A
W
Prociuk:—The
appellant
is
a
company
incorporated
on
November
30,
1967
under
the
laws
of
the
Province
of
Saskatchewan.
It
appeals
from
the
respondent’s
reassessment
dated
February
7,
1973,
and
confirmed
November
21,
1973,
in
respect
of
the
appellant’s
taxation
year
ended
April
30,
1972,
wherein
a
deduction
for
small
business
in
accordance
with
the
provisions
of
subsection
125(1)
of
the
Income
Tax
Act
was
disallowed
on
the
grounds
that
the
appellant
did
not
have
income
from
an
active
business.
.
Subsection
125(1)
reads
as
follows:
125.
(1)
Small
business
deduction—There
may
be
deducted
from
the
tax
otherwise
payable
under
this
Part
for
a
taxation
year
by
a
corporation
that
was,
throughout
the
year,
a
Canadian-controlled
private
corporation,
an
amount
equal
to
25%
of
the
least
of
(a)
the
amount,
if
any,
by
which
(i)
the
aggregate
of
all
amounts
each
of
which
is
the
income
of
the
corporation
for
the
year
from
an
active
business
carried
on
in
Canda,
exceeds
(ii)
the
aggregate
of
all
amounts
each
of
which
is
a
loss
of
the
corporation
for
the
year
from
an
active
business
carried
on
in
Canada,
(b)
the
amount,
if
any,
by
which
the
corporation’s
taxable
income
for
the
year
exceeds
the
aggregate
of
(i)
10/4
of
the
aggregate
of
amounts
deducted
under
subsection
126(1)
from
the
tax
for
the
year
otherwise
payable
by
it
under
this
Part,
and
(ii)
2
times
the
aggregate
of
amounts
deducted
under
subsection
126(2)
from
the
tax
for
the
year
otherwise
payable
by
it
under
this
Part,
(c)
the
corporation’s
business
limit
for
the
year,
and
(d)
the
amount,
if
any,
by
which
the
corporation’s
total
business
limit
for
the
year
exceeds
its
cumulative
deduction
account
at
the
end
of
the
immediately
preceding
taxation
year,
except
that
in
applying
this
section
for
a
taxation
year
after
the
1972
taxation
year,
the
reference
in
this
subsection
to
“25%”
shall
be
read
as
a
reference
to
“24%
for
the
1973
taxation
year,
“23%
for
the
1974
taxation
year,
“22%”
for
the
1975
taxation
year,
and
“21
%”
for
the
1976
and
subsequent
taxation
years.
The
appellant
owns
and
operates
a
small
shopping
centre
with
an
enclosed
mall
connected
with
a
department
store
owned
and
operated
by
the
T
Eaton
Company
Limited,
at
Regina,
Saskatchewan.
It
contends
that
the
operation
of
the
shopping
centre
is
an
active
business.
The
respondent’s
position
is
that
the
appellant
contracted
the
management
and
operation
of
the
shopping
centre
to
an
independent
organization
on
a
fee
basis
and
accordingly
is
not
in
active
business
itself.
There
are
16
separate
premises
with
an
enclosed
shopping
mall
and
a
parking
lot.
The
appellant
called
as
its
principal
witness
John
D
Rosborough,
a
real
estate
developer
and
consultant,
of
Vancouver,
British
Columbia.
Mr
Rosborough
originally
resided
in
Winnipeg,
Manitoba
and
was
with
Rosborough,
Southam
&.
Kornberg:
Ltd,
shopping
centre
promoters,
developers
and
managers.
In
1967
he
formed
a
company
in
Winnipeg,
Manitoba,
known
as
J
D
Rosborough
Realty
Limited.
He
was
active
in
1966
in
successfully
putting
together
and
promoting
this
shopping
centre
in
Regina
(Exhibit
A-4).
When
construction
of
the
centre
was
complete
or
nearing
completion,
the
appellant
engaged
J
D
Rosborough
Realty
Limited
to
manage
and
operate
the
said
centre..
The
agreement
is
dated
July
22,
1968
(Exhibit
A-1).
The
duties
of
the
manager
(J
D
Rosborough
Realty
Limited)
are
spelled
out
in
paragraph
3
thereof
and
read
as
follows:
3.
The
Manager
covenants
and
agrees
to
manage
and
operate
the
said
Centre
during
the
term
hereof
and
any
renewals
without
restricting
the
generality
thereof
covenants
and
agrees
to
carry
out
and
be
responsible.
for
the
following:
a.
Leasing
and
releasing
of
premises
and
vacant
premises
and
negotiating
renewals
of
leases.
b.
Enforcing
the
provisions
of
all
leases
and
collecting
rentals
thereunder
and
accounting
for
the
same
to
the
Company.
c.
Supervising
the
actual
physical
requirements
of
the
Shopping
Centre
and
arranging
for
all
cleaning,
maintenance
and
repairs
as
may
be
necessary
or
proper
to
the
operation
of
the
Centre.
d.
Arranging
for
payment
of
rentals
directly
to
the
Trustee
for
the
first
Mortgage
Sinking
Fund
Bonds
of
the
Company
as
may
be
directed
by
the
Company
and
for
payment
of
any
other
rentals
into
a
Trust
account
to
be
maintained
by
the
Manager
for
the
Centre.
The
Manager
shall
pay
all
proper
operating
expenses
and
deduct
the
management
fee
therefrom
and
thereafter
to
account
for
and
pay
the
balance
monthly
to
the
Company.
The
Manager
will
not
authorize
or
carry
out
repairs
in
any
one
case
in
excess
of
$1,000.00
without
the
prior
written
approval
of
the
Company
and
the
Manager
and
J.
Donald
Rosborough
will
furnish
surety
bond
to
the
Company
to
guarantee
the
faithful
performance
and
due
accounting
of
funds
hereunder
to
the
Company.
e.
The
Manager
will
maintain
the
proper
set
of
books
in
accordance
with
generally
accepted
accounting
principles
for
the
Centre
and
will
furnish
monthly
statements
of
income
and
expenses
to
the
Company
not
later
than
the
seventh
day
following
the
end
of
each
month
of
the
term
hereof
and
the
cost
of
maintaining
such
books
will
be
paid
by
the
Manager.
All
books
of
the
Manager
relating
to
the
Centre
may
be
inspected
by
the
Company
at
any
reasonable
hour
or
by
the
Auditors
of
the
Company,
and
all
cost
of
such
audit
or
audits
will
be
borne
by
the
Company.
f.
Promoting.
the
Merchants
Association
in
the
Centre
in
which
the
Company
will
be
a
member
and
will
use
its
best
efforts
to
promote
the
Interests
of
the
Centre
and
to
ensure
harmonious
operation
of
the
Merchants
Association.
The
appellant
agreed
to
pay
the
manager
a
fee
of
$400
per
month
plus
an
additional
fee
of
10%
of
the
percentage
rental
paid
by
tenants
in
excess
of
guaranteed
rentals
as
same
is
more
particularly
stipulated
in
the
said
agreement.
In
his
testimony
Mr
Rosborough
stated
that
he
chose
to
move
to
Vancouver
and
has
no
difficulty
in
managing
the
shopping
centre
in
accordance
with
the
terms
of
the
agreement.
His
wife
does
most
if
not
all
of
the
bookkeeping
work
which
requires
six
to
seven
days
a
month
and
his
stenographer
is
employed
one
to
two
days
a
month
for
that
purpose.
He
stated
that
“we
operate
the
centre
as
owners;
my
wife
does
the
billing;
we
pay
all
bills
relating
to
janitorial
services,
snow
removal,
parking
lot,
heat,
lights,
etc”.
The
net
rental
is
remitted
to
the
appellant.
In
1972
the
management
fee
was
$5,545.
Some
three
tenants
are
in
a
special
category
and
pay
rental
directly
to
Montreal
Trust
pursuant
to
a
certain
deed
of
trust
and
mortgage,
filed
as
Exhibit
A-3.
The
appellant
does
not
maintain
an
office
nor
any
clerical
or
managerial
staff
on
a
full-time
basis.
There
is
some
evidence
that
one
of
the
tenants,
a
Mrs
Spicer,
acts
as
the
appellant’s
on-site
agent
for
inquiries.
According
to
Mr
Rosborough
she
arranges
for
snow
removal
as
required
and
he
receives
the
invoices
which
are
later
prorated
amongst
the
tenants.
Miss
Shirley
Eaton,
one
of
the
stenographers
of
the
appellant’s
solicitors
testified
that
she
acts
as
an
assistant
secretary
to
the
appellant
and
has
access
to
its
records.
She
makes
about
ten
entries
a
month
in
the
synoptic
ledger,
sends
out
notices
of
the
annual
meeting
and
keeps
records
of
the
Trust
Company’s
monthly
statements.
Her
employers
are
paid
$50
per
month
for
her
services
to
the
appellant.
The
question
to
determine
is
whether
or
not
the
appellant
is
engaged
in
active
business
that
would
entitle
it
to
the
provisions
of
subsection
125(1).
Counsel
referred
me
to
several
cases
decided
under
subsection
68(1)
of
the
old
Act
relating
to
personal
corporations,
by
way
of
guidance:
Manson
v
MNR,
7
Tax
ABC
298;
52
DTC
433;
No
136
v
MNR,
9
Tax
ABC
366;
54
DTC
22;
No
196
v
MNR,
11
Tax
ABC
312;
54
DTC
469;
Sawle
v
MNR,
[1967]
Tax
ABC
757;
67
DTC
524;
Smith
v
MNR,
[1970]
CTC
529;
70
DTC
6344;
Weintraub
v
MNR,
[1972]
CTC
2199;
72
DTC
1167;
the
last
case
being
under
appeal
by
the
taxpayer.
Considering
the
evidence
in
its
totality
and
using
the
above
cases
as
a
guide,
the
services
provided
by
J
B
Rosborough
Realty
Limited,
in
my
humble
opinion,
are
the
ordinary
services
that
a
tenant
would
reasonably
expect
and
be
entitled
to
under
a
standard
real
estate
lease.
The
services
are
provided
by
an
independent
firm
for
a
fee.
The
firm
is
not
subject
to
the
appellant’s
directions
from
day
to
day.
The
appellant,
in
my
view,
has
not
established
on
the
balance
of
probability
that
it
is
engaged
in
active
business.
The
appeal
accordingly
is
dismissed.
Appeal
dismissed.
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