Marjorie a Sheridan v. Minister of National Revenue, [1984] CTC 2596

Christie, CJTC [ORALLY]:—In returns of income, all dated March 8, 1977, in relation to her taxation years 1973, 1974 and 1975, the appellant claimed no tax payable. In her return for 1973 Mrs Sheridan stated her net income to be $10,000, being the taxable amount of dividends she received from a taxable Canadian corporation; the corporation referred to is North Canadian Enterprises Limited (hereinafter referred to as “North Canadian’’) of which the appellant was at all times the sole shareholder. We were told it was incorporated in 1962 under Ontario legislation. One hundred shares were issued, all to the appellant. It was involved in a copper mining venture for a number of years. From the $10,000 the appellant deducted the basic personal exemption, plus exemptions for four dependent children and the standard deduction of $100 regarding medical expenses and charitable donations. All of this totalled $2,900 which, when subtracted from $10,000, left a taxable income of $7,100. The tax on this amount at the 1973 rates of federal income tax was $1,460. From this amount of $1,460 the appellant claimed the right to deduct a federal dividend tax credit, namely, up to 20 per cent of the $10,000 in dividends she alleged were received by her from North Canadian. This set-off, of course, resulted in a nil return for 1973. The same basic pattern was repeated in respect of 1974 and 1975.

By notices of assessment dated September 6, 1977, the respondent disallowed the claimed dividend tax credit. The appellant served notices of objection and subsequently the Minister issued notices of confirmation, based on the ground:

that benefits conferred on the taxpayer by North Canadian Enterprises Limited amounting to $10,000 have been properly included in computing the taxpayer’s income in accordance with the provisions of paragraph 15(l)(c) of the Act.

and the Act referred to, of course, is the Income Tax Act.

Mrs Sheridan then appealed to this Court. The stated ground for appeal for 1973 reads:

The taxpayer states that tax calculated for the year ending December 31, 1973 has not been calculated according to the appropriate law. Exclusion of Dividend Tax Credit for taxation year 1973 is illegal.

This ground is repeated in respect of 1974 and 1975.

For the purposes of these appeals, the relevant portions of paragraph 15(l)(c) of the Income Tax Act read as follows:

15. (1) Where in a taxation year

(c) a benefit or advantage has been conferred on a shareholder by a corporation.

the amount or value thereof shall be included in computing the income of the shareholder for the year.

In assessing the appellant, the Minister acted upon these assumptions of fact. The $10,000 accrued to the appellant in each year, not by way of payment of a dividend but in this manner: at the relevant times North Canadian owned a residence in Toronto in which the appellant and her family resided. The appellant paid no rent or other consideration to North Canadian and the fair market rental value of the premises was at least $10,000 per annum during the years in question. At all material times the appellant did not receive dividends but benefits conferred on her as a shareholder of North Canadian.

The onus of proof is on the appellant to establish that those assumptions made by the Minister are erroneous. In support of this statement, I need not refer to more than the decision of the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182, and the decision of the Federal Court — Trial Division, in Kit-Win Holdings (1973) Limited v The Queen [1981] CTC 43; 81 DTC 5030.

The only evidence called on behalf of the appellant was that of her husband, Mr John P Sheridan, who also presented the appellant’s arguments to the Court. He described himself as de facto general manager of North Canadian but admitted that he was not an officer or director of the corporation. He related what I have already said concerning the incorporation of North Canadian. The house in question was purchased in 1967-1968 and Mrs Sheridan and her family occupied it as their residence. It was alleged that, for a number of years, dividends totalling $5,000 were paid to Mrs Sheridan and this was repaid to the company as rent. This amount was increased to $10,000 during the years in question in these appeals. The essence of the appellant’s position is that Mrs Sheridan, as sole shareholder, had exclusive jurisdiction to decide whether the $10,000 payments were dividends and that she had made that decision. As with the $5,000 amounts, the $10,000 sums were repaid to the corporation as rent. It was admitted that no cheques were issued, but it was said that entries in the company’s books reflected the dividends and the return thereof to the company by way of rent. It was also alleged that the corporation’s returns reflected the $10,000 sums as being dividends. No documentation whatever was produced in support of these allegations. The only relevant document before the Court was Mrs Sheridan’s returns which, of course, did claim the $10,000 amounts as dividends.

On the whole of the evidence, I am not satisfied that the appellant has discharged the onus upon her. In the circumstances, the appeals in respect of her taxation years 1973, 1974 and 1975 must be and are dismissed.

Appeals dismissed.