Addy,
J:—This
is
an
application
by
the
Minister
of
National
Revenue
by
way
of
appeal
from
the
Tax
Appeal
Board
whereby
the
latter
held
that,
for
the
taxation
year
1964,
Furnasman
Ltd
(hereinafter
referred
to
as
“Furnasman”)
and
Furnasman
(Metal)
Ltd
(hereinafter
referred
to
as
“F
(Metal)”)
were
not
associated
pursuant
to
section
138A
of
the
Income
Tax
Act.
Previous
to
incorporation
of
F
(Metal),
Furnasman,
which
was
originally
an
unincorporated
business
known
as
Furnasman
Manufacturing
and
was
later
incorporated
under
the
name
of
Furnasman
Manufacturing
Limited,
was
in
the
business
of
manufacturing
coal
stokers
and
various
types
of
oil
and
gas
furnaces
and
also
in
the
business
of
manufacturing
sheet
metal
duct
work
and
fittings,
and
of
selling,
installing
and
servicing
heating
apparatus.
By
1955
Furnasman
and
Furnasman
Stoker
Western
Limited,
which
is
now
a
wholly
owned
subsidiary,
were
also
in
the
wholesale
distribution
business.
In
1959
a
decision
was
taken
to
incorporate
two
new
companies
F
(Metal)
aforesaid
and
Furnasman
(Furnace)
Limited
(hereinafter
referred
to
as
“F
(Furnace)”).
Furnasman
sold
to
F
(Metal)
the
equipment,
supplies
and
assets
required
to
do
duct
work
manufacturing
and
this
new
company
took
over
all
of
this
work
which
was
Originally
done
by
Furnasman.
Similarly,
it
sold
to
F
(Furnace)
the
equipment
and
inventory
necessary
to
manufacture
gas
and
oil
furnaces.
The
assets
were
transferred
at
book
value,
no
consideration
being
paid
for
the
goodwill
and
the
assets
were
paid
for
on
an
open
account
basis.
The
policy,
at
the
time
of
incorportion
of
the
two
new
companies
and
for
some
years
previously,
had
been
to
considerably
limit
the
salary
of
the
key
personnel
but
to
distribute
some
25%
of
the
gross
profits
among
them
yearly,
by
way
of
bonus,
as
an
incentive
to
increase
efficiency
and
profits.
At
the
time
of
incorportion,
the
holding
of
shares
of
all
three
companies
were
divided
in
such
a
way
that
each
member
among
the
key
personnel
had
his
shareholdings
equally
distributed
among
all
the
three
companies,
except
that
the
original
founder
of
the
business,
Charles
Helyar,
kept
all
of
his
shares
in
Furnasman
while
his
wife
through
a
holding
company
held
all
of
her
shares
in
F
(Metal)
and
his
father
all
of
his
shares
in
F
(Furnace).
After
incorporation,
the
policy
was,
and
it
apparently
still
is
for
key
personnel
in
each
company,
to
acquire
as
much
as
possible
shares
in
their
own
company
rather
than
in
the
other
two
companies.
The
shares
were
usually
purchased
on
a
purely
voluntary
basis
from
their
yearly
bonuses.
Evidence
was
given
on
behalf
of
the
taxpayers
by
the
owner
of
the
Original
business,
Charles
Helyar,
by
the
plant
manager
of
F
(Furnace),
the
president
and
general
manager
of
F
(Metal)
and
the
vice-president
and
general
manager
of
Furnasman.
They
all
testified
that
the
three
businesses
were
completely
separate
and
were
of
a
different
nature:
each
required
different
tradesmen,
different
types
of
skilled
workers
and
different
key
personnel
as
well
as
a
different
organization.
They
testified
that
Furnasman
being
a
sales
and
service
organization
was
staffed
with
salesmen,
distributing
agents,
installers
and
servicemen;
F
(Metal)
was
composed
of
qualified
metal
workers;
F
(Furnace)
was
composed
of
assemblers,
machine
operators,
painters,
etc.
Evidence
was
also
given
to
the
effect
that
the
last
two
companies
were
in
no
way
related
from
a
manufacturing
standpoint
and
this
clearly
appears
to
be
a
fact.
Originally,
the
three
types
of
operation
were
merely
departments
of
the
same
corporate
entity
but
these
witnesses
all
testified
that,
for
purposes
of
control
by
the
key
men
of
the
particular
business
in
which
they
possessed
expertise
as
well
as
incentive
to
key
personnel,
it
was
decided
that
it
would
be
much
preferable
for
the
three
businesses
to
be
separate,
as
each
could
then
be
entirely
responsible
for
its
success
or
failure
and
not
dependent
on
the
others
in
any
way
or
have
to
suffer
by
reason
of
any
incompetence
or
unfortunate
decision
on
the
part
of
another
completely
separate
operation
over
which
the
key
men
of
the
partial
businesses
concerned
had
no
effective
say
or
control.
Furthermore,
they
would
not
have
to
share
with
any
other
Organization
any
part
of
the
bonus
which
they
would
be
paid
from
the
profits
which
they
earned
from
their
own
work
and
efforts.
In
addition
to
this,
evidence
was
given
that,
with
a
manufacturing
company
completely
separate
from
the
retail
and
wholesale
sales
and
distribution
portion
of
the
business,
the
furnace
manufacturing
company
could
then
produce
and
in
fact
did
produce
brand
name
furnaces
for
other
sales
and
distributing
organizations
who,
naturally,
would
have
been
reluctant
to
do
business
with
a
company
in
which
they
were
in
direct
competition
in
the
sales
and
distribution
field.
In
addition
to
the
evidence
that
the
main
reasons
for
the
existence
of
the
three
companies
were
efficiency
of
operation,
incentive,
control
and
the
sale
to
other
businesses,
which
would
be
rival
organizations
if
there
was
but
one
company,
there
was
evidence
by
Helyar
that
there
were
considerable
benefits
to
be
gained
from
the
standpoint
of
estate
planning
and
family
security
by
not
having
all
their
risk
capital
in
one
business.
These
last
reasons,
however,
were
not
major
reasons.
Evidence
was
given
to
the
effect
that
income
tax
savings
was
also
a
factor
but,
having
regard
to
the
other
important
reasons
which
motivated
the
creation
of
the
three
separate
companies,
it
was
to
be
considered
but
a
relatively
minor
factor
and
definitely
not
one
of
the
main
reasons
for
the
splitting
of
the
operations
into
separate
corporations.
The
Crown
called
as
a
witness
one
Mr
Guppy,
who
had
been
a
manager
of
a
local
branch
of
the
bank
of
the
original
company
and
who
had
a
knowledge
of
the
affairs
of
the
business.
He
testified
that
for
credit
purposes
the
bank,
in
order
to
fully
protect
itself,
naturally
required
that
Furnasman,
which
was
transferring
a
very
substantial
portion
of
its
assets
and
business
to
the
new
companies,
remain
the
guarantor
of
any
credit
advanced
to
the
other
two.
In
fact,
the
bank
insisted
on
mutual
guarantees
throughout
for
all
credit
advanced
by
it.
The
witness
Guppy,
however,
largely
supported
the
evidence
of
the
witnesses
called
on
behalf
of
the
respondent
taxpayers
to
the
effect
that
tax
savings
was
not
the
main
reason
for
the
creation
of
separate
corporations.
He
stated
that
he
was
never
told
that
it
was
one
of
the
main
reasons.
During
the
course
of
the
case,
the
Crown
sought
to
introduce
by
producing
them,
a
portion
of
the
records
and
inter-office
bank
correspondence
and
memos
in
order
to
establish
a
contrary
intention
on
the
part
of
the
respondents
and,
especially,
on
the
part
of
Helyar
who
had
the
controlling
interest
in
Furnasman
at
the
time
of
the
incorporation
of
F
(Metal)
and
F
(Furnace).
Much
of
the
material
required
was
admitted
as
statements
by
or
on
behalf
of
the
respondents
themselves
and
no
difficulty
arose
concerning
their
admissibility.
However,
there
were
two
reports
which
counsel
for
the
Crown
sought
to
have
admitted
as
part
of
the
bank
records
pursuant
to
sections
29
and
30
of
the
Canada
Evidence
Act,
RSC
1970,
c
E-10.
The
first
one
was
contained
in
a
copy
of
an
application
for
credit
forwarded
by
the
branch
to
head
office
in
an
attempt
to
obtain
authorization
for
an
increase
in
credit
for
F
(Metal).
This
was
contained
in
a
report
annexed
to
a
regular
bank
form
and
it
was
forwarded
by
the
branch
manager
at
the
time
in
the
regular
course
of
the
bank’s
business.
The
particular
manager
who
signed
that
report
is
now
deceased.
The
passage
consisted
of
a
purely
factual
report
on
the
accounts
and
operations
of
the
business
nd
an
extract
from
its
financial
statement
and
is,
in
my
view,
definitely
admissible
under
the
provisions
of
section
30
since
all
or
any
of
the
evidence
could
certainly
have
been
given
on
all
of
these
matters
and
since
it
was
a
record
made
in
the
usual
and
ordinary
course
of
business
of
the
bank.
I
admitted
it
at
trial
as
Exhibit
No
14.
A
more
difficult
situation
arose
out
of
a
portion
of
another
report
on
credit
forwarded
in
the
normal
course
of
business
by
the
same
branch
manager
to
head
office
on
October
7,
1966.
The
report
contained
the
following
passage
which
the
Crown
wished
to
have
admitted
and
to
which
the
respondent
firmly
objected:
In
order
to
effect
income
tax
savings
in
the
ensuing
years’
operations,
as
well
as
to
place
additional
responsibility
upon
the
local
management
for
the
overall
operation,
including
carrying
of
reduced
inventories
and
the
necessity
of
obtaining
prompt
payment
of
their
receivables,
the
executive
decided
to
conduct
their
operations
in
British
Columbia
and
the
Calgary
area
as
two
separate
concerns.
These
have
been
incorporated
and
are
presently
operating
for
this
purpose.
A
further
important
factor
in
this
decision
was
that,
in
case
of
labour
disputes,
these
separate
units
would
not
be
directly
involved
at
any
one
time.
(The
italics
are
mine.)
There
is
no
doubt
about
the
importance
of
the
italicized
portion,
as
it
is
evidence
that
tax
savings
was
one
of
the
main
reasons,
if
not
the
main
reason,
for
the
operations
being
split.
The
Crown
argued
that
it
was
admissible
both
under
section
29
and
under
section
30.
For
purposes
of
convenience
the
relevant
parts
of
both
these
sections
are
reproduced
hereunder:
29.
(1)
Subject
to
this
section,
a
copy
of
‘any
entry
in
any
book
or
record
kept
in
any
financial
institution
shall
in
all
legal
proceedings
be
received
in
evidence
as
prima
facie
proof
of
such
entry
and
of
the
matters,
transactions
and
accounts
therein
recorded.
(2)
A
copy
of
an
entry
in
such
book
or
record
shall
not
be
received
in
evidence
under
this
section
unless
it
is
first
proved
that
the
book
or
record
was,
at
the
time
of
the
making
of
the
entry,
one
of
the
ordinary
books
or
records
of
the
financial
institution,
that
the
entry
was
made
in
the
usual
and
ordinary
course
of
business,
that
the
book
or
record
is
in
the
custody
or
control
of
the
financial
institution
and
that
such
copy
is
a
true
copy
thereof;
and
such
proof
may
be
given
by
the
manager
or
accountant
of
the
financial
institution
and
may
be
given
orally
or
by
affidavit
sworn
before
any
commissioner
or
other
person
authorized
to
take
affidavits.
30.
(1)
Where
oral
evidence
in
respect
of
a
matter
would
be
admissible
in
a
legal
proceeding,
a
record
made
in
the
usual
and
ordinary
course
of
business
that
contains
information
in
respect
of
that
matter
is
admissible
in
evidence
under
this
section
in
the
legal
proceeding
upon
production
of
the
record.
(12)
In
this
section
“record”
includes
the
whole
or
any
part
of
any
book,
document,
paper,
card,
tape
or
other
thing
on
or
in
which
information
is
written,
recorded,
stored
or
reproduced,
and,
except
for
the
purposes
of
subsections
(3)
and
(4),
any
copy
of
transcript
received
in
evidence
under
this
section
pursuant
to
subsection
(3)
or
(4).
In
so
far
as
subsection
29(1)
is
concerned
the
word
“entry”
in
the
expression
“entry
in
any
book
or
record”
means
an
ordinary
financial
or
bookkeeping
entry,
that
is,
the
figures
and
the
required
explanation
for
such
figures,
in
a
ledger,
book,
card
system
or
computer
card
system.
In
my
view,
it
is
intended
to
cover
primarily
the
bookkeeping
type
of
information
or,
in
other
words,
the
debit,
credit
or
balance
type
of
entry
with
the
required
explanatory
words
to
identify
or
clarify
the
entry.
It
does
not,
in
my
view,
cover
such
things
as
inter-office
memos
or
written
reports
between
branches
of
an
organization
such
as
in
the
present
case.
This
interpretation
is
reinforced
by
the
reading
of
subsection
29(2)
above.
It
is
to
be
noted
also
that
in
the
section
it
is
the
entry
itself
which
is
referred
to
as
being
admissible
and
it
is
further
to
be
noted
that
the
word
“record”
is
not
given
the
very
broad
definition
that
we
find
attributed
to
the
same
word
in
section
30.
I
therefore
find
that
the
above-quoted
extract
from
the
credit
report
is
not
admissible
under
subsection
29(1).
As
to
section
30,
having
regard
to
the
very
broad
definition
given
to
the
word
“record”
which
includes
“document”
or
“paper”,
it
would,
in
my
view,
be
broad
enough,
generally
speaking,
to
cover
the
type
of
credit
report
between
one
department
of
a
financial
institution
and
another,
inter-office
memos,
etc,
providing
the
other
conditions
of
the
section
are
met,
namely,
the
record
must
be
one
made
in
the
usual
and
ordinary
course
of
business
and
the
statement
must
be
such
that
it
would
otherwise
be
admissible
if
attested
to
by
viva
voce
evidence
under
oath.
In
the
present
case,
it
is
not
stated
anywhere
in
the
report
that
the
manager
was
informed
of
this
intention
by
any
of
the
parties
or
by
any
person
acting
on
behalf
of
the
parties.
The
statement
contained
a
conclusion
as
to
a
condition
of
mind
or
a
motive
and
it
is
not
something
that
can
be
directly
observed
as
a
fact
by
a
witness.
The
statement
could
have
originated
in
only
one
of
two
other
ways:
the
writer
might
have
received
the
information
from
a
third
party,
in
which
case
it
would
be
inadmissible
as
hearsay,
or
it
might
have
originated
as
a
mere
deduction
or
opinion
on
the
part
of
the
witness
and,
since
the
bare
fact
of
the
existence
or
non-existence
of
an
intention
cannot
be
the
subject
matter
of
opinion
evidence,
except
perhaps
in
certain
restricted
cases
where
the
opinion
of
a
psychiatrist
might
be
admissible
on
such
a
point,
opinion
evidence
from
the
bank
manager
on
this
issue
would
not
be
acceptable
as
oral
evidence.
Furthermore,
it
would
be
inadmissible
on
the
grounds
that
the
witness
was
being
requested
to
give
an
opinion,
or
come
to
a
conclusion,
on
the
very
issue
which
the
Court
is
being
called
upon
to
determine.
The
further
possibility
of
this
statement
being
merely
an
argument
which
the
branch
manager
thought
up
on
his
own
in
order
to
convince
head
office
to
extend
the
credit
of
his
client,
was
also
brought
up
by
the
witness
Guppy,
called
on
behalf
of
the
Crown,
who
stated
that
it
was
the
practice
of
a
good
bank
manager,
when
writing
on
behalf
of
a
person
whom
he
considered
a
good
financial
risk,
to
advance
what
arguments
seemed
reasonable
to
him
in
order
to
convince
head
office
to
extend
the
credit
and
that
a
possible
tax
savings
was
obviously
a
good
argument
in
so
far
as
the
officials
of
any
bank
were
concerned.
For
these
reasons,
I
ruled
the
particular
statement
to
be
inadmissible.
My
ruling
would
have
been
otherwise
had
the
deceased
bank
manager
stated
that
he
had
been
informed
by
Helyar
or
by
any
one
acting
on
behalf
of
the
respondents
as
to
the
purpose
for
splitting
the
operation.
It
was
established
that
all
three
companies
shared
the
same
accounting
services
and
evidence
was
given
that
this
was
solely
for
purposes
of
economy,
as
none
of
them
could
afford
to
pay
for
the
same
type
of
accounting
services
having
regard
to
the
value
of
its
business.
They
also
shared,
for
some
time
for
purposes
of
economy,
the
same
switchboard
services
and
also
for
a
couple
of
years
there
was
some
confusion
in
the
yellow
page
listings.
As
to
publicity
and
advertising
material,
although
there
were
a
couple
of
instances
where
the
word
“Furnasman”
or
“Furnasman
Ltd”
was
used
by
one
or
the
other
company
instead
of
its
full
and
correct
designation,
having
regard
to
the
fact
that
the
three
companies
were
using
the
name
“Furnasman”
there
were,
in
my
view,
comparatively
few
instances
of
any
misuse
of
this
name
by
any
of
the
three
companies.
I
remain
convinced
that
each
company
was
jealous
and
proud
of
its
own
identity,
although
naturally
anxious
and
willing
to
benefit
from
the
goodwill
that
the
word
“Furnasman”
obviously
enjoyed
the
market
generally.
In
the
case
of
Levitt-Safety
(Eastern)
Ltd
et
al
v
MNR,
[1973]
CTC
483;
73
DTC
5374,
my
brother
Urie,
J
found
that
many
of
the
operations
including
purchasing,
warehousing,
cataloguing,
invoicing
and
accounting
were
centralized
and,
therefore,
came
to
the
conclusion
that
the
changes
and
new
incorporations
were
“merely
cosmetic”
and
that
one
of
the
main
reasons
on
the
facts
before
him
was
to
evade
payment
of
income
tax.
I
was
also
referred
to
and
I
considered
the
following
cases,
where
the
Court
found
that
the
main
intention
was
not
to
effect
tax
savings
and
the
companies
were
held
to
not
be
associated:
The
Queen
v
Bobbie
Brooks
(Canada)
Limited,
[1973]
CTC
431;
73
DTC
5357;
C
P
Loewen
Enterprises
Ltd
v
MNR,
[1972]
CTC
396;
72
DTC
6298;
and
Jordans
Rugs
Ltd
et
al
v
MNR,
[1969]
CTC
445:
69
DTC
5290.
I
also
considered
the
following
cases
where
a
contrary
conclusion
was
arrived
at:
Debruth
Investments
Limited
v
MNR,
[1973]
CTC
268:
73
DTC
5233;
Pay-Less
Meat
Market
Ltd,
New-West
Meat
Market
Limited
and
Save-On
Meat
Market
Ltd
v
MNR,
[1973]
CTC
102;
73
DTC
5102:
Classic’s
Little
Books
Inc
v
Her
Majesty
The
Queen,
[1973]
CTC
94:
73
DTC
5096;
Dominion
Freehold
Limited
v
MNR,
[1971]
CTC
523;
71
DTC
5261;
Holt
Metal
Sales
of
Manitoba
Limited
and
Industrial
Metals
Processing
Limited
v
MNR,
[1970]
CTC
144;
70
DTC
6108;
MNR
v
Howson
&
Howson
Limited
and
Howson
&
Howson
Company
(Cargill)
Limited,
[1970]
CTC
36;
70
DTC
6055;
Alpine
Furniture
Company
Limited
and
Monte
Carlos
Furniture
Company
Limited
v
MNR,
[1968]
CTC
532;
68
DTC
5338;
and
Doris
Trucking
Company
Limited
v
MNR,
[1968]
CTC
303;
68
DTC
5204.
As
each
of
the
above
cases
necessarily
turns
on
its
particular
facts,
the
cases
in
themselves
can
be
of
little
assistance.
The
question
as
to
whether
or
not
one
of
the
main
reasons
why
two
or
more
companies
either
came
into
being
or
continue
to
exist,
is
for
the
purpose
of
reducing
the
amount
of
tax
that
would
otherwise
be
payable
under
the
Act,
is
a
pure
and
simple
question
of
fact.
A
question
of
intention
or
motive
is
necessarily
subjective;
it
cannot
be
otherwise,
for
nothing
can
be
more
subjective
or
dependent
upon
credibility
than
intention
or
motive,
since
it
is
essentially
a
condition
of
the
mind.
It
is,
indeed,
the
type
of
issue
that
would
be
eminently
suitable
for
determination
by
a
jury.
In
the
case
of
a
corporation,
it
is
a
question
of
what
was
the
collective
intention
of
its
directors
or
shareholders
at
the
relevant
time.
Whenever,
contrary
to
the
great
majority
of
taxation
problems,
a
question
of
intention
is
paramount,
credibility
is
of
a
very
great
importance.
When
evidence
of
intention
is
given
by
the
party
mainly
responsible
for
the
separate
existence
of
the
two
corporations,
to
the
effect
that
the
question
of
income
tax
saving
was
not
one
of
the
main
intentions
for
this
separate
corporate
existence,
and
when,
having
regard
to
all
of
the
other
evidence
and
the
other
circumstances
of
the
case,
the
Court
is
prepared
to
accept
that
evidence,
then
the
burden
of
proof
which
the
taxpayer
must
discharge
has
been
satisfied
and
the
Court
must
then
find
that
the
companies
must
be
deemed
to
have
not
been
associated
in
accordance
with
section
138A.
A
very
useful
test
in
determining
whether
subparagraph
138A
(3)(b)(ii)
applies
was
laid
down
by
Dumoulin,
J
in
the
case
of
Doris
Trucking
Company
Limited
v
MNR
(supra).
My
brother
Cattanach,
J
at
pages
409-10
[6308]
of
the
above-cited
report
of
Loewen
Enterprises
Ltd
v
MNR
stated
as
follows:
The
test
to
be
applied
in
considering
the
meaning
of
subparagraph
138A(3)(b)(ii)
is
set
out
in
Doris
Trucking
Company
Limited
v
MNR,
[1968]
2
Ex
CR
501;
[1968]
CTC
303;
68
DTC
5204,
where
Dumoulin,
J
stated
at
page
505
[307,
5207]:
.
the
proper
test
is
.
.
.
if
one
supposed
that
all
corporations
were
subject
to
tax
at
a
flat
rate
of
50%,
as
has
been
recommended
by
the
Royal
Commission
on
taxation,
would
it
be
expected
that
these
particular
operations
would
have
been
carried
on
by
separate
corporations.”
This
test
was
adopted
and
applied
by
Sheppard,
DJ
in
Jordans
Rugs
Ltd
et
al
v
MNR,
[1969]
CTC
445;
69
DTC
5290.
In
short
the
test
amounts
to
this—if
there
had
been
no
tax
advantage
would
the
plan
have
been
adopted
in
any
event?
In
/RC
v
Brebner,
[1967]
1
All
ER
779,
Lord
Pearce
stated
at
page
781
that
the
question
whether
one
of
the
main
objects
was
to
obtain
a
tax
advantage
was
a
question
of
subjective
intention.
I
fully
agree
that
the
test
mentioned
in
these
cases
is
the
proper
one
which
the
trier
of
facts
must
apply
in
considering
his
finding
under
section
138A.
Having
regard
to
the
fact
that
I
accept
the
evidence
of
Mr
Helyar
and
of
the
other
witnesses
called
on
behalf
of
the
taxpayer
as
to
the
main
intention
or
reasons
why
the
companies
were
incorporated
originally
and
were
continued
in
existence,
and
having
regard
to
the
fact
that
not
only
is
such
evidence
largely
uncontradicted
but
is
substantially
reinforced
by
the
evidence
of
the
sole
witness
called
on
behalf
of
the
Minister
of
National
Revenue,
namely,
the
evidence
of
the
bank
manager,
Mr
Guppy,
I
have
no
difficulty
in
coming
to
the
conclusion
that,
even
if
there
had
been
no
income
tax
advantage
whatsoever,
the
separate
corporations
would
have
been
created
and
would
have
continued
in
existence
and
that
the
burden
of
proof
in
this
regard
has
been
fully
discharged
by
the
respondent.
The
finding
of
the
Tax
Appeal
Board
must
therefore
be
confirmed
and
the
present
appeals
dismissed
with
costs.
Judgment
shall
issue
accordingly.