A
J
Frost
(orally):—This
is
an
income
tax
appeal
in
respect
of
the
appellant’s
1965
taxation
year.
Upon
notice
of
objection
duly
signed
and
filed,
the
Minister
of
National
Revenue
confirmed
the
assessment
on
June
10,
1971.
The
appeal
came
on
for
hearing
in
Toronto,
Ontario
on
September
19,
1972.
The
appellant
is
a
corporation
incorporated
under
the
laws
of
the
Province
of
Ontario.
It
operated
a
bowling
alley
and
had
accumulated
operating
losses
of
$107,000
over
a
period
of
years.
On
June
10,
1964
Amcan
Holdings
Limited
(hereinafter
referred
to
as
“Amcan”)
acquired
50%
of
the
outstanding
shares
of
the
appellant
and
on
the
same
date
gave
an
option
to
the
appellant
to
acquire
a
property
known
as
Part
of
Lot
13,
Concession
6,
Toronto
Township,
in
the
County
of
Peel,
for
$245,575,
which
property
had
a
market
value
of
$343,770.
The
appellant
exercised
the
option
and
sold
the
property
at
its
fair
market
value
of
$343,770
to
Slough
Estates
(Canada)
Limited.
Originally
the
property
cost
Amcan
$96,275.
The
effect
of
the
transaction
was
to
artificially
split
the
gain
realized
between
the
appellant
and
its
sister
company,
Amcan.
The
Minister
of
National
Revenue
taxed
the
entire
gain
as
income
in
the
hands
of
Amcan
under
subsection
17(2)
of
the
Income
Tax
Act
on
the
ground
that
the
taxpayer
was
not
dealing
at
arm’s
length
with
the
appellant
and
that
the
amount
of
$343,770
was
deemed
to
have
been
received
or
receivable.
The
Minister
of
National
Revenue
also
assessed
the
appellant
on
its
net
reported
profit
which
included
the
profit
realized
on
the
sale
of
the
land
in
the
amount
of
$83,014.83,
and
under
subsection
27(5)
of
the
Income
Tax
Act
disallowed
deductions
from
income
in
respect
of
losses
sustained
prior
to
1965,
thereby
levying
tax
the
second
time
on
the
same
income
dollars.
In
the
first
instance,
the
appellant
and
Amcan
were
obviously
trying
to
artificially
feed
profits
of
$83,014.83
from
Amcan
to
the
appellant
on
account
of
the
accumulated
loss
on
its
books.
It
did
not
work
out
very
well
because
Amcan
was
caught
by
subsection
17(2)
of
the
Income
Tax
Act
and
the
Minister
of
National
Revenue
accordingly
transferred
back
the
amount
of
$83,014.83
to
the
income
of
Amcan
but
did
not
adjust
the
reported
income
figure
shown
in
the
appellant’s
tax
return.
The
Minister
taxed
the
said
amount
once
in
the
hands
of
Amcan
and
again
in
the
hands
of
the
appellant.
The
question
in
issue
in
this
appeal
is
whether
or
not
the
Minister
of
National
Revenue
is
entitled
to
notionally
take
away
income
dollars
as
reported
in
one
taxpayer’s
return,
add
it
to
another
taxpayer’s
return
and
then
tax
both
recognizing
the
receipt
of
income
but
not
its
source.
There
is
a
general
presumption
in
law
against
taxing
the
same
income
dollars
twice.
Double
taxation
can
only
be
considered
to
exist
where
it
is
equitable
and/or
the
language
of
the
taxing
Act
is
clear
and
unequivocable.
In
this
case
we
are
dealing
with
a
“deemed”
transaction
under
subsection
17(2)
of
the
Income
Tax
Act.
The
Minister
of
National
Revenue
“deemed”
that
the
profit
of
$83,014.83
was
income
in
the
hands
of
Amcan
and
when
Amcan
did
not
contest
this
deemed
allocation,
that
amount
of
income
for
tax
purposes
was
proven
to
be
income
of
Amcan
and
not
that
of
the
appellant
and
was
no
longer
merely
“deemed”.
Further
the
substance
of
the
transaction
as
opposed
to
the
form
leaves
no
doubt
whatsoever
in
my
mind
that
the
dollars
in
question
were
the
income
dollars
of
Amcan
and
not
those
of
the
appellant.
The
Minister
of
National
Revenue
cannot
in
my
opinion
tax
the
$83,014.83
earned
by
Amcan
as
income
dollars
of
the
appellant.
To
permit
the
Minister
to
impose
such
a
“tax”
would
be
tantamount
to
allowing
the
masquerading
of
a
penalty
as
a
tax
not
permitted
under
the
Income
Tax
Act.
The
Board
has
no
alternative
but
to
allow
the
appeal.
Appeal
allowed.
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