D
E
Taylor:—These
are
appeals
heard
on
common
evidence
in
Montreal
on
June
3,
1981,
against
income
tax
assessments
for
the
year
1974
in
the
case
of
Atomic
Truck
Cartage
Ltd.
(“Atomic”);
for
the
years
1974,
1975,
1976,
1977
and
1978
in
the
case
of
“Les
Enterprises
de
Déblaiement
General
(Montréal)
Inc
(“Les
Entreprises”);
and
for
the
years
1975,
1976,
1977
and
1978
in
the
case
of
Roclar
Leasing
Ltd.
(“Roclar”).
The
Minister
of
National
Revenue
denied
the
three
companies
individually
the
small
business
deduction
available
under
subsection
125(4)
of
the
Income
Tax
Act
(SC
1970-71-
72,
c
63,
as
amended),
claiming
that
the
companies
were
associated
corporations.
In
assessing
the
appellants,
the
respondent
relied,
inter
alia,
upon
section
125,
subsections
251(2),
251(4),
paragraph
251
(5)(c),
subsection
251(6),
paragraph
256(1
)(e)
and
subsection
256(2)
of
the
Income
Tax
Act.
On
common
consent,
the
following
chart
of
the
shareholdings
of
the
companies
was
submitted
as
Exhibit
A-1
:
Share
Holdings
Taxation
Years
1974,
1975,
1976,
1977
&
1978
|
ENTREPRISES
|
ATOMIC
ATOMIC
|
ROCLAR
ROCLAR
|
|
Royal
Lefebvre
|
Royal
Lefebvre
|
Clarence
Lefebvre
|
|
100
common
shares
|
125
common
shares
|
99
common
shares
|
|
(49.5%)
|
(42%)
|
(49%)
|
|
Wanda
Lefebvre
|
Clarence
Lefebvre
|
Marie-Rose
Lefebvre
|
|
100
common
shares
|
125
common
shares
|
99
common
shares
|
|
(49.5%)
|
(42%)
|
(49%)
|
|
Jean
Claude
Ruel
|
Aurèle
Lefebvre
|
Jean
Truel
|
|
1
common
share
|
50
common
shares
|
4
common
shares
|
|
(1%)
|
(16%)
|
(2%)
|
The
underlined
names
indicate
the
groups
chosen
by
the
Department
of
National
Revenue.
It
was
also
common
ground
that
Royal
Lefebvre
(Royal),
Clarence
Lefebvre
(Clarence)
and
Aurèle
Lefebvre
(Aurèle)
were
brothers;
that
Royal
was
married
to
Marie-Rose
Lefebvre
(Marie-Rose);
and
that
Clarence
was
married
to
Wanda
Lefebvre
(Wanda).
The
point
at
issue
was
the
interpretation
of
paragraph
256(1)(e)
of
the
Income
Tax
Act,
and
more
particularly
that
portion
of
the
section
which
reads:
..
.
and
either
of
the
related
groups
owned
directly
or
indirectly,
in
respect
of
each
corporation,
not
less
than
10%
of
the
issued
shares
of
any
class
of
the
capital
stock
thereof.
Counsel
for
the
appellants
agreed
that
on
Exhibit
A-1,
Royal
personally
owned
more
than
10%
of
the
capital
stock
of
Atomic,
but
his
argument
continued
that
since
Wanda
owned
none
of
the
capital
stock
in
Atomic
and
is
a
member
of
the
group
selected
by
the
Minister
(for
“Les
Entreprises”),
the
group
does
not
own
10%
of
the
capital
stock
in
Atomic.
The
same
rationale
obtained
for
Roclar
with
Clarence
acting
as
the
shareholder
link.
For
support,
Counsel
referred
in
particular
to
the
following
cases:
The
Queen
v
Mars
Finance
Inc,
J
Euclide
Perron
Limitée
and
Les
Immeubles
Perron
Limitée,
[1980]
CTC
216;
80
DTC
6069;
John
B
Holden
v
MNR,
[1928-34]
CTC
116;
1
DTC
218;
MNR
v
Holden,
1928-34
CTC
127
&
129;
1
DTC
234,
243;
[1948]
CTC
265;
4
DTC
491;
The
Executors
of
the
Estate
of
David
Fasken
v
MNR,
[1948]
Ex
CR
580;
Buckerfield’s
Limited,
Green
Valley
Fertilizer
&
Chemical
Co
Ltd,
Westland
Elevators
Limited
and
Burrard
Terminals
Limited
v
MNR,
[1964]
CTC
504;
64
DTC
5301.
In
addition,
reference
was
made
to
paragraphs
17
and
18
of
Interpretation
Bulletin
IT-64R
dated
December
22,
1975,
published
by
the
Department
of
National
Revenue.
Counsel
for
the
respondent
centred
the
argument
around
the
case
of
Wynndel
Logging
Co
Ltd,
Wynndel
Lumber
Sales
Ltd,
Hallmark
Lumber
Ltd
and
Celcrest
Timber
Ltd
v
MNR,
[1980]
CTC
2141;
80
DTC
1125,
and
in
particular
to
the
quotation
to
be
found
at
2151
[1133]
:
As
I
interpret
section
256(1
)(e)
there
are
two
related
groups,
one
which
controls
one
corporation
and
the
other
controls
the
second
corporation,
and
then
one
of
those
related
groups
must
own
at
least
10%
of
the
issued
shares
in
the
other
corporation.
The
appellant’s
submission,
as
stated
above,
was
that
each
member
of
one
of
the
groups
must
own
at
least
one
share
of
the
other
corporation,
the
total
of
their
ownership
being
in
excess
of
10%.
I
believe
that
one
must
ascertain
or
delineate
the
group
and,
having
done
that,
must
determine
whether
or
not
that
group
has
at
least
a
10%
shareholding
in
the
other
corporation.
There
is
no
requirement
that
each
member
of
that
group
must
own
at
least
one
share.
As
to
the
change
between
the
predecessor
section
and
section
256(1
)(e),
I
believe
that
increasing
the
shareholding
from
one
share
to
10%
of
the
issued
shares
increases
the
restriction
which
previously
existed.
In
my
view,
the
weakness
in
the
argument
of
counsel
for
the
appellants
is
that
he
is
placing
the
relationship
base
of
the
group
on
common
ownership
of
stock
rather
than
on
common
blood
tie.
The
fact
that
Royal
owned
stock
in
Atomic
and
Wanda
did
not,
has
no
effect
at
all
on
the
generic
constitution
of
the
group
formed
in
“Les
Entreprises’’.
The
relationship
between
the
corporations
for
purposes
of
the
Act
does
not
revert
to
one
of
an
individual
nature
as
contended
by
counsel
for
the
appellants,
but
remains
that
of
a
group
as
contended
by
the
Minister.
I
would
interpret
the
phrase
‘’directly
or
indirectly”
as
covering
a
description
such
as
“within
the
group”,
rather
than
the
exclusive
format
proposed
by
counsel
for
the
appellants,
which
would
require
that
each
member
of
the
related
group
in
one
corporation
own
at
least
one
share
of
stock
in
the
second
corporation.
Royal
remains
within
the
group
in
“Les
Entreprises”,
and
the
stock
he
controls
in
Atomic
meets
the
requirements
of
paragraph
256(1
)(e)
of
the
Act.
The
same
holds
true
for
Clarence
in
Roclar.
Paragraph
39(4)(e)
of
the
old
Income
Tax
Act
was
the
precedecessor
paragraph
to
256(1
)(e)
of
the
new
Act.
In
paragraph
39(4)(e),
the
corresponding
specific
requirement
was
that
“one
of
the
members
of
one
of
the
related
groups
owned
directly
or
indirectly
one
or
more
shares
of
the
capital
stock
of
each
of
the
corporations”
(italics
mine).
No
support
can
be
seen
therein
for
the
position
adopted
by
counsel
for
the
appellants
in
this
matter,
and
there
is
no
indication
that
the
principle
had
changed
for
purposes
of
the
new
Act.
For
the
above
reasons,
the
appeals
are
dismissed.
Appeals
dismissed.
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