Collier,
J:—This
action,
and
another
action
T-9225-82,
were
heard
at
the
same
time.
Both
actions
are
dismissed.
The
reasons
in
this
action
will
apply
in
the
other.
For
the
plaintiffs
1978,
1979,
and
1980
taxation
years,
in
calculating
his
income,
he
claimed
rental
losses
in
respect
of
the
operation
of
a
building
known
as
the
Royal
Tower
Building,
and
sometimes
as
504
Main
Street.
The
losses
were:
1978
—
$
68,844.36
1979
—
$
34,765.01
1980
—
$101,196.16
The
Minister
of
National
Revenue
disallowed
the
losses,
and
increased
the
plaintiffs
taxable
income
accordingly.
It
was
the
department’s
view
the
losses,
if
any,
belonged
to
a
corporation,
Royal
Tower
Ltd
(hereafter
“Royal
Tower”
or
“the
company”).
The
notices
of
confirmation,
issued
by
the
Minister,
stated
the
rental
losses
.
.
.
have
not
been
shown
to
have
been
outlays
or
expenses
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
within
the
meaning
of
paragraph
18(1)(a)
of
the
Act,
and,
if
allowed,
would
unduly
or
artificially
reduce
the
taxpayer’s
income
within
the
meaning
of
subsection
245(1)
of
the
Act.
The
issue
is
essentially
a
factual
one.
The
plaintiff
is
66
years
old.
He
practised
law
in
eastern
Europe
before
coming
to
Canada
in
1956.
He
took
his
legal
training
in
Manitoba
from
1957
to
1962.
In
1962
he
was
called
to
the
bar.
He
has
carried
on
a
general
practice
as
a
barrister
and
solicitor
since
then.
The
plaintiff
has,
as
well,
in
the
name
of
private
companies
controlled
by
him
and
his
family,
acquired
rental
properties.
In
his
1974
personal
income
tax
return
he
listed
a
number
of
rental
properties,
with
their
profit
and
loss
statements.
Any
net
profit
or
loss
was
included
in
the
calculation
of
his
total
income.
In
that
total,
there
was
included,
of
course,
his
net
professional
income.
The
title
to
11
or
12
of
the
properties
was
in
the
name
of
Grosvenor
Development
Ltd.
Another
property,
referred
to
as
424
River,
was
in
the
name
of
Wyndham
Leaseholds
Ltd.
The
plaintiff,
his
wife
and
daughter
were,
and
still
are,
the
shareholders
of
these
companies.
In
later
years,
including
the
three
years
in
issue,
the
properties
referred
to,
and
some
others,
have
always
been
listed
in
the
plaintiff's
personal
tax
return.
I
exclude,
from
that
statement,
Royal
Tower.
The
title
to
the
additional
properties
has,
again,
been
in
the
name
of
private
companies,
with
the
same
three
shareholders.
In
1973,
the
plaintiff
became
interested
in
the
Royal
Tower
property.
There
may
have
been
some
legal
difficulties
as
to
the
then
ownership
of
the
property.
For
practical
purposes
it
was
the
Royal
Bank
of
Canada.
It
was
an
old,
11-sto-
rey
building.
It
had
been,
at
one
time,
the
district
head
office
of
the
bank.
In
1973
and
1974,
aside
from
a
branch
of
the
bank,
it
was
largely
vacant.
To
make
it
viable
as
a
business
building,
renting
space
to
tenants,
extensive
renovations
were
going
to
be
required.
Offers
and
negotiations
took
place.
It
is
not
necessary
to
go
into
them.
Grosvenor
Developments
Ltd
made
the
offer
which
was
eventually
accepted.
The
price
was
$812,220
with
a
deposit
of
$1,000,
and
a
further
cash
payment
of
$9,000
on
the
closing
date.
The
offer
provided
the
offeror
could
nominate
someone
else,
including
a
limited
company,
to
take
title
to
the
property.
The
plaintiff
caused
Royal
Tower
Ltd
to
be
incorporated,
effective
February
1,
1974.
He,
his
wife
and
daughter
were
shareholders
at
October
1,
1974.
Later
the
plaintiff
became
the
owner
of
all
the
issued
shares,
except
one
nominal
one.
The
plaintiff
and
his
wife
were
directors
as
of
October
1,
1974.
In
1976,
the
daughter
formally
became
a
director.
The
plaintiff
and
his
wife
were
officers
of
the
company
early
on;
the
daughter,
later.
The
transfers
of
the
property
by
the
vendors
to
the
company
were
executed
on
June
14,
1974.
The
closing
date,
originally
July
1,
1974,
was
changed
to
September
30,
1974.
The
property
(actually
two)
was
registered
in
the
Land
Titles
Office
in
the
name
of
the
company.
The
$10,000
cash
payment
came
from
the
plaintiff,
or
from
sources
available
to
him.
The
balance
owing
to
the
bank
was
paid
by
means
of
a
mortgage
to
it,
dated
October
1,
1974.
The
mortgagor
was
the
company.
The
mortgage
was
for
$162,220
and
interest.
Its
life
was
three
years.
The
principal
was
payable
on
September
1,
1977.
Interest
payments
were
$905.73
monthly,
from
November
1,
1974
to
September
1,
1977.
On
the
latter
date,
a
further
$17,800
became
payable.
The
company,
on
October
1,
1974
leased
to
the
bank,
for
ten
years,
certain
space
in
the
Royal
Tower
building.
The
plaintiffs
position
in
this
litigation
is
that
the
property
was
in
fact,
and
in
law,
his;
he,
in
reality,
operated
the
business
of
renting
space
and
providing
services;
the
company
was
merely
his
agent
and
trustee.
To
support
that
position,
he
relies
on
several
agreements
and
documents.
A
number
of
them
are
dated
October
1,
1974.
The
first
relates
to
a
meeting
of
the
directors
of
the
company
on
that
date.
The
directors
are
shown
as
the
plaintiff,
his
wife,
and
daughter.
In
fact,
the
daughter
was
not
a
director
at
that
time.
The
meeting
was
not
a
formal
one.
The
proposals
and
schemes
were
discussed
in
the
family
home.
The
purport
of
the
agreements,
said
to
have
been
reached,
is
set
out
in
the
minutes.
The
plaintiff,
as
chairman
of
the
meeting,
outlined
difficulties
the
company
might
encounter
if
it
carried
on
with
the
purchase
and
development.
The
plaintiff
offered
to
purchase
the
property.
I
set
out
a
portion
of
the
minutes:
The
Chairman
then
informed
the
meeting
that
William
Rachman
would
be
inclined
to
enter
into
an
Agreement
with
the
Company
for
the
purchase
of
504
Main
Street,
and
the
annex,
providing,
in
view
of
the
difficulties,
that
he
could
not
appear
on
the
face
of
the
transaction,
but
that
the
Company
would
continue
with
the
purchase
and
William
Rachman
would
stand
behind
the
Company’s
obligations
and
assume
all
the
rights
and
obligations
of
the
Company
from
the
1st
day
of
October,
1974;
in
other
words,
William
Rachman
would
be
the
factual
purchaser
from
October
1,
1974,
and
the
Company
would
assist
William
Rachman
by
an
agreement
dated
October
1,
1974
that
William
Rachman
would
carry
on
business
under
the
name
of
the
Company
from
the
1st
day
of
October,
1974,
and
that
William
Rachman
will
indemnify
the
Company
of
any
loss,
and
will
assume
the
liabilities
of
the
Company.
An
agreement,
dated
October
1,
1974
(Exhibit
6)
was
entered
into
between
the
company
as
vendor
and
the
plaintiff
as
purchaser.
The
plaintiff
assumed
all
the
company’s
rights
and
obligations
under
its
agreement
with
the
Royal
Bank.
The
plaintiff
was
to
become
the
“beneficial
owner’’
of
the
property,
and
eventually
the
“actual
owner”.
The
operation
was
to
be
carried
out
under
the
name
of
the
company.
A
further
agreement,
against
dated
October
1,
1974,
was
signed
by
the
company,
as
grantor,
and
the
plaintiff,
as
grantee.
The
following
are
the
key
terms:
1.
The
Grantor
agreed
to
sell
the
property
to
the
Grantee
once
the
same
has
been
fully
altered
and
rented
at
least
to
the
extent
of
85
per
cent
for
the
cost
price
to
the
Grantor
at
the
time
of
the
sale.
2.
The
Grantee
agrees
to
pay
to
the
Grantor
the
purchase
price
and
the
cost
of
the
alterations
at
cost
when
the
same
has
been
fully
completed
and
rented
at
least
to
the
extent
of
85
per
cent.
There
were
additional
provisions
in
respect
of
financing,
when
the
time
for
sale
and
payment
arrived.
Finally,
a
caveat
(Exhibit
12)
and
a
notice
of
interest
in
land
(Exhibit
8),
both
dated
October
1,
1974,
were
registered
in
the
Land
Titles
Office.
The
notice
of
interest,
under
the
former
land
titles
system,
was
the
agreement
I
have
just
described.
The
caveat
was
in
the
usual
form
under
the
Torrens
system.
The
plaintiff,
as
I
have
said,
contends
he
is
the
owner
of
the
Royal
Tower
property.
It
is
not,
to
my
mind,
really
necessary,
for
the
purposes
of
this
case,
to
decide
that
issue.
The
question
before
me
is
who
carried
on
the
business
at
504
Main
Street,
and
who
is
entitled
to
claim
the
rental
losses.
The
problem
of
true
ownership
of
the
property
is
a
murky
one.
The
agreements
and
documents
I
have
described
are
confusing,
if
not
somewhat
contradictory.
The
plaintiff
asserted
in
testimony
he
was
the
owner:
there
was
a
sale
to
him
on
October
1,
1974,
either
outright
or
through
an
option;
the
agreement,
Exhibit
6,
and
the
notice
of
interest,
Exhibit
8,
were
an
option;
the
option
was
exercised
effective
October
1,
1974.
There
are
difficulties
with
these
assertions.
In
his
pleadings
in
this
action,
the
plaintiff
states
the
caveat
and
notice
of
interest
gave
him
an
option
to
purchase
(paragraph
11).
In
paragraph
12,
he
says
he
exercised
the
option
in
1977.
In
a
reply
to
a
demand
for
particulars,
the
option
was
said
to
have
been
exercised
by
letter,
on
September
1,
1977.
On
cross-examination,
he
endeavored
to
explain
all
this
was
an
error:
the
date
should
have
been
October
1,
1974.
In
two
notices
of
objection
(Exhibits
45
and
46),
dated
June
12,
1984,
he
said
in
paragraph
4:
I
exercised
the
option
in
1977
when
I
met
the
terms
of
the
option
agreement
and
became
the
owner
of
the
building.
Once
again,
on
cross-examination,
he
said
this
was
an
error;
the
date
should
have
been
October
1,
1974.
I
found
the
plaintiffs
explanations
unsatisfactory
and
unconvincing.
He
could
not
produce
any
document
actually
setting
out
the
exercise
of
a
so-called
option.
He
conceded
he
has
never
paid
any
amounts
to
the
company
as
set
out
in
the
so-called
option
agreement
(Exhibits
6
and
8).
I
think
it
likely
the
September
1,
1977
date,
advanced
in
the
pleadings,
and
the
year
1977
stated
in
the
notices
of
objection,
come
from
two
other
documents.
The
mortgage
by
the
company
to
the
Royal
Bank
was
to
be
fully
paid
on
September
1,
1974.
I
have
earlier
summarized
the
provisions
of
Exhibit
6.
For
convenience,
I
will
repeat
the
salient
terms.
The
plaintiff
agreed
to
take
over
all
the
rights
and
obligations
of
the
company
to
the
Royal
Bank.
He
was
to
become
the
beneficial
owner
of
the
properties.
The
operation
was
to
be
carried
out
under
the
name
of
the
company.
When
the
terms
of
the
agreement
between
the
plaintiff
and
the
company
“.
.
.
will
be
met
then
William
Rachman
will
become
the
actual
owner”.
The
latter
agreement
referred
to
is,
obviously,
Exhibit
8.
The
evidence
before
me,
though
unclear,
indicates
the
Royal
Bank
mortgage
is,
in
some
manner,
still
in
effect.
New
interest
rates
seem
to
have
been
agreed
upon.
I
was
not
told
what
other
changes
there
may
have
been.
In
any
event,
this
much
is
clear.
At
all
significant
times,
the
plaintiff
had
not
completed
or
finalized
the
obligations
of
the
company
to
the
Royal
Bank,
or
his
own
obligations,
under
Exhibit
8,
to
the
company.
There
are
further
contradictions.
In
respect
of
certain
“amended
returns”,
on
behalf
of
the
plaintiff
and
the
company,
for
the
years
1975
through
1977,
the
plaintiffs
chartered
accountants,
on
January
29,
1979,
wrote
the
Revenue
Department,
as
follows:
The
amended
returns
are
filed
pursuant
to
an
agreement
made
between
WILLIAM
RACHMAN
and
ROYAL
TOWER
LTD
dated
the
First
day
of
October,
1974,
and
registered
in
the
Winnipeg
Land
Titles
Office
on
the
17th
day
of
October,
1974
.
.
.
in
the
form
of
a
caveat
(under
the
new
system)
and
in
the
form
of
a
Notice
of
Intent
dated
the
1st
day
of
October,
1974
and
registered
in
the
Winnipeg
Land
Titles
Office
on
the
17th
day
of
October,
1974
.
.
.
where
certain
rights
were
reserved
to
and
by
WILLIAM
RACHMAN
for
a
future
period
of
time,
where
the
terms
of
the
said
agreement
could
be
performed,
fulfilled,
and
complied
with
relative
to
the
property
commonly
known
as
504
Main
Street
.
.
.
Mr
W
Rachman
has
now
exercised
his
rights
secured
under
the
said
agreement
dated
October
1,
1974.
[Emphasis
added.]
I
interpret
the
word
“now”
to
mean,
at
the
very
least,
recently,
and
not
back
in
October
of
1974.
On
March
2,
1979,
the
plaintiff
wrote
the
company,
obviously
in
respect
of
the
so-called
option
agreement
as
follows:
Royal
Tower
Ltd
203-504
Main
Street
Winnipeg,
Manitoba
Dear
Sir:
Please
take
notice
that
it
appears
from
the
rental
report
for
the
months
of
January
and
February
1979
that:
(a)
Over
85%
of
the
rental
area
of
500-504
Main
Street
has
been
rented;
(b)
That
the
monthly
rental
income
of
500-504
Main
Street
has
been
increased
to
such
an
extent
that
it
warrants
and
in
all
likelihood
the
proposed
mortgage
can
be
arranged;
(c)
The
finances
for
the
alterations
of
the
entire
10th
floor
at
504
Main
Street
have
been
arranged
and
the
work
can
proceed.
Therefore
please
be
informed
that
we
wish
to
proceed
with
our
option
and
purchase
the
property
and
make
the
arrangements
for
the
final
closing
of
the
transaction.
The
activity
should
continue
on
my
account
and
be
my
responsibility
but
under
the
name
of
Royal
Tower
Ltd,
as
Trustee,
so
long
as
the
necessary
financing
can
be
completed.
In
the
meantime
the
Trustee
Agreement
between
myself
and
Royal
Tower
Ltd,
should
stay
in
full
force
and
effect.
Would
you
please
confirm
the
above
by
signing
this
letter
in
order
that
my
right
to
option
could
be
considered
at
an
end
and
the
transaction
can
be
terminated
as
described
above.
Yours
truly,
“W
Rachman”
WILLIAM
RACHMAN
March
2,
1979
The
above
terms
are
acceptable.
ROYAL
TOWER
LTD.,
Per:
‘W
Rachman”
As
I
understood
the
plaintiffs
evidence,
the
financing
referred
to
did
not
materialize.
As
I
further
understood
his
evidence,
this
whole
matter
is
still
outstanding.
In
the
insurance
policies
covering
504
Main
Street,
the
company,
not
the
plaintiff,
was
described
as
the
owner
and
insured.
The
premiums
were
paid
by
the
company.
The
plaintiff,
in
his
testimony,
stated
several
times
he
incorporated
the
company
as
a
“shield”.
He
did
not
want
to
be
in
the
position
of
being
sued
as
owner
or
landlord.
The
shield,
he
said,
was
to
protect
him
from
any
personal
liability,
or
financial
threat
to
his
professional
practice
and
its
income.
He
used
that
shield
in
respect
of
a
lawsuit
brought,
in
1975,
by
a
tenant
against
the
company
and
himself
personally.
The
tenant
sued
for
breach
of
the
lease
agreement,
particularly
in
respect
of
some
obligations
by
the
lessor
for
renovations
and
improvements.
The
defendants
agreed
there
was
a
lease
between
the
tenant
and
the
company.
In
respect
of
Rachman,
this
was
pleaded:
5.
In
answer
to
Paragraph
16
of
the
Plaintiffs
Statement
of
Claim,
the
Defendants
admit
that
the
Defendant,
Rachman,
is
the
substantial
and
beneficial
owner
of
the
issued
shares
of
the
capital
stock
of
the
Corporate
Defendant,
but
deny
that
the
Corporate
Defendant
is
his
alter
ego,
and
that
all
things
done
by
either
one
of
the
Defendants
were
done
for
and
on
behalf
of
the
other,
and
that
both
are
jointly
and
severally
liable
for
the
actions
of
the
other.
The
tenant
succeeded
against
the
company
at
trial
and
on
appeal.
The
action,
as
against
Rachman,
was
dismissed.
The
damages
and
costs
amounted
to
$45,508.72.
In
calculating
the
profit
and
loss
on
the
Royal
Tower
operation
for
the
1979
taxation
year,
the
judgment
debt
against
the
company
is
shown
as
an
expense.
The
plaintiff
said
it
has
been
paid
by
the
company
from
borrowed
funds.
This
deduction
helps
to
create
the
1980
rental
loss
of
$101,196.16
now
claimed
by
the
plaintiff
as
his.
I
turn
now
to
the
evidence
as
to
the
operation
of
504
Main
Street,
and
the
activities
of
Royal
Tower
Ltd.
The
company
kept
minutes.
It
had
its
own
bank
account.
It
kept
the
usual
books
and
records
of
account.
It
frequently
borrowed
money
from
the
bank,
certain
of
the
Rachman
family
companies,
and
other
sources.
The
renovation
of
the
building
was
carried
out.
That
cost
over
$600,000.
It
was
all
done
in
the
company’s
name.
Trade
and
other
accounts,
even
if
sometimes
invoiced
to
the
plaintiff,
were
recorded
in
the
company
books,
and
paid
out
of
company
funds.
The
company
entered
into
leases
with
tenants.
Rents
were
paid
to
the
company
and
deposited
in
its
bank
account.
The
plaintiffs
legal
office
was
in
the
building.
He
paid
rent
to
the
company.
The
company
had,
in
the
years
in
question,
permanent
employees.
They
varied
in
number.
One,
a
Marian
Eaton,
was
described
as
a
manager.
She,
under
the
direction
of
the
plaintiff,
looked
after
the
renting
to
tenants,
and
the
collection
of
rents.
Every
year,
T-4
slips
were
issued
by
the
company
to
its
employees.
The
amounts
paid
to
employees
were
approximately
as
follows:
1975
—
$28,000
1976
—
$39,000
1977
—
$58,000
1978
—
$57,000
1979
—
$59,000
1980
—
$58,000
The
fiscal
year
of
the
company
was
September
1
to
August
31.
The
plaintiffs
fiscal
year
for
his
professional
practice
was
the
same.
The
company
filed
corporate
tax
returns
for
its
1975,
1976,
and
1977
years.
Attached
were
balance
sheets
and
profit
and
loss
statements.
The
balance
sheets
showed
the
land
and
building
as
assets.
The
liability
sections
set
out
the
mortgage,
loans,
notes,
and
other
liabilities.
The
profit
and
loss
statements
showed
the
rental
income
from
the
business,
and
the
expenses.
The
plaintiffs
personal
returns
for
those
same
three
years
did
not
include
the
profits
or
losses
from
the
Royal
Tower
operation.
But
the
profits
and
losses
from
the
other
property
operations,
earlier
described,
were
included.
Profit
and
loss
statements
for
those
other
rental
properties
were
enclosed
with
the
return.
The
plaintiff
described
his
participation
in
the
operation
of
the
Royal
Tower
property
and
certain
other
apartment
properties.
In
the
early
morning
of
every
weekday
he
discussed
with
Miss
Eaton,
and
perhaps
others,
matters
dealing
with
the
properties.
The
company’s
office
was
his
legal
office.
Miss
Eaton
had
a
room
on
another
floor.
Any
cheques
were
signed
by
the
plaintiff.
He
made
the
usual
accompanying
entries
in
the
books.
Miss
Eaton
prepared
monthly
summaries
of
the
rents.
The
plaintiff
entered
that
into
the
books.
From
those
records,
and
the
information
from
the
plaintiff
and
Miss
Eaton,
the
annual
financial
statements
for
the
company,
the
other
companies,
and
the
other
properties,
were
prepared
by
the
chartered
accountants.
All
that
evidence,
which
I
have
set
out
at
some
length,
convinces
me
the
Royal
Tower
business
was
being
carried
on
by
the
company,
and
not
by
the
plaintiff.
Indeed,
in
argument,
counsel
for
the
plaintiff
did
not
seriously
contend
otherwise.
He
took
the
position
the
company
was
carrying
on
the
business,
not
for
its
own
account,
but
as
agent
for
the
plaintiff.
There
is
no
doubt
an
individual
can
carry
on
his
business
through
a
corporate
agent.
That
is
merely
a
general
principle
of
agency
law.
See:
Cozens-Hardy,
MR
in
The
Gramophone
and
Typewriter
Ltd
v
Stanley,
[1908]
2
KB
89
at
95-96
(CA):
The
fact
that
an
individual
by
himself
or
his
nominees
holds
practically
all
the
shares
in
a
company
may
give
him
the
control
of
the
company
in
the
sense
that
it
may
enable
him
by
exercising
voting
powers
to
turn
out
the
directors
and
to
enforce
his
own
views
as
to
policy,
but
it
does
not
in
any
way
diminish
the
rights
or
powers
of
the
directors,
or
make
the
property
or
assets
of
the
company
his,
as
distinct
from
the
corporation’s.
Nor
does
it
make
any
difference
if
he
acquires
not
practically
the
whole,
but
absolutely
the
whole,
of
the
shares.
The
business
of
the
company
does
not
hereby
become
his
business.
He
is
still
entitled
to
receive
dividends
on
his
shares,
but
no
more.
I
do
not
doubt
that
a
person
in
that
position
may
cause
such
an
arrangement
to
be
entered
into
between
himself
and
the
company
as
will
suffice
to
constitute
the
company
his
agent
for
the
purpose
of
carrying
on
the
business,
and
thereupon
the
business
will
become,
for
all
taxing
purposes,
his
business.
Whether
this
consequence
follows
is
in
each
case
a
matter
of
fact.
It
was
said
the
plaintiffs
evidence,
and
certain
of
the
documents,
show
that
the
business
was
the
plaintiffs;
the
company
was
carrying
it
out
as
a
mere
agent.
In
addition,
it
was
a
bare
trustee
for
the
land.
That
position
taken
by
the
plaintiff
is
contrary
to
the
manner
in
which
he
set
up
the
whole
organization,
and
his
purpose
in
doing
so.
The
plaintiff,
throughout,
wished
to
avoid
personal
liability:
hence
the
corporate
entity.
If
the
company
were
merely
his
agent
for
the
purpose
of
running
the
business,
then
he
would
not
be
shielding
his
personal
assets
from
responsibility
for
the
lawful
acts
of
his
agent.
I
note,
again,
the
position
the
plaintiff
took
in
respect
of
the
litigation,
earlier
referred
to,
involving
a
Royal
Tower
tenant.
The
plaintiff
cannot
have
it
both
ways.
In
Turnstall
v
Steigmann,
[1962]
2
WLR
1045
(CA),
the
plaintiff
was
a
landlord
of
premises.
She
ousted
a
tenant
in
favour
of
a
company
controlled
by
her
(the
landlord).
The
ousting
could
only
be
done
if
the
purpose
of
the
manoeuvre
was
for
a
business
of
the
landlord
to
be
carried
on
in
the
particular
premises.
The
landlord
contended
the
corporate
business
was
really
hers.
Ormerod,
LJ
said
at
1049-50:
There
is
no
question,
of
course,
of
the
premises
being
required
here
as
a
residence
for
the
landlord,
and
the
only
question
to
be
considered
is
whether
it
was
the
intention
of
the
landlord
to
occupy
the
whole
building
for
the
purposes
of
a
business
to
be
carried
on
by
her
therein.
I
have
formed
the
view
that
in
these
circumstances
it
cannot
be
said
that
it
is
the
intention
of
the
landlord
to
carry
on
the
business.
It
was
decided
in
Salomon
v
Salomon
&
Co
Ltd
that
a
company
and
the
individual
or
individuals
forming
a
company
were
separate
legal
entities,
however
complete
the
control
might
be
by
one
or
more
of
those
individuals
over
the
company.
That
is
the
whole
principle
of
the
formation
of
limited
liability
companies
and
it
would
be
contrary
to
the
scheme
of
the
Companies
Act
to
depart
from
that
principle.
It
has
been
contended
in
this
case
that
a
realistic
view
should
be
taken
of
the
circumstances.
It
is
submitted
that
any
person
in
the
street
would
say
that
the
business
was
the
landlord’s
business,
notwithstanding
that
it
was
being
carried
on
by
a
limited
company,
and
that
in
those
circumstances
it
should
be
held
that
the
provisions
of
paragraph
(g),
to
which
I
have
referred,
should
be
considered
to
be
satisfied.
That,
I
think,
is
a
dangerous
doctrine.
It
may
be
that
in
practice,
the
landlord
will
continue
to
carry
on
the
business
as
it
has
been
carried
on
in
the
past
when
she
was
undoubtedly
the
proprietor
of
it.
It
may
be
that
she
will
derive
a
profit
or
otherwise
from
the
business
as
she
has
done
in
the
past.
But
the
fact
remains
that
she
has
disposed
of
her
business
to
a
limited
company.
It
is
the
limited
company
which
will
carry
on
the
business
in
the
future,
and
if
she
acts
as
the
manager
of
the
business,
it
is
for
and
on
behalf
of
the
limited
company.
In
my
judgment
the
fact
that
she
holds
virtually
the
whole
of
the
shares
in
the
limited
company
and
has
complete
control
of
its
affairs
makes
no
difference
to
this
proposition.
The
object
of
a
limited
liability
company,
as
I
understand
it,
is
that
the
shareholders
shall
have
some
protection
and
some
limit
to
the
liability
which
they
may
incur
in
the
event
of
the
company
being
unsuccess-
fui.
It
is
to
be
assumed
that
the
landlord
in
this
case
assigned
her
business
to
the
limited
company
for
some
good
reason
which
she
considered
to
be
of
an
advantage
to
her.
She
cannot
say
that
in
a
case
of
this
kind
she
is
entitled
to
take
the
benefit
of
any
advantages
that
the
formation
of
a
company
gave
to
her,
without
at
the
same
time
accepting
the
liabilities
arising
therefrom.
She
cannot
say
that
she
is
carrying
on
the
business
or
intends
to
carry
on
the
business
in
the
sense
intended
by
paragraph
(g)
of
the
subsection
and
at
the
same
time
say
that
her
liability
is
limited
as
provided
by
the
Companies
Acts.
I
cannot
see,
in
the
case
before
me,
any
satisfactory
evidence
the
company
was
running
the
Royal
Tower
operation
as
the
plaintiffs
agent.
The
only
conclusion
I
can
draw
is
that
the
company,
both
in
substance
and
form,
was
operating
the
business
as
a
principal,
and
as
its
own.
I
turn
now
to
an
examination
of
the
so-called
“amended
returns”.
That
is
really
the
genesis
of
this
litigation.
It
occurred
in
late
1978,
or
perhaps,
early
1979.
The
chartered
accountants
prepared
the
financial
statements
and
income
tax
returns
of
the
plaintiff
and
the
company
for
their
1978
fiscal
year.
They
were
prepared
on
the
same
basis
as
the
previous
years.
The
plaintiff,
when
he
received
them,
would
not
accept
them.
He
felt
the
operation
of
Royal
Tower
should
be
considered
his
operation,
not
that
of
the
company.
He
said
the
figures
were
“out
of
line”;
the
whole
thing
was
wrong
from
the
outset.
His
accountant
apparently
agreed
with
him.
The
accounting
firm
then
prepared
new
financial
statements
for
the
plaintiff,
for
the
1975,
1976,
and
1977
years.
These
were
sent
to
the
tax
department
in
March
of
1979.
They
were
received
by
the
department
a
few
days
later.
They
were
described
at
trial
as
“amended
returns”.
The
only
difference
between
the
original
personal
returns
and
the
so-called
amended
returns,
was
the
transfer
of
the
Royal
Tower
results
to
the
plaintiff
for
those
years.
Actual
amended
returns
were
filed
for
the
company
for
the
three
years.
Its
income
was
shown
as
nil.
For
practical
purposes,
its
assets
and
liabilities
were
share
subscriptions
of
$1,000,
balanced
by
shareholders’
equity
of
a
similar
amount.
To
complete
the
history.
The
Department
of
National
Revenue,
for
some
reason,
did
not
act
on
these
amended
returns
until
1981.
The
plaintiff
filed
his
1978,
1979
and
1980
personal
returns
on
what
I
shall
term,
for
convenience,
the
new
basis.
He
included
the
Royal
Tower
rental
losses.
The
company
filed
a
nil
return
for
1978.
For
1979,
the
company
was
described
as
not
in
operation.
But
in
October
of
1981,
the
company
was,
in
fact,
notifying
its
tenants
of
increases
in
rent.
I
have,
early
in
these
reasons,
recounted
the
assessments
and
reassessments
by
the
Minister
in
which
the
Royal
Tower
rental
losses
were
disallowed.
The
plaintiff
endeavoured
to
justify
the
change,
in
respect
of
the
treatment
of
the
Royal
Tower
operation,
on
several
grounds.
He
claimed,
as
earlier
recounted,
he
was
really
the
owner
from
the
outset;
the
company
was
merely
his
agent
or
trustee.
I
have
already
dealt
with
the
issues
of
ownership
and
agency.
My
findings
are
against
the
plaintiff.
The
plaintiff
testified
he
did
not
pay
much
attention
to
the
way
his
accountants
had
set
up
the
1975,
1976,
and
1977
income
tax
returns.
For
the
company
he
nevertheless
signed,
as
president,
the
usual
certificates
as
to
correctness
and
truth.
For
his
personal
returns,
he
made
the
same
certifications.
He
tried
to
give
the
impression
he
relied
completely
on
his
accountants.
He
said
it
was
not
until
the
first
returns
for
1978
were
prepared,
he
realized
there
was
a
serious
error.
I
cannot
accept
this
position.
The
plaintiff
had,
by
1975,
been
practising
law
for
13
years.
He
knew
rental
income
from
other
properties
was
shown
for
his
personal
account.
The
witness
Foth
prepared
the
plaintiffs
and
the
company’s
returns
for
the
1975
and
1976
fiscal
years.
Foth
said
he
advised
the
plaintiff,
when
the
1976
returns
were
prepared,
the
Royal
Tower
operation
should
be
for
the
plaintiffs
account.
This
advice
was
apparently
based
on
information
given
by
the
plaintiff.
Curiously,
the
returns
were
not
re-done,
but
sent
in
on
the
same
basis
as
for
the
1974
fiscal
year.
Mr
Foth
left
the
chartered
accountancy
firm
in
1977.
The
company
return
for
its
1975-1976
fiscal
year
was
prepared
by
Mr
Skene.
It
was
signed
by
the
plaintiff
as
president.
It
is
dated
December
21,
1976.
The
plaintiff's
personal
return
was
dated
April
30,
1977.
There
was
no
evidence
given
as
to
why
Foth’s
earlier
advice
was
not
acted
upon
for
the
1976
year.
There
is
a
possible
explanation.
It
is
somewhat
speculative.
The
plaintiff,
in
describing
his
venture
into
the
Royal
Tower
building,
said
it
was
risky.
That
was
one
reason
why
he
used
the
company
as
the
vehicle.
He
said
his
arrangement
with
the
bank
was
really
a
one-year
venture.
If
it
went
sour,
he
would,
to
summarize
his
words
“walk
away
from
it
and
give
back
the
key”.
In
answer
to
questions
of
mine,
he
agreed
it
was,
at
the
outset,
a
three-year
venture:
at
the
end
of
that
period,
he
could
have
walked
away.
At
the
end
of
the
company’s
1976-1977
fiscal
year
(August
31),
the
three-year
deadline
of
September
1,
1977
had
not
arrived.
That
key
date
came
in
the
company’s
next
fiscal
year,
September
1,
1977
to
August
31,
1978.
It
was,
as
earlier
pointed
out,
when
the
first
draft
return
for
that
fiscal
year
was
prepared
that
the
plaintiff
directed
changes
be
made.
I
think,
at
that
stage,
one
can
speculate
that
the
plaintiff
had
decided
he
was
not
going
to
walk
away,
and
that
there
was
some
financial
advantage,
tax-wise
or
otherwise,
to
be
gained
by
trying
to,
in
effect,
change
the
whole
legal
and
equitable
situation.
There
is
one
final
piece
of
evidence
going
to
the
reason
for
the
changes
in
the
tax
approach.
On
August
24,
1981,
the
plaintiff
wrote
the
revenue
department
setting
out
a
history
of
the
purchase
of
the
property.
In
paragraph
7,
he
said:
The
financial
statements
showing
the
result
of
yearly
operations
have
been
filed
yearly.
Originally
the
first
three
years
in
the
name
of
Royal
Tower
and
later
when
the
situation
in
respect
of
the
rent
regulations
has
calmed
down,
amended
returns
have
been
filed
to
reflect
the
true
situation.
The
plaintiff
was
unable
to
explain
away,
to
my
satisfaction,
that
statement.
I
find,
on
the
whole,
the
plaintiffs
explanations
for
the
attempted
changes
in
the
1975
through
1977
returns,
unconvincing
and
unsatisfactory.
The
plaintiff,
in
his
testimony,
contended
he
has
been
unfairly
treated
by
the
revenue
department.
He
said
his
returns
for
1975
on,
where
he
showed
a
number
of
rental
properties
for
his
personal
account,
had
been
accepted.
The
department
has,
it
was
said,
decided
to
treat
the
Royal
Tower
property
differently.
I
think
there
are
several
responses
to
those
complaints.
The
facts,
in
respect
of
all
these
properties,
were
peculiarly
within
the
knowledge
of
the
plaintiff.
The
revenue
department
may
have
then
had
no
reason
to
question
those
facts.
Further,
each
property
and
rental
transaction
must
stand
on
its
own.
Finally,
it
was
said
the
plaintiff
was
denied
the
opportunity
to
rectify
the
1975,
1976,
and
1977
years
because
of
the
inaction
of
the
revenue
department
in
respect
of
the
amended
returns.
Mr
McCaffery
argued,
if
the
department
had
made
its
position
known,
the
plaintiff
would
have
taken
steps
to
put
the
whole
matter
in
its
true
light:
he
would
have
shown
himself
as
owner,
operator
and
principal.
That
is
pure
speculation.
I
am
convinced
the
plaintiff
would
never,
at
any
time,
in
clear
cut
documents,
have
exposed
himself
to
personal
liability.
The
actions
are
dismissed.
The
assessments
and
reassessments
by
the
Minister
are
confirmed.
The
defendant
is
entitled
to
costs.
There
will
be
only
one
set
of
trial
costs.
They
can
be
taxed
in
this
action.
Appeals
dismissed.
Email this Content