without his knowledge. No Canadian T-4 statement of remuneration was issued by Hobart Canada in respect of this income for the 1973 taxation year, nor did it remit withholding tax as aforesaid.

Mr. Stephens did not file a Canadian income tax return for 1973. He was assessed by the respondent on the basis of having sojourned in Canada for at least 183 days in 1973. He was therefore deemed to be resident in Canada pursuant to subsection 250(1) of the Act which provides, in part, as follows:

Sec. 250. Extended meaning of resident.

(1) For the purposes of this Act, a person shall, subject to subsection (2), be deemed to have been resident in Canada throughout a taxation year if

(a) he sojourned in Canada in the year for a period of, or periods the aggregate of which is, 183 days or more, . . .

Mr. Wilkie said that it was he who had determined that Mr. Stephens had sojourned in Canada for at least 183 days. On the basis of a review of Mr. Stephens' travel expense vouchers which he had in his possession, he had counted close to 200 days. It was his stated opinion that the presence of Mr. Stephens in Canada for even one hour on any particular day constituted sojourning in Canada for the entire 24-hour day. Respondent's counsel produced no authority in support of this interpretation nor is there any provision to be found in the Act deeming such to be the case.

While the appellants' counsel has submitted argument respecting fractional days and referred to some authorities in this respect, the matter is to be resolved in Mr. Stephens' favour by reliance on the best evidence before me. Mr. Wilkie’s recollection was shown to have been stale and vulnerable to error of recall. The actual travel vouchers produced (Exhibit A-2) have substantiated 137 24-hour days during which Mr. Stephens had sojourned in Canada. And even if all of his documented travel days are added (the travel days being less than a 24-hour presence) the total comes to 175 days. Mrs. Stephens testifies that while no holidays were taken by her and her husband in 1973, he did not necessarily have to travel to Ontario every week as his employment had also kept him in Troy, Ohio as and when circumstances required.

I am satisfied that the factual assumptions supporting the respondent's assessment in this respect have been, on the balance of probabilities, successfully rebutted. Therefore the respondent's assessment number 4901292 dated March 16, 1979 of Mr. Stephens relating to the 1973 taxation year is to be vacated.

2. Furniture of Distinction

The respondent had included the amount of $17,106.50 in Mr. Stephens' income for the 1974 taxation year respecting office furniture acquired by Hobart Canada from an entity described as Furniture of Distinction that was owned and operated by Mr. Stephens Jr. out of an Ohio address. Mr. Wilkie said he had been suspicious of the invoices that he had seen, that he recalled that the cheques for payment had the appearance of having been made in favour of Mr. Stephens and that the Ohio address was merely a postal address.

Be that as it may, there exists a preponderance of objective evidence in this matter which is supportive of the conclusion that Hobart Canada had bought, paid for, used and retained those assets, that they were acquired from "Furniture of Distinction” and that they had been entered as such on the company books. It has been conceded that Hobart Canada was not disallowed any fiscal deductions therefor and that it had not been reassessed in that respect.

Mrs. Stephens testified that she had helped her son look for the office furnishings and that he had acted as an intermediary or broker between the manufacturer on the one hand and Hobart Canada as the ultimate purchaser on the other. A compelling inference exists that the son had indeed conducted a trading venture in this respect.

Additionally respondent's counsel has asserted that on the evidence provided no submissions would be advanced on the respondent's behalf respecting this item.

The appeal is to succeed on this issue and the amount of $17,106.10 is to be deleted from Mr. Stephens' 1974 year income along with any subsection 163(2) penalty assessed relative thereto.

3. Legal Fees

The issue of the inclusion into Mr. Stephens' income for the 1974 to 1978 taxation years inclusive of amounts respecting legal fees invoiced to Hobart Canada by Mr. Stephens Jr. has raised many questions. To exacerbate the problem, the many unusual factors presented in this case have not assisted in the resolution of this matter in any way.

Mr. Stephens' written contract of employment (Exhibit A-7) was silent with respect to any such matters. He had received all of the various forms of compensation therein set out during all of the years under appeal.

Mrs. Stephens testified that from her own personal observations, and by her own peripheral knowledge, her son did indeed provide Hobart Canada with legal services throughout as a labour consultant. On the other hand some of her other evidence must be considered. After her husband's death, investment difficulties and other differences arose between her and her son. She sued him in Georgia with respect to these matters and also laid claim to the legal fees now in issue that had been paid to him by Hobart Canada but which had been reassessed by the respondent into her deceased husband's income. She did not bring with her, nor did she produce, any litigation documents, pleadings or factual allegations that she had alleged, pleaded or relied upon in support of this claim. Her explanatory evidence was that while she always had felt the Respondent's reassessments were erroneous she brought the lawsuit because she needed to gain the money back from her son in order to pay these assessments. She lost this claim after a lengthy jury trial in Georgia. The sole document that she produced before me was the formal judgment issued out of the Superior Court of Fulton County, State of Georgia, which provided, inter alia:

That judgment be rendered for the Defendant, William R. Stephens, with regard to Plaintiff’s claim concerning the funds received by Defendant, William R. Stephens, from Hobart Brothers of Canada, Ltd.

The amount, extent of and formal reasons advanced for such claim and ultimate decision were not disclosed and are unknown in these proceedings.

This Court is without the benefit of any evidence that could have been given by the late Mr. Stephens. The son, Mr. Stephens Jr., was not called. There was correspondence on this subject from Mr. Peter Hobart who was also not called to testify. The evidence of conversations between Mr. Stephens, Mr. Stoll and Mr. Findlay was subject to the same kind and degree of stale-dated vulnerabilities and error of recall as that of Mr. Wilkie. In any event, the evidence of Mr. Findlay was that Hobart Canada, for its own purposes, was to have retained the deduction by whatever appellation was suitable to the respondent. To it, it was a deductible administrative expense, be it legal fees to one person or salary to another. As it turned out Hobart Canada was reassessed in that the payments it had made to Mr. Stephens Jr. as legal fees were disallowed to it but in each case a salary expense of a similar amount was concurrently permitted in respect of the employment contract of Mr. Stephens.

This particular aspect of the respondent's assessment of Mr. Stephens for the 1975 to 1978 inclusive years was predicated on an income-splitting scheme. In subparagraph 5(c) of the respondent's reply to notice of appeal it was stated the respondent assumed that:

(c) in particular, amounts paid as alleged legal fees by Hobart, in accordance with the direction of Stephens, to Stephens' son in the amounts of $74,130.01, $36,456.91, $39,198.70 and $42,427.46 in the 1975 through 1978 taxation years, respectively, were in fact not legal fees at all but rather part of an income-splitting scheme by Stephens with his son of amounts properly payable to Stephens, done with the knowledge of Hobart;

The respondent did not reassess Mr. Stephens respecting the 1974 fees paid by Hobart Canada to his son. Mr. Findlay testified that his concerns on this subject caused him to seek written acknowledgement and authorization for these payments from Peter Hobart which was satisfied by letter from him dated February 28, 1975 as follows:

(taken from Exhibit A-12)

The invoice for $36,555 was for professional services rendered by Mr. W.R. Stephens III during the period December 1, 1973 to November 30, 1974, was approved by me and is completely acceptable. With recent labour problems and other legal matters, it was necessary to retain the services of this individual on behalf of the company. We are very pleased with his services and will probably renew this contract each year, although this is subject to approval by me.

It should not go unnoticed that this letter predated the employment contract between Hobart Canada and the father. The letter, Exhibit A-12, was probably the best objective written evidence submitted with respect to the contractual relationship between the son, Mr. Stephens Jr., and Hobart Canada. While there was no similarly worded document produced for the subsequent years, Mrs. Stephens had testified that Hobart Canada's labour problems were continual and that it had continued to employ her son for that purpose. She said that it was her understanding and firm belief that her son's contract had been renewed every year. She added that she was present on many occasions when her son was performing his duties for Hobart Canada via the telephone.

In my view the respondent's counsel's averment that the Exhibit A-12 letter was merely an accommodation letter was without evidentiary foundation. For the same reason, no inferences may be extrapolated from the evidence in support of any fiscally-adverse conspiracy having occurred between Mr. Peter Hobart and Mr. Stephens in this respect.

Exhibit A-13, identified through Mrs. Stephens, was a package comprised of letters and documents relating to work performed by her son and of minutes of meetings he had attended. The package comprised of:

for 1974: nine letters regarding legal matters

for 1975: one letter relating to improvements to security system

for 1976: minutes of 6th and 7th union negotiation meetings attended. No

minutes of earlier meetings were included

for 1977: fourteen letters regarding various issues; union negotiations, land

purchases, contracts, etc.; extracts from union negotiation meetings Nos. 8 and 10 and two labour conciliator meetings

for 1978: five letters of various matters; minutes of seven union negotiation

meetings.

An inference may reasonably be drawn that Mr. Stephens Jr. had performed other activities beyond what is documented in Exhibit A-13. Counsel for the respondent submitted that the aggregate sum of $192,200 paid by Hobart Canada over these five years, based on the evidence as to what was done by Mr. Stephens Jr., defies credulity and that a compelling inference should be drawn that these amounts, in substance, formed a part of the compensation package of Mr. Stephens. Counsel for the appellant submitted that there is no evidentiary basis for this and that such an inference would compel a finding in the first instance that Mr. Stephens' own salary or remuneration was to have almost quadrupled overnight once he took over management of Hobart Canada. I agree.

Confirmation was sought after and its receipt was relied upon by Mr. Findlay with respect to Mr. Stephens' remuneration for each relevant corporate fiscal year. Mr. Findlay acknowledged he had not seen the written employment agreement (Exhibit A-7) at any material time. This contract, as mentioned earlier, was silent as to any matters respecting legal fees. It called for compensation by way of minimum salary (reviewable annually), a bonus and a retirement pension plan comprised of three parts, one of which was expressly stated to be non-assignable.

Mr. Findlay gave no opinion as to the reasonableness of the services and compensation concerning Mr. Stephens or his son. He had advised Mr. Stephens in May of 1976 that if the legal fees were not reasonable expenses they may be disallowed.

In summary, the totality of the evidence is supportive of a probative inference that Hobart's contract for Mr. Stephens Jr.'s legal services was continued for the periods 1975, 1976, 1977 and 1978, that legal services were provided by him to it for which Hobart Canada had paid, that these amounts were not part of Mr. Stephens' earned remunerative package and that he had not assigned any amounts or earnings of his own from Hobart Canada in any manner from which he had gained a benefit as contemplated by subsection 56(2) of the Act. This latter finding has effectually rebutted the respondent's alternative position and argument in this matter.

Accordingly, the amounts included in Mr. Stephens' income for each of his 1975 to 1978 inclusive taxation years with respect to legal fees are to be deleted therefrom along with any subsection 163(2) penalties assessed relative thereto.

The matter of an alleged subsection 15(1) shareholder appropriation had been raised by the respondent in his reply to notice of appeal. It was not pressed by counsel in argument. The evidence inferentially confirmed that Mr. Stephens held one share of Hobart Canada only nominally, and that he was not its beneficial owner.

4. Miscellaneous Enumerated Alleged Benefit Items

By way of introductive commentary it must be said that most of the testimony concerning many of the following items was predicated on stale- dated recall of varied and diverse vouchers on which the signature and/or name of “W.R. Stephens" appeared. Mr. Wilkie had made some third party inquiries during the 1978 investigative period but, as noted earlier, the bulk of his written supportive documentation had gone missing. Apparently no direct inquiries had been made by Mr. Wilkie of Mr. Stephens or of Mr. Stephens Jr. Mr. Stoll said he did what he was told to keep his job. The accuracy and reliability of Mrs. Stephens' recall varied with each specific item.

The respondent's assessment of subsection 163(2) penalties with respect to the aggregate of the enumerated alleged benefit items was essentially founded on cumulative conduct. In my view, the respondent's underlying premise in this respect was meritorious in that an obvious and uncontradicted pattern of conduct on the part of Mr. Stephens has been shown that he had indeed used his position as vice-president and general manager of Hobart Canada to his financial advantage. However, each item and each particular circumstance must also be examined before a determination can be made as to whether the respondent had met his onus of showing gross negligence on the part of the appellant as that fiscal provision requires.

For the purposes of my findings as to the penalties in all instances, I adopt and follow the meaning attributed to the words "gross negligence" given by Strayer, J. in Venne v. The Queen, [1984] C.T.C. 223 at 234; 84 D.T.C. 6247 at 6256 (F.C.T.D.) thusly:

. . . there seems to be a certain element of subjectivity recognized in the case law with respect to assessing the knowledge or gross negligence of a taxpayer with respect to misstatements in his returns:

"Gross negligence” must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not.

As to the particulars of the alleged benefit items, the following is an extract taken from Schedule "A" attached to and forming part of the respondent's reply to notice of appeal. Because there are many items over the five years I shall deal with them as therein outlined.

A. The R. R. S. P. Amounts (1974, 1975, 1977, 1978)

These amounts had been received by Mr. Stephens as part of his remuneration package from Hobart Canada, they had not been included in the T-4 statement issued by them, he had not declared them as income for each year but he had claimed each as a deduction.

The employment contract (Exhibit A-7) provided specifically for remuneration in respect of this item over and above the basic salary. There was no acceptable reason advanced as to why Mr. Stephens would or should have reasonably failed to note its omission from the T-4 statement. Mr. Stephens Jr. undertook the responsibility of preparing each of the subject annual returns of income for his father. Nothing else is known beyond this.

The irresistible inference is that the deduction for the R.R.S.P. was taken concurrently with an intentional act or omission on Mr. Stephens' part amounting to an indifference as to whether the respective amount had been included into income and whether Canadian tax law in this respect had been complied with. Accordingly the inclusions into income for each year of these amounts are to stand and they are to be included in the calculation of the subsection 163(2) penalties, respectively.

B. Personal Purchases: Duty, Sales Tax, FRT, etc. (1974, 1975, 1976)

Mrs. Stephens stated that she and her husband had purchased items in the United States and had permission to ship them on Hobart trucks when there was room. She assumed that the company would have taken care of the taxes or duty and that it would have reimbursed itself accordingly but nothing as far as she knew was ever said or done about it.

Mr. Wilkie had ascertained from the B3 forms that these duties and taxes were in relation to the aforementioned personal purchases which had been paid by Hobart Canada.

Because it has been established that Mr. Stephens had expensed these personal items through the company, their inclusion into income was proper. Further this matter was properly assessed subsection 163(2) penalties on the basis of Venne v. The Queen. Accordingly the inclusions into income for each year of these amounts are to stand and they are to be included in the calculation of the subsection 163(2) penalties, respectively.

C. North American Van Lines to Georgia (1974)

This was the expense of transporting excess family furniture to Georgia which was paid for by Hobart. Mrs. Stephens testified that it was being sent there because they had planned on remaining in Canada for only eight or nine years. The appellants argue that this is a non-benefit because the cost of moving from Troy to Woodstock was a non-benefit and if all furniture had been moved to Woodstock the non-benefit cost of moving would have increased accordingly. I do not find this argument helpful. The point before me is what was done, not what could have been done.

I accept the respondent's counsel's position that this was solely a personal matter expensed through the company, however, I am not satisfied that gross negligence has been shown to have occurred here. Therefore the inclusion of the benefit amount into income for the 1974 year is to stand as assessed, but such amount is to be excluded from the calculation of the subsection 163(2) penalty for that year.

D. Oxford Paving Driveway (1975)

Mrs. Stephens was unable to provide any assistance here as she did not know who had paved the driveway at their personal residence.

While Mr. Wilkie had not produced any records, he recalled specifically speaking to the man responsible for the paving who had identified it as having been done on the Stephens' home property.

The inclusion of this amount into income for the 1975 year is to stand and, on the evidence and principles of Venne v. The Queen, it is to be included in the subsection 163(2) penalty calculation for that year.

E. Telephone Calls (1975, 1976)

Mrs. Stephens' testimony on this matter was that they were related to business calls made from their personal residence. Mr. Wilkie said the assessment was based on his analysis of the telephone bills of Hobart Canada from which he found calls to the United States on business days to addresses which appeared to be family member addresses.

In my view, the inclusion of these amounts into income for the 1975 and 1976 years was not shown to be improper, however, they are to be excluded from the calculation of the subsection 163(2) penalties, respectively, because I am unable to even infer gross negligence on the part of Mr. Stephens in this respect, even on a cumulative evidence basis.

F. Personal Expenses Charted to Hobart

(1) Rent and Esso Home Comfort (1974)

These two items pertained to Mr. Stephens' rental accommodation. The rent had apparently been expensed as travel. As these two items were personal, they were properly included in Mr. Stephens' income. Mrs. Stephens said there was a distinct probability that Hobart Canada and her husband likely thought that it could have been properly deductible in Canada because it would have been so in the United States. This belief, in my view, does not detract from a probative inference, drawn from the cumulative evidence, that Mr. Stephens was indifferent to this matter. Both he and Hobart Canada had competent professionals easily at hand to answer such a simple inquiry. These amounts are therefore to be included in a subsection 163(2) penalty calculation for the 1974 year.

(2) Exchange on Personal Funds (1974)

The appellants’ arguments advanced here were the same as those advanced immediately above. They are rejected for the same reasons. The result is accordingly the same, both as to inclusion into income and penalty calculation, respectively.

(3) 2nd Tractor - Buchanan (1974, 1976)

Tractor Leases (1977, 1978)

The first item pertained to a riding vehicle used for cutting grass, snow plowing, etc. with parts acquired for its repair. The second one was a large front-end loader tractor. Both items had been seen at Hobart Canada's plant premises as well as at the Stephens' residential home during its construction. Mrs. Stephens' evidence did not extend beyond saying that they did not need a tractor to her knowledge, that Mr. Stephens never had a tractor at their home and that her son didn't either. Mr. Stoll assumed if the equipment was not around the plant that it was at the Stephens'.

In my analysis, there is insufficient evidence to support a probative inference that when this equipment was not on-site at Hobart Canada’s plant it was therefore necessarily being used at the Stephens' residence or for their benefit.

Accordingly the amounts included in Mr. Stephens' income for the said years with respect to these items are to be deleted therefrom together with any subsection 163(2) penalties assessed relative thereto.

(4) Canadian Tire (1975, 1976, 1977)

(5) B.A. Paint Co. (1976)

(6) Direct Plumbing and Heating (1975,1976)

(7) Direct Winters — Fireplace (1975)

(8) Downham Nursery (1975,1976)

(9) Crispo Co. — Power Nailer (1976)

(10) Ontario Seed (1975)

(11) Peckhams Ltd. — Chainsaw (1976)

(12) Wood — General (1975, 1976, 1977)

(13) Sears — U.S. (1975,1976)

(14) Travel Claims (1975, 1976)

The evidence of Mrs. Stephens with respect to each of these items was generally vague, unsatisfactory and unreliable. The testimony of Mr. Wilkie that the amounts were founded on invoices and vouchers and that the goods were determined to be unrelated to the company plant was acceptable.

The inclusions of these amounts into income for each year are to stand and, on the cumulative evidence and principles of Venne v. The Queen, they are to be included in the calculation of the subsection 163(2) penalties, respectively.

(15) Princeton Sod Supply (1975)

Respondent's counsel conceded that the evidence was unclear at trial and therefore advanced no submissions on this item.

Mrs. Stephens said that there had been no sod placed at their house and that this may have occurred at the plant. It had earlier been established that the home premises was seeded.

The amount included into Mr. Stephens' 1975 income for this item is therefore to be deleted therefrom, together with any subsection 163(2) penalty assessed relative thereto.

(16) Car Deals to Mr. Stephens or Family

(i) Parcel Delivery Van (1975, 1976, 1977, 1978)

The amounts included in Mr. Stephens' income for each of the said years were the leasing costs of the van paid for by Hobart Canada. It has been conceded that the 1975 amount of $3,063.01 should be deleted because, subsequent to the reassessments, Mr. Wilkie was given reason to believe that Hobart Canada had used the delivery van during that year.

Mrs. Stephens said that the van had been used in 1976 when moving from their rental property to their new residence. Mr. Wilkie said he had seen it parked several times in the residential driveway during the 1978 investigative period and also during 1979 when he attended the house while accompanied by the Sheriff. On the information he had received from Mr. Stoll he had concluded that the van had been used primarily by Mr. Stephens Jr. Mr. Stoll testified that there had been a van used by Hobart Canada but that he didn't know if it was the subject one.

Given the unsatisfactory state of the evidence as a whole, the amounts included for each of the aforesaid years with respect to the delivery van are to be deleted therefrom together with any subsection 163(2) penalties assessed relative thereto.

(ii) The Other Vehicles (1976, 1977, 1978)

Mrs. Stephens testified that these were heavily-used salesman's cars which often needed repairs at the time of trade-in. She admitted that her son did all the dealings. She believed that the car dealers had set the prices on the traded-in vehicles. She acknowledged that her family did have these vehicles after they had been traded-in.

Mr. Wilkie’s investigations, which included discussions with the car dealers, led him to the conclusion that the net effect of the subject transactions was that Hobart Canada had paid too much for the new vehicles at the time of their initial purchase and that Mr. Stephens benefitted by being able to purchase the trade-in vehicles for himself and for his family, through his son, at less than fair market value.

The following is extracted from Mr. Wilkie’s affidavit that has been referred to earlier in these reasons. It was dated October 30, 1978:

42. As a result of my examination of the vouchers and ledgers of the said Hobart Brothers of Canada Limited, I know that they purchased and capitalized a 1966 [sic] Cadillac June 29, 1976 at a cost of $15,053.62.

43. As a result of my examination of the vouchers and ledgers of the said Hobart Brothers of Canada Limited I know that they purchased a 1977 Cadillac from Elliott Brothers Garage Limited July 4, 1977 at a cost of $16,895.55 and that they traded the vehicle referred to in paragraph 42 above on same receiving an allowance of $7,500.00 for the said trade-in.

44. In the course of my enquiry I conferred with and examined records of the said Elliott Brothers Garage Limited in regard to the above transaction with the said Hobart Brothers of Canada Limited.

45. As a result of my enquiries, I know that the cost price of the 1977 Cadillac was inflated by $3,000 so that the 1976 Cadillac could be sold back to Mr. W.R. Stephens at a sale price of $4,500.00.

46. As a result of my examination of the sales agreement between Elliott Brothers Garage Limited and Mr. W.R. Stephens I know that the 1976 Cadillac referred to in paragraphs 42, 43 and 45 had been driven 2,364 miles as at the time of the trade.

The net effect was that in 1977 Mr. Stephens Jr. was able to acquire a 1976 Cadillac with 2,364 miles on it for $4,500. The respondent's counsel submits that the one year's depreciation reduced its value to roughly $10,450 which left an assessable benefit of $6,038 ($10,450 less $4,500). I agree. Certainly no rebuttal evidence was called to the contrary. Accordingly the inclusion of the $6,038 amount into Mr. Stephens' 1977 income concerning the 1976 Cadillac is to remain however, because of the insufficiency of evidence, that amount is to be excluded in the calculation of the subsection 163(2) penalties for that year.

Due to the unfortunate loss of his box of records, Mr. Wilkie was unable to provide any such specific information at trial respecting the remaining vehicles. Mrs. Stephens was adamant that no 1978 Ford Club Wagon was had in 1978. At hand, therefore, was an absence of particular evidence of the specifics of each vehicle, with only a generalized assumptive pleading in paragraph 5(j) of the respondent's reply to notice of appeal.

Accordingly, and except for the 1976 Cadillac as aforesaid, the amounts included in Mr. Stephens' income as benefits for the said years with respect to these vehicles are to be deleted therefrom and they are to be excluded from the calculation of the subsection 163(2) penalties, respectively.

Conclusion

The appeal of the Estate of William R. Stephens with respect to the 1973 taxation year is allowed and the respondent's assessment of fiscal liability for that year is vacated. With respect to 1974, 1975, 1976, 1977 and 1978 taxation years, the appeals are allowed in part and the matters are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with these reasons for judgment.

The appeal of Mary Jane Stephens is allowed only to the extent that if the unpaid fiscal liability of the Estate of William R. Stephens aggregates less than $56,832.64 as at May 16, 1979, then and in that event her liability under paragraph 160(1)(d) of the Act is to be reduced pro tanto. A copy of these reasons for judgment will be appended to her judgment.

These appeals being heard together on common evidence, there will be only one set of costs awarded on a party-and-party basis.

Appeals allowed in part.