Tremblay,
TCJ:—This
case
was
heard
in
Toronto,
Ontario,
on
February
15,
1984.
1.
The
Point
at
Issue
Pursuant
to
the
pleadings,
the
point
is
whether
the
appellant,
a
shareholder
of
and
an
executive
employed
by
Kates
Advertising
Limited,
is
correct
in
not
including
in
his
income
$31,565
and
$11,347
for
the
taxation
years
1975
and
1976
respectively.
He
contends
these
amounts
were
loans
from
the
said
corporation.
The
respondent
includes
the
said
amounts
in
the
appellant’s
income
on
the
basis
that
they
are
part
of
a
series
of
loans
and
repayments,
which
were
not
repaid
within
one
year
from
the
end
of
the
taxation
year
of
the
lender
in
which
the
loans
were
made.
He
refers
to
subsection
15(2)
of
the
Act.
2.
The
Burden
of
Proof
2.01
The
burden
is
on
the
appellant
to
show
that
the
respondent’s
assessments
are
incorrect.
This
burden
of
proof
results
particularly
from
several
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
2.02
In
the
same
judgment,
the
Court
decided
that
the
assumed
facts
on
which
the
respondent
based
his
assessments
or
reassessments
are
also
deemed
to
be
correct.
In
the
present
case,
the
assumed
facts
are
described
in
the
reply
to
notice
of
appeal
as
follows:
3.
In
reassessing
the
Appellant
for
his
taxation
years,
the
Respondent
found
or
assumed,
inter
alia,
that:
(a)
the
facts
hereinbefore
specifically
admitted;
(b)
during
the
Appellant’s
1975
and
1976
taxation
years,
loans
were
made
to
him
by
Kates
Advertising
Limited
in
the
amounts
of
$31,565.00
and
$11.347.00
respectively,
as
part
of
a
series
of
loans
and
repayments,
which
were
not
repaid
within
one
year
from
the
end
of
the
taxation
year
of
the
lender
in
which
the
loans
were
made.
3.
The
Facts
3.01
The
facts
specifically
admitted
by
the
respondent
referred
to
in
subparagraph
(a)
of
paragraph
(3)
of
the
reply
to
notice
of
appeal
are
paragraphs
1,
2,
7
and
8
of
the
notice
of
appeal
—
they
read
as
follows:
1.
Throughout
the
taxation
years
in
question,
the
Appellant
was
a
shareholder
of
and
an
executive
employed
by
Kates
Advertising
Limited
(the
“Corporation”),
a
corporation
incorporated
under
the
laws
of
the
Province
of
Ontario,
having
its
head
office
in
the
Municipality
of
Metropolitan
Toronto.
2.
The
fiscal
year
end
of
the
Corporation
was
the
last
day
of
February
in
each
year.
7.
By
Notices
of
Assessment
dated
May
11,
1979,
the
Minister
of
National
Revenue
reassessed
the
Appellant
for
1975
by
adding
to
his
income
previously
assessed
the
amount
of
$31,565.00
as
“shareholders’
loan”
and
also
reassessed
the
Appellant
for
his
1976
taxation
year
by
adding
to
the
total
income
previously
assessed
the
amount
of
$11,347.00
as
“shareholders’
loan”.
8.
The
Appellant
filed
Notices
of
Objection
in
respect
of
both
reassessments
and
by
notification
from
Revenue
Canada
dated
March
13,
1980,
the
reassessments
for
1975
and
1976
were
confirmed
on
the
grounds
that
“shareholders’
loans”
in
the
amounts
of
$31,565.00
and
$11,347.00
received
by
the
Appellant
from
Kates
Advertising
Limited
for
the
1975
and
1976
taxation
years
respectively,
were
properly
included
in
computing
the
Appellant’s
income
within
the
provisions
of
subsection
15(2)
of
the
Act.
3.02
Mr
Paul
Michael
Ridolf,
CA,
witness
for
the
appellant
testified
that
he
is
the
accountant
who
personally
prepared
the
entries
in
the
company’s
book,
including
those
concerning
the
shareholders’
loans.
3.03
The
explanation
given
in
substance
by
the
witness
was
the
arrangement
between
the
appellant
and
the
corporation.
This
arrangement
was
to
the
effect
that
moneys
were
disbursed
from
time
to
time
by
the
corporation
and
charged
to
the
appellant
as
drawings.
Some
of
these
related
to
personal
expenditures
of
the
appellant
(insurance,
etc);
some
related
to
expenditures
which
were
in
part
on
behalf
of
the
corporation
and
in
part
personal.
The
appropriate
bookkeeping
entries
concerning
those
expenses
were
filed
as
Exhibit
A-l
(Tab
4
—
Stan
Drawings
01/03/74
to
28/02/75,
Tab
6
—
Stan
Drawings
01/03/75
to
29/02/76,
Tab
7
—
Stan
Drawings
01/03/76
to
28/02/77).
3.04
At
the
end
of
the
fiscal
year
of
the
corporation,
i.e.
end
of
February
1975,
the
appellant’s
loan
receivable
by
the
corporation
was
$14,727.27.
This
amount
includes
$5,000
(due
on
money
advanced
in
a
prior
year
for
the
purpose
of
purchasing
a
dwelling)
and
$9,727.27
(total
of
money
received
from
time
to
time
less
the
part
spent
on
behalf
of
the
corporation
Exhibit
A-1,
Tab
2
and
Tab
4).
3.05
In
December
1975,
an
amount
of
$23,800
was
paid
to
the
appellant
by
the
corporation
in
the
following
manner:
$9,072.73
of
taxes
(and
other
legal
deductions)
having
been
computed
on
the
said
$23,800
and
sent
to
the
Department
of
Revenue,
the
balance
of
$14,727.27
was
not
physically
transferred
to
the
appellant
but
kept
by
the
corporation
to
pay
the
loan
of
$14,727.27.
This
in
fact
was
cleared
by
way
of
journal
entries.
3.06
At
the
beginning
of
1976,
a
T4
salary
concerning
the
1975
calendar
year
was
issued
for
the
appellant
by
the
corporation
to
the
amount
of
$29,000
($23,800
+
$5,200
($100
per
week
during
52
weeks)
Exhibit
A-l,
Tab
1).
3.07
At
the
end
of
February
1976,
the
appellant’s
loan
receivable
by
the
corporation
was
$64,793.51
($59,793.51
and
$5,000)
(Exhibit
A-l,
Tab
6,
page
3).
3.08
At
the
end
of
the
fiscal
year
1975
(February
28,
1975),
there
was
an
accrued
management
salary
of
$145,000.
An
election
agreement
on
a
T-2049
form,
(pursuant
to
subsection
78(3)
of
the
Act)
was
signed
by
the
corporation
and
the
appellant
to
the
effect
that
the
said
$145,000
is
deemed
to
have
been
paid
the
first
day
of
the
second
taxation
year
and
the
tax
on
that
salary
had
to
be
remitted
in
the
month
following
the
year
that
the
corporation
filed
its
tax
return.
Therefore,
the
amount
of
$145,000
is
deemed
to
be
paid
on
March
1,
1976.
The
corporation
filed
its
tax
return
in
August
1976.
3.09
At
the
end
of
August
1976,
the
corporation
remitted
taxes
of
$76,975
to
the
Receiver
General.
The
net
after
taxes
$68,025
was
put
back
into
the
corporation
by
Mr
Kates
to
repay
his
outstanding
loans
as
of
February
29,
1976.
3.10
The
same
format
was
followed
concerning
the
accrued
salary
of
$180,000
at
the
end
of
February
1976.
Because
of
a
T-2049
election
agreement,
the
said
amount
was
deemed
to
be
paid
on
March
1,
1977.
At
the
end
of
August
1977,
after
the
taxes
were
sent
to
the
Receiver
General,
the
net
amount
after
taxes
of
$61,998
was
put
back
into
the
corporation
to
repay
the
outstanding
loans
as
of
February
28,
1977
(Exhibit
A-l,
Tab
1).
3.11
At
the
beginning
of
1977
a
T4
salary
concerning
the
calendar
year
1976
was
issued
for
the
appellant
by
the
corporation
in
the
amount
of
$150,225
($145,000
+
$5,225
($100
per
week))
(Exhibit
A-1,
Tab
1)
(SN
page
32).
At
the
beginning
of
1978,
a
T4
salary
was
issued
for
the
calendar
year
1977
in
the
amount
of
$185,200
($180,000
accrued
salary
plus
$5,200
($100
per
week)).
3.12
In
cross-examination,
Mr
Rudolph
testified
that:
(a)
it
appears
from
the
balance
sheet
at
the
last
day
of
February
1975
and
1976,
in
the
item:
“Shareholder’s
advances,
due
within
one
year
$14,727
and
$64,793
respectively
(Exhibit
B-l)”,
the
note
4
concerning
this
item
for
1976
reads
as
follows:
“Included
is
an
amount
of
$21,000
advanced
in
prior
years
to
a
shareholder
for
the
purpose
of
purchasing
a
dwelling.
The
loan
is
repayable
without
interest
in
the
amount
of
$5,000
per
year.
An
amount
of
$59,793
in
advances
during
the
year
is
due
within
one
year’’.
The
said
$64,793
appears
in
Exhibit
A-1,
Tab
1
in
column
entitled
“Shareholder
Loan
Receivable’’
for
the
year
1976.
(b)
It
appears
on
a
ledger
sheet
of
Kates
Advertising
Limited
an
account
entitled
“Advances
to
Shareholders’’
(Exhibit
R-2).
It
is
in
fact
the
source
of
information
of
what
is
given
in
detail
in
Exhibit
A-1,
Tab
4.
3.13
In
re-examination,
Mr
Rudolph
testified
that
in
the
comparative
balance
sheet
for
the
years
1975
and
1976
(Exhibit
A-l,
Tab
2
and
Exhibit
R-2)
in
the
item
“Current
liabilities’’,
the
amount
of
$438,538
(1976)
includes
the
amount
of
$325,000
of
management
salary
payable
and
the
amount
of
$256,422
(1975)
includes
the
amount
of
$145,000
of
management
salary
payable;
the
said
amounts
of
$325,000
and
$145,000
are
shown
on
Exhibit
A-1,
Tab
1.
3.14
In
his
main
examination,
Mr
Shelly
Koral,
appeals
officer
for
the
respondent,
testified
that:
(a)
The
Exhibits
filed
as
R-3
and
R-4
are
analysis
of
shareholder
loan
account
for
the
fiscal
years
1976
and
1977
of
the
Corporation.
The
figures
were
taken
from
the
general
ledger
cards
of
the
Corporation.
(b)
Exhibit
R-5
is
a
summary
of
Exhibit
R-3
and
R-4;
R-5
shows
the
basis
of
the
reassessment
concerning
the
figures
$31,565
(1975)
and
$11,347
(1976).
Exhibit
R-5
reads
as
follows
KATES
ADVERTISING
LIMITED
Analysis
of
Shareholder
Loan
Account
|
Fiscal
Year
|
|
Statute
|
|
Income
|
1975
|
1976
|
1977
|
Barred
|
|
Balance
(Decrease)
|
Calendar
Year
Taxable
|
Portion
|
|
Feb/74
|
8,806
|
|
8,806
|
|
Dec/74
|
2,755
|
5,921
|
5,921
|
|
|
Feb/75
|
14,727
|
|
|
Dec/75
|
40,371
|
50,066
|
25,644
|
24,422
|
|
|
Feb/76
|
64,793
|
|
|
Dec/76
|
16,367
|
(13,075)
|
|
(13,075)
|
|
|
Feb/77
|
51,718
|
|
|
Taxable
Portion
|
|
31,565
|
11,347
|
|
|
Reconciliation
of
Shareholder
Loan
Account
to
Feb/77
|
|
|
Taxable
1975
|
|
31,565
|
|
|
Taxable
1976
|
|
11,347
|
|
|
Statute-Barred
Portion
|
|
8,806
|
|
|
Balance
Feb/77
|
|
51,718
|
|
As
I
understand
the
testimony,
the
figures
in
the
fourth
column
under
1975,
are
as
follows:
the
$5,921
is
the
portion
of
funds
loaned
to
Mr
Kates
from
January
1st,
1975
to
February
28th,
1975
and
the
figure
$25,644
is
the
loans
from
March
1,
1975
to
December
31,
1975.
In
the
fifth
column
under
1976,
the
figure
$24,422
is
the
loan
from
January
1,
1976
to
February
29,
1976
($64,798
—
$40,371)
and
the
figure
($13,075)
is
a
decrease
from
March
1,
1976
to
December
31,
1976
($51,718
—
$64,793).
(c)
The
two
figures
of
“amount
credited
to
loan
after
T-2049
payment
at
end
of
August
1976”:
$68,025
and
1977:
$61,998
that
one
can
see
in
Exhibit
A-l,
Tab
1,
can
be
also
seen
in
the
Credit
column
of
Exhibit
R-2.
They
were
taken
from
the
general
ledger
cards
of
the
Corporation.
3.15
In
cross-examination,
Mr
Koral
admitted
that:
(a)
in
the
computation
of
the
$31,565
and
$11,347,
he
has
not
taken
into
consideration
that
the
appellant
made
payments
of
$14,727.27
in
December
1975
and
$68,025.00
in
August
1976.
He
said:
“It’s
just
based
on
the
year-end
balance”
(SN
page
56
lines
6
&
7);
(b)
in
making
the
calculations,
to
come
up
with
the
reassessment
of
$31,565
in
1975
and
$11,347
in
1976,
it
is
based
on
section
15(2)(b);
(c)
in
the
course
of
the
accounting
conventions
that
are
necessary
to
construct
financial
statements,
there
may
be
other
things
such
as
that
that
go
into
shareholder’s
advances
which
may
not
be
loans;
(d)
in
making
the
calculations
and
considering
as
loans
all
the
drawings
from
the
Corporation
to
the
appellant,
he
did
not
consider
the
portion
of
expenses
made
by
the
appellant
on
behalf
of
the
Corporation.
3.16
From
December
31,
1974
to
December
31,
1977,
the
account
“Advances
to
Shareholders”
(Exhibit
R-2)
shows
81
debits
(loans)
and
21
credits
(repayments).
The
latter
includes
the
amounts
of
$68,025
and
$9,727.25
plus
$5,000.
4.
Law
—
Cases
at
Law
—
Analysis
4.01.
Law
The
main
provisions
of
the
Income
Tax
Act
involved
in
the
instant
case
are
15(2)(b)
and
78(3).
They
read
as
follows:
15(2)
(b)
the
loan
was
repaid
within
one
year
from
the
end
of
the
taxation
year
of
the
corporation
in
which
it
was
made
and
it
is
established,
by
subsequent
events
or
otherwise,
that
the
repayment
was
not
made
as
a
part
of
a
series
of
loans
and
repayments,
and,
where
the
shareholder
is
a
corporation,
the
amount
so
included
in
computing
its
income
for
the
year
shall
be
deemed
to
have
been
received
by
it
as
a
dividend.
78
(3)
Unpaid
remuneration.
Where
an
amount
in
respect
of
a
deductible
outlay
or
expense
that
was
owing
by
a
taxpayer
to
a
person
as
salary,
wages
or
other
remuneration
in
respect
of
an
office
or
employment
is
unpaid
at
the
end
of
the
first
taxation
year
following
the
taxation
year
in
which
the
outlay
or
expense
was
incurred,
either
(a)
the
amount
so
unpaid
shall
be
included
in
computing
the
taxpayer’s
income
for
the
second
taxation
year
following
the
taxation
year
in
which
the
outlay
or
expense
was
incurred,
or
(b)
where
the
taxpayer
and
that
person
have
filed
an
agreement
in
prescribed
form
on
or
before
the
day
on
or
before
which
the
taxpayer
is
required
by
section
150
to
file
his
return
of
income
for
the
first
taxation
year
following
the
taxation
year
in
which
the
outlay
or
expense
was
incurred,
for
the
purposes
of
this
Act
the
following
rules
apply:
(i)
the
amount
so
unpaid
shall
be
deemed
to
have
been
paid
by
the
taxpayer
and
received
by
that
person
on
the
first
day
of
the
said
second
taxation
year,
and
section
153,
except
subsection
(3)
thereof,
is
applicable
to
the
extent
that
it
would
apply
if
that
amount
were
being
paid
to
that
person
by
the
taxpayer;
and
(ii)
that
person
shall
be
deemed
to
have
made
a
loan
to
the
taxpayer
on
the
first
day
of
the
said
second
taxation
year
in
an
amount
equal
to
the
amount
so
unpaid
minus
the
amount,
if
any,
deducted
or
withheld
therefrom
by
the
taxpayer
on
account
of
that
person’s
tax
for
the
said
second
taxation
year.
4.02
Cases
at
law
1.
Richard
Reininger
v
MNR,
20
Tax
ABC
242;
58
DTC
608;
2.
John
Altenhof
v
MNR,
[1973]
CTC
2303;
73
DTC,
239;
3.
Henry
J
Rempel
v
MNR,
[1980]
CTC
2709;
80
DTC
1613;
4.
D
C
Keddy
v
MNR,
28
Tax
ABC
289;
62
DTC
62.
4.03
Analysis
4.03.1
The
payment
of
$14,727
made
in
December
1975
of
loans
in
February
1975
and
the
payment
of
$68,025
made
in
August
1976
of
loans
owed
in
February
1976
are
not
in
dispute.
The
only
question
is
whether
the
repayments
of
loans
are
repayments
made
as
part
of
a
series
of
loans
and
repayments
pursuant
to
15(2)(b)
quoted
above.
4.03.2
In
fact,
if
the
appellant
would
have
not
made
the
payment
in
December
1975
and
in
August
1976,
the
appellant’s
drawings
which
had
been
used
for
personal
expenses
would
have
been
otherwise
taxed
in
his
income.
However,
whereas
in
December
1975
and
in
August
1976,
the
corporation
paid
to
the
appellant
as
salary
$23,800
and
$145,000
respectively,
(which
were
taxed
in
the
said
years
on
the
appellant’s
income)
and
whereas
a
part
of
which
($14,727
in
1975
and
$68,025
in
1976)
was
used
to
reimburse
part
of
the
drawings
used
for
personal
expenses,
the
respondent
contends
that
the
said
amounts
must
be
taxed
a
second
time
on
the
basis
that
pursuant
to
the
wording
of
15(2)(b),
this
would
be
“part
of
a
series
of
loans
and
repayments”.
4.03.3
The
appellant’s
contention
that
the
said
provision
is
to
provide
a
tax
avoidance
scheme
when
a
shareholder
for
instance
pays
a
loan
in
December
with
new
borrowed
money
from
a
bank
and
takes
out
a
loan
from
the
company
again
in
January
to
repay
the
bank.
4.03.4
Counsel
for
the
respondent
contended
that
provision
15(2)(b)
of
the
Income
Tax
Act
must
be
strictly
interpreted
and
more
particularly
the
words
.
.
.
“and
it
is
established
by
subsequent
events
as
otherwise
that
the
payment
was
not
made
as
part
of
a
series
of
loans
or
other
transactions
and
repayments”.
The
word
“series”
pursuant
to
the
Oxford
Dictionary
means
in
the
general
sense:
“a
succession,
sequence,
or
continued
course
(of
action
or
conduct,
of
time
life,
etc.)
.
.
.”.
From
December
31,
1974
to
December
31,
1977
there
was
a
series
of
81
loans
and
21
repayments
(par
3.16).
Therefore,
contended
the
learned
counsel,
the
repayments
made
in
December
1975
and
in
August
1976
have
to
be
ignored
and
the
reassessments
be
maintained.
4.03.4
Moreover,
counsel
for
the
respondent
referred
to
the
Court
mainly
the
Rempel
case
and
the
Keddy
case.
4.03.4.1
In
the
Rempel
case,
the
taxpayer,
a
controlling
shareholder
of
a
company,
maintained
during
the
year
1972
a
shareholder’s
loan
account.
In
December,
the
recorded
balance
loan
was
$60,000.
On
December
22,
the
taxpayer
obtained
a
bank
loan
of
$60,000
and
paid
the
company
and
paid
the
bank.
Mr
Goetz
of
the
Tax
Review
Board
considered
that
“there
was
a
series
of
loans
and
repayments”.
4.03.4.2
In
the
Keddy
case,
the
facts
are
as
follows:
From
time
to
time,
the
appellant
paid
his
personal
accounts
by
drawing
upon
the
funds
of
a
private
company
of
which
he
was
the
president
and
controlling
shareholder.
The
totals
of
the
loans
made
by
the
company
to
him
during
1955
and
1956
were
taxed
by
the
Minister
as
deemed
dividends
under
the
provisions
of
section
8(2).
The
appellant
objected,
contending
that
the
loans
had
been
repaid
within
the
time
limit
prescribed
in
the
section.
He
maintained
that
he
had
given
the
company
a
cheque
for
$35,000
in
January
1957,
which
was
to
be
applied
first
to
the
repayment
of
his
loans
totalling
about
$20,000.
Mr
Fordham
of
the
former
Tax
Appeal
Board
concluded
first
that
the
appellant
failed
to
establish
that
the
$35,000
was
applied
against
the
loans
rather
than
against
the
purchase
price
of
certain
securities
held
by
the
company
which
the
appellant
had
agreed
to
buy
from
the
company.
Therefore,
it
was
not
clear
that
the
loan
was
paid
and
a
fortiori
was
not
paid
within
the
time
limit
prescribed
by
15(2)(b).
This
fact
was
the
one
assumed
by
the
respondent
on
which
to
base
the
reassessment.
However,
Mr
Fordham
made
the
following
comments
which
may
be
considered
as
an
obiter
dictum:
However,
what
has
been
said
in
the
last
two
paragraphs
is
not,
without
more,
determinative
of
what
is
in
issue.
This
can
be
dealt
with
in
a
much
simpler
way.
Paragraph
(b)
of
section
8(2)
of
the
Act
(supra)
makes
it
evident
that
not
only
must
any
loan
be
paid
within
one
year
from
the
end
of
the
taxation
year
of
the
company,
it
also
must
be
established
that
repayment
was
not
made
as
part
of
a
series
of
loans
and
repayments.
It
is
the
latter
requirement
that,
in
my
opinion
at
least,
militates
firmly
against
the
appellant’s
position.
It
is
clear
from
the
material
filed
as
exhibits
—
particularly
Exhibit
A-5
and
A-11
—
that
the
appellant
drew
upon
the
company’s
funds
more
or
less
freely
in
paying
numerous
personal
accounts,
which
ranged
from
insurance
premiums
and
municipal
taxes
to
domestic
bills
of
various
kinds.
Their
current
totals
were
reduced
from
time
to
time
by
credits
entered
in
the
company’s
books.
The
two
requirements
of
paragraph
(b)
are
not
alternative,
but
co-extensive
in
their
operation.
In
other
words,
both
requirements
must
be
fulfilled.
On
the
evidence,
it
appears
to
me
that
at
any
material
time
there
was
a
series
of
loans
and
repayments
prevailing.
4.03.4.3
Counsel
for
the
respondent
contends
that
it
is
the
same
situation
in
the
instant
case
where
there
are
81
loans
and
21
repayments
over
the
three
years.
Despite
the
fact
that
the
Court
cannot
see
how
this
can
be
an
avoidance
of
tax,
it
must
admit,
however,
that
at
first
glance
it
seems
to
be
“‘a
series
of
loans
and
repayments”
if
one
considers
only
those
words
in
provision
15(2)(b).
However
looking
at
this,
more
deeply,
it
seems
to
me
that
pursuant
to
15(2)(b)
the
account
“Advances
to
Shareholders”
must
be
considered
as
loans
only
at
the
end
of
the
financial
year
of
the
company
and
it
is
only
then
that
a
series
of
loans
and
repayments
must
be
considered.
Indeed
15(2)(b)
says:
“.
.
.
unless
the
loan
or
indebtedness
was
repaid
within
one
year
from
the
end
of
the
taxation
year
of
the
lender
or
creditor
in
which
it
was
made
or
incurred”
[Emphasis
added].
Therefore
the
loan
must
be
considered
as
it
is
at
the
end
of
the
lender’s
year
and
not
during
the
said
year:
hence,
the
series
of
loans
and
repayments,
that
the
legislator
wishes
to
present
seems
rather
to
be
those
which
occurred
after
the
end
of
the
year
of
the
company.
Indeed
let
us
suppose
that
before
February
28,
1975,
the
appellant
would
have
reimbursed
the
company
for
the
different
loans
made
during
that
taxation
year
(March
1,
1974
to
February
28,
1975),
there
would
have
ben
no
application
for
15(2)(b).
At
the
end
of
the
year
indeed
there
would
exist
no
balance
in
the
“Advances
Shareholder
Account”.
However,
the
Court
states
that
pursuant
to
the
evidence,
at
the
end
of
1975,
1976,
1977
taxation
years
of
the
company,
there
were
loans
which
were
repaid
within
one
year.
Therefore,
it
is
the
Court’s
opinion
that
there
was
a
series
of
loans
and
repayments
in
a
very
large
sense.
A
series
indeed
is
a
kind
of
a
pattern,
a
sequence.
However,
I
would
not
say
that
such
series
would
have
existed
if
there
would
have
been
a
balance
of
loans
in
1975
and
in
1977
but
not
in
1976.
4.03.5
Does
the
fact
that
there
was
accrued
management
salary
at
the
end
of
1975
for
$145,000
(para
3.08)
and
at
the
end
of
1976
for
$180,000
(para
3.10)
affect
the
application
of
15(2)(b)
concerning
the
loans
($14,727
in
1975
and
$64,793
in
1976)
then
existing?
Provision
78(3)
which
provides
the
agreement
for
the
accrued
management
salary
and
provision
15(2)(b)
which
concerns
loans
are
two
provisions
completely
different
and
at
first
glance
must
be
separately
construed.
However,
compensation
is
a
fundamental
principal
in
law.
It
would
have
been
possible
to
diminish
the
quantum
of
the
accrued
salary
by
the
amount
of
loans.
It
is
a
fact,
but
it
was
not
done.
However,
it
can
be
said
that
in
substance
the
compensation
existed
because
provision
78(3)(b)(ii)
says:
(ii)
that
person
shall
be
deemed
to
have
made
a
loan
to
the
taxpayer
on
the
first
day
of
the
said
second
taxation
year
in
an
amount
equal
to
the
amount
so
unpaid
minus
the
amount,
if
any,
deducted
or
withheld
therefrom
by
the
taxpayer
on
account
of
that
person’s
tax
for
the
said
second
taxation
year.
[Emphasis
added]
The
appellant
(that
person)
is
deemed
to
have
made
a
loan
to
the
Kates
Advertising
Limited
(the
taxpayer).
Therefore,
can
it
be
said
that
in
substance
at
the
end
of
the
said
years
there
existed
a
debt
to
the
company?
It
is
the
Court’s
opinion
it
was
compensated
and
that
15(2)(b)
has
no
application.
5.
Conclusion
The
appeal
is
allowed
and
the
matter
referred
back
to
the
respondent
for
reconsideration
and
reassessment
on
that
basis
in
accordance
with
the
attached
reasons
for
judgment.
Appeal
allowed.
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