William Clemas v. Minister of National Revenue, [1984] CTC 2354

Goetz, TCJ [ORALLY]:—This is an appeal by the appellant with respect to his 1979 taxation year. The issue really resolves itself as to whether subsection 15(1) or subsection 15(2) of the Income Tax Act, SC 1970-72, c 63, as amended, applies. If subsection 15(2) applies, I have not heard any evidence today that would permit me to order a reassessment pursuant to the provisions of subsection 15(2).

Basically the evidence has come down to, on the agreed statement of facts which was filed at the outset, that prior to the conclusion of the company known as W R Clemas Construction Company Ltd’s fiscal year, which is the end of March each year, the company in February of 1979 had an income in the amount of $15,063 which had been deposited in the company’s name in a savings account in its income. Then Mr Clemas, for his 1979 taxation year, according to the statement of facts, represented that the amount of $15,253.23 paid to him on January 2, 1980 was recorded as a payment out of the shareholders’ loan account.

On the other hand, the evidence is clear that it was entered into the company’s books, in the balance sheet, as a term deposit in 1979, which he took out, as he says and I believe him, to pay on account of one or two of the mortgages which he had on his personal residence. It may very well be, and it is very unfortunate but the appellant, as so often happens with a personal company, does not differentiate between company income as opposed to personal income, that is the case to which Miss Dodge referred us: Caspari v MNR, [1983] CTC 2001; 83 DTC 45, and specifically at 2003 [47] where my brother judge, Judge Bonner, quotes Mr Justice Rand as saying:

The operative words of subsection 15(2) are “made a loan”. I recognize that, in the result, the appellant has ended up in a position in which he is indebted to his company, Arames. That indebtedness did not, however, result from any loan made by Aramas to the appellant. I think it is useful to refer to two passages from the Reasons for Judgment of members of the Supreme Court of Canada in Minister of National Revenue v T E McCool Limited, 49 DTC 700, both of which, in my view, apply here mutatis mutandis. At page 708, Mr Justice Estey said:

Terms such as “borrowed capital”, “borrowed money” in tax legislation have been interpreted to mean capital or money borrowed with a relationship of lender and borrower between the parties. Inland Revenue Commissions v Port of London Authority, [1923] AC 507; Inland Revenue Commissions v Rowntree & Co Ltd, [1948] 1 All ER 482; Dupuis Frères Ltd v Minister of Customs and Excise, [1927] Ex CR 207. It is necessary in determining whether that relationship exists to ascertain the true nature and characer of the transaction.

The other passage to which I would refer is in the Reasons for Judgment of Mr Justice Kellock at 712:

It is not sufficient to say that if the company had borrowed the amount of the note and paid McCool it would have been entitled to the deduction. However that may be, that was not done and the statute does not apply.

I might also refer to the Reasons of Mr Justice Rand where he said, at 713:

It is, I think, misleading to convert a transaction of this sort into what is considered to be its equivalent and then to attribute to it special incidents that belong to the latter.

In my view, subsection 15(2) of the Act can have no application.

I can find no evidence nor can I recall any evidence adduced today over and above the agreed statement of facts that involves subsection 15(2). That brings us back to the basic approach then as to whether there was appropriation to a shareholder of a company which could be deemed as personal income.

Now, counsel for the appellant has cited Tick v MNR, [1972] CTC 137; 72 DTC 6135, a judgment of Justice Heald of the Federal Court, Trial Division. Counsel has also cited to me Tobis v MNR, [1981] CTC 2161; 81 DTC 125. I do not think either of those cases apply.

Counsel for the respondent has referred me to three cases: Caspari v MNR, (supra), (and I referred to that a few moments ago). She also referred me to J F Kennedy v MNR, [1973] CTC 437; 73 DTC 5359 and also to The Queen v Leslie reported in [1975] CTC 155; DTC 5086, a decision of Justice Addy. I don’t think that that particular case has much effect on me in reaching the conclusion that I am going to reach.

I have a very old decision of R S W Fordham, QC when he was a member of the Income Tax Appeal Board in 1956 and that is H Herbacz v MNR, 14 Tax ABC 241; 56 DTC 34. That case, as I understand it, has not been reversed but it seems to be almost on all fours with the case before me today and the Herbacz appeal was dismissed.

The mistake of the accountant must be attributed to the taxpayer — there is no way of dodging that, and the key thing that Mr Fordham stated was that the Board, as it was then known, pointed out “that there is no power to remedy a taxpayer’s mistake”. On 242 [35] he says:

Appellant now asks, in effect, that the Board remedy the situation created by the circumstances outlined above so that the appellant may be in the same position as though the payment to him had not been debited to the Company’s surplus account.

This is identical to the situation we have here. He goes on to say:

Unfortunately for the appellant, the matter became a fait accompli a considerable time ago. It is not within the Board’s power to treat a transaction as having been effected in a particular way when, actually, it was peformed in an altogether different way. Jurisdiction to apply equitable principles in relief of a taxpayer’s mistakes has never been vested in the Board. As has been said many times in the various courts, there is no equity in income tax law. Accordingly, no help can be afforded to the appellant and the relevant assessment must stand.

That’s what Mr Fordham said, and, unfortunately, I am in the same position as Mr Fordham found himself which I think is, really if I may say so, the most relevant case that we’ve had before us.

I believe the appellant but the Income Tax Act can only be implemented by the voluntary information of the taxpayer. The company’s accountant made an entry in the books which stood until January 2, 1980 — beyond the 1979 taxation year of the appellant — and from the evidence that was given by the appellant and the agreed statement of facts, I find that I have no alternative, to conclude that there was an appropriation to the appellant as defined under paragraph 15(l)(b) of the Act. That being so, I must dismiss the appeal.

Appeal dismissed.