Teskey
T
.
C.J.:
The
Appellant
appeals
her
reassessment
of
income
tax
for
the
years
1989
and
1990.
Issues
The
issues
are:
1
Whether
benefits
were
conferred
on
the
Appellant,
Vivien
Lee
(“Vivien”),
in
her
capacity
as
a
shareholder,
by
Man
Ming
Seafoods
Ltd.
(Canadian
Corp.),
within
the
provision
of
subsection
15(1)
of
the
Income
Tax
Act
(the
“Act’);
and
if
a
benefit
was
conferred
(2)
The
value
of
the
benefit;
and
(3)
Whether
penalties
were
properly
levied
in
accordance
with
subsection
163(2)
of
the
Act.
Common
Ground
It
was
common
ground
between
the
parties
that
shareholder
benefit
appeals
are
fact
driven.
Facts
I
am
not
going
to
review
in
detail
all
the
evidence
that
was
adduced,
but
only
those
facts
that
I
find
from
the
evidence,
that
appears
pertinent
to
the
first
issue.
The
testimony
given
by
the
Appellant
and
her
brother,
Thomas
Lee
(“Thomas”),
was
severely
challenged
by
counsel
for
the
Respondent,
in
particular
upon
facts
in
a
memorandum
of
a
meeting,
entitled
“CanCorp.”,
with
Revenue
Canada
auditors
Dan
McDonnell
(“McDonnell”)
and
Jim
Thatcher
(“Thatcher”),
held
in
Vancouver
on
August
14,
1991.
The
Respondent
did
not
call
neither
McDonnell
nor
Thatcher
as
witnesses.
The
cross-examination
of
the
Appellant,
who
testified
through
a
canton-
ese/english
interpreter,
was
long
and
arduous.
Although
there
were
inconsistencies
in
both
her
and
Thomas’s
testimony,
who
also
testified
through
a
cantonese/english
interpreter,
I
accept
their
testimony
on
the
core
facts
to
this
appeal.
The
inconsistencies
in
the
Appellant’s
testimony,
I
credit
to
nervousness
and
probably
poor
interpretation.
The
second
day
of
the
hearing
went
appreciably
smoother
with
a
different
interpreter.
The
Appellant’s
sister,
who
was
not
a
witness,
blurted
out
during
her
sister’s
cross-examination,
“there
is
an
interpreter
problem”.
I
had
strongly
suspected
this
and
had
drawn
that
conclusion
before
the
outburst.
The
Appellant
was
born
and
raised
in
Hong
Kong
and
has
the
equivalent
education
of
high
school.
She
emigrated
and
became
a
resident
of
Canada
in
1988,
and
was
a
resident
of
Canada
in
1989
and
1990.
She
has
returned
to
Hong
Kong
and
is
now
a
Hong
Kong
resident.
She
had
to
fly
to
Vancouver
on
the
13th
of
August
in
1991,
from
Hong
Kong,
to
attend
the
meeting
at
Revenue
Canada,
at
the
request
of
Thomas.
I
am
satisfied
that
when
she
attended
at
Revenue
Canada’s
office,
on
August
14,
1991,
she
did
not
realize
the
seriousness
of
the
situation
or
the
importance
of
getting
all
the
facts
correct,
and
therefore
did
not
insist
upon
an
interpreter.
She
answered
questions
not
fully
understanding
the
questions
asked
of
her
in
English.
Karl
Ho
(“Ho”)
of
Delta,
British
Columbia,
provided
bookkeeping
services
and
prepared
balance
sheets
for
the
Canadian
Corp
which
operated
out
of
Vancouver.
He
also
was
educated
in
Hong
Kong
and
took
electronics
courses
in
college.
He
was
in
a
Certified
General
Accounting
course
during
1988
to
1990
but
never
completed
the
course
and
has
no
accounting
designation.
When
Ho
completed
the
general
ledger
(“Blue
Book”),
the
only
documents
that
he
had
were
the
monthly
bank
statements
and
the
Blue
Book.
When
Ho
took
over
the
bookkeeping,
the
only
entries
in
the
Blue
Book
were
the
three
columns
entitled:
“Debit”,
“Credit”
and
“Balance”.
Ho
entered
into
the
Blue
Book
entries
for
April
1989,
under
nine
new
columns
entitled:
“Purchases”,
“Hydro”,
“Flight”,
“Sundry”,
“Bank
Charges”,
“Sales”,
“Vivien”
“US/Ac.”,
“Sundry”.
The
communication
between
Ho
and
Thomas
was
minimal
at
best.
The
Blue
Book
demonstrates
the
total
incompetence
of
Thomas
and
Ho’s
lack
of
care
and
competence.
Thomas
had
a
full-time
job
with
B.C.
Telephone
and
at
the
same
time,
he
was
running,
as
a
one-man
operation,
the
Canadian
Corp.
From
the
Canadian
bank
statements,
he
could
not
even
tell
the
financial
situation
of
the
Canadian
Corp,
as
it
had
a
U.S.
account,
which
was
never
reconciled
into
the
Blue
Book.
Thus,
the
balances
as
shown
in
the
Blue
Book
would
not
accurately
demonstrate
the
true
financial
picture.
Even
after
Ho
entered
nine
additional
columns
and
made
entries
thereunder,
without
the
U.S.
account
entries
being
reconciled
with
the
financial
information,
neither
Thomas
nor
Ho
would
know
the
true
economic
picture.
Also,
the
debits
and
credits
were
reversed
throughout.
Tabs
48
to
60
of
Exhibit
A-2
are
alternative
photocopies
of
monthly
entries
in
the
Blue
Book
and
the
corresponding
bank
account
statement.
There
are
many
problems
with
these
documents.
Tab
50
is
a
photocopy
of
part
of
a
page
representing
May
of
1989.
Those
columns
to
the
right
of
the
“Balance”
column
have
different
headings
from
the
April
page,
Tab
48.
Tab
52
is
a
photocopy
of
the
page
from
the
Blue
Book
for
the
month
of
July
1989,
the
columns
right
of
the
“Balance”
column’s
heading
are
changed
again
and
is
not
a
complete
copy
of
the
page.
There
is
an
entry
dated
July
21
of
$3,593,
called
“Transfer”
and
placed
under
a
heading
called
“Transfer”.
On
the
same
date,
a
deposit
of
$2,721.93
is
shown.
Neither
item
is
shown
on
the
bank
statement.
Tab
54
is
a
photocopy
of
what
is
purported
to
be
the
page
from
the
Blue
Book
for
September
1989.
Again,
it
appears
not
to
be
complete
and
with
different
headings.
On
September
19,
the
following
notation
is
noted
“US
D
$15,000
@
1.1925”.
Under
“Credit”,
the
amount
of
$17,887.50
appears.
This
amount
is
shown
on
a
column
entitled
“Bank
Transfer”,
presumably
to
the
U.S.
account.
The
bank
statement
for
September,
Tab
55,
does
not
have
this
transfer.
Tab
56,
which
is
only
a
partial
photocopy
of
the
page
from
the
Blue
Book
for
November
1989,
is
again
only
partially
produced
and
the
columns’
headings
to
the
right
of
the
“Balance”
column,
again,
have
different
headings.
An
item
for
November
10,
1989,
the
second
from
the
top,
says
“Deposit”.
It
is
found
in
the
“Debit”
column
and
again
under
the
heading
“Sales”.
The
bank
statement,
Tab
57,
shows
a
deposit
of
$10,000
in
the
“Credit”
column
and
a
cash
withdrawal
of
$10,000,
the
same
day.
It
is
this
type
of
inconsistencies,
as
well
as
that
the
receipts
are
shown
as
debits
and
the
payouts
are
shown
as
credits,
that
convinced
me
that
neither
Thomas
or
Ho
had
any
knowledge
of
basic
bookkeeping.
The
balance
sheets
prepared
by
Ho
were
full
of
errors.
The
entries
in
the
Blue
Book
under
the
various
columns
to
the
right
of
the
third
column,
i.e.
the
“Balance”
column,
could
mean
anything.
If
Thomas
in
fact
said
to
Ho,
when
questioned
about
the
transfers
from
Man
Ming
Import
and
Export
Ltd.
(Hong
Kong
Corp.),
“It’s
Vivien”,
I
am
satisfied
that
he
was
paying
little
attention
to
the
money
aspect
of
the
business,
that
he,
in
fact,
mistakenly
made
this
comment.
From
this
one
comment,
Ho
then
carried
the
mistake
onward
every
time
a
transfer
came
in
with
her
name
on
it.
Hong
Kong
Corp,
is
a
company
that
Vivien
had
been
a
shareholder
and
employee
of
prior
to
emigrating
to
Canada.
It
is
owned
and
controlled
by
another
brother
and
was
a
customer
of
Canadian
Corp.
Hong
Kong
Corp.
purchased
seafood
from
several
different
sources.
lam
satisfied
that
all
the
electronic
transfers
from
Hong
Kong
Corp,
to
the
Canadian
Corp,
were
monies
owed
by
Hong
Kong
Corp.
for
seafood
purchases
and
that
the
entry
of
these
transfers
in
the
books,
the
way
they
were
shown,
was
in
error.
They
should
have
been
shown
as
income
from
sales
and
had
nothing
to
do
with
Vivien.
At
no
time
did
Vivien
even
attempt
to
withdraw
one
cent
of
these
transfers
or
claim
ownership
of
the
money
or
ask
or
get
any
confirmation
that
these
monies
were
owed
to
her.
In
fact,
she
did
not
even
know
about
the
transfers
till
the
August
14th
meeting.
I
am
satisfied
and
find
that
Vivien
never
saw
the
Blue
Book
and
saw
the
financial
statements
for
the
first
time
the
day
before
her
meeting
with
the
Revenue
Canada
auditors.
No
one
looking
at
these
statements
could
possibly
determine
that
the
Blue
Book
was
in
error
and
showed
large
amounts
owing
by
way
of
shareholder
advances
to
Vivien.
These
transfers
from
the
Hong
Kong
Corp.
to
the
Canadian
Corp.
that
were
entered
in
error,
under
the
heading
“Vivien”
in
the
Blue
Book,
were
as
follows:
|
1989
|
1990
|
February
28,
1989
|
$
65,000.00
|
|
April
24,
1989
|
51,889.05
|
|
May
30,
1989
|
59,990.00
|
|
July
12,
1989
|
136,996.93
|
|
September
27,
1989
|
78,855.59
|
|
|
1989
|
1990
|
November
17,
1989
|
61,222.57
|
|
November
21,
1989
|
44.165.65
|
|
January
16,
1990
|
|
$41,989.51
|
TOTALS
|
$498,119.79
|
$41,989.51
|
Vivien
not
only
was
not
aware
of
these
errors
in
the
Blue
Book,
there
was
no
way
she
could
have
known
about
them
as
she
was
never
shown
them.
Although,
on
the
balance
sheet
for
the
Canadian
Corp.
prepared
by
Ho
for
the
year
ending
March
31,
1989,
there
was
a
line
entitled
“Shareholders
Advances,
unsecured,
non-interest
bearing
and
without
specific
repayment
time”.
For
1989,
the
amount
stands
at
$241,923
and
for
1988,
the
amount
shown
is
$186,545,
an
increase
of
$55,378.
The
balance
sheet
does
not
identify
which
shareholder
or
shareholders
made
the
loans
for
this
additional
amount
of
$55,378.
Since
the
year-end
is
March
31,
only
the
one
transfer
on
February
28,
1989
falls
within
this
fiscal
year
and
that
transfer
was
for
$65,000.
On
the
balance
sheet
for
the
Canadian
Corp,
prepared
by
Ho
for
the
year
ending
March
31,
1990,
an
amount
of
$445,333
is
shown
on
the
“Shareholders
Advances”
line
for
the
year
1990,
and
the
comparison
sum
for
1989
is
$241,923,
an
increase
of
$203,410.
Again,
the
balance
sheet
does
not
identify
who
or
whom
loaned
the
Canadian
Corp.
money.
Since
I
do
not
have
as
an
exhibit
all
the
bank
statements
from
May
1st,
1989
to
April
1st,
1990,
I
cannot
tell
if
any
shareholder
loans
were
reduced
in
the
fiscal
year
ending
March
31,
1989.
It
is
noted
that
during
this
fiscal
year,
Canadian
Corp.
received
by
electronic
transfers
with
Vivien’s
name
on
them
from
the
Hong
Kong
Corp.,
the
total
sum
of
$475,109.30
(being
the
transfers
from
April
24,
1989
to
and
including
January
16,
1990).
Thus,
if
Ho
had
been
consistent,
the
balance
sheet
should
have
shown
an
increase
in
the
shareholders
loan
account
of
$475,109.30
and
not
the
$203,410.
Vivien
had
loaned
the
Canadian
Corp.,
prior
to
emigrating
to
Canada,
$120,000.
She
was
paid
back
on
her
loan
a
total
of
$80,000,
namely
$10,000
in
1989
and
$70,000
in
1990.
Even
assuming
these
amounts
fall
within
the
fiscal
year
1990,
the
balance
sheet
is
still
some
$120,000
in
error.
As
soon
as
Vivien
understood
the
problem,
Ho
was
dismissed
and
a
chartered
accountant
was
retained.
All
the
transfers
paid
by
the
Hong
Kong
Corp.
to
the
Canadian
Corp.
were
taken
into
income
for
goods
sold
and
delivered,
as
they
should
have
been
originally
shown
and
removed
from
the
shareholders
advance
column.
Canadian
Corp.
refiled
and
was
immediately
reassessed
and
penalties
levied
on
the
previously
unreported
income.
Canadian
Corp.
objected
to
the
penalties
and
the
Minister
deleted
them.
Thus,
Canadian
Corp.
has
now
been
taxed
on
this
previously
undeclared
income
and
paid
the
same.
I
conclude
that
it
was
an
error
to
show
these
amounts
as
Vivien’s
advances
to
the
Canadian
Corp.
and
not
as
income.
Presumably,
the
Minister
accepted
this
when
he
waived
the
penalties
on
undeclared
income
of
Canadian
Corp.
Analysis
My
colleague
Bowman
said
at
page
1169
in
Prosperous
Investments
Ltd.
v.
Minister
of
National
Revenue
(1992),
92
D.T.C.
1163
(T.C.C.):
A
mere
bookkeeping
entry
in
a
loan
account
by
itself
does
not
constitute
a
taxable
event
unless
there
is
something
more,
such
as
receipt....
He
quoted
therein
Lord
Brampton
in
Gresham
Life
Assurance
Society
Ltd.
v.
Bishop
(1901),
4
T.C.
464
(U.K.
H.L.),
at
476:
My
Lords
I
agree
with
the
Court
of
Appeal
that
a
sum
of
money
may
be
received
in
more
ways
than
one
e.g.
by
the
transfer
of
a
coin
or
a
negotiable
instrument
or
other
document
which
represents
and
produces
coin,
and
is
treated
as
such
by
business
men.
Even
a
settlement
in
account
may
be
equivalent
to
a
receipt
of
a
sum
of
money,
although
no
money
may
pass;
and
I
am
not
myself
prepared
to
say
that
what
amongst
business
men
is
equivalent
to
a
receipt
of
a
sum
of
money
is
not
a
receipt
within
the
meaning
of
the
Statute
which
your
Lordships
have
to
interpret.
But
to
constitute
a
receipt
of
anything
there
must
be
a
person
to
receive
and
a
person
from
whom
he
receives
and
something
received
by
the
former
from
the
latter,
and
in
this
case
that
something
must
be
a
sum
of
money.
A
mere
entry
in
an
account
which
does
not
represent
such
a
transaction
does
not
prove
any
receipt,
whatever
else
it
may
be
worth.
It
is
acknowledged
by
the
Respondent
that
the
only
evidence
of
the
alleged
increase
in
Vivien’s
shareholder’s
account
is
the
entries
in
the
Blue
Book.
There
is
no
other
documentation
of
anything.
Previously
to
the
Prosperous
Investments
Ltd.
decision
of
my
colleague
Bowman,
my
former
colleague
Kempo,
in
1994,
in
Berube
v.
R.,
[1994]
1
C.T.C.
2655
(T.C.C.)
said
at
2659:
accounting
entries
reflect
rather
than
create
reality,
and
that
a
mere
bookkeeping
entry
in
a
shareholder
loan
account
does
not
in
and
of
itself
constitute
a
taxable
benefit
without
something
more....
Kempo,
J.
also
said
in
an
earlier
decision
of
Simons
v.
Minister
of
National
Revenue,
[1985]
1
C.T.C.
2116
(T.C.C.),
in
allowing
an
appeal
from
a
reassessment,
claiming
a
shareholder
benefit
that:
here
was
no
probative
evidence
tendered
to
show
that
the
appellant
acted
upon
or
received
any
measureable
benefit
from
this
erroneous
balancing
entry...
The
Respondent
produced
on
discovery
Abe
Frisz
as
its
representative.
Question
22
and
his
answer
were
read
in
as
part
of
the
Appellant’s
evidence.
He
said,
when
questioned
on
the
basis
of
the
assessment:
“1
would
have
said
that
the
taxpayer
received
an
increase
in
the
shareholder
assets,
which
is
a
benefit
she
derived.
And
that
is
the
basis
of
our
assessment
to
the
taxpayer.”
This
is
contrary
to
both
the
Prosperous
Investments
Ltd.
and
the
Berube
decisions
of
this
Court,
which
I
agree
with
and
follow.
Associate
Chief
Justice
Jerome,
as
he
then
was,
of
the
Federal
Court
(Trial
Division),
said
in
Hrga
v.
R.,
[1997]
2
C.T.C.
172
(Fed.
T.D.),
at
175:
It
is
clear
that
section
15
requires
two
things:
a
benefit
to
the
taxpayer
and
an
intentional
taking....
Madam
Justice
L’heureux-Dubé,
in
her
reasons
in
Hickman
Motors
Ltd.
v.
R.
(1997),
[1998]
I
C.T.C.
213
(S.C.C.),
said
at
page
245:
...
The
law
is
well
established
that
accounting
documents
or
accounting
entries
serve
only
to
reflect
transactions
and
that
it
is
the
reality
of
the
facts
that
determines
the
true
nature
and
substance
of
transactions:
Vander
Nurseries
Ltd.
v.
R.
(1994),
94
D.T.C.
91
(T.C.C.);
Mountwest
Steel
Ltd.
v.
R.,
[1994]
G.S.T.C.
71
(T.C.C.);
Uphill
Holdings
Ltd.
v.
Minister
of
National
Revenue
(1992),
93
D.T.C.
148
(T.C.C.);
Minister
of
National
Revenue
v.
Wardean
Drilling
Ltd.
(1969),
69
D.T.C.
5194
(Can.
Ex.
Ct.);
...
and
at
page
246:
...
The
Minister,
in
making
assessments,
proceeds
on
assumptions
(Bayridge
Estates
Ltd.
v.
Minister
of
National
Revenue
(1959),
59
D.T.C.
1098
(Can.
Ex.
Ct.),
at
p.
1101)
and
the
initial
onus
is
on
the
taxpayer
to
“demolish”
the
Minister’s
assumptions
in
the
assessment
(Johnston
v.
Minister
of
National
Revenue,
[1948]
S.C.R.
486
(S.C.C.);
Kennedy
v.
Minister
of
National
Revenue
(1973),
73
D.T.C.
5359
(Fed.
C.A.),
at
p.
5361).
The
initial
burden
is
only
to
“demolish”
the
exact
assumptions
made
by
the
Minister
but
no
more:
First
Fund
Genesis
Corp.
v.
R.
(1990),
90
D.T.C.
6337
(Fed.
T.D.),
at
p.
6340.
This
initial
onus
of
“demolishing”
the
Minister’s
exact
assumptions
is
met
where
the
appellant
makes
out
at
least
a
prima
facie
case:
Katnin
v.
Minister
of
National
Revenue
(1992),
93
D.T.C.
62
(T.C.C.);
Goodwin
v.
Minister
of
National
Revenue
(1982),
82
D.T.C.
1679
(T.R.B.).
In
the
case
at
bar,
the
appellant
adduced
evidence
which
met
not
only
a
prima
facie
standard,
but
also,
in
my
view,
even
a
higher
one.
In
my
view,
the
appellant
“demolished”
the
following
assumptions
as
follows:
(a)
the
assumption
of
“two
businesses”,
by
adducing
clear
evidence
of
only
one
business;
(b)
the
assumption
of
“no
income”,
by
adducing
clear
evidence
of
income.
The
law
is
settled
that
unchallenged
and
uncontradicted
evidence
“demolishes”
the
Minister’s
assumptions:
see
for
example
Maclsaac
v.
Minister
of
National
Revenue
(1974),
74
D.T.C.
6380
(Fed.
C.A.),
at
p.
6381;
Zink
v.
Minister
of
National
Revenue
(1987),
87
D.T.C.
652
(T.C.C.).
As
stated
above,
all
of
the
appellant’s
evidence
in
the
case
at
bar
remained
unchallenged
and
uncontradicted.
Accordingly,
in
my
view,
the
assumptions
of
“two
businesses”
and
“no
income”
have
been
“demolished”
by
the
appellant.
Where
the
Minister’s
assumptions
have
been
“demolished”
by
the
appellant,
“the
onus
shifts
to
the
Minister
to
rebut
the
prima
facie
case”
made
out
by
the
appellant
and
to
prove
the
assumptions:
Magilb
Development
Corp.
v.
Minister
of
National
Revenue
(1986),
87
D.T.C.
5012
(Fed.
T.D.),
at
p.
5018.
Hence,
in
the
case
at
bar,
the
onus
has
shifted
to
the
Minister
to
prove
its
assumptions
that
there
are
“two
businesses”
and
“no
income”.
The
last
word
on
this
subject
from
the
Federal
Court
of
Appeal
is
Chopp
v.
À.
(1997),
[1998]
1
C.T.C.
407
(Fed.
C.A.),
a
decision
given
from
the
bench,
which
upheld
my
colleague
Mogan’s
trial
decision
and
said,
at
page
409:
As
to
Judge
Mogan’s
interpretation
of
subsection
15(1)
of
the
Act,
we
find
no
reason
to
intervene.
Mogan,
J.T.C.C.,
in
the
Chopp
decision,
had
said
in
his
reasons,
found
at
[Chopp
v.
/?.]
[1995]
2
C.T.C.
2946
(T.C.C.),
at
page
2952:
I
cannot
accept
the
Respondent’s
argument
so
broadly
stated
that
a
bookkeeping
error
which
benefits
a
shareholder
to
the
disadvantage
of
his
corporation
is
a
benefit
within
subsection
15(1)
even
if
the
error
was
not
intended
and
was
not
known
to
the
shareholder.
In
my
opinion,
if
the
value
of
a
benefit
is
to
be
included
in
computing
a
shareholder’s
income
under
subsection
15(1),
the
benefit
must
be
conferred
with
the
knowledge
or
consent
of
the
shareholder;
or
alternatively,
in
circumstances
where
it
is
reasonable
to
conclude
that
the
shareholder
ought
to
have
known
that
the
benefit
was
conferred.
I
am
supported
in
this
view
by
the
decisions
of
this
Court
in
Simons
v.
M.N.R.,
[1985]
1
C.T.C.
2116,
85
D.T.C.
105
(T.C.C.)
and
Robinson
v.
M.N.R.,
[1993]
1
C.T.C.
2406,
93
D.T.C.
254.
Based
on
this
jurisprudence
and
coming
to
the
conclusion
that
Vivien
did
not
know
of
the
entries,
which
entries
were
made
in
error,
and
that
there
was
no
way
that
she
ought
to
have
known
of
the
erroneous
entries,
and
furthermore,
having
never
received
anything
from
the
corporation,
the
appeal
arising
from
the
erroneous
entries
is
allowed
with
costs.
Having
reached
the
above
conclusion,
I
do
not
have
to
deal
with
the
value
of
the
alleged
benefit
nor
the
penalties
levied
thereon.
The
assessments
are
referred
back
to
the
Minister
for
reconsideration
and
reassessment
on
the
basis
that
the
Appellant
did
not
receive
a
share-
holder
benefit
in
the
amount
of
$498,119.79
in
1989
and
the
amount
of
$41,989.51
in
1990.
Appeal
allowed.