The Chairman (orally: December 11, 1974):
1 This is an appeal by Lazare Investments Corporation against the reassessment of the Minister of National Revenue for the 1972 taxation year.
2 The question to be determined is whether or not the appellant company is carrying on an active business under section 125 of the 1972 Act. All the requirements of the section have been complied with and the only issue is whether the appellant carried on an “active business”.
3 This is an issue that has come up several times across the country and has given the Board a considerable problem because there really is not very much to fall back on. One is tempted, I suppose, to reach back into sections 67 and 68 dealing with personal corporations under the so-called old Act but, really, I don't think that these analogies are very helpful. First of all, I think we must recognize that section 68 of the pre-1972 Act dealt with an “active business” in an entirely different context, ie, the definition of personal corporations, which, in fact, no longer appears in the 1972 Act. In addition, section 125 is a new deducting provision of the Act which did not exist prior to 1972 and, in substance, the only difference is, I suppose, that greater concessions have been made to smaller companies than was thought to be the case under the differential tax rate that was applied to them previously.
4 As I have said, I think that we must look at each case on its facts. The facts in this case are that Mr Philip Lazare, in or about the year 1963, incorporated this appellant company and, apparently, had carried on business until 1969. He then sold his interest in the business to his son Jack and his, Mr Philip Lazare's, daughter. Mr Jack Lazare is unquestionably the man most intimately connected with the operation of the company, notwithstanding the fact that there is shown in the evidence and in the financial statements of the company that his parents, the father being 83 and the mother 77, drew salaries of $6,000 and $4,000 respectively. These amounts are not relevant except that I would say that, from a description of the services that they performed, I don't think that those sums would have been paid to strangers. Nevertheless the parents' connection with the company is not before me nor is the salary paid to them.
5 The business of the appellant company has been completely in the mortgage field, or perhaps the mortgage-affiliated field is a better term by which to define it. The company has never owned any property. It has been engaged primarily in the interim financing field and in balance of sale documents, which, I am informed, are documents taken back when the builder sells a building to someone who is not able to pay the full down payment. These balance of sale contracts are then discounted with corporations such as the appellant company. In addition, the appellant also lent money on second mortgages.
6 It is the approach of the Board, or at least my approach, to try to determine what Parliament in its wisdom meant by the inclusion of the word “active” in section 125 to modify the word “business”. I cannot know for a fact what Parliament did mean to infer, but I think I can assume that to the legislators it meant something, or the word would not have been inserted. This then makes it necessary for one to look at each case on its particular facts, as I have said, and although that statement may also have become a cliché in the taxation field, in my view, it is very important in this type of case.
7 The evidence supplied by Mr Jack Lazare, and which is uncontradicted, is that the appellant was well known amongst certain notaries and small builders in this area to have money available for the type of financing that I have previously outlined, and it was not necessary for it to advertise because the amount of money that it had available to lend could easily be placed through these notaries and builders. The appellant had a line of credit of some $85,000, I think, in the year in question, or not less than $75,000. It also had received a loan from the parents of Jack Lazare which was non-interest-bearing. Over the course of the 1969–70 year, the appellant's Exhibit-2 shows that some 18 loans were granted, 23 were paid off, and some 57 were left in existence and the record continues to the year 1973, and shows 34 loans in 1970, 39 in 1972 and 40 in 1973 being outstanding after the payment of loans and granting of further loans during the successive years up to 1973.
8 A great deal has been made by learned counsel for the respondent of the fact that not a great deal of effort was needed to run this operation. Parliament has not seen fit to define “active” and in the circumstances I do not propose to try and define it because I do not think it is something that should be narrowly defined at this stage of the application of this new section. I think one must look to the activities of Mr Jack Lazare who attended on the property sites, who evaluated the potential of the loans for repayment, who signed the documents and, although engaged otherwise mainly in a clothing business, had clearly full and constant control of the situation of this appellant company. True, there were not many cheques drawn in any given year, I think approximately 60 in one year as well as deposits of about the same number, but this was a mortgage business and the payments were on regular terms. The degree of success that the company has had is shown by two things, first the fact that there had been no bad debts in the company's history, and, secondly, that after the number of operations that it has entered into in a few years it has a surplus of some $164,000. As I have said in other cases, and particularly in Cosmopolitan Investments Co Ltd v Minister of National Revenue, [1974] C.T.C. 2335, 74 D.T.C. 1252, it was my express feeling that that was not the type of company that section 125 was meant to benefit, but, in my respectful view, Parliament has not succeeded in precluding this type of operation from taking advantage of the section. I think there is a vast difference between the type of business where there is merely a sitting back and clipping of coupons and the type of operation that this appellant was engaged in. In order to have the degree of success that it has experienced over the years, there had to be some very active work carried on by the president, Mr Jack Lazare. My feeling is that section 125 was primarily intended to stimulate employment by the granting of opportunities for smaller businesses to increase their working capital but, in commenting on this section when increasing the limits, the Honourable Minister of Finance stated: “... this provides up to $11,500 in additional cash flow to every eligible small businessman in the country. For example, he could use it to expand his business, finance inventory, meet his bank charges or to build up his working capital. Under current circumstances, I have no doubt that he will be able to make good use of this money.” It seems clear then, to me at least, that in the eyes of the Minister the businessmen entitled to such benefits included people in a business such as this appellant has been engaged in.
9 Reference has been made to interpretation bulletins sent out quite regularly by the Department of National Revenue, Taxation, and these bulletins, although they do not have the force of law, are extremely helpful in determining, or in assisting the Board or the courts in determining, at least, what the framers of the various provisions had in mind. I cannot find anything in these bulletins that is conclusive enough to deprive this appellant of the benefit of section 125. It had a letterhead, it had two telephone numbers, regardless of who answered them, it was well known and there was no doubt about where Mr Jack Lazare could be reached at any time by the people that supplied the appellant with business. So, if I did have to justify this decision, in the light of the interpretation bulletins cited to me, I still feel that I could do so. On all the evidence, I think that the appellant has satisfied the onus of proving that it was engaged in an active business and the appeal will be allowed and the assessment vacated.
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