Lucio Sandrin v. Minister of National Revenue, [1988] 1 CTC 2395, 88 DTC 1280

Bonner, T.C.J. [Orally]:—This appellant appeals from assessments of income tax for the 1977 to 1980 taxation years.

Briefly stated the issue is whether certain payments were management fees properly forming part of the income of Greater Sarnia Investment Corporation, or management or executive bonuses earned by and properly forming part of the income of the appellant.

Much of the essential factual background is set forth in paragraphs 1 to 4 of the notice of appeal all of which were admitted. I will not pause to read them now. It should also be noted that the appellant owned, at all material times, about 70 percent or 75 percent of the voting common shares of Sandrin Brothers.

In order to establish that the payments to Greater Sarnia were as the appellant contends, not management or executive bonuses earned by himself, but rather management fees earned by Greater Sarnia, the appellant must show much more than the fact that Greater Sarnia was a valid and subsisting corporation and that the disputed amounts were paid to it. He must show that the services which gave rise to the payments were not rendered by him in his capacity as president of Sandrin Brothers, an office held by him both before and after the incorporation of Greater Sarnia. He must show, rather, that they were rendered by Greater Sarnia, that is to say, that in rendering them he acted as representative of Greater Sarnia.

There was little or nothing by way of overt action supporting the appellant's contention. The action of Sandrin Brothers in making the payments to Greater Sarnia might have supported the appellant's position if the appellant had not controlled both payor and payee, and if the arrangement said to exist had not been such as to enable the appellant to escape taxation at high personal rates on the amounts in question. It must be noted that even though the arrangement said to exist was not an ideal way of achieving the optimum overall tax result, it did at least have the result mentioned.

Next it may be noted that although the appellant as sole officer and director of Greater Sarnia was in a position to render services on behalf of that company, the fact that he was in a position to do so does not, standing alone, support a conclusion that he did so.

Before Greater Sarnia was incorporated the appellant, as president of Sandrin Brothers, earned both salary and fringe benefits and he received management bonuses. After the incorporation of Greater Sarnia the appellant continued in office as president of Sandrin Brothers and he continued to earn a salary and fringe benefits. There was no evidence of any arrangement between the appellant and Sandrin Brothers reducing the scope of the duties attached to the office of president with consequent loss of entitlement to be considered as a potential recipient of year-end management bonuses. It would seem that save for payee and designation of the nature of the payments, everything was done after the incorporation of Greater Sarnia, just as it had been done before the incorporation of that company.

There was no written contract between Greater Sarnia and Sandrin Brothers calling on Greater Sarnia to provide the services of the appellant. It was said that the appellant did not have time. The explanation seems improbable, given the apparent ability and drive of the appellant and the fact that he had the financial means to engage the best of professional help.

An oral contract between Greater Sarnia and Sandrin Brothers would of course, suffice to create an obligation on Greater Sarnia to deliver the appellant’s services to Sandrin Brothers and it really is implicit in the appellant's position that such a contract existed. However, there was absolutely no evidence as to the terms of such contract, when it was formed and who negotiated it on behalf of Sandrin Brothers.

The appellant testified that the directors of Sandrin Brothers agreed to the alleged arrangement by the signing of the company's financial statements. However, approved financial statements were not produced. No corporate minutes, resolution or other document was produced indicating the expression of such approval or even the communication by the appellant to any director or officer of Sandrin Brothers of the existence of the supposed arrangement between the two companies. Had such evidence existed the appellant could have produced it. He could have called others concerned in the management of Sandrin Brothers. His failure to produce such evidence warrants an inference that the evidence does not exist. In this regard, I refer to Sopinka and Lederman on Evidence at page 536.

Finally, I will note that the last of the corporate objects quoted in paragraph 4(g) of the notice of appeal authorizes Greater Sarnia to carry on the business of management consultants. The existence of the power does not, standing alone, support a conclusion that the business was in fact carried on. Furthermore, the reasons for the formation of Greater Sarnia, as outlined in the testimony of both the appellant and of the accountant, Mr. Hippie, did not disclose the existence of a plan to cause Greater Sarnia to engage in this sort of activity at least in relation to Sandrin Brothers.

Reference was made to the decision of the Federal Court of Appeal in The Queen v. Rex T. Parsons, [1984] C.T.C. 354; 84 D.T.C. 6447. That decision makes it quite clear that Greater Sarnia could have rendered management services to Sandrin Brothers and could itself have earned the amounts in question as management fees. In the Parsons case (supra), however, as Mr. Justice Urie noted at page 359 (D.T.C. 6451) and I quote:

The two management companies were not “bare incorporations". They were fully clothed with all the legal relationships properly documented and acted upon.

That stands in stark contrast to the present case.

In The Queen v. Peter Neudorf, [1975] C.T.C. 192; 75 D.T.C. 5213, Mr. Justice Heald had this to say at page 196 (D.T.C. 5215):

It is my further view that since one of the parties to the arrangement was a corporation, there is more formality required (such as corporate resolutions, for example) than in the case of individuals and particularly where the details of a relationship are important as against third persons such as the Revenue.

There is no evidence here that the appellant caused the corporations to do what he may well have intended that they do. The relationships alleged have not been shown to exist.

The appeals will therefore be dismissed.

Appeals dismissed.