Lamarre
Proulx
T.C.J.:
These
appeals
concern
the
1985,
1986
and
1987
taxation
years.
The
first
of
the
two
points
at
issue
is
whether
the
debts
or
other
rights
the
appellant
disposed
of
during
the
years
at
issue
were
acquired
by
him
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property
within
the
meaning
of
s.
40(2)(g)(ii)
of
the
Income
Tax
Act
(“the
Act”).
If
they
were,
on
disposing
of
these
debts
or
rights
the
appellant
would
be
able
to
claim
a
business
investment
loss.
The
debts
or
rights
in
question
were
held
by
the
appellant
against
a
corporation
of
which
the
sole
shareholder
was
his
son.
The
second
point
at
issue
is
to
determine
for
the
purposes
of
s.
15(1)
of
the
Act
the
amount
of
the
benefit
conferred
on
the
appellant
as
a
shareholder
in
a
corporation
which
bought
his
private
home
from
him,
maintained
it
and
leased
it
to
him.
In
making
his
assessments
the
Minister
of
National
Revenue
(“the
Minister”)
relied
on
the
facts
set
out
in
paragraph
7
of
the
Reply
to
the
Notice
of
Appeal
(“the
Reply”)
as
follows:
[TRANSLATION]
(a)
during
the
years
at
issue
the
appellant
was
a
lawyer
practising
in
the
Québec
area;
(b)
the
appellant’s
bookkeeping
with
respect
to
his
law
practice
was
inadequate;
(c)
in
calculating
his
professional
income
for
the
1985,
1986
and
1987
taxation
years
the
appellant
failed
to
report
income
amounts
of
$12,998.46,
$45,800
and
$8,745
respectively:
(d)
the
entertainment
expenses
of
$15,811,
$12,512
and
$16,504
claimed
by
the
appellant
in
calculating
his
professional
income
for
the
1985,
1986
and
1987
taxation
years
respectively
were
personal
or
living
expenses
of
the
appellant,
and
those
expenses
were
not
made
or
incurred
by
him
in
order
to
gain
or
produce
income
from
a
business
or
property;
(e)
the
appellant
failed
to
report
interest
income
of
$20,858
and
$17,151
in
calculating
his
income
for
the
1986
and
1987
taxation
years
respectively;
(f)
throughout
the
period
at
issue
the
appellant
was
the
sole
shareholder
of
Centre
d’achats
Duberger
Inc.
(“the
company”);
(g)
throughout
the
period
at
issue
the
company
owned
a
building
used
as
the
appellant’s
personal
residence;
(h)
during
the
years
at
issue
the
company
incurred
or
made
expenditures
on
the
building
used
as
the
appellant’s
personal
residence;
(1)
during
the
period
at
issue
benefits
were
conferred
on
the
appellant
as
a
shareholder
of
the
company
as
a
result
of
use
of
the
building
belonging
to
the
company,
which
benefits
are
calculated
as
follows:
|
1985
|
1986
|
1987
|
|
Use
of
residence
|
$26,250
|
$24,375
|
$21,250
|
|
Residence
expenses
paid
by
com-
|
|
|
pany
|
$18,858
|
$
5,780
|
$14,232
|
|
Rent
paid
by
appellant
|
($
8,400)
|
($
8,400)
|
($
8,400)
|
|
Value
of
benefit
|
$36,708
|
$21,755
|
$27,082
|
(j)
in
addition
to
the
benefits
in
subparagraph
(i)
above,
benefits
worth
$31,943.24
and
$20,000
were
conferred
by
the
company
on
the
appellant
as
a
shareholder
in
the
1985
and
1986
taxation
years
respectively;
(k)
throughout
the
period
at
issue
the
appellant,
as
a
shareholder
of
the
company,
regularly
received
loans
from
it;
(l)
during
the
1985
taxation
year
the
appellant
received
a
loan
in
the
amount
of
$22,202
from
the
company,
with
no
arrangement
being
made
in
good
faith
for
the
loan
to
be
repaid
within
a
reasonable
time;
(m)
this
loan
was
repaid
as
part
of
a
series
of
loans,
repayments
and
other
operations;
(n)
the
total
interest,
calculated
at
the
prescribed
rate,
on
the
unpaid
balance
of
each
of
the
loans
made
to
the
appellant
by
the
company
was
$5,146,
$5,180
and
$1,755
for
the
1985,
1986
and
1987
taxation
years
respectively;
(o)
in
his
tax
returns
for
the
1985,
1986
and
1987
taxation
years,
the
appellant
claimed
business
investment
losses
of
$3,100,
$5,000
and
$6,000
respectively;
(p)
these
amounts
related
to
money
paid
by
the
appellant
to
his
son
Paul
Corriveau,
to
companies
owned
by
Paul
Corriveau,
such
as
Motosports
Paul
Corriveau
Inc.,
or
to
their
creditors;
(q)
this
money
was
paid
to
settle
the
debts
of
these
persons
or
to
honour
certain
surety
bonds
the
appellant
had
provided
with
respect
to
them;
(r)
the
losses
claimed
do
not
relate
to
the
debts
acquired
by
the
appellant
in
order
to
gain
or
produce
income
from
a
business
or
property.
At
the
start
of
the
hearing
the
parties
informed
the
Court
that
several
points
at
issue
had
previously
been
settled.
They
submitted
an
agreement
signed
on
August
4
and
6.
As
regards
subparagraph
7(c)
of
the
Reply,
the
parties
accepted
the
respective
amounts
of
$2,498.46,
$24,600
and
$8,245
instead
of
those
indicated
in
the
said
subparagraph.
With
respect
to
subparagraph
7(d)
of
the
Reply,
the
parties
agreed
to
a
slight
reduction
in
the
amounts
indicated
therein
to
$15,249,
$12,462
and
$14,744.
The
amounts
mentioned
in
subparagraph
7(j)
of
the
Reply
were
reduced
to
$3,000
and
$15,000.
The
appellant
admitted,
also
at
the
start
of
the
hearing,
subparagraphs
7(e)
and
(k)
to
(n)
of
the
Reply.
Subparagraphs
7(f)
to
(i)
and
(o)
to
(r)
of
the
Reply
therefore
remain
at
issue.
Subparagraphs
7(f)
to
(i)
concern
the
benefit
conferred
on
the
appellant
by
his
use
of
a
house
owned
by
a
corporation
of
which
he
was
the
sole
shareholder.
That
is
the
second
point
at
issue.
Subparagraphs
7(o)
to
(r)
of
the
Reply
raise
the
question
of
whether
the
debts
were
acquired
by
the
appellant
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property.
That
is
the
first
point
at
issue.
The
losses
claimed
as
business
investment
losses
are
higher
than
those
indicated
in
the
Reply.
These
higher
amounts
were
brought
forward
at
the
time
of
the
objection.
Paul
Corriveau,
the
appellant,
and
the
accountant
Briand
Belland
all
testified
on
the
first
point
at
issue.
Jeannette
Casavangh
Ferron,
the
appellant
and
the
accountant
testified
on
the
second
point
at
issue.
Nicole
Turcotte,
an
officer
of
the
Minister,
testified
with
respect
to
the
case
as
whole.
It
was
the
appellant
who
questioned
the
witnesses
and
argued
the
second
point.
When
the
appellant
testified,
he
was
questioned
by
his
counsel,
who
also
argued
the
first
point
at
issue.
Paul
Corriveau
is
the
appellant’s
son.
He
was
the
president
of
Motosports
Paul
Corriveau
Inc.,
which
was
incorporated
in
November
1977.
The
letters
patent
were
filed
as
Exhibit
A-1.
They
indicate
that
Paul
and
Richard
Corriveau
and
Jocelyne
P.
Corriveau
each
held
one
share.
Paul
was
described
as
a
merchant,
Richard
as
a
student
and
Jocelyne
a
housewife.
They
all
had
the
same
street
address.
In
1977
Paul
was
22
years
old.
He
was
a
student
in
administration.
He
explained
that
from
the
age
of
12
until
he
was
19
he
took
part
in
motorcycle
racing.
At
first
it
was
a
pastime,
but
his
involvement
later
became
serious.
He
travelled
a
lot
and
won
numerous
championships.
He
was
sponsored
by
large
motorcycle
companies.
His
father
went
nearly
everywhere
with
him.
They
met
a
lot
of
people
involved
in
racing
and
in
motorcycle
manufacturing.
That
was
how
the
matter
of
there
being
a
market
for
a
Yamaha
motorcycle
store
in
Ste-Foy
came
up.
There
was
a
dealer
in
Beauport
but
one
was
needed
in
Ste-Foy
came
to
be
brought
up.
Yamaha
company
representatives
approached
his
father
about
a
business
opportunity.
Since
Paul
was
studying
administration,
the
match
was
a
good
one.
His
father
asked
him
to
find
suitable
premises.
He
and
his
father
also
approached
the
Harley-Davidson
company.
The
result
was
that
in
January
1978
Motosports
Paul
Corriveau
Inc.,
referred
to
hereinafter
as
“Motosports”,
opened
up
dealing
in
both
makes.
The
corporate
name
reflected
the
fact
that
Paul
Corriveau
was
known
locally
because
of
the
many
championships
he
had
won.
When
the
business
started
up
the
appellant
had
to
endorse
everything
requiring
the
provision
of
sureties,
including
the
credit
line
and
the
purchase
of
inventory.
The
appellant
also
made
direct
investments.
Rather
than
using
the
company’s
credit
line,
Paul
Corriveau
went
directly
to
his
father.
The
cheques
were
made
out
to
the
company.
Because
of
high
interest
rates,
the
company’s
debt
load
became
too
great.
Paul
Corriveau
explained
that
his
father
met
with
the
accountants,
who
advised
him
to
drop
the
Yamaha
line
and
keep
only
the
Harley-Davidson
line
in
order
to
reduce
inventory.
Motosports
ceased
operating
in
June
1984.
Another
company,
Moto
USA,
was
formed
with
a
view,
the
witness
said,
to
protecting
the
Harley-Davidson
dealership.
On
September
30,
1985
Moto
USA
was
also
closed
down.
Exhibit
A-2
is
an
agreement
between
Motosports
Paul
Corriveau
Inc.
and
Lawrence
Corriveau,
dated
January
23,
1978.
It
reads
as
follows:
[TRANSLATION]
This
is
to
confirm
that
you
agree
to
stand
joint
and
several
surety
for
certain
debts
and
obligations
of
MOTOSPORTS
PAUL
CORRIVEAU
INC.,
so
as
to
enable
it
to
start
up
and/or
continue
its
operations.
In
consideration
of
the
sureties
to
be
subscribed
by
you
for
the
company’s
benefit,
the
company
undertakes
to
pay
you
annual
fees
corresponding
to
0.25%
of
the
value
of
the
debts
guaranteed
by
you,
such
fees
to
be
payable
as
soon
as
the
company
has
sufficient
cash
assets.
Finally,
this
confirms
that
in
the
event
you
are
required
as
surety
to
pay
any
of
the
company’s
debts,
you
shall
be
entitled
to
convert
the
company’s
debt
to
you
to
common
or
preferred
shares
in
the
company’s
capital
stock,
at
your
option,
and
in
this
regard
the
undersigned
undertakes
to
do
everything
required,
necessary
or
useful
to
give
effect
to
this
agreement....
Exhibit
A-3,
which
is
a
corporate
document
dated
August
18,
1978,
reads
as
follows:
[TRANSLATION
I
This
is
to
confirm
our
agreement
that
on
various
earlier
occasions,
and
on
the
date
hereof,
you
have
advanced
money
to
the
company
in
order
to
enable
it
to
continue
its
activities.
In
consideration
of
these
advances
the
company
undertakes
to
pay
you
interest
at
the
annual
rate
of
12%
on
advances
made
by
you,
such
interest
to
be
payable
as
soon
as
the
company
has
sufficient
cash
assets.
Such
advances
may,
at
your
option,
be
repaid
either
by
payment
in
full
plus
accrued
interest
or
by
converting
your
advances
to
common
or
preferred
shares
in
the
capital
stock
of
the
company,
and
in
this
regard
the
undersigned
undertakes
to
do
everything
required,
necessary
or
useful
to
give
effect
to
this
agreement.
In
the
event
that
you
retire
from
your
legal
practice,
common
shares
in
the
capital
stock
of
the
company
shall
be
issued
to
you
so
that
you
shall
hold
40%
of
the
company’s
common
shares
as
a
result
of
your
investments....
Paul
Corriveau
explained
that
it
was
always
understood
by
the
parties
to
the
agreements
entered
as
Exhibits
A-2
and
A-3
that
they
had
continuing
effect
and
applied
to
past
as
well
as
future
advances
to
both
Motosports
and
Moto
USA.
Exhibit
1-1
consists
of
the
financial
statements
to
December
31,
1979.
The
description
of
liabilities
contained
therein
indicates
the
following:
advances
from
a
director
(interest-free,
no
fixed
term)
$15,391.
The
same
amount
appears
for
1978.
These
were
advances
to
the
company
by
the
appellant.
According
to
Paul
Corriveau,
though
not
legally
such,
his
father
was
to
all
intents
and
purposes
a
director.
Exhibit
I-2
consists
of
the
financial
statements
for
the
year
ending
December
31,
1981.
On
page
7
thereof
there
appears
under
long-term
debt:
loan
from
a
director,
interest-free
with
no
provision
for
repayment
$50,765.
Exhibit
I-3
consists
of
the
financial
statements
for
1982.
The
loan
indicated
is
in
the
amount
of
$71,685.
Exhibit
I-4
consists
of
the
financial
statements
for
1983.
Appearing
therein
is
the
following:
advance
from
a
shareholder,
interest-free
with
no
provision
for
repayment.
The
amount
has
risen
to
$81,285.
Also
to
be
found
is:
loan
from
an
individual
(interest
payable
monthly
at
the
prime
rate
plus
two
and
a
half
percent),
with
no
provision
for
repayment
of
capital:
$30,000.
According
to
Paul
Corriveau,
his
father
had
borrowed
directly
for
the
company
because
it
was
no
longer
possible
to
increase
its
credit
line.
The
appellant
testified.
He
explained
that
his
son
Paul
began
as
a
junior
and
went
on
to
the
intermediate
and
then
senior
levels
in
motocross
racing.
He
became
Canadian
champion
in
both
motocross
and
motorcycle
racing
on
ice.
The
appellant
went
everywhere
with
his
son
and
knew
everyone
in
the
sport.
He
said
that
as
a
lawyer
he
did
not
want
to
be
a
shareholder
publicly
but
would
be
a
silent
partner.
He
also
said
he
could
see
himself
in
this
kind
of
business
on
retirement.
He
agreed
to
take
on
the
dealerships
so
long
as
it
was
in
his
son
Paul’s
name.
However,
he
would
guarantee
all
loans
and
would
provide
the
money
necessary
for
the
business.
He
stood
surety
for
the
lease,
handled
negotiations
with
respect
to
inventory
and
stood
surety
for
it.
It
was
he
who
invested
all
the
funds
required
and
consequently
the
appellant
wanted
to
obtain
an
economic
benefit
from
his
investment.
This
explains
the
documents
in
Exhibits
A-2
and
A-3.
The
appellant
kept
in
touch
weekly
with
what
was
happening
in
the
company.
Briand
Belland,
the
appellant’s
accountant,
testified.
He
had
20
years’
experience
and
had
been
the
appellant’s
and
the
company’s
accountant
since
1981.
Exhibits
A-5
to
A-12
were
filed
through
him.
It
was
he
who
had
prepared
their
presentation.
Exhibits
A-5
to
A-10
relate
to
1985.
Exhibit
A-
11
relates
to
1986
and
Exhibit
A-12
concerns
1987.
Exhibit
A-5
is
a
cheque
dated
July
15,
1985
in
the
amount
of
$26,731.96,
made
out
to
a
bank
in
final
settlement
on
behalf
of
Motosports
Paul
Corriveau
Inc.
The
loss
claimed
is
in
the
amount
of
$13,365.98.
Exhibit
A-6
consists
of
four
cheques
made
out
to
Moto
USA
in
the
total
amount
of
$28,787.75,
with
dates
from
February
15
to
July
23,
1985.
The
loss
claimed
is
in
the
amount
of
$14,393.88.
Exhibit
A-7
consists
of
cheques
made
out
to
a
law
firm
in
trust,
dated
August
30
and
November
15,
1985
and
January
15,
1986,
in
the
total
amount
of
$61,000.
These
cheques
were
used
to
pay
the
surety
for
the
inventory.
The
loss
claimed
is
$30,500.
Exhibit
A-8
consists
of
two
cheques
made
out
to
bailiffs
acting
for
the
town
of
Ste-Foy,
dated
January
30
and
February
12,
1985,
in
a
total
amount
of
$5,460.13.
The
loss
claimed
is
$2,730.07.
Exhibit
A-9
consists
of
two
cheques,
one
dated
November
23,
1984
and
made
out
to
Motosports
Paul
Corriveau
Inc.
in
the
amount
of
$6,200,
the
other
dated
September
24,
1985
and
made
out
to
Paul
Corriveau
in
the
amount
of
$5,800.
According
to
the
accountant,
the
second
cheque
was
used
by
Moto
USA
because
it
was
deposited
in
that
account.
The
loss
claimed
is
half
of
each
of
these
amounts.
Exhibit
A-10
includes
the
same
documents
as
Exhibits
1-1
to
1-4.
The
accountant
indicated
that
the
appellant
was
entitled
to
half
the
amount
of
$81,285,
namely
$40,642.50.
Exhibits
A-11
and
A-12
consisted
of
a
series
of
cheques
made
out
to
the
bank
in
payment
on
an
endorsement
given
for
business
purposes.
For
1986,
their
adjusted
cost
base
was
$10,000,
and
for
1987,
$11,000.
The
loss
claimed
for
each
of
these
years
is
half
of
each
of
these
amounts.
The
appellant
had
the
family
home
built
in
1959
at
a
cost
of
some
$100,000.
He
lived
in
it
until
1996.
In
1981
he
sold
it
to
Centre
d’achats
Duberger
Inc.,
a
company
of
which
he
was
the
sole
shareholder,
for
$250,000.
There
was
a
mortgage
on
the
house
which
the
company
assumed.
The
appellant
did
not
recall
the
amount
of
the
mortgage.
Jeannette
Casavangh
Ferron
holds
a
real
estate
broker’s
licence.
The
appellant
wished
her
to
testify
as
to
the
rental
cost
of
a
residence
like
his.
Counsel
for
the
respondent
objected
on
the
basis
that
this
was
expert
testimony
and
the
procedure
laid
down
by
s.
145
of
the
Tax
Court
of
Canada
Rules
(General
Procedure)
was
not
followed.
The
witness
testified
nevertheless,
subject
to
this
objection.
It
is
not
necessary
to
deal
with
this
testimony
at
any
greater
length
in
view
of
the
conclusion
of
law
I
arrive
at
later
on
in
these
reasons.
Nicole
Turcotte
is
an
accountant
with
Revenue
Canada.
She
explained
that
she
had
decided
against
the
appellant
with
respect
to
the
first
point
at
issue
because
he
was
not
a
shareholder
of
the
company
to
which
he
had
advanced
money.
The
amount
of
the
advances
indicated
in
the
objection
was
much
higher
than
that
shown
in
the
assessment.
She
reviewed
these
claims
but
the
evidence
was
not
clear
as
to
whether
she
regarded
them
as
genuine
debts
owed
by
the
corporation
or
whether
she
rejected
them
primarily
on
the
basis
that
the
appellant
was
not
a
shareholder
of
the
corporation.
As
to
the
benefit
conferred
by
the
corporation
of
which
the
appellant
was
the
sole
shareholder
in
purchasing
his
house
from
him
and
providing
accommodation
for
him,
Ms.
Turcotte
relied
on
the
rules
stated
in
Youngman
v.
The
Queen,
90
D.T.C.
6322,
in
calculating
the
value
of
that
benefit.
She
calculated
interest
on
the
principal
at
the
rate
prescribed
by
the
Act
for
a
loan
to
a
shareholder,
in
accordance
with
s.
80.4
of
the
Act.
Argument
Counsel
for
the
appellant
first
argued
that
loans
and
sureties
in
favour
of
a
business,
even
with
a
view
to
avoiding
bankruptcy,
may
be
regarded
as
having
been
given
for
the
purpose
of
earning
income.
He
referred
in
this
connection
to
the
decision
of
this
Court
in
Business
Art
Inc.
v.
M.N.R.,
86
D.T.C.
1842,
and
in
particular
to
page
1848:
I
cannot
subscribe
to
the
theory
that
in
such
an
example
the
non-interest
bearing
loans
were
not
incurred
for
the
purpose
of
earning
income
from
property;
if
the
loans
were
not
advanced
the
corporation
may
have
become
bankrupt
and
the
shares
may
have
become
worthless.
He
argued
that
the
cases
do
not
require
a
direct
connection
between
the
loan
and
the
income.
In
this
regard
he
referred
to
the
Federal
Court
Trial
Division
judgment
in
Byram
v.
The
Queen,
95
D.T.C.
5069,
at
5073:
As
a
shareholder,
the
plaintiff
was
directly
linked
to
the
income
producing
potential
of
USCO.
Dividends
could
be
declared
in
a
straightforward
manner
should
they
have
been
available.
However,
can
the
plaintiff
avoid
the
application
of
subparagraph
40(2)(g)(ii)
for
those
loans
advanced
to
USCO
when
the
plaintiff
was
not
a
shareholder
in
USCO
but
rather
when
ERL
was
the
shareholder
in
USCO,
the
plaintiff
being
another
step
further
removed
as
a
shareholder
in
ERL.
Subparagraph
40(2)(g)(ii)
does
not
require
a
direct
link
between
the
loan
and
the
property
or
business
that
produces
the
income.
Counsel
for
the
appellant
admitted
that
the
appellant
was
not
a
shareholder
in
either
company
to
which
the
loans
were
made,
but
he
argued
that
the
agreements
in
Exhibits
A-2
and
A-3
allowed
him
to
become
a
shareholder.
In
this
regard
counsel
cited
the
decision
of
Judge
Sobier
of
this
Court
in
Strecker
v.
The
Queen,
95
D.T.C.
3,
dealing
with
a
situation
in
which
an
individual
may
become
a
shareholder
or
in
some
other
way
derive
income
from
a
corporation
to
which
that
individual
has
made
loans.
Counsel
referred
to
the
following
passage,
at
page
5:
As
stated
above,
Andrew
and
the
Appellant
gave
some
evidence
that
there
was
a
vague
plan
that
all
the
family
would
be
involved.
The
Appellant
stated
that
he
regarded
himself
as
part
of
the
Company
and
that
he
saw
himself
as
part
of
the
future
and
would
gain
income
at
a
later
date.
While
this
may
be
his
evidence
now,
the
facts
surrounding
the
loans
and
the
guarantee
are
more
capable
of
being
interpreted
as
a
father
wishing
to
help
his
son
establish
a
business.
I
find
no
evidence
that
there
was
an
agreement
or
understanding
that
the
Appellant
would
become
a
shareholder
or
otherwise
derive
income
from
the
Company.
Counsel
submitted
that
unlike
in
the
above
situation,
here
there
were
agreements
between
the
appellant
and
the
president
of
Motosports,
as
set
out
in
Exhibits
A-2
and
A-3.
In
the
first
place,
the
advances
made
by
the
appellant
were
not
made
gratuitously;
moreover,
those
advances
entitled
the
appellant
to
become
a
shareholder
in
Motosports.
The
appellant’s
advances
to
the
companies
were
truly
in
the
nature
of
an
investment
made
in
order
to
obtain
income.
As
to
the
benefit
to
a
shareholder,
the
appellant
argued
that
the
figure
determined
as
the
amount
of
that
benefit
was
much
too
high,
that
it
seemed
reasonable
to
him
to
pay
rent
of
$700
a
month
and
that
he
would
have
agreed
to
$1,000,
but,
in
his
submission,
anything
more
than
that
made
no
sense.
Counsel
for
the
respondent
argued
that
the
agreements
contained
in
Exhibits
A-2
and
A-3
applied
to
the
sureties
given
prior
to
the
date
of
these
agreements,
not
those
which
came
afterwards.
As
to
the
possibility
of
becoming
a
shareholder
in
the
corporation,
he
submitted
that
this
was
a
choice
which
could
be
made
only
in
the
event
that
the
appellant
had
to
perform
the
obligation
covered
by
the
surety
and,
in
such
circumstances,
there
could
be
no
income
from
the
shares.
Counsel
for
the
respondent
referred
in
particular
to
Strecker,
supra.
As
to
the
benefit
conferred
on
the
appellant
as
a
shareholder
with
respect
to
the
use
of
the
residence,
counsel
for
the
respondent
argued
that
this
benefit
should
include
the
cost
of
the
money
spent
to
purchase
the
residence,
and
the
expenses
incurred
for
the
house
indicated
in
subparagraph
7(i)
of
the
Reply,
which
is
set
out
in
paragraph
4
of
these
reasons.
Not
just
any
house
is
involved
here.
The
house
which
was
purchased
by
the
company
of
which
the
appellant
was
the
sole
shareholder
was
that
in
which
the
appellant
lived,
and
it
was
bought
by
the
company
in
order
to
place
it
at
his
disposal.
Counsel
referred
to
the
Federal
Court
of
Appeal’s
judgment
in
Youngman,
supra,
at
pages
6325
and
6326.
In
order
to
assess
the
value
of
a
benefit,
for
the
purposes
of
paragraph
15(1)(c),
it
is
first
necessary
to
determine
what
that
benefit
is
or,
in
other
words,
what
the
company
did
for
its
shareholder;
second,
it
is
necessary
to
find
what
price
the
shareholder
would
have
had
to
pay,
in
similar
circumstances,
to
get
the
same
benefit
from
a
company
of
which
he
was
not
a
shareholder.
In
the
present
case,
the
benefit
or
advantage
conferred
on
the
appellant
was
not
merely
the
right
to
use
or
occupy
a
house
for
as
long
as
he
wished;
it
was
the
right
to
use
or
occupy
for
as
long
as
he
wished
a
house
that
the
company,
at
his
request,
had
built
specially
for
him
in
accordance
with
his
specifications.
How
much
would
the
appellant
have
had
to
pay
for
the
same
advantage
if
he
had
not
been
a
shareholder
of
the
company?
Certainly
more
than
what
the
two
experts
referred
to
as
the
free
market
rental
value
since,
in
my
view,
the
company
would
have
then
charged
a
rent
sufficient
to
produce
a
decent
return
on
its
investment.
Conclusions
I
refer
to
Judge
Sobier’s
analysis
of
two
decisions
in
Strecker,
supra,
at
page
5:
In
Casselman
v.
M.N.R.,
83
D.T.C.
522
(T.C.C.),
the
taxpayer
guaranteed
loans
made
by
a
bank
to
her
son.
The
Court
held
that
she
did
not
guarantee
the
loans
for
the
purpose
of
gaining
or
producing
income,
she
guaranteed
the
loans
to
assist
her
son.
That
is
the
case
here.
The
Appellant’s
involvement
in
the
Company
did
not
transform
his
reasons
for
giving
the
guarantee
or
making
the
loan
from
one
of
helping
his
son
to
one
of
gaining
or
producing
income.
The
facts
in
Lowery
v.
M.N.R.,
86
D.T.C.
1649
(T.C.C.),
are
somewhat
the
same
as
the
case
at
bar.
Judge
Sarchuk
stated
at
page
1652:
On
the
evidence
adduced
I
am
not
satisfied
that
there
was
any
business
purpose
in
the
granting
of
the
guarantee.
Respondent’s
counsel
submitted,
and
I
agree,
that
it
is
not
sufficient
to
make
a
general
allegation
that
the
appellant
anticipated
some
participation
in
the
profits
of
Threads
at
some
unstated
time
in
the
future
and
on
that
basis
to
argue
that
some
consideration
for
the
guarantee
existed.
There
was
no
arrangement
as
to
interest.
There
was
no
arrangement
relative
to
repayment
in
the
event
of
default
by
Threads.
There
was
no
agreement,
oral
or
written,
setting
out
the
terms
and
conditions
of
the
appellant’s
participation.
Unlike
the
situation
in
Casselman
and
Lowery,
here
the
appellant’s
primary
purpose
in
making
the
advances
and
providing
sureties
was,
in
my
view,
a
business
one.
In
fact,
it
was
the
appellant
who
first
had
the
idea
of
a
motorcycle
business
and
it
was
he
who
handled
the
negotiations.
Those
negotiations
and
the
organization
of
the
business
were
characteristic
of
a
commercial
undertaking.
When
the
business
started
up
Paul
Corriveau
was
22
years
old
and
living
with
his
parents.
However,
I
do
not
doubt
that
another
purpose,
probably
just
as
important
as
the
first,
was
to
set
his
son
up
in
business,
but
that
does
not
preclude
the
existence
of
the
main
purpose,
namely
that
the
sureties
and
loans
were
intended
primarily
for
the
success
of
the
business.
As
to
the
interest
which
Motosports
was
to
pay
him
on
the
money
advanced,
agreements
were
immediately
entered
into
between
the
appellant
and
Motosports
in
that
regard.
On
reading
these
agreements,
I
consider
that
their
effect
was
not
limited
to
the
date
of
their
signature
and
that
they
had
continuing
effect.
That
was
how
the
president
of
Motosports
and
the
appellant
understood
them
and
I
really
see
no
reason
to
doubt
their
common
intent,
especially
in
a
case
where
their
statements
can
be
confirmed
by
the
wording
of
the
agreements.
The
appellant’s
interest
in
the
management
of
the
companies
in
question
was
clearly
more
than
that
of
a
parent
providing
financial
assistance
for
the
project
of
a
son
or
daughter.
The
appellant
was
inadvertently
described
as
a
director
or
a
shareholder
in
the
financial
statements.
This
indicates
his
significant
involvement
in
the
affairs
of
the
motorcycle
dealerships.
They
were
his
projects
just
as
much
as
his
son’s,
perhaps
more
so.
This
involvement
notwithstanding,
s.
40(2)(g)(ii)
of
the
Act
requires
that
the
debt
or
right
for
which
a
loss
is
claimed
must
have
been
acquired
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income.
Clearly,
when
a
company
undertakes
to
pay
interest
at
an
annual
rate
of
12
percent
on
advances,
which
interest
is
to
be
payable
when
it
has
sufficient
cash
assets,
this
interest
income
is
very
remote
and
uncertain.
The
repayment
of
these
advances
of
money
could
be
made
either
by
payment
of
the
full
amount
thereof
or
in
the
form
of
common
or
preferred
shares
in
the
company.
However,
in
the
various
decisions
which
have
accepted
that
debts
or
rights
were
acquired
for
the
purpose
of
gaining
or
producing
income,
that
income
was
also
far
from
immediate
(see
Business
Art
Inc.,
supra,
Byram,
supra,
and
Brown
v.
The
Queen,
96
D.T.C.
6091).
It
was
always
subject
to
the
success
of
the
business
to
which
the
loans
were
made,
and
that
success
took
or
might
take
several
years
to
be
achieved,
or
rather
not
be
achieved,
since
we
are
dealing
with
losses.
I
therefore
conclude
that
the
debts
and
rights
the
appellant
disposed
of,
and
which
are
represented
by
Exhibits
A-5
to
A-12,
come
within
the
ambit
of
s.
40(2)(g)(ii)
of
the
Act.
As
to
the
calculation
of
the
benefit
conferred
on
the
appellant
by
his
company
in
purchasing
the
family
residence
and
placing
it
at
his
disposal,
I
am
of
the
opinion
that
the
assessment
was
correctly
made
pursuant
to
the
rules
in
Youngman,
supra,
cited
in
paragraph
37
of
these
reasons.
Those
rules
were
reaffirmed
by
the
Federal
Court
of
Appeal
in
The
Queen
v.
Fingold,
97
D.T.C.
5449.
The
appeals
are
allowed
with
half
the
costs
and
the
assessments
are
referred
back
to
the
Minister
for
reconsideration
and
reassessment
on
the
basis
that
the
debts
and
rights
the
appellant
disposed
of
gave
rise
to
a
business
investment
loss,
and
taking
into
account
the
agreements
and
admissions
described
in
paragraphs
[5]
and
[6]
of
these
reasons.
The
appellant
shall
not
be
entitled
to
any
other
relief.
Appeal
allowed
regarding
business
investment
loss;
appeal
dismissed
regarding
assessment
of
shareholder
benefit.
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