Joseph M Weintraub v. Minister of National Revenue, [1972] CTC 2199, 72 DTC 1167

Roland St-Onge:—This appeal was heard at Montreal, Province of Quebec, on March 18, 1971 by the Tax Appeal Board as it was then constituted. The question to be decided herein is whether a company known as Jodol Holdings Ltd carried on an active commercial business within the meaning of subsection 68(1) of the Income Tax Act during the taxation years 1964 to 1967 inclusive.

In reassessing the appellant, the respondent included in his income the income of Jodol Holdings Ltd on the assumption that the company was a personal corporation and therefore its income in each of the above-mentioned years was a dividend deemed to have been distributed to and received by the appellant pursuant to sections 67 and 68 of the Income Tax Act.

Seven witnesses were called on behalf of the appellant to testify that the company’s business. was an active commercial one within the meaning of the said section of the Act.

The appellant is an engineering manager with Northern Electric Company and, apparently, his full-time employment does not conflict with the management of Jodol Holdings Ltd. He is free to leave whenever other matters require his attention, but he must work at least 37 /2 hours a week.

Mr Weintraub testified that he had incorporated Jodol Holdings Ltd in August 1961 for the purpose of owning, managing and maintaining office buildings with a view to earning income and with a hope for capital appreciation. He is the majority shareholder of the company; his wife owns 30% of the shares and 10% is divided among his children. The company owns two commercial buildings at the corner of Notre Dame Street West and St Jean Street in the old section of Montreal. The building at 266 Notre Dame Street West is a five-storey building with offices on each floor and a restaurant in the basement. During the period under appeal there was a turnover of between 20 and 25 tenants. The building at 486 St Jean Street is a four-storey structure with offices on the upper three stories and commercial premises on the ground floor. During the years under appeal there were approximately 20 tenants in this building. Together the two buildings had an average of 35 tenants and the employees consisted of a janitor, two elevator operators, and three cleaners — all on a daily basis. The janitor had an apartment on the top floor of 266 Notre Dame and acted on behalf of Mr Weintraub when he was not present. The elevators were operated manually and the operators were relieved of their duties by the janitor during mealtimes. Mr. Weintraub explained that the employees were not very dependable and, consequently, he had to refer regularly to a list of former employees in order to keep the buildings clean and in good order. The female cleaners dusted the offices every night and the male cleaners did the heavy work such as washing the floors, hallways, stairs and rest rooms. The janitor bought the equipment necessary for cleaning and making minor repairs at Pascal’s Hardware where Jodol Holdings Ltd had an account. Numerous advertisements were published in the newspapers seeking employees and tenants; the latter would phone the appellant’s residence or were interviewed at the office building about 4:30 or 5:00 pm.

Both husband and wife, as officers of the company and without being paid for their services, performed required duties such as paying the bills and looking after the payroll (withholding federal and provincial income taxes, unemployment insurance, pension fund contributions, etc). It seems that the wife kept the books and the appellant looked after the employees and tenants — conducting the inter- views, signing leases, training employees, etc. Occasionally during the years under appeal when tenants moved out he himself did some of the minor repairs such as moving partitions, installing lighting fixtures, repairing linoleum tiles, etc. Major repairs were done by contractors but apparently the appellant found it necessary to familiarize himself with the relevant technical terms so that he would be better able to deal with the contractors. The appellant gave examples to show the importance of some of the contracts.

Upon cross-examination the appellant stated: that at the time of the hearing he had between 25 and 30 tenants in both buildings; that the gross revenue from the buildings was in the vicinity of $46,000 annually; that in 1964 the company paid a total amount of $8,724.32 in salaries; and that he had had some experience in real estate, but had sold his apartment building and other properties before buying the buildings under discussion. He also stated that he and his father- in-law had jointly owned a cottage but that the latter had sold his one-half interest to the company. It is also in evidence that from 1964 to 1967 inclusive Jodol Holdings Ltd had its office at Mr Weintraub’s personal residence; that the company had no listing in the telephone book; and that when speaking of phone calls they were referring to the phone number at the appellant’s residence.

One of the tenants (a seed broker) testified that when his company needed more space in the building, he had to discuss the matter with the appellant. The manager of an oil company stated that he had discussed with the appellant the change from coal to oil heating in the buildings and that the change was made not because the coal system was too old, but because the oil was more economical and less troublesome.

The other witnesses said very little except that the appellant looked after the leases, the collection of rents and the maintenance of the buildings through a janitor and other employees. Mr Larose, the janitor since 1969, corroborated in substance Mr Weintraub’s testimony with respect to his own work and that of the appellant.

Obviously, it cannot be said that just because the appellant incorporated a company to hold office buildings at the corner of Notre Dame and St Jean Streets in the old section of Montreal, this holding suddenly constitutes an active business. There is nothing unusual about a person holding properties which yield a gross rental revenue of $46,000 and the incorporating of a company to hold and manage such properties should not be construed as carrying out an active commercial business.

It is clear from the evidence that this company was. incorporated for investment purposes as well as the collecting or receiving of rents from tenants and the maintenance of the premises to their satisfaction, and cannot, in any way whatsoever, be construed as an active commercial business. This holding is more in the nature of an investment and the volume of transactions performed or services rendered is not substantial enough to disturb the nature of this investment.

The appellant is the majority shareholder, and this alleged active commercial business is operated from his home because the company has neither an office nor a telephone listing. How could a company be so active when it did not even have an office or a telephone? Jodol Holdings Ltd was incorporated, as its name implies, to “hold” properties and not to engage in a business or trade, and furthermore its course of conduct during the years 1964 to 1967 inclusive clearly indicates that such was the case.

The company does not engage in trading; it merely holds properties for the sake of the rental income derived therefrom. The nature of its activities is such that the company cannot be considered to exist as an active commercial business but merely as one holding investments.

I have scrutinized the jurisprudence cited to me, but I see nothing therein that would assist the appellant in this case. For the above reasons the appeal is dismissed.

Appeal dismissed.