Lyle a Meredith v. Minister of National Revenue, [1980] CTC 2433, 80 DTC 1381

John B Goetz:—This is an appeal from an income tax reassessment made by the Department of National Revenue with respect to the appellant’s 1972 and 1973 taxation years.

The appellant, at all material times, held 84 shares out of 100 issued common shares of Tilbury Hotel Limited and operated the hotel with his coshareholder until March 16, 1968 when it was sold. The company is still extant although not operating. The company’s financial statement for its fiscal year ending November 30, 1971 showed retained earnings in the amount of $118,936.10. Its financial statement as of November 30, 1972, filed with the corporation income tax return, showed retained earnings amounting to $122,046.32. The balance showed liabilities in the amount of $129.47 for income tax payable. Attached to this financial statement, was a sheet with the words “Advances made to shareholders in anticipation of a partial redemption for outstanding shares in the near future”. No monetary figures were mentioned. Tilbury Hotel Limited’s corporation income tax return was filed in 1973 without any financial statement attached but the respondent filed a rough handwritten financial statement, obviously prepared by accountants and auditors of the company. This statement indicated “advances to shareholders $27,550”, with liabilities for accrued expenses amounting to $200 and income tax payable $91. The corporation income tax return for 1974 had a financial statement attached indicating advances to shareholders in the amount of $29,136 and liabilities for accrued expenses in the amount of $200. In 1975 the corporation tax return with a fianancial statement attached, showed advances to shareholders in the amount of $3,636 with liabilities for accrued expenses $500, and income tax payable $390. Meanwhile the appellant had retained different accountants who obviously advised him to make an election to pay tax on his 1971 undistributed income and a resolution was passed on October 14, 1975, and signed by Mr Meredith, the appellant, whereby pursuant to section 196 of the Income Tax Act, SC 1970-71-72, c 63, as amended, it was determined to pay 15% on $30,000 to be distributed to the shareholders. At the same time the appellant filed for tax form T2053, entitled “Election in Respect Of A Dividend Out Of Tax-Paid Undistributed Surplus On Hand Or 1971 Capital Surplus On Hand”. Again a resolution of the company was passed on October 14, 1975, which resolution provided that pursuant to the provisions of subsection 83(1) of the Income Tax Act a dividend in the amount of $25,500 be declared to reduce the tax paid on undistributed surplus on hand. This resolution was also signed by Mr Meredith, the appellant.

In the reply to the notice of appeal, the respondent alleged that the appellant was the controlling shareholder of Tilbury Hotel Limited; that the taxation year of Tilbury Hotel Limited was December 1, 1971 to November 30, 1972, and December 1, 1972 to November 30, 1973. He further alleged that the Tilbury Hotel Limited, in the taxation year ending November 30, 1972, made a net loan to the appellant in the amount of $19,105.85 which was not repaid by the appellant before November 30, 1973. Further, Tilbury Hotel Limited, in the taxation year ending November 30, 1973, made a net loan to the appellant in the amount of $1,293.42 which was not repaid by the appellant before November 30, 1974.

The appellant indicated in cross-examination that any advances made in 1972 and in 1973 listed as advances to shareholders should have been dealt with as they were in 1975 when he had new accountants. He also felt that any such payments were repayment to him of capital.

In reassessing the appellant, the respondent relied, inter alia, upon subsection 15(2) and paragraph 20(1)(j) of the Income Tax Act. Obviously, the payments to the appellant referred to above did not come under paragraph 15(1)(d), (e) and (f) which reads as follows:

(1) Where in a taxation year

(a) a payment has been made by a corporation to a shareholder otherwise than pursuant to a bona fide business transaction,

(b) funds or property of a corporation have been appropriated in any manner whatever to, or for the benefit of, a shareholder, or

(c) a benefit or advantage has been conferred on a shareholder by a corporation,

otherwise than

(d) on the reduction of capital, the redemption of shares or the winding-up, discontinuance or reorganization of its business, or otherwise by way of a transaction to which section 84, 88 or Part II applies,

(e) by the payment of a dividend, or

(f) by conferring on all holders of common shares of the capital stock of the corporation a right to buy additional common shares thereof,

the amount or value thereof shall be included in computing the income of the shareholder for the year.

Further, the appellant, as alleged by the respondent, met none of the conditions of subsection 15(2) which reads as follows:

(2) Where a corporation has in a taxation year made a loan to a shareholder, the amount thereof shall be included in computing the income of the shareholder for the year unless

(a) the loan was made

(i) in the ordinary course of its business and the lending of money was part of its ordinary business,

(ii) to an officer or servant of the corporation to enable or assist him to purchase or erect a dwelling house for his own occupation,

(iii) to an officer or servant of the corporation to enable or assist him to purchase from the corporation fully paid shares of the corporation to be held by him for his own benefit, or

(iv) to an officer or servant of the corporation to enable or assist him to purchase an automobile to be used by him in the performance of the duties of his office or employment,

and bona fide arrangements were made at the time the loan was made for repayment thereof within a reasonable time, or

(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.

The appellant was very firm in the fact that one Robert Hreljack, an audit review officer for the Department of National Revenue, told him that his appeal with respect to the assessments for 1972 and 1973 had been allowed.

Findings

Dealing with the evidence of the appellant with respect to agents of the Minister of National Revenue seemingly giving him wrong advice or wrong information, it obviously raises a question of estoppel. Admissions or advice of agents of the Minister of National Revenue are not binding upon the Minister. See MNR v Inland Industries Ltd, [1972] CTC 27; 72 DTC 6013, at 31 and 6017 respectively:

The difference between the wording of this memorandum and the wording of the actuarial certificate is quite substantial and it is somewhat surprising that, notwithstanding such advice, departmental approval was given to the payments on behalf of the Minister. However, it seems clear to me that the Minister cannot be bound by an approval given when the conditions prescribed by the law were not met. (Italics mine).

Further, in Ernest G Shekel v MNR, [1972] CTC 210; 72 DTC 6178, it was held that an Information Bulletin published by the Minister which misstated the effect of Article 8(a) of a Tax Convention did not create an estoppel against the Minister. With respect to estoppel against the Minister, see also the following cases: Cam Gard Supply Ltd v MNR, [1973] CTC 111; 73 DTC 5133, affirmed by the Federal Court of Appeal [1974]CTC 487; 74 DTC 6429; Her Majesty the Queen v Cecil M Langille, [1977] CTC 144; 77 DTC 5086. In the editorial note we read:

Laches cannot be imputed to the Crown, it is a privilege of the King not to be bound by the mistakes, omissions or neglects of his officers or servants.

See also Nathan Cohen v Her Majesty the Queen, [1978] CTC 63; 78 DTC 6099.

Although the appellant stated that he couldn’t remember receiving any monies pursuant to the resolution of November 27, 1975, declaring a dividend in the amount of $25,500, he nevertheless was allowed to deal with this pursuant to the provisions of paragraph 21(j). Quite clearly, advances were made to the appellant in the 1972 and 1973 taxation years and he met none of the conditions in subsection 15(2) which would exempt him from treating same as a benefit under the Act.

I therefore dismiss the appeal, for the above reasons.

Appeal dismissed.