Patrick Galvin v. Minister of National Revenue, [1983] CTC 2329, 83 DTC 285

John B Goetz [ORALLY]:—These are appeals of the appellant with respect to his 1975, 1976, 1977 and 1978 taxation years. The issue in these appeals involves the receipt of certain income by the appellant from two corporations, namely, Chatsbury Holdings Inc and Almond Developments Limited.

During the years in question the appellant operated a hotel which he sold, and then he purchased a motel. The Port Elgin area began to be developed because of the Hydro building a plant nearby. The appellant had established a close relationship with the hydro employees at different levels. He was approached by Mr Cunnington, a developer of quite some stature, for assistance in sales of rental property in the Port Elgin area. Mr Galvin assisted Mr Cunnington while he was still operating the motel although he was not a licensed real estate agent. He incorporated a company known as Vingal Enterprises Limited (“Vingal”) which did not have licensed real estate agents either. The objects of Vingal were:

(1) to carry on the business of motel or motels and restaurant or restaurants or any combination thereof.

(2) to buy, sell and deal in food, liquor, wine, beer or any other alcoholic or non alcoholic beverages.

(3) to purchase or otherwise acquire and to sell, exchange, lease, mortgage, charge, dispose of and deal in property, real and personal, and rights of all kinds, and, in particular, options, contracts, business concerns and undertakings.

I was impressed with the appellant’s demeanour on the witness stand but, unfortunately, that which he intended to accomplish is almost totally belied by the documentation filed.

First, we have a draft agreement typed by the appellant, between himself and Maple Square Limited which was a development of Mr Cunnington’s and other gentlemen. When shown Exhibit R-1, Galvin mentioned that he did type this draft because he was pressing for a formal agreement with respect to the Maple Square development. He finally did get his agreement and it is dated August 19, 1977 between Maple Square Limited and Patrick C Galvin. It is an employment agreement whereby the appellant was employed by Maple Square Limited to manage Maple Square Centre, and he was paid a salary for so doing.

The problem facing me is that the manifest integrity of the appellant is not really corroborated, but rather contradicted, by all of the documentation that has been filed. However, as Mr Templeton, counsel for the respondent, pointed out, a taxpayer is entitled to conduct his affairs in any way that he can to reduce or avoid paying tax. He cited a number of cases, in particular, the well-known case of Sazio v MNR, [1968] CTC 579; 69 DTC 5001, whereby Sazio was able to convince the Exchequer Court of Canada (now known as the Federal Court), that by establishing a company, he had built a bridge between himself and his company through written documentation.

Even if Mr Cunnington had appeared as a witness, I would have had a hard time, in face of the documentation, in finding any real involvement of Vingal Enterprises Limited in the activities of Patrick Galvin. There was no need for the company. It seems that the company was basically set up to purchase and operate motels, and that is the only way I look at its three objects.

The hardest point facing me is that there is no need for the involvement of the company unless it is a question of taxation. It certainly was not relevant to the interests of the people who paid the appellant the money. If we could have had the books of Vingal before the Board, it may have been of some assistance to us, but we have an employment agreement between Maple Square Limited and Patrick Galvin that is quite clear. There is only one mention of Vingal and that is in a little, undated piece of paper attached to an interim three-month probationary contract or draft contract, and it looks like an ex post facto addition to that draft interim contract. Coupled with the written employment agreement that faces me, I am faced with Exhibits R-2 and R-3 which are photocopies of T4A slips whereby fairly large sums of money were paid directly to Pat Galvin (the appellant) by Almond Developments Limited and by Chatsbury Holdings Inc for the relevant taxation years involved, 1975 to 1978 inclusive.

Admittedly, the appellant says he did discuss, with his accountant, the implications of what he was doing and he may have misunderstood the advice of the accountant, because the accountant certainly would not tell him to accept income in his own personal name and be handed T4 slips for the taxation years involved. I would presume that his accountant would complete his income tax return and would have caught it immediately if the matter had been discussed back in 1975. The appellant did use the term “tunneled” and I asked him what he meant by that but I did not get a very clear answer. If the moneys were to be funneled, as he says, through Vingal, then he would have to establish a written bridge between himself and his company to show the reason why the company was interposed between himself and the payors from whom he received the various cheques and the T4A slips. As Mr Templeton properly pointed out, there was no effort at all at the conference with the appellant, his accountant and his lawyer to show that moneys received personally in his own name really were the income of Vingal. The evidence before me points just in the opposite direction and, for the above reasons, I must dismiss the appeal.

Appeal dismissed.