Brian E Turner v. Minister of National Revenue, [1984] CTC 3026, 84 DTC 1828

Bonner, TCJ:—This is an appeal from an assessment of income tax for the 1973 taxation year. There is only one issue, namely, who is taxable on a fee paid by Charles Towers to the appellant. The fee was paid for services rendered by the appellant in arranging the acquisition by Mr Towers of the shares of Harris Brothers (Toronto) Cartage Limited (hereinafter “Harris”). The Minister assessed tax on the basis that the fee formed part of the appellant’s income. It was the appellant’s contention that he rendered the services to Mr Towers as agent for a corporation called Thornridge Holdings Limited (hereinafter “Thornridge”). If that is so, then without doubt the activity which generated the fee was the activity of Thornridge and the fee formed part of the income of Thornridge.

The appellant is now and at all relevant times was a chartered accountant. He practises as an accountant in Newmarket, Ontario, in partnership under the name Turner, McCabe & Associates. The appellant’s partner in that practice was and is Gary McCabe. Both William Harris, the vendor of the Harris shares, and Mr Towers were clients of the accounting firm.

The appellant and his partner were both married. Their wives were the principal shareholders of Thornridge, each being the holder of 40 per cent of the issued shares. Neither the appellant nor Mr McCabe held shares in Thornridge.

There was no evidence as to when or under what statute Thornridge was organized. No resolution or by-law of the company authorizing or in any way making reference to the appointment of agents was entered in evidence. No person who at any relevant time was a director or officer or, for that matter, even a shareholder of Thornridge was called to give evidence as to the appointment of agents to act for the corporation. It was not suggested that the appellant was ever employed by the company.

The appellant testified that he was general manager of Thornridge and that he was a director of that company prior to 1971 and after 1974 or 1975. He said that the appointment as general manager was not documented. What he did not say was when and by what corporate act he was appointed.

Evidence was given that the services which the appellant rendered to Mr Towers fell within the category of services which the appellant and Mr McCabe intended to perform either as agents of or at least for the benefit of Thornridge. The appellant stated that “it was always our intention when we organized Thornridge to use it for the purposes of handling commercial transactions that we felt should not be handled in the public accounting practice”. Mr McCabe was asked whether there was an arrangement between himself and Mr Turner relating to “non-accounting transactions”. He responded that there was a totally verbal arangement that such transactions would “go through” Thornridge because “our equities were different in the holding company than in the partnership”. The reference to “equities” in the holding company was, of course, reference to the Thornridge shares held by Mrs McCabe and Mrs Turner. What was not shown was that the plans and intentions of the husbands of the two principal shareholders of Thornridge were ever implemented by act of the corporation.

The fee paid by Mr Towers was paid pursuant to an agreement in writing. The agreement is expressed to be made between Mr Towers and the appellant. Nothing in the agreement suggests that the appellant acted in a representative capacity. Mr Towers testified that he was never advised that the appellant was acting on behalf of Thornridge.

The agreement between the appellant and Mr Towers called for payment to the appellant as consideration for his services of $5,000 on the closing in February, 1973 and a further $5,000 thirty days later. It also called for the transfer to the appellant of sufficient common shares of Harris to give him a 25 per cent equity. Mr Towers, knowing nothing of the supposed involvement of Thornridge, caused the bank draft and cheque for the two $5,000 payments to be made payable to the appellant. The shares were transferred to and registered in the name of the appellant. The appellant, as holder of the shares, was not described as acting in a representative capacity.

None of the witnesses knew what happened to the first $5,000 payment. It was not deposited in the Thornridge bank account. The appellant maintained another bank account in his name in trust. The first $5,000 was not deposited in that account either. The appellant said that he reviewed his personal chequing account and could not find the payment.

The second $5,000 was deposited in the account maintained in the appellant’s name in trust. A great deal of detailed evidence was given with respect to transactions involving the use of that account. Most, but not all, of those transactions were said to involve Thornridge. However, the account was never shown as an asset on the books of the company.

In 1975 the Harris shares which had been transferred to the appellant pursuant to his agreement with Mr Towers were purchased from the appellant by Mr Towers for $18,750. That amount was deposited in the trust account.

Nothing turns on the evidence as to what was done with the fee paid by Mr Towers. Had that evidence revealed that the appellant consistently treated the three components of the fee as the property of Thornridge then it would have tended to support a conclusion that it was the appellant’s intention that the transaction be a transaction of the company. However, the weakness of the appellant’s case lies not in any failure to establish what the appellant’s intention was but, rather, it lies in the failure to demonstrate that the company made him its agent and that the transaction was in fact carried out by him as agent. The appellant is not assisted by the fact that part of the fee did end up in the hands of the company because

. . . for purposes of Part I of the Income Tax Act, profits from a business are income of the person who carries on the business and are not, as such, income of a third person into whose hands they may come.* [1]

The appeal will therefore be dismissed.

Appeal dismissed.