Bonner
J.T.C.C.:
—
This
is
an
appeal
from
an
assessment
of
income
tax
for
the
Appellant’s
1989
taxation
year.
During
that
year
Stewart
Investments
Inc.
(“Investments”),
a
corporation
in
which
the
Appellant
was
a
shareholder,
agreed
to
purchase
real
property
in
Toronto.
The
deposit
of
$100,000
payable
on
the
formation
of
the
agreement
of
purchase
and
sale
was
paid
to
the
vendor
by
Investments.
The
balance
on
closing,
approximately
$1.5
million
was
paid
to
the
vendor
by
Cassée
Investments
Ltd.
(“Cassée”),
another
corporation
in
which
the
Appellant
was
a
shareholder.
Title
was
conveyed
to
the
Appellant
pursuant
to
a
direction
given
to
the
vendor
by
Investments.
The
Minister
of
National
Revenue
(“Minister”)
made
the
assessment
now
under
appeal
on
the
basis
that
in
the
course
of
the
transactions
the
Appellant
received
loans
from
or
became
indebted
to
Investments
and
Cassée
in
the
amounts
set
out
above
and
that
as
a
consequence
those
amounts
were
to
be
included
in
the
Appellant’s
income
by
virtue
of
subsection
15(2)
of
the
Income
Tax
Act
(“Act”).
The
issue
is
whether
the
Minister
was
correct
in
so
viewing
the
transactions.
The
position
of
the
Appellant
in
this
appeal
is
that:
(a)
neither
Cassée
nor
Investments
intended
to
confer
any
sort
of
benefit
on
the
Appellant;
title
was
conveyed
to
the
Appellant
temporarily
in
order
to
facilitate
the
conversion
of
the
property
from
rental
apartments
to
condominium
apartments;
the
conversion
operation
was
carried
out
by
and
for
the
benefit
of
Cassée
and
Investments
only
and
no
benefit
whatever
was
derived
by
the
Appellant;
(b)
the
Appellant
held
title
not
as
owner
but
as
trustee,
agent
or
nominee
of
Cassée
and/or
Investments;
(c)
entries
in
the
financial
statements
of
Cassée
and
Investments
indicating
that
the
Appellant
was
indebted
to
those
corporations
were
erroneous
and
incapable
of
creating
or
changing
the
rights
and
obligations
of
the
parties;
(d)
a
statutory
declaration
of
the
Appellant
asserting
that
he
was
owner
of
the
real
property
which
declaration
was
used
to
secure
an
exemption
of
the
property
under
section
4(2)
of
the
Rental
Housing
Protection
Act
S.O.
1989
C.
31
is
to
be
regarded
as
asserting
only
that
the
Appellant
held
title
as
nominee
or
bare
trustee.
The
Appellant
was
born
in
1910.
He
was
a
successful
businessman
but,
before
the
events
now
in
question,
he
reduced
the
level
of
his
activity
in
the
business
world
and
resided
most
of
the
time
in
Caledon,
Ontario.
During
the
period
in
question
he
maintained
a
Toronto
residence
on
Prince
Arthur
Street.
Before
1989
he
implemented
an
estate
freeze
and
thereafter
held
only
fixed
value
preference
shares
of
Cassée.
The
common
shares
of
Cassée
were
held
by
the
Appellant’s
children.
The
Appellant
and
his
family
were
familiar
with
the
real
property
in
question
in
this
appeal.
It
was
located
at
the
intersection
of
Poplar
Plains
Road
and
Edmund
Avenue
in
Toronto.
In
1989
there
were
two
buildings
on
the
property
containing
a
number
of
apartment
units.
The
buildings
were
in
need
of
renovation
but
the
rents
were
apparently
too
low
to
justify
the
cost
of
the
work.
The
Appellant’s
son
Timothy
was
involved
full
time
in
the
management
of
the
family
business.
That
business
appears
to
have
been
carried
on
by
Cassée
and
Investments.
Timothy
Stewart
concluded
that
the
property
was
suitable
for
conversion
into
good
quality
condominium
residences.
It
was
recognized
at
the
outset
that
the
Rental
Housing
Protection
Act
was
an
obstacle
to
the
conversion
of
the
property
from
a
rental
property
to
a
condominium.
Timothy
Stewart
consulted
a
lawyer,
Michael
Vaughan,
who
advised
that
the
exemption
in
section
4(2)(a)
of
the
Rental
Housing
Protection
Act
might
be
utilized
if
the
building
department
of
the
City
of
Toronto
could
be
persuaded
that
there
had
been
a
change
from
use
of
the
property
for
rental
to
use
for
purposes
of
occupation
by
the
Appellant,
his
wife
and
their
children.
Section
4
of
that
statute
read
in
part:
4(1)
No
rental
property,
or
part
thereof,
shall
be,
(a)
demolished;
(b)
converted
to
use
as
a
condominium
...
or
to
any
use
for
a
purpose
other
than
rental
property,
or
(c)
renovated
or
repaired
if,
(i)
a
tenant
is
in
possession
of
a
rental
unit
and
vacant
possession
of
the
rental
unit
would
be
required,
or
(ii)
the
repair
or
renovation
is
to
a
vacant
rental
unit
and
is
so
extensive
that,
were
the
rental
unit
occupied,
vacant
possession
of
the
unit
would
be
required,
by
any
person
unless
the
council
of
the
municipality
in
which
the
property
is
situate
approves
of
the
demolition,
conversion,
renovation
or
repair.
(2)
Clause
(1)
(b)
does
not
apply
so
as
to
require
the
approval
of
the
council
of
the
municipality
if
the
conversion
of
rental
property,
or
part
thereof,
is
to
use
for
the
purposes
of
occupation
by,
(a)
a
person
referred
to
in
section
105
of
the
Landlord
and
Tenant
Act
...
Section
105
of
the
Landlord
and
Tenant
Act
R.S.O.
1980
C.
232
provided:
105.
Notwithstanding
section
100,
101,
102,
103
or
104,
where
a
landlord
bona
fide
requires
possession
of
residential
premises
at
the
end
of,
(a)
the
period
of
the
tenancy
;
or
(b)
the
term
of
a
tenancy
for
a
fixed
term,
for
the
purpose
of
occupation
by
himself,
his
spouse
or
a
child
or
parent
of
his
or
his
spouse,
the
period
of
the
notice
of
termination
required
to
be
given
is
not
less
than
sixty
days.
A
plan
devised
by
Mr.
Vaughan
(or
a
variation
of
it)
was
adopted.
Timothy
Stewart
negotiated
the
purchase
of
the
property.
Investments
agreed
to
buy
the
property
and
directed
the
vendor
to
convey
title
to
the
Appellant.
The
purchase
price
was
paid
in
the
manner
set
out
above.
The
conveyance
to
the
Appellant
was
registered
on
November
9,
1989.
It
did
not
indicate
in
any
way
that
the
Appellant
held
title
as
trustee,
nominee
or
otherwise
in
a
representative
capacity.
For
purposes
of
persuading
officials
of
the
City
of
Toronto
that
the
exemption
in
section
4(2)(a)
of
the
Rental
Housing
Protection
Act
was
applicable
to
the
property,
the
Appellant,
in
September
of
1990,
made
a
statutory
declaration
in
the
following
terms:
I,
Clair
C.
Stewart
of
the
City
of
Toronto,
in
The
municipality
of
Metropolitan
Toronto,
retired,
do
solomnly
[sic]
declare
that:
1.
I
am
the
owner
of
the
property
described
above.
2.
I
received
a
deed
to
the
property
dated
November
8,
1989
which
was
registered
as
Instrument
No.
C-609124
on
November
9,
1989.
3.
The
property
contains
two
buildings,
195
Poplar
Plains
Road
and
36
Edmund
Avenue,
both
of
which
were
formerly
used
as
rental
residential
premises.
4.
All
the
rental
residential
units
have
been
vacated
and
no
rental
residential
unit
became
vacant
pursuant
to
a
notice
to
terminate
a
tenancy
under
section
105
of
the
Landlord
and
Tenant
Act,
R.S.O.
1980,
c.
232,
as
amended.
5.
As
of
this
date
the
buildings
have
been
converted
in
their
entirety
from
use
as
rental
residential
premises
to
use
for
the
purpose
of
occupancy
by
my
wife
and
several
of
our
children.
6.
My
wife
and
I
occupy
the
entire
building
at
36
Edmund
Avenue.
Our
telephone
number
at
the
premises
is
975-0836.
We
have
installed
cable
T.V.
at
the
premises
and
receive
mail
and
publications
at
the
premises.
We
have
installed
furniture,
furnishings
and
equipment
at
the
premises.
7.
I
make
this
solomn
[sic]
declaration
conscientiously
believing
it
to
be
true
and
knowing
that
it
is
of
the
same
force
and
effect
as
if
made
under
oath
and
by
virtue
of
the
Canada
Evidence
Act.
This
declaration
was
drafted
by
Mr.
Vaughan
and
sworn
before
him.
The
Appellant
was
cross-examined
at
the
hearing
of
this
appeal
regarding
the
statements
made
in
it.
The
Appellant
was
unable
to
explain
paragraph
One
except
to
say
that
he
was
a
temporary
owner
or
owner
of
convenience.
He
did
not
attempt
to
assert
that
paragraph
six
was
true
at
all.
He
testified
that
he
did
not
live
in
the
property,
that
he
was
rarely
in
it
and
that
he
kept
no
personal
belongings
in
it.
The
justification
given
by
the
Appellant
for
swearing
this
declaration
appeared
to
be
that
it
was
necessary
to
the
carrying
out
of
the
plan
to
convert
the
property
to
condominiums.
Evidence
was
given
by
Michael
Vaughan.
He
confirmed
that
he
had
been
consulted
by
Timothy
Stewart
prior
to
the
purchase
of
the
property.
He
asserted
that
the
Appellant
had
nothing
to
do
with
the
property
before
that
time.
He
confirmed
as
well
that
it
was
he
who
advised
that
the
Appellant
would
be
the
ideal
title
holder
for
purposes
of
securing
an
exemption
under
section
4(2)(a)
of
the
Rental
Housing
Protection
Act.
He
testified
that
in
his
view
that
statute
and
the
Landlord
and
Tenant
Act
do
not
draw
a
distinction
between
beneficial
owner
and
a
bare
trustee.
In
this
regard
he
relied
on
the
definition
of
landlord
in
section
1(b)
of
the
Landlord
and
Tenant
Act
and
of
“person”
in
section
1
of
the
Rental
Housing
Protection
Act.
He
did
not
say
when
it
first
became
necessary
to
consider
whether
nominal
ownership
would
suffice.
I
observe
that
for
present
purposes
the
relevant
question
is
not
whether
Mr.
Vaughan’s
interpretation
of
the
two
statutes
is
correct.
The
point
is
that
the
Appellant
took
title
and
swore
the
statutory
declaration
following
the
receipt
of
advice
from
a
lawyer
who,
at
least
now,
is
of
the
view
that
a
bare
trustee
might
be
"...
a
person
referred
to
in
section
105
of
the
Landlord
and
Tenant
Act’.
There
is
evidence
indicating
that,
whatever
the
advice
given
by
Mr.
Vaughan
may
have
been,
a
decision
was
made
that
the
property
should
be
acquired
by
the
Appellant
as
full
owner
and
that
the
money
paid
to
the
vendor
of
the
property
should
be
treated
as
money
owing
to
Cassée
and
Investments.
Such
evidence
includes
the
financial
statements
of
Cassée
for
the
year
ending
December
31,
1989
and
an
agreement
relied
on
by
the
accountant
who
prepared
them.
Those
statements
recorded
the
payment
of
the
balance
on
closing
and
other
expenses
attendant
on
the
purchase
of
the
property
as
an
advance
to
shareholder
of
$1,523,627
and
noted
that
interest
was
payable
on
that
amount
at
prime
plus
1/4
of
1%.
The
financial
statements
of
Investments
for
the
year
ending
December
31,
1989
recorded
the
$100,000
deposit
paid
by
it
as
an
advance
to
shareholder.
In
both
cases
the
shareholder
in
question
was
the
Appellant.
In
neither
case
was
the
property
Or
any
interest
therein
shown
as
a
corporate
asset.
The
accountant
who
prepared
both
financial
statements
adopted
this
treatment
after
receiving
a
draft
agreement
from
the
family
solicitors.
That
document,
which
was
dated
“as
of”
November
1989
and
received
by
the
accountant
on
June
11,
1990,
recited
that
the
Appellant
had
acquired
the
real
property
for
purposes
of
renovating
it
into
condominium
units
some
of
which
were
to
be
acquired
by
the
children.
It
recited
that
the
Appellant
was
borrowing
from
Cassée
the
funds
necessary
to
make
the
renovations.
It
provided
for
the
grant
by
the
Appellant
to
each
of
the
children
of
an
option
to
acquire
one
of
the
condominium
units
at
a
price
equal
to
the
cost
to
the
Appellant
of
that
unit.
As
well
it
provided
that
if
any
child
did
not
exercise
his
option
to
acquire
a
unit
and
if
the
Appellant
was
unable
to
sell
the
unit
for
a
price
equal
to
or
greater
than
cost
then
the
Appellant
would
be
entitled
to
require
the
child
to
take
the
unit
at
the
Appellant’s
cost.
Finally
it
called
for
a
loan
by
Cassée
to
the
Appellant
of
the
funds
required
to
carry
out
the
renovations.
Furthermore,
it
is
of
considerable
significance
that
in
September
1990
the
audited
financial
statements
of
Cassée
for
1989
were
approved
by
resolutions
of
the
directors
and
shareholders
of
the
company.
The
Appellant
and
Timothy
Stewart
were
among
the
directors
and
shareholders
who
signed
the
resolutions.
It
was
not
until
early
in
1991
that
any
revisions
were
made
to
the
manner
in
which
the
transactions
were
depicted
in
the
1989
financial
statements
of
Cassée
and
Investments.
Cassée’s
balance
sheet
for
the
year
ended
December
31,
1990
reclassified
the
$1.5
million
which
had
previously
been
portrayed
as
an
advance
to
shareholder.
The
new
classification
was
“real
property
at
cost
less
provision
for
decline
in
value”.
Note
5
to
those
statements
stated
“Certain
figures
for
1989
have
been
reclassified
for
comparative
purposes
to
correspond
with
the
classification
adopted
in
1990”.
This
action
resulted
from
the
receipt
by
the
accountant
at
some
time
early
in
1991
of
a
copy
of
a
document
described
as
a
nominee
agreement.
The
parties
to
the
nominee
agreement
were
the
Appellant
and
Cassée
both
of
whom
executed
it.
That
agreement
was
portrayed
at
the
hearing
of
this
appeal
as
a
document
which
reflected
the
“true”
arrangement
among
the
Appellant,
Cassée
and
Investments
in
relation
to
the
real
property.
The
nominee
agreement
recites
that
it
was
made
“as
of”
November
9,
1989
but
does
not
bear
any
indication
of
the
date
on
which
it
was
executed.
It
recites
that
the
Appellant
as
trustee
holds
the
property
in
trust
for
Cassée
and
wishes
to
confirm
the
arrangement
between
the
two.
It
reads
in
part
as
follows:
The
Nominee
hereby
acknowledges
and
agrees
that
he
holds
title
to
the
Properties
solely
as
nominal
title
holder
for
the
Beneficiary,
without
any
right,
ownership
or
interest
in
and
to
the
Properties
or
in
and
to
any
proceeds,
rents,
income,
issues,
advantages
of
benefits
therefrom.
The
property
was
conveyed
by
the
Appellant
to
Cassée
in
December
1992.
The
Land
Transfer
Tax
Affidavit
indicates
that
no
consideration
was
paid
and
explains
that
the
transferee
had
been
sole
beneficial
owner.
Evidence
was
given
by
Timothy
Stewart.
He
testified
that
he
and
his
brother
John
managed
Cassée.
He
stated
that
his
father
did
not
participate
in
the
decision
making
process
with
respect
to
the
real
property.
He
described
the
project
as
a
“Cassée
project”.
He
stated
that
it
was
Mr.
Vaughan
who
advised
that
the
property
be
put
in
the
name
of
a
Stewart
family
member
who
would
be
the
nominal
owner.
Mr.
Stewart
was
not
able
to
say
when
the
nominee
agreement
was
executed.
He
was,
he
said,
unable
to
recall
whether
it
was
executed
before
Revenue
Canada
became
inter-
ested
in
the
events
now
in
question.
When
Timothy
Stewart
was
questioned
regarding
the
draft
agreement
which
made
provision
for
the
acquisition
of
the
property
by
the
Appellant
using
funds
borrowed
from
Cassée,
he
stated
that
it
was
possible
that
the
lawyer
who
prepared
it
discussed
it
with
him
but
added
that
he
did
not
recall
whether
the
document
was
prepared
on
his
instructions.
The
$1.5
million
required
to
close
the
purchase
of
the
property
was
borrowed
by
Cassée
from
its
bank
at
the
prime
interest
rate.
Timothy
Stewart
agreed
that
the
family
would
have
been
advised
to
charge
the
Appellant
interest
at
a
rate
greater
than
the
cost
to
Cassée
of
borrowing
the
money
advanced
to
the
Appellant.
Undoubtedly
this
advice
was
intended
to
maintain
deductibility
to
Cassée
of
the
interest
cost
of
the
borrowed
money.
I
do
not
accord
much
weight
to
the
evidence
of
this
witness.
His
memory
of
many
relevant
events
appears
to
have
been
incomplete.
Three
of
the
Appellant’s
children
swore
statutory
declarations
intended
for
use
in
securing
exemption
under
the
Rental
Housing
Protection
Act
and
stating
that
their
father
was
owner
of
the
property.
None
mentioned
any
trust
or
nominal
ownership
arrangement.
None
was
called
to
testify
at
the
hearing
of
the
appeal.
I
have
concluded
that
the
Appellant
became
beneficial
owner
of
the
property
on
completion
of
the
purchase.
The
statutory
declaration
of
the
Appellant,
the
financial
statements
of
Cassée
and
Investments
and
the
resolutions
of
the
directors
and
shareholders
of
Cassée,
both
of
which
were
signed
by
the
Appellant
and
Timothy
Stewart,
all
support
that
conclusion.
It
is
the
contemporaneous
evidence
which
I
regard
as
the
most
reliable
guide
in
determining
what
happened
in
1989
and
1990.
My
conclusion
is
also
supported
by
the
draft
agreement
which,
although
never
signed,
was
not
shown
to
be
the
result
of
a
misunderstanding
on
the
part
of
the
lawyer
who
drafted
it.
I
attach
no
weight
to
the
nominee
agreement.
It
was
not
shown
to
have
come
into
existence
as
a
written
document
or
into
effect
as
an
arrangement
governing
the
relations
between
the
parties
until
some
time
during
1991.
I
do
not
ignore
the
evidence
of
Mr.
Vaughan
who
concluded
that
nominal
ownership
would
suffice
for
purposes
of
obtaining
an
exemption
under
the
Residential
Housing
Protection
Act.
It
is
not
clear
that
any
advice
to
this
effect
led
to
a
decision
before
1991
that
the
Appellant
would
hold
title
as
agent,
bare
trustee
or
nominee.
Equally
I
do
not
ignore
the
Appellant’s
evidence
that
he
was
not
interested
in
real
estate
ventures.
However
the
evidence
which
I
find
persuasive
suggests
that
the
parties
did
not
choose
to
proceed
on
the
basis
of
a
vesting
of
title
in
the
Appellant
as
agent,
bare
trustee
or
nominal
owner
only.
The
reliable
evidence
as
to
what
in
fact
happened
points
to
a
conclusion
that
the
parties
decided
in
1989
to
go
forward
on
the
basis
of
a
vesting
of
full
beneficial
ownership
in
the
Appellant
coupled
with
a
requirement
that
he
convey
to
the
children
individually,
as
set
out
in
the
draft
agreement,
the
condominium
units
in
the
completed
project.
It
was,
I
conclude,
on
that
basis
that
the
Appellant
said
in
answer
to
questions
asked
on
cross-examination,
that
he
was
“temporary
owner”
of
the
property.
He
was
temporary
owner
in
the
sense
that
he
was,
and
was
intended
to
be,
full
beneficial
owner
but
only
for
a
relatively
short
period
of
time.
To
carry
out
the
plan
the
loans
in
question
were
made
to
him.
The
conclusion
which
I
have
reached
is
not
inconsistent
with
the
Appellant’s
view
that
he
had
very
little
to
do
with
the
transaction.
The
course
of
events
contemplated
by
the
draft
agreement
would
not
have
required
much
effort
from
the
Appellant
because
the
project
appears
to
have
been
managed
and
directed
by
Timothy
Stewart.
In
my
view
the
evidence
shows
that
the
Minister
was
right
to
assess
as
he
did.
The
appeal
will
be
dismissed
with
costs.
Appeal
dismissed.
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