For Yip Chan, Carol S Chan, Actualbing Fee Mah, Anna May Mah, Deemed v. Minister of National Revenue, [1979] CTC 2325, 79 DTC 270

Guy Tremblay:—These appeals were heard at Vancouver, British Columbia, on February 22, 1979.

1. Point at Issue

The point is whether the respondent is correct in reassessing the actual appellants and accepting the figures which appear in the agreement passed in 1972 by which the actual appellants sold to the deemed appellants (arm’s length party) the Mary Hill Market for $100,000 (business and goodwill: $59,000; equipment: $2,000; building and land: $39,000).

2. Burden of Proof

The burden is on the actual appellants to show that the respondent’s assessments are incorrect. This burden of proof results especially from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. Judgment Joining Actual and Deemed Appellants

It is important to point out immediately that an order was rendered by the Tax Review Board (Mr F J Dubrule, Assistant Chairman) on November 2, 1978, based on subsection 174(1) of the new Income Tax Act, joining in the same hearing For Yip Chan and Carol S Chan hereinafter called “actual appellants”, and Bing Fee Mah and Anna May Mah hereinafter called “deemed appellants”. In fact, the deemed appellants appealed non-issued assessments by which the respondent will refuse the deductions (if the appeals of the actual appellants are allowed) following the purchase of goodwill which they have claimed in their 1972 income tax returns. I refer to the case MNR v Les Meubles de Maskinongé Inc, [1978] CTC 2285; 78 DTC 1235, concerning explanations of the application of section 174.

4. Facts

4.01 In 1966, Mr For Yip Chan and his wife Anna, bought the business known as the Mary Hill Market located at 1985 Pitt River Road, Port Coquillam, BC.

4.02 In 1969, Mr For Yip Chan bought the premises on which the Mary Hill Market was located and transferred to his brother (a resident of Hong Kong) 50% of his rights in premises “to help the immigration status” of his brother.

4.03 In July 1972, the actual appellants were informed that the deemed appellants were interested in buying the business and premises. The actual appellants fixed the price at $100,000. Despite a counter-offer of $80,000 cash, the price of $100,000 was maintained.

4.04 With the aid of one of their customers, an accountant, the actual appellants fixed the price as follows and the same amounts appear in the agreements (exhibits A-1 and R-1):

4.05 The vendors accepted to finance the purchasers for $50,000, a mortgage being registered on the sold property.

4.06 Mr Bing Fee Mah, substantially confirmed the testimony of Mr For Yip Chan concerning the price and the conditions of payment and the way the transaction was passed.

4.07 Fifty percent of the payment of the said mortgage would be sent to Mr For Yip Chan’s brother, Mr Bing Chan, who is now living in New York.

4.08 In filing their 1972 income tax return, neither Mr For Yip Chan nor his wife had declared the sold goodwill and paid the involved taxes.

4.09 By reassessment the respondent added, among others, in the actual appellant’s income the following amounts resulting from the sale of goodwill:

4.10 The actual appellants are before the Board because of those additions.

4.11 The deemed appellants, in filing their 1972 income tax return, claimed the appropriate deductions concerning the goodwill they had bought in the amount of $59,000.

4.12 The fair market value of the total amount of $100,000 is not in dispute in the present case.

5. Law—Jurisprudence—Comments

5.1 Law

The main sections of the new Income Tax Act which are involved in the present case are 3, 14 and 68, and section 21 of the Income Tax Application Rules.

5.2 Jurisprudence

The jurisprudence cited by the parties is:

1. Georges-Henri Couture v MNR, [1978] CTC 2687; 78 DTC 1511;

2. Canadian Propane Gas & Oil Limited v MNR, [1972] CTC 566; 73 DTC 5019;

3. Kerim Brothers Limited v MNR, [1967] Tax ABC 438; 67 DTC 326;

4. Klondike Helicopters Limited v MNR, [1965] CTC 427; 65 DTC 5253.

5.3 Comments

To succeed in their appeals, the actual appellants had to prove that the assessments were not correct in fact and in law. Secondly, as the assessments were based on the different figures appearing in the agreement passed between the actual and deemed appellants, they had to prove that those figures totalling $100,000 (Exhibits A-1 and R-1) (goodwill and business: $59,000; equipment: $2,000; land and building: $39,000) were not according to fair market value.

The actual appellants failed to produce evidence to contradict the respondent’s assessments. The testimony of Mr For Yip Chan showed that the amounts were allocated by him and an accountant, and were maintained by him after discussion with Mr Mah.

The actual appellants not only failed to prove that the Minister’s reassessments were incorrect but the whole evidence is to the effect that the reassessments are correct.

Consequently, the deemed appellants were well-founded in claiming the appropriate deductions concerning the goodwill they bought in the amount of $59,000.

6. Conclusion

The appeals of the actual appellants are dismissed and the appeals of the deemed appellants are allowed in accordance with the above reasons for judgment.

Appeals of actual appellants dismissed.

Appeals of deemed appellants allowed.