Len Singleton Limited v. Minister of National Revenue, [1983] CTC 2196, 83 DTC 141

Guy Tremblay:—This case was heard on July 12, 1982, at the City of St John’s Newfoundland.

1. The Point at Issue

The point at issue is whether the appellant company is correct in deducting the amount of $150,000 in the computation of its income for the 1976 taxation year. This amount was part of the sum of $200,000, a declared bonus in favour of Mr Len Singleton (main shareholder of the appellant), $50,000 of which was paid in 1976 and the balance of $150,000 was to be paid by December, 1977. However, because of financial difficulties and the requirement of the bonding company, the said amount of $150,000 was not paid. It was taken back into the appellant’s income in its 1977 taxation year. The respondent’s contention is that the said bonus was transferred to a con- tingent account, the deduction of which is prohibited by paragraph 18(1 )(e) of the Income Tax Act, SC 1970-71-72, c 63, as amended; that the bonus was a gratuitous act and not owed to the appellant as salary, wages, or other remuneration within the meaning of subsection 78(3) of the Act; and, that the deduction of $150,000, in 1976, artificially reduced the appellant’s income.

2. The Burden of Proof

2.01 The burden is on the appellant to show that the respondent’s assessment is 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 the assessment or reassessment 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 so reassessing the Appellant’s income tax liability the Respondent relies inter alia on the following assumptions of fact:

(a) The Appellant declared a bonus of $200,000.00 in favour of its president and principal shareholder, Leonard Singleton, at the end of its April 30, 1976 taxation year, and it was to be paid in the following manner:

(i) $50,000.00 by December 31, 1976; and

(ii) $150,000.00 by December 31, 1977;

(b) In 1976 the Appellant changed its fiscal year end from April 30 to December 31;

(c) The amount of $50,000.00 was paid to Leonard Singleton prior to December 31, 1976;

(d) A Subordination Agreement between Leonard Singleton, the Appellants and Guardian Insurance Company of Canada included a term whereby a bonus payable was not to be paid without prior consent of the latter-named company;

(e) Leonard Singleton in whose favour the bonus had been declared intended to collect the bonus only if the Appellant had the funds available;

(f) The $150,000.00 portion of the bonus was not paid and was taken back into the Appellant’s income in its 1977 taxation year.

3. The Facts

3.01 In the examination-in-chief, Mr Ronald Keating, chartered accountant of the appellant company, testified that:

(a) He has been in the public accounting practice for approximately nine years.

(b) In 1976, he was a member of H R Doane and Company, which was the appellant’s auditor. In 1978, he formed his own accounting firm with a partner. Then, they were to be the appellant’s auditor.

(c) The appellant’s financial statements for its 1976 (8-month period ending December 31, 1976) and 1978 (12 months period ending December 31, 1978) fiscal years were filed as Exhibit A-1 and Exhibit A-2 respectively.

(d) The financial statements are comparative with the prior fiscal years. The gross income and the net income are as follows:

Net Income

Gross Income (before bonus and tax) (e) On the balance sheet of Exhibit A-1, the “Current Cash” and the “Current Term Deposit” assets amount to $39,745 and $275,000 respectively, for the period ended April 30, 1976. For the same period in the “Liabilities” section, an amount of $50,000 is shown as “Payable and accruals — Trade”, and an amount of $150,000 as “Long term bonus payable”. For the period ended December 31, 1976, no cash or term deposit appears. However, in the “Liabilities” section a “Current Bank overdraft” in the amount of $44,940 and a “Current Bank loan” in the amount of $175,000 are shown.

(f) An amount of $200,000 is shown as “Management bonus” in the period ended April 30, 1976 (Exhibit A-1, page 3).

(g) This bonus was charged to management wages expense and a credit to liability. It was considered as an account payable in accordance with the generally accepted accounting principles. It was not a contingent reserve (SN page 10) — “It is not uncommon to see a fairly large bonus, when the income of the company has supported it”. (SN page 12, Q 34)

(h) The reasons for the bonus were that:

. . . Mr Singleton, from the point in time when he incorporated up to April 30, 1976 period, had not taken very much in the way of salary, and since the company had by now been . . . had got to be established . . . it was time he started remunerating himself more, and secondly, at that time the Anti-Inflation Board was coming in, and we wanted Mr Singleton to have his salary based on a more substantial amount for . . . because increases had been restricted and he was operating on a very low base, and with a high salary he could always drop it but it would be difficult to get it raised. (SN page 12, Q 36)

(i) A letter from Mr Derek H Sullivan, CA, of H R Doane and Company, to the Chairman of the Anti-Inflation Board, dated April 29, 1976, was filed as Exhibit A-3. In this letter, some of the paragraphs read as follows:

We are writing you on behalf of one of our clients, Len Singleton Limited, in an effort to obtain permission to grant a compensation increase to the ownermanager, Mr Len Singleton, in 1976 in excess of the amounts stipulated in the arithmetic framework of the guidelines.

As can be seen from the enclosed financial statements as at Apri 30, 1974, April 30, 1975 and December 31, 1975, the company has grown and expanded rapidly from its humble beginning. In an effort to foster this growth Mr Singleton has kept his salary to extremely low levels. In the 1973 calendar year Mr Singleton received a total salary from the company of approximately $2,000. In the 1974 calendar year he received no salary whatsoever while in 1975 he received a salary of $2,000 per month.

The Present Situation

As can be seen from the December 31, 1975 interim financial statements the company is now in a suitable working capital position to be able to pay Mr Singleton the salary he is worth to the company. The anit-inflation legislation, however, would tend to limit the permissible increase to the management group (ie Len Singleton) to 8% — 12%.

It is virtually impossible to measure the value of Mr Singleton to the company as its success has been due in large part to his efforts and dedication. We are aware, however, that some owner-managers of similar sized construction companies in Newfoundland are presently receiving salaries and bonuses of between $100,000 and $200,000 per annum.

Ruling Requested

Based upon the above facts the company would like the Anti-Inflation Board to inform them as to how much of a salary increase they can give Mr Singleton without violating the spirit and intent of the anti-inflation legislation.

(j) The Anti-Inflation Board replied in a letter dated May 25,1976 (filed as Exhibit A-4). The main paragraph reads as follows:

While your client’s maximum permissible increase in total compensation for 1976 — assuming a calendar year compensation increase — would be limited to the $2400, his bonus or indirect incentive element of this compensation would be related to h is base year compensation. The bonus element for the base year is dependent upon the amount paid out following the fiscal year end to April 30, 1976. Therefore, your client may draw a bonus level from the April 30, 1976 profits in line with what he would have drawn had the Anti-Inflation Program not been introduced on October 14, 1975. The termination of the bonus must be in line with the rules of administration in effect on October 14, 1975. This bonus will form part of his base year earnings. His salary for 1976 and bonus for the fiscal period ending April 30, 1977 is the amount that must be kept to the guideline maximum permissible increase.

(k) At a meeting of the appellant’s Board of Directors held on April 15, 1976, a resolution was passed:

. . . that an amount of ($200,000) Two Hundred Thousand Dollars be set up as a bonus and that Fifty Thousand Dollars ($50,000.00) be paid to Len Singleton by December 31, 1976 and the remaining amount be paid by December 31, 1977. (Exhibit R-4)

(l) According to the witness, the issuance of the “Management bonus” in the amount of $200,000 is in line with good commercial business practice. (SN pages 15 and 16, Q 47)

3.02 In cross-examination, Mr Keating testified that:

(a) The bonding was a very important aspect for the appellant company in order to generate income (SN page 17, Q 49) because “. .. without bonding, he would not have been able to get any construction work”. (SN page 17, Q 50)

(b) One of the considerations taken into account by an insurance company, when bonding a construction company, is the financial soundness of the firm (SN page 17, Q 51), especially the working capital position (SN pages 17 and 18, Q 54 and Q 55).

(c) On the balance sheet of Exhibit A-1, an amount of $36,246 is shown as “Due to directors, no set terms of repayment (Note 5)” for the period ended April 30, 1976. The said “Note 5” reads as follows:

5. Subordination of shareholder’s advance

Repayment of shareholder’s advances have been subordinated to the bonding company as a condition of bonding. (Exhibit A-1, page 5b)

(d) He did not remember if there was a subordinate agreement with the bonding agreement.

3.03 By consent of both parties, three subordination agreements between the appellant company (“Contractor”), Len Singleton (“Creditor”) and Guardian Insurance Company of Canada (“Surety”), were filed as Exhibit R-1. They are dated July 5, 1976, September 23, 1977 and April 24, 1978. In the subordination agreement of July 5, 1976, one can read:

WHEREAS, the Contractor is indebted to the Creditor in the aggregate sum of ($275,966.00) as evidenced by April 30, 1976 audited financial statement of Len Singleton Limited. The amount of $275,966.00 represents before tax, bonus, and dividends and will be reduced by the actual taxes paid as at December 31,1976.

The said amount of $275,966 is the addition of the bonus ($200,000), the dividends ($39,720) and the amount due to the director ($36,246).

3.04 In the subordination agreements of September 23, 1977 and of April 24, 1978, the aggregate sums are $60,000 and $158,729 respectively, both as “directors payable account”.

3.05 Mr Keating said, concerning “Note 5” quoted above (see paragraph 3.02(c)), that they did not know at the time they made the financial state- ments for the period ended April 30, 1976 (the statements were completed on June 10, 1976, the date of the auditor’s report), that . they were going to subordinate the balance of the money. We only knew that the thirty-two thousand was subordinated”. (SN page 23, Q 73)

3.06 A letter dated May 17, 1976, from Mr William Horsman, CA, of H R Doane and Company, to Revenue Canada — Taxation, was filed as Exhibit R-2. This letter requested that the appellant’s fiscal year end be changed from April 30 to December 31, effective December 31, 1976. Revenue Canada — Taxation granted the permission in a letter dated June 18, 1976, filed as Exhibit R-3. Both letters were filed as exhibits on common consent.

3.07 On July 18, 1978, at a meeting of the appellant’s Board of Directors, a resolution was passed that . . bonuses and dividends already set up but not paid, be put back into the Company.” (Exhibit R-4)

3.08 Mr Keating said that when they declared the bonuses, they were not anticipating any problems with the bonding company, despite the fact that the previous year there had been a Subordination Agreement made concerning the “Due to the director” in the amount of $32,246. Indeed, they had a very profitable year (SN page 30, Q 90). The statement of income for the fiscal year ending April 30, 1976, shows a net profit of 4and the profit for the previous fiscal year was $321,852.

. I believe we assumed, and I imagine Mr Singleton assumed as well, with this large amount of profit he would be quite all right in taking some of it out. (SN page 31, Q 92)

They did not consult the bonding company before issuing the bonus of $200,000.

3.09 In examination-in-chief, Mr Singleton, President and General Manager of the appellant company, testified that:

(a) The appellant company was incorporated in 1973. He owns 90% of the appellant’s shares.

(b) The 1975 calendar year was the most profitable.

(c) At the time he was . . pretty well a one man show . .(SN page 42, Q 120). Indeed, he managed the company, did all the bidding, supervised all phases of the company with the foremen, and supervised the maintenance (SN page 42, Q 120). He worked six days a week from 6:30 am to 9:30-10:00 pm. The work started in early April and stopped in the middle of December (SN page 43).

(d) In 1975, he received a salary of $22,500 as it appears from the T4 slip filed as Exhibit A-5. Some tractor operators and foremen made more money that he did in that year. He knew of construction workers, doing the same work as he, who earned $60,000-$70,000 a year (SN page 53, Q 147).

(e) During the 1973 and 1974 years, he never took very much pay out of the company:

_.. we started off, my main concerns were that we were trying to get the company going, and get it built up, and get a bit of equipment around ourselves where we could work efficiently. So, up to the year in question, I took very little wages. (SN page 44, Q 126)

(f) In April 1976, the company had approximately $275,000 in the bank, . . which was extra monies that we had saved up over the years .. . (SN page 46, Q 130)

(g) The $200,000 bonus was fixed by Mr Horsman, a member of H R Doane and Company, because the witness knew very little about accounting:

So, I asked him to determine what he figured the company could stand, you know. So he said that based on the fact that I had worked for the period of time that I did, and based on the fact that I hadn’t taken much in salaries, that that figure wouldn’t be out of line, you know, as more or less payment for over the years, plus the fact he said that this Anti-Inflation Board thing was in, and he didn't know how long it was going to be in, it could be here for a year, and it could be in for ten years, so if the company was going to continue on making money, and there was no reason to suggest why the company wouldn’t continue on making money. We had always made money since we incorporated . . . he said that we would want the figure substantial so that, just in case, the Board was in you know, I’d have a good base to work from. (SN pages 47 and 48, Q 135)

(h) The $200,000 bonus was not fully paid in 1976 because he did not need all of it. He only needed $50,000 to pay his taxes:

Well, I paid myself fifty thousand dollars ($50,000.00) because I had a reassessment from . . . like before I incorporated as Len Singleton Limited I operated as Leonard Singleton, and I rolled my assets from Leonard Singleton into Len Singleton Limited, and the fellow that did the roll over for me, it was supposed to be . . . at that time, evidently, if you owned ninety (90) percent, or whatever it was . . . if you owned most of your stock, you could roll over and become incorporated, without it costing you any money. But there was some mistake made along the way, anyway, which I . .. like I say, I knew nothing about, because I know very little about accounting, but he rolled over my stock from Leonard Singleton to Len Singleton Limited and it cost me fifty thousand dollars ($50,000.00) in a tax reassessment. In fact, it cost me more but that particular year it cost me fifty (50), so I drew fifty (50) of the two hundred (200) to pay the income tax people and I left the rest in the company. (SN pages 48 and 49, Q 137)

(i) Before July 1976, the bonding company never advised him that he was not allowed to pay the bonus. He was not concerned about the perception of the said bonding company because it .. had been and always has had a personal guarantee from me, so I didn't see why the bonding company would care if I paid myself two hundred thousand dollars ($200,000) or two million ($2,000,000) if I had it to pay . .(SN pages 49 and 50, Q 140)

(j) In 1975, he had the intention of paying himself a bonus. In the fall of the said year, he informed Mr Jim Flaherty (one of the appellant company’s directors and owner of 10% of its shares) of his intention.

(k) The fiscal period ended December 31, 1976, was not profitable. The difficulties became apparent around the end of June 1976:

. . . we picked up a job in South West Brook, in 1976, that was the biggest job we ever had, and the job had four hundred thousand (400,00) . . . cubic yards of rock on it, and it had seventy thousand (70,000) cubic yards of OM (Gravel . . . ordinarily material). (SN page 52)

In early 1976, the appellant purchased (rental purchase) two new D8’s, a bid 988 loader and three “big off highway trucks . . . cat trucks” to fullfil the requirements of the contract. They started to work and by the end of June 1976, they realized that instead of 400,000 cubic yards of rock and 70 cubic yards of gravel, the job had 400,000 cubic yards of gravel and 70 cubic yards or rock: “It was one of the biggest scandals that ever happened in the construction industry”. (SN page 53, Q 152)

(l) . .. it nearly ruined us. We were over there, geared to haul rock on a short haul, and we had all this equipment, which we had signed up a firm lease on for six months, to do this job and here we were, we couldn’t use it because this was . . . off highway trucks are short haul vehicles, you know. (SN page 53, Q 153)

(m) The appellant company had another job in Indian Bay “. .. that wasn’t doin’ us any favours .. (SN page 57, Q 161)

(n) The difficulties were apparent at the end of June and in July, .. which would have made them apparent to the bonding company .. . .”.(SN page 57, Q 162)

3.10 In cross-examination, Mr Singleton generally confirmed the testimony given in examination-in-chief. However, on some points he testified that:

(a) During his discussions with Mr Horsman concerning the bonus they never spoke of the bonding situation (SN page 63, Q 183).

(b) When he received the amount of $50,000 in 1976, he knew it was to pay his personal taxes. (SN page 71)

(c) The auditors made the decision as to when the balance of $150,000 was to be brought back into income. They made the decision in 1977: . the bonding company wanted it back . .(SN page 74, Q 207), despite the fact that the resolution concerning the transfer was officially passed by the appellant’s Board of Directors only in July, 1978 (see paragraph 3.07 above).

3.11 In examination-in-chief, Mr R G Hudson, Chief of Appeals for the Department of National Revenue, testified that:

(a) The amount of $150,000 was brought back into the appellant’s income in August 1977.

(b) The appellant had no intention of paying the $150,000 bonus in 1977, because it was described as “Long term bonus payable” on the balance sheet of the financial statements for the period ended December 31, 1976. Normally, it should have been described as a current liability.

(c) With the change in the fiscal year end, the whole amount of $200,000 should have been paid out by December 31, 1976, to meet the requirements of subsection 78(3) of the Income Tax Act.

4. Law — Cases at Law — Analysis

4.01 Law

The main provisions of the Income Tax Act involved in the present case are paragraphs 18(1 )(e) and 78(3)(a). They read as follows:

Sec 18. General limitations.

(1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

(e) Reserves, etc — an amount transferred or credited to a reserve, contingent account or sinking fund except as expressly permitted by this Part.

Sec 78(3)

(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. . .

4.02 Cases at Law

Counsel for both parties referred the Board to the following cases at law:

1. The Royal Trust Company v MNR, [1957] CTC 32; 57 DTC 1055;

2. The Queen v Ken and Ray’s Collins Bay Supermarket Limited, [1975] CTC 504; 75 DTC 5346;

3. Day & Ross Limited v The Queen, [1976] CTC 707; 76 DTC 6433;

4. McClain Industries of Canada, Inc v The Queen, [1978] CTC 511; 78 DTC 6356;

5. No 297 v MNR, 14 Tax ABC 100; 55 DTC 611;

6. V R Enterprises Limited v MNR, [1974] CTC 2099; 74 DTC 1089;

7. Hotel Cartier Inc v MNR, [1978] CTC 3029; 78 DTC 1740;

8. Toronto Heel Limited v MNR, [1980] CTC 2277; 80 DTC 1250;

9. Toteur Disposal Co Ltd v MNR, [1981] CTC 2547; 81 DTC 493;

10. Brazolot Construction Limited v MNR, [1981] CTC 2468; 81 DTC 449;

11. Don Fell Limited et al v The Queen, [1981] CTC 363; 81 DTC 5282;

12. G W Dorman Pulp Chip Company Ltd v MNR, [1981] CTC 2005; 81 DTC 21;

13. Montreal Trust Co, Executors of Estate of Chesley Arthur Crosbie v MNR, [1966] CTC 648; 66 DTC 5424;

14. Kerr Farms Limited v MNR, [1971] Tax ABC 804; 71 DTC 536;

15. Time Motors Limited v MNR, [1969] CTC 190; 69 DTC 5149.

4.03 Analysis

4.03.1 Was the $200,000 bonus appropriate in the circumstances? Was it a remuneration in the sense of subsection 78(3) of the Act? In sum, was the said reserve a contingent account?

On this issue, the evidence was to the effect that:

(a) The appellant’s net income (before bonus and tax) was $321,852 in April 1975, and $514,488 in April 1976 (Exhibits A-1 and A-2; paragraphs 3.01(c) and (d), and 3.08).

(b) In April 1976, before the issuance of the $200,000 bonus, the appellant company had over $310,000 in cash and in current term deposits (Exhibit A-1; paragraphs 3.01(e) and 3.09(f)).

(c) The uncontradicted evidence concerning the salaries paid to Mr Singleton in 1973 and 1974, is that they were small (paragraph 3.09(e)). In 1975, he received $22,500 (paragraph 3.09(d)).

(d) The quantum of the bonus was fixed by Mr Horsman, CA, of H R Doane and Company (paragraph 3.09(g)).

(e) Normal steps were taken to have the approbation of the Anti-Inflation Board for the issuance of the $200,000 bonus. There was no evidence that the non-payment of the $150,000 was due to an objection of the Anti-Inflation Board.

The Board’s opinion is that, because of the liquid assets that the appellant had on hand in April 1976; because of the small wages that Mr Singleton received since the existence of the appellant company; and, because of the Anti-Inflation Act, it seems that it was not against normal accounting practice for the appellant company to issue a $200,000 bonus to Mr Singleton in April 1976. The amount was reasonable in the circumstances and was not gratuitous. The obligation to pay was created in April 1976. However, the subordination agreement between Mr Singleton, the appellant company and the bonding company (Guardian Insurance Company) has been objected to by the respondent.

4.03.2 The evidence concerning the said subordination agreement is to the effect that in April 1976, there was an amount of $36,246 due to directors which was subordinated as a bonding condition. However, because there were liquid assets of over $310,000 in the company (paragraph 3.01(e)), and because Mr Singleton had given his personal guarantee (paragraphs 3.03 and 3.09(i)), was it so abnormal to think that the bonding company would have no objection? In fact, the evidence is to the effect that in the steps of issuing the bonus, they did not think of the bonding company (paragraphs 3.05 and 3.09(i) ).

However, it is also a fact that the bonding company reduced the amount of $275,966 by the actual taxes paid as at December 31, 1976, in the subordination agreement dated July 5, 1976 (paragraph 3.03; Exhibit R-1). The amount of taxes was not determined in the agreement, but the evidence adduced showed that the quantum was $50,000 (paragraph 3.09(h)). Mr Singleton’s evidence gave the reason why the bonding company objected to the total payment of $200,000: financial difficulties of the appellant in a job in South West Brook, Newfoundland. These difficulties became apparent in June 1976, two months after the issuance of the bonus (paragraph 3.09(k), (1), (m) and (n) ).

4.03.3 The balance of $150,000 was actually brought back into the appellant’s income in August 1977, despite the fact that the resolution of the appellant’s Board of Directors, concerning the transfer, was officially passed only in July 1978. The transfer was a requirement of the bonding company (paragraphs 3.07, 3.10(c) and 3.11(a)).

4.03.4 In the Board’s opinion, the preponderance of evidence on the issue of the subordination agreement of the bonding company is that the facts logically explain the situation. In April 1976, at the time that the bonus was issued, it was not possible for the appellant to provide an objection from the bonding company: the financial situation was then very, very good and for the future, the appellant had on hand “the biggest job we ever had .. .”, said Mr Singleton. It was difficult to anticipate a problem of such a nature, “. . . one of the biggest scandals in the construction industry” (paragraph 3.09(k)).

4.03.5 Despite all those facts, counsel for the respondent contended, following the testimony of Mr Hudson, that the appellant’s intention was in fact to avoid taxes and, that the appellant had no intention, when the bonus was issued, to pay the $150,000 in 1977, because it was described as “Long term bonus payable” on the balance sheet of the financial statements for the period ended December 31, 1976. Normally, it should have been described as “current liability” (paragraph 3.11 (b) ). At first glance, this is not an insignificant argument. However, the financial statements were completed only on February 16, 1977; therefore, it was then obvious to the appellant’s accountants that, with a loss of $253,150 (paragraph 3.01(d)) and possibly another loss in 1977, it would not be possible to pay the said balance. The requirement of the bonding company to bring the $150,000 back into the appellant’s income was then easier to provide. Therefore, the Board concludes that the description of “Long term bonus payable” does not have the significance that the respondent gives it, and the appellant’s intention in February 1977, after the financial problems which occurred during the second part of 1976, was certainly different from its intention in April 1976. The reasons for the bonus given in paragraph 3.01(h) above still stand.

4.03.6 Because of the change in the fiscal year end from April 30 to December 31 made in June 1976 (paragraph 3.06), and because of paragraph 78(3)(a) of the Income Tax Act quoted above, the $200,000 bonus should have not been paid after December 31, 1976, which is the end of the first year following the taxation year in which the expense was incurred. Therefore, the decision of the appellant’s Board of Directors to pay the balance of $150,000 in 1977 (paragraph 3.01 (k) ), was not correct. The 1977 taxation year is indeed the second year following the year ended April 30, 1976, in which the expense was incurred. It is in the 1977 taxation year that the unpaid amount of $150,000 had to be included because it was not paid in the taxation year ended December 31, 1976.

Does this error in the resolution influence the conclusion of the case? Practically, no, because it is obvious that it was not made intentionally. It is also obvious that without the financial problems which occurred in 1976, there would have been no objection from the bonding company. Indeed, it would have been possible to pay the whole amount to Mr Singleton before the end of 1976.

4.03.7 The preponderance of the evidence is in favour of the appellant’s thesis. The reassessment must be varied to include in the 1977 taxation year the amount of $150,000.

5. Conclusion

The appeal is allowed and the matter referred back to the respondent for reassessment in accordance with the above reasons for judgment.

Appeal allowed.