Guy
Tremblay:—The
case
at
bar
was
heard
in
Sherbrooke,
Quebec
on
April
28,
1976.
1.
Summary
Because
of
the
application
of
section
67
and
subsections
68(1)
and
68(4)
of
the
Income
Tax
Act,
RSC
1952,
c
148,
as
amended,
the
corporation
Les
Entreprises
Poirier
Ltée
is
considered
by
the
respondent
to
be
a
personal
corporation
for
1970
and
1971,
and
the
income
of
the
said
corporation
is
taxable
in
the
hands
of
its
principal
shareholder,
namely
the
appellant,
Mr
Roméo
Poirier.
2.
Burden
of
Proof
The
appellant
has
the
burden
of
proving
that
the
respondent’s
assessment
is
incorrect.
This
burden
of
proof
is
based
not
on
any
particular
section
of
the
Act
but
on
several
judicial
decisions,
including
the
decision
of
the
Supreme
Court
of
Canada
in
R
W
S
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
3.
Facts
3.1
For
almost
twenty
years,
until
1966,
the
appellant
was
president
of
an
industrial
corporation
known
as
Royal
Chesterfield
Ltd,
which
was
engaged
in
the
manufacture
of
upholstered
furniture.
3.2
In
1966,
since
the
corporation
was
demanding
a
good
price,
the
appellant
sold
all
his
principal
assets,
retaining
only
a
a
piece
of
forest
and,
which
has
since
become
the
centre
of
the
operations
of
a
a
maple
products
business.
This
piece
of
land
is
12
arpents
deep
and
3V4
arpents
wide.
3.3
The
proceeds
from
the
sale
of
the
assets
were
invested
in
various
bonds,
and
the
company,
in
accordance
with
the
agreement
signed
when
the
assets
were
sold,
changed
its
name
to
Les
Entreprises
Poirier
Ltée.
3.4
In
1967
the
company
was
taxed
as
a
personal
corporation
and
the
appellant
accepted
this
fact,
since
no
“commercial
or
industrial
business”
had
been
carried
on
that
year.
3.5
In
1968
the
company
began
operating
a
maple
products
business
in
the
Province
of
Quebec
using
a
new
technique.
This
technique
consisted
in
collecting
the
maple
Sap
directly
from
the
tree
and
taking
it
to
the
cauldrons
in
the
cabin
through
a
system
of
pipes.
3.6
In
1969
another
maple
grove
was
purchased;
it
was
3%4
arpents
wide
and
probably
had
the
same
depth.
3.7
From
650
taps
installed
in
1967
the
number
continued
to
increase,
reaching
over
1,000
in
1970
and
1971
and
4,800
in
1976.
3.8
In
1970
and
1971
the
only
people
employed
by
Les
Entreprises
Poirier
to
operate
the
maple
products
business
were
the
appellant,
his
wife
and
his
two
children.
3.9
According
to
the
appellant,
he
works
nine
to
ten
months
a
year
on
the
maple
products
business.
Outside
the
so-called
sugaring-off
period
he
maintains
the
existing
pipes,
installs
new
ones
and
repairs
those
that
have
been
broken
by
branches
or
in
other
ways.
3.10
The
maple
products
(Sugar
and
syrup)
are
sent
to
Victoriaville,
where
they
are
sold.
3.11
The
evidence
does
not
show
the
amount
of
income
from
the
maple
products
business,
but
we
know
that
the
company’s
total
net
income
was
$12,084.54
in
1970
and
$10,336.96
in
1971.
This
income
comes
primarily
from
investments
and
secondarily
from
the
maple
products
business.
The
evidence
does
not
indicate
the
exact
proportion
of
the
income
from
these
two
sources.
3.12
Applying
section
67
and
subsections
68(1)
and
68(4)
of
the
old
Act,
the
respondent
considered
Les
Entreprises
Poirier
Ltée
to
be
a
personal
corporation
and
added
the
above
net
income
to
the
personal
income
of
the
principal
shareholder,
Mr
Poirier,
in
a
a
Notice
of
Reassessment
issued
on
April
11,
1974.
3.13
On
July
5,
1974
Mr
Poirier
filed
an
objection
with
the
Minister
of
National
Revenue.
3.14
On
December
31,
1974
the
Minister
gave
notice
of
his
reply,
now
the
Notice
of
Reassessment.
3.15
On
March
27,
1975
the
appellant
filed
his
Notice
of
Appeal
with
the
Tax
Review
Board.
4,
Point
at
issue
Do
subsections
68(1)
and
(4)
apply
in
the
case
at
bar?
5.
The
Act
and
Comments
The
parties
have
accepted
the
requirements
for
meeting
the
definition
of
“personal
corporation”,
leaving
at
issue
the
application
of
subsection
68(4).
This
section
refers
to
paragraph
68(1)(c)
and
subsection
13(1).
These
three
sections
read
as
follows:
68.
(4)
Where
it
has
been
determined
for
the
purpose
of
subsection
(1)
of
section
13
that
a
corporations
chief
source
of
income
for
a
taxation
year
is
neither
farming
nor
a
combination
of
farming
and
some
other
source
of
income,
its
farming
business
shall
be
deemed,
for
the
purpose
of
paragraph
(c)
of
subsection
(1),
not
to
have
been
during
the
year
an
active
financial,
commercial
or
industrial
business.*
68.
(1)
In
this
Act,
a
“personal
corporation”
means
a
corporation
that,
during
the
whole
of
the
taxation
year
in
respect
of
which
the
expression
is
being
applied,
(c)
did
not
carry
on
an
active
financial,
commercial
or
industrial
business.
13.
(1)
Where
a
taxpayer’s
chief
source
of
income
for
a
taxation
year
Is
neither
farming
nor
a
combination
of
farming
and
some
other
source
of
income,
his
income
for
the
year
shall
be
deemed
to
be
not
less
than
his
income
from
all
sources
other
than
farming
minus
the
lesser
of
(a)
his
farming
loss
for
the
year,
or
(b)
$2,500
plus
the
lesser
of
(i)
one-half
of
the
amount
by
which
his
farming
loss
for
the
year
exceeds
$2,500,
or
(il)
$2,500.
(2)
For
the
purpose
of
this
section,
the
Minister
may
determine
that
a
taxpayer’s
chief
source
of
income
for
a
taxation
year
is
neither
farming
nor
a
combination
of
farming
and
some
other
source
of
income.
The
legislator
made
the
application
of
subsection
68(4)
dependent
on
the
establishment
of
certain
facts
for
the
purposes
of
subsection
13(1),
in
other
words
for
the
purposes
of
limiting
the
application
of
farming
losses
against
income
from
other
sources.
These
facts
can
be
established
either
on
the
basis
of
the
actual
situation
or
by
a
decision
of
the
Minister
pursuant
to
his
discretionary
power.
The
facts
to
be
established
are
that
the
corporation’s
income
does
not
come
principally,
for
a
given
year,
from
farming
or
a
combination
of
farming
and
some
other
source.
The
actual
situation,
in
the
opinion
of
the
Board,
is
that
the
corporation’s
income
comes
principally
from
a
combination
of
farming
(if
the
activities
involved
in
making
maple
products
are
farming
activities)
and
the
only
other
source,
investments.
Since
the
corporation
has
only
two
sources
of
income,
subsection
13(1),
and
consequently
sub-
section
68(4),
cannot
apply.
This
point,
which
is
dealt
with
later
from
the
perspective
of
discretionary
power,
is
also
valid
from
the
present
perspective.
Moreover,
for
the
purposes
of
subsection
13(1)
the
Minister
can
determine,
through
a
decision
pursuant
to
his
discretionary
power
provided
for
in
subsection
13(2),
that
the
taxpayer’s
chief
source
of
income
is
neither
farming
nor
a
combination
of
farming
and
some
other
source
of
income.
Once
the
Minister
has
exercised
his
discretionary
power,
can
the
Board
review
his
decision?
Such
review
is
possible,
in
the
Board’s
opinion,
only
within
the
limits
indicated
in
MNR
v
Wrights’
Canadian
Ropes
Ltd,
[1947]
CTC
1;
2
DTC
927.
Lord
Greene,
MR
says
(at
p
13
[931]):
This
right
of
appeal
must,
in
their
lordships’
opinion,
have
been
intended
by
the
legislature
to
be
an
effective
right.
This
involves
the
consequence
that
the
Court
is
entitled
to
examine
the
determination
of
the
Minister
and
is
not
necessarily
to
be
bound
to
accept
his
decision.
Nevertheless
the
limits.
within
which
the
Court
is
entitled
to
interfere
are
in
their
lordships’
opinion
strictly
circumscribed.
It
is
for
the
taxpayer
to
show
that
there
is
ground
for
interference
and
if
he
fails
to
do
so
the
decision
of
the
Minister
must
stand.
Moreover,
unless
it
be
shown
that
the
Minister
has
acted
in
contravention
of
some
principle
of
law
the
Court,
in
their
lordships’
opinion,
cannot
interfere:
the
section
makes
the
Minister
the
sole
judge
of
the
fact
of
reasonableness
or
normalcy
and
the
Court
is
not
at
liberty
to
substitute
its
own
opinion
for
his.
But
the
power
given
to
the
Minister
is
not
an
arbitrary
one
to
be
exercised
according
to
his
fancy.
To
quote
the
language
of
Lord
Halsbury
in
Sharp
v
Wakefield,
[1891]
AC
173
at
p
179
he
must
act
“according
to
the
rules
of
reason
and
justice,
not
according
to
private
opinion;
according
to
law
and
not
humour.
It
is
to
be
not
arbitrary,
vague
and
fanciful,
but
legal
and
regular’’.
Again
in
a
case
under
another
provision
of
this
very
sec
6
(sec
5(1
)(a)—Ed)
where
a
discretion
to
fix
the
amount
to
be
allowed
for
depreciation
is
given
to
the
Minister,
Lord
Thankerton
in
delivering
the
judgment
of
the
Board
said
“The
Minister
has
a
duty
to
fix
a
reasonable
amount
in
respect
of
that
allowance
and,
so
far
from
the
decision
of
the
Minister
being
purely
administrative
and
final,
a
right
of
appeal
is
conferred
on
a
dissatisfied
taxpayer;
but
it
is
equally
clear
that
the
Court
would
not
interfere
with
the
decision
unless—as
Davis,
J
states
—'it
was
manifestly
against
sound
and
fundamental
principles’
”.
(Pioneer
Laundry
and
Dry
Cleaners
Ltd
v
Minister
of
National
Revenue,
[1938-1939]
CTC
411
at
pp
416-417.)
In
the
case
at
bar
did
the
Minister
exercise
his
discretionary
power
illegally?
The
Board
feels
that
the
answer
is
yes,
for
the
following
reasons.
Since,
first,
subsection
68(4)
is
subject
to
the
application
of
subsection
13(1),
and
second,
subsection
13(1)
applies
only
in
order
to
limit.
farming
losses,
how
can
the
Minister
exercise
his
discretionary
power
and
decide
to
take
action
to
limit
the
losses
when
there
are
no
losses?
Moreover,
in
view
of
the
fact
that
the
corporation
had
only
two
sources
of
income,
how
can
the
Minister
use
his
discretionary
power
to
decide
that
the
corporation’s
income
does
not
come
principally
from
these
two
sources?
More
specifically,
since
the
only
two
sources
constitute
the
total
income,
how
can
the
Minister
decide
that
they
do
not
constitute
the
principal
income?
In
William
Moldowan
V
Her
Majesty
the
Queen,
[1975]
CTC
323;
75
DTC
5216,
Urie,
J
says
(p
330
[5223])
with
regard
to
subsection
13(1),
which
has
almost
the
same
wording
as
subsection
68(4):
An
examination
must
be
made
of
the
various
sources
of
the.
taxpayer's
income,
if
he
has
more
than
one,
to
ascertain
whether
farming
income,
combined
with
income
from
another
source,
represents
his
chief
source
of
income.
Of
course,
if
he
has
only
one
other
source,
then
his
chief
source
must
be
farming
together
with
the
other
source,
in
which
event
‘obviously
the
taxpayer
is
outside
the
purview
of
subsection
13(1).
It
goes
without
saying
that
this
is
also
true
if
his
only
source
of
income
is
farming.*
The
Board
is
aware
that
Urie,
J
dissented
in
the
above-cited
case,
Pratte
and
Ryan,
JJ
being
in
the
majority.
The
specific
point
quoted
above,
however,
was
not
the
key
question
dealt
with
in
the
judgment,
though
Ryan,
J
for
his
part
expresses
a
different
opinion
from
Urie,
J
on
this
point
(p
334
[5219]):
In
my
opinion
this
approach
is
inappropriate
when
viewed
under
the
aspect
of
the
purpose
of
the
section,
which
is
to
place
some
limit
on
the
deductibility
of
commercial
farming
losses.
With
due
respect
for
the
opinion
of
the
learned
Ryan,
J,
the
Board
agrees
with
he
opinion
of
Urie,
J
and
believes
thas
this
section
should
be
given
a
strict
interpretation.
If
the
legislator
wished
to
express
a
different
idea
from
that
expressed
by
the
words
used,
he
had
only
to
use
different
words.
It
must
be
realized
that
by
limiting
the
application
of
a
business’s
losses
against
the
profits
of
another
business
(which
is
a
currently
used
accounting
principle)
the
legislator
is
taxing
the
taxpayer.
Accordingly,
in
such
a
legal
provision
it
is
his
duty
to
express
himself
clearly.
The
same
principle
applies
to
subsection
68(4),
in
which,
by
declaring
a
corporation
to
be
a
‘‘personal
corporation’’,
the
Minister
is
further
taxing
the
shareholder.
Finally,
it
seems
to
the
Board
that
since
the
Minister’s
discretionary
power
is
a
right
in
derogation
of
the
common
law,
it
should
be
exercised
only
where
the
sections
are
clear,
where
there
is
no
doubt.
If
a
reasonable
doubt
exists,
the
doubt
must
be
resolved
in
favour
of
the
taxpayer
and
against
the
Minister,
with
the
result
that
the
Minister
cannot
exercise
the
discretionary
power.
The
Board
has
therefore
come
to
the
conclusion
that,
on
the
one
hand,
the
actual
situation
does
not
allow
for
the
application
of
subsections
13(1)
and
68(4),
and
that,
on
the
other
hand,
the
Minister
cannot
exercise
his
discretionary
power
in
the
case
at
bar,
and
consequently:
(a)
cannot
consider
the
farming
business
(if
the
business
of
making
maple
products
is
a
farming
business)
as
not
being
an
active
commercial
or
industrial
business
within
the
meaning
of
paragraph
68(1)(c),
(b)
cannot
consider
Les
Entreprises
Poirier
to
be
a
personal
corporation,
and
(c)
cannot
include
in
the
appellant’s
personal
income
the
income
of
Les
Entreprises
Poirier
for
1970
and
1971.
Having
drawn
these
conclusions,
it
is
unnecessary
for
us
to
determine
whether
the
business
of
making
maple
products
is
a
farming
business.
6.
Conclusion
The
Board
allows
the
appeal
and
vacates
the
respondent’s
assessment.
Appeal
allowed.
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