Guy
Tremblay
[TRANSLATION]:—These
cases
were
heard
on
common
evidence
at
Montreal,
Quebec
on
May
15,
1979.
1.
The
Case
at
Issue
1.1
Case
of
the
appellant
A
Fl
Lemaire
(hereinafter
referred
to
as
“Lemaire”)
From
the
notice
of
appeal
and
the
reply
to
the
notice
of
appeal,
the
question
is
whether
Lemaire
is
correct
in
denying
the
claims
of
the
respondent
to
the
effect:
(a)
that
funds
in
the
amount
of
$21,600
in
1969,
$39,863.41
in
1970
and
$6,832.31
in
1971
were
appropriated
by
him
from
the
Agence
de
Collection
Unie
Ltée;
(b)
that
he
omitted
to
include
in
his
income
interest
collected
in
the
amounts
of
$207.17
in
1969,
$1,385
in
1970
and
$2,753.37
in
1971;
(c)
that
a
sum
of
$606.23
was
incorrectly
claimed
in
the
calculation
of
his
1971
income;
(d)
that
there
were
legal
grounds
for
imposing
penalties
of
25%
of
the
income
tax
evaded—that
is,
$1,338.80
in
1969,
$2,728.19
in
1970
and
$452.53
in
1971.
1.2
Case
of
the
appellant,
the
Agence
de
Collection
Unie
Ltée
(hereinafter
referred
to
as
“the
Agency”)
From
the
notice
of
appeal
and
the
reply
to
the
said
notice,
the
question
is
whether
the
Agency
is
correct
in
denying
the
claims
of
the
respondent
to
the
effect:
(a)
that
the
Agency
should
have
included
in
its
income
the
sums
of
$36,269.49
in
1970
and
$27,149.67
in
1971;
(b)
that
there
were
legal
grounds
for
imposing
penalties
of
$3,731.42
in
1970
and
$2,810.67
in
1971.
2.
The
Burden
of
Proof
Except
for
the
matter
of
penalties,
the
appellants
have
the
burden
of
proving
that
the
assessments
issued
were
incorrect,
in
accordance
with
a
number
of
judicial
decisions,
especially
the
Supreme
Court
of
Canada
decision
in
the
case
of
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
As
for
the
penalties
of
25%
of
the
evaded
tax,
the
respondent
has
the
burden
of
showing
the
grounds
for
those
penalties
in
accordance
with
subsection
163(3)
of
the
new
Income
Tax
Act
and
subsection
62(3)
of
the
Income
Tax
Application
Rules,
1971.
3.
Agreements
Reducing
the
Number
of
Points
at
Issue
At
the
beginning
of
the
hearing
of
the
evidence,
the
appellants
informed
the
Board
that
several
of
the
points
at
issue
had
been
settled
between
them
and
that
only
the
following
remained:
3.1
Lemaire
case
The
amounts
of
$21,600
in
1969
and
$7,000
in
1970
are
considered
by
the
respondent
to
have
been
appropriations
by
Lemaire
of
the
Agency’s
funds
and
must
be
included
in
his
income.
The
penalties
of
25%
of
the
evaded
income
tax
are
also
still
at
issue.
3.2
The
Agency
case
The
sums
of
$25,600
for
the
year
1970
and
$3,000
for
the
year
1971
are
considered
by
the
respondent
to
be
income
not
declared
by
the
Agency.
The
penalties
of
25%
of
the
evaded
income
tax
are
still
at
issue.
4.
Facts
4.01
Lemaire
worked
for
various
collection
agencies
from
1960
to
1969.
4.02
From
1967
to
1969
Lemaire
worked
as
manager
for
Credico
Inc,
an
American
collection
agency.
On
several
occasions
while
he
was
working
for
this
agency,
he
entrusted
the
collection
of
numerous
accounts
totalling
more
than
$750,000
to
a
lawyer
called
Miller.
This
lawyer
was
valued
for
his
effectiveness.
4.03
In
February
1969
Credico
Inc
went
bankrupt.
Mr
Victor
Barnett,
CA,
was
appointed
trustee.
According
to
the
testimony
of
Mr
Lemaire
and
a
letter
written
to
the
trustee
on
November
10,
1969
(Exhibit
I-2),
Marine
Midland
International
Corporation
had
been
winding
up
Credico
Inc
since
the
spring
of
1968.
There
were
then
$8,000,000
in
accounts
receivable.
4.04
In
1969
Lemaire
became
president
of
and
majority
shareholder
in
the
Agency
which
was
incorporated
on
July
30,
1969
and
which
is
involved
mainly
in
collecting
and
buying
accounts
receivable
and
preparing
credit
reports.
4.05
The
fiscal
year
for
the
Agency
ended
on
February
28
of
each
year.
4.06
On
December
2,
1969
the
Agency,
represented
by
the
appellant,
bought
all
the
accounts
receivable
of
Credico
Inc
from
the
trustee
in
bankruptcy
(M
R
V
Barnett)
(Ex
A-2)
at
a
price
of
20
cents
for
every
dollar
of
accounts
receivable.
The
total
value
of
the
accounts
receivable
was
to
be
calculated
on
the
basis
of
the
accounts
still
outstanding
on
December
31,
1969.
The
Agency
paid
a
sum
of
$1,000
on
the
day
the
contract
was
signed,
$29,000
within
three
days
of
receipt
of
the
accounts,
and
the
balance
within
120
days
of
receipt
of
the
list
of
accounts
receivable.
These
accounts
were
worth
approximately
$250,000.
4.07
The
Agency
also
bought
bad
accounts
worth
$1
million
for
the
sum
of
$1.00
(Exhibit
I-2).
4.08
A
large
number
of
accounts
receivable,
worth
$150,000
were
still
in
the
hands
of
Miller,
the
lawyer.
Miller
maintains
he
lost
$50,000
in
various
fees
owed
by
Credico
Inc.
In
July
1970
it
was
agreed
(Exhibit
1-14)
that
Miller
would
continue
to
collect
the
accounts.
If
he
collected
less
than
the
amount
of
the
fees
outstanding,
he
would
not
claim
the
difference.
If,
on
the
other
hand,
he
collected
more
than
the
fees
due,
he
would
keep
the
money
for
himself.
Miller
believed
that
he
might
be
able
to
collect
$100,000
and
that
it
would
take
from
three
to
five
years.
Mr
Lemaire
said
he
felt
he
should
pay
perhaps
$50,000
to
$75,000
in
fees
and
this
was
the
reason
he
left
accounts
worth
$150,000
to
be
collected
by
Mr
Miller,
especially
since
the
best
accounts
assigned
to
Mr
Miller
had
already
been
collected.
4.09
According
to
Mr
Lemaire,
Mr
Miller
gave
him
$21,600
in
September
1969
and
$7,000
in
1968
or
1970
as
a
gift
for
services
rendered.
4.10
The
following
is
an
excerpt
from
Mr
Miller’s
testimony:
(TRANSLATION)
Q.
Did
you
at
any
time
buy
those
accounts,
the
accounts
that
were
in
your
possession?
A.
After
a
while,
Mr
Lemaire
gave
me
to
understand
that
he
might
be
able
to
buy
the
remaining
accounts
himself
for
a
nominal
sum
and
he
told
be
that
he
needed
money,
if
I
am
not
mistaken,
to
buy
them.
And
he
made
a
proposal
that
if
I
gave
him
a
certain
amount,
I
could
keep
the
accounts
I
had
at
my
office,
the
files
I
still
had
at
my
office.
I
believe
it
was
done
in
two
stages,
but
I
cannot
swear
to
it.
Q.
What
do
you
mean
by
“two
stages”,
Mr
Miller?
A.
I
believe
I
bought
on
two
(2)
occasions,
yes
bought,
I
gave
him
money
on
two
(2)
occasions,
if
you
like,
with
the
understanding
that
I
could
keep
a
certain
number
of
the
accounts
each
time.
Q.
Was
it
Mr
Lemaire
who
made
this
proposal
to
you,
Mr
Miller?
A.
It
was
Mr
Lemaire
who
told
me
that
he
could
buy
those
accounts
and
that
if
I
paid
him
or
gave
him
a
sum
of
money,
I
could
keep
the
accounts.
Q.
Now,
was
it
Mr
Lemaire
who
asked
you
for
a
certain
amount
of
money,
or
how
did
you
determine
the
amount
to
be
paid
for
the
accounts
in
your
possession?
A.
I
cannot
swear
to
you
exactly
if
I
paid—no,
I
did
not
pay
on
the
basis
of
a
possible
percentage
or
the
total
value
of
the
accounts
that
I
had.
A
figure
was
decided
upon,
but
it
was
he
who
decided
upon
the
figure;
I
did
not
decide
upon
the
figure.
4.11
When
Mr
Lemaire
incorporated
the
Agency
in
July
1969,
he
informed
Mr
Miller
that
he
would
not
be
using
the
company
for
another
four
or
five
months.
He
then
told
Mr
Miller
that
he
might
be
able
to
buy
the
accounts
of
Credico
Inc.
4.12
Mr
Pierre
St-Aubin,
investigator
for
the
respondent,
said
that
together
with
Mr
Miller
he
had
reconstructed
a
list
of
the
amounts
of
cash
payments
in
December
1969
and
seven
months
of
1970
and
determined
the
source
of
the
funds—they
were
from
Mr
Miller’s
current
account
or
had
been
borrowed
from
his
mother’s
bank
accounts.
On
December
16,
1969
Mr
Miller
withdrew
a
total
of
$11,600
from
his
mother’s
bank
accounts
(Nos
5441,
4591
and
03126).
On
December
19
he
withdrew
$10,000
from
his
savings
account
No
2382.
On
January
27
and
28,
1970
Mr
Miller
paid
Mr
Lemaire
$4,000
(two
payments
of
$2,000)
from
his
own
bank
account.
On
April
2,1970
he
gave
him
$1,000
from
his
current
account.
On
July
10
and
13,
1970
he
made
two
final
payments
of
$2,000
and
$5,000
from
two
of
his
mother’s
bank
accounts
(Nos
03126
and
4591).
The
total
of
these
payments
was
$33,600.
It
was
stated
that
$5,000
of
this
was
used
to
defray
Mr
Miller’s
expenses
and
the
balance,
$28,600,
to
pay
Mr
Lemaire.
According
to
Mr
Miller,
however,
the
sum
of
$5,000
was
a
loan
from
Mr
Lemaire
to
himself
(transcript,
p
17).
4.13
It
appears
from
the
cash
receipts
journal
of
the
Agency
(Exhibit
I-6)
that
$11,600
was
debited
to
the
Agency’s
account
on
December
17
and
$8,400
on
December
19.
These
sums
were
considered
loans
from
Mr
Lemaire
to
the
Agency.
In
December
1969
loans
from
Mr
Lemaire
to
the
Agency
totaled
$33,000
in
the
receipts
journal.
In
January
1970,
however,
there
was
no
record
in
the
receipts
journal
of
deposits
by
Mr
Lemaire.
4.14
According
to
the
disbursements
journal,
$33,000
was
paid
to
Lemaire
on
February
4,
1970.
In
addition,
payments
of
$29,000
and
$23,039.47
were
made
to
the
trustee
on
January
8,
1970
and
January
23,
1970
respectively
(cheques:
Exhibit
I-6).
The
originals
of
the
cheques
appearing
in
Exhibit
I-7
confirm
these
withdrawals.
4.15
According
to
Mr
St-Arnault,
he
informed
Mr
Lemaire
of
the
results
of
his
investigation
and
Mr
Lemaire
did
not
voice
any
criticism.
5.
Acts—Comments
5.1
Act
The
main
sections
of
the
old
Act
involved
in
the
case
are
subsection
8(1)
and
paragraph
12(1)(a).
They
read
as
follows:
8.(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
(i)
on
the
reduction
of
capital,
the
redemption
of
shares
or
the
winding-up,
discontinuance
or
reorganization
of
its
business,
(ii)
by
payment
of
a
stock
dividend,
or
(iii)
by
conferring
on
all
holders
of
common
shares
in
the
capital
or
the
corporation
a
right
to
buy
additional
common
shares
therein,
the
amount
or
value
thereof
shall
be
included
in
computing
the
income
of
the
shareholder
for
the
year.
12.(1)
In
computing
income,
no
deduction
shall
be
made
in
respect
of
(a)
an
outlay
or
expense
except
to
the
extent
that
it
was
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
property
or
a
business
of
the
taxpayer,
5.2
Comments
5.2.1
In
view
of
the
rather
complicated
evidence
and
in
order
to
deter-
minethe
truth
as
accurately
as
possible,
the
uncontested
and
the
most
clearly
established
facts
should
be
considered
first.
It
is
a
uncontested
fact
that
on
December
2,
1969
the
Agency
bought
the
accounts
receivable
of
Credico
Inc
from
Mr
Barnett,
the
trustee
in
bankruptcy.
Mr
Miller
held
approximately
$150,000
worth
of
these
accounts.
Thus
the
Agency
is
the
owner
of
the
accounts
receivable
(pars
4.06,
4.08
and
4.14).
5.2.2
In
light
of
Mr
Miller’s
testimony
(par
4.10),
there
is
no
doubt
in
the
Board’s
mind
that
Mr
Miller
bought
the
accounts
receivable
which
were
in
his
possession
and
that,
if
we
set
aside
a
payment
or
loan
to
Mr
Miller
of
$5,000
(par
4.12),
he
paid
Mr
Lemaire
$33,600
for
them—$21,600
in
1969
and
$12,000
in
1970.
5.2.3
Even
though
the
money
was
given
to
Mr
Lemaire,
there
can
be
no
doubt
that
it
belonged
to
the
Agency,
since
the
Agency
was
the
owner
of
the
accounts
receivable.
To
quote
Judge
Collier
in
the
case
of
Danalan
Investments
Ltd
v
MNR,
[1973]
CTC
251;
73
DTC
5209,
“Companies
can
only
act
through
their
officers,
directors,
servants,
or
agents.’’
Mr
Lemaire
was
president
of
the
Agency.
By
giving
the
money
to
the
company
in
the
form
of
loans
(Par
4.13)
and
by
having
himself
reimbursed
later
(par
4.14),
Mr
Lemaire
clearly
appropriated
money
from
the
Agency
within
the
meaning
of
subsection
8(1)
of
the
Act.
No
evidence
has
been
given
to
show
that
his
action
constituted
one
of
the
exceptions
described
in
paragraphs
(d),
(e)
or
(f)
of
subsection
8(1).
The
evidence
shows
that
the
sum
involved
was
at
least
$28,600.
Even
if
the
Board
had
only
Mr
Lemaire’s
testimony
that
the
amount
given
to
him
by
Mr
Miller
was
a
gift
for
services
rendered
(par
4.09
on
which
to
base
its
decision,
the
“gift”
would
still
be
considered
income
for
Mr
Lemaire.
The
services
rendered
by
Mr
Lemaire
were,
in
fact,
part
of
his
work
for
the
collection
agency.
He
entrusted
to
Mr
Miller
accounts
receivable
valued
at
almost
$1
million.
This
was
obviously
to
Mr
Miller’s
advantage—so
much
so
that
in
order
to
repay
Mr
Lemaire
and
continue
to
receive
such
accounts,
he
gave
him
from
$25,000
to
$30,000.
This
substantial
“tip”
must
be
included
in
Mr
Lemaire’s
income
and,
since
it
was
given
in
order
to
earn
income,
would
be
permitted
as
a
deduction
from
Mr
Miller’s
net
income.
5.2.4
The
said
sum
of
$28,600
must
be
considered
part
of
the
Agency’s
income.
The
agreement
on
the
point
at
issue
was
that
$25,600
was
involved
in
1970
and
$3,000
in
1971.
Since
the
Board
has
concluded
that
the
$28,600
must
be
included
in
the
Agency’s
income,
it
must
accept
the
years
given
in
the
agreement.
5.2.5
The
penalties
must
be
upheld.
According
to
the
evidence
given
by
the
witness
for
the
respondent,
Mr
Miller,
it
was
Mr
Lemaire
who
offered
to
sell
the
accounts,
set
the
price
and,
finally,
kept
the
money
for
himself
when
it
was
repaid.
Since
Mr
Lemaire
is
the
president
of
and
majority
shareholder
in
the
Agency,
we
cannot
separate
his
actions
from
the
company
he
represents
by
not
including
the
amounts
concerned
in
the
income
to
be
declared.
Having
worked
in
collection
agencies
since
1960,
Mr
Lemaire
could
not
have
been
unaware
of
the
implications
of
his
actions.
The
penalties
are
upheld.
6.
Conclusion
The
appeals
are
dismissed
in
accordance
with
the
foregoing
reasons
for
judgment.
Appeals
dismissed.
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