Judge K A Flanigan:
1 This is an appeal by Farlan Investments Ltd against a reassessment of the Minister of National Revenue for the 1972 taxation year. The matter in issue is whether or not the appellant is entitled to a small business deduction pursuant to section 125 of the 1972 Act. It is conceded by the respondent that all technicalities pursuant to that section have been complied with and the matter really at issue is whether or not the income of the company is income from an “active” business. This is the third or fourth time that the matter has come before me and, quite frankly, I do not know or pretend to know what Parliament meant when it added the word “active” to the section: I can only assume that it meant something.
2 The facts in this case are that the appellant company owns two office buildings, one in West Vancouver and one in the downtown core on Burrard Street opposite the well-known Bentall Complex which is, I believe, a complex of three office towers. In addition during the past two or three years there has been competition from the Toronto-Dominion Tower and the Board of Trade Building in the business of office space rentals.
3 The thrust of the respondent's argument as I understand it, is that this is not income from an “active” business, but is merely income from a rental operation, which does not qualify for the small business deduction. The facts are that in each of the two office buildings, an office for an engineer, a building superintendent, janitor, or call him what you may, is maintained; a listing for a telephone which exists in the premises. At least, the evidence is uncontradicted, that it was there in 1972 on Burrard Street and I would assume the same for the Coronation Building in West Vancouver, because there is no evidence to the contrary.
4 The evidence was given on behalf of the appellant by David MacFarlane, who is not a director or shareholder in any direct sense of the word. The properties were each put into this appellant company by his late father, some time in 1963 or 1964, although the buildings were already in existence. The one on Burrard Street, I believe was constructed in 1954 as a two-storey building and subsequently three floors were added in 1968 whereas the West Vancouver building was built in 1953.
5 The evidence is that the estate owns 90% of the shares and that the witness giving evidence on behalf of the appellant company is one of the co-executors of the estate and is particularly charged with the day-to-day operations of these buildings. He explained that in the Burrard Street building they have a contract for janitorial services which requires the usual supervision one would expect with that type of operation, whereas at the West Vancouver building they supply their own janitorial services.
6 Mr MacFarlane is a solicitor, he employs a part-time bookkeeper in his law office who averages about two days' work a week on these buildings. Mr MacFarlane does most of the work in connection with the buildings from his law office, but when he is required, as he says he is, to attend at the building to see whether the cleaning and general upkeep of the building is done, he does so in the evening. He is not paid a salary and does not receive a director's fee, the latter because he is not a director. However, he is a 50% beneficiary in the estate of his father, after the life interest to his mother, and also I believe shares in1/3of the net income during her life, so it would be difficult to say that he did not have a direct interest in the success of these two buildings.
7 The two buildings, as I have said, are some 15 to 20 years old and many renovations have been necessary in order to maintain tenants over the long haul. It is clear from the financial statements filed that they have had almost complete occupancy in West Vancouver because of the advantage they gained by getting in early. Zoning restrictions have prevented competition in that area therefore, they have been able to maintain their 16 tenants without too much difficulty.
8 In the Burrard Street premises, where there are 21 tenants, he says that there was about an 8% vacancy according to the financial statement for 1972. It would seem to me that that is a very low vacancy rate in the light of the new construction that has gone up around it. He has described the work that he is required to do to meet the complaints of tenants, to attend meetings of the directors of the appellant company, discuss major renovations, and to advise or supervise when these are being done.
9 There is no doubt whatsoever in my mind that, if one looks at the ordinary dictionary definition of the word “active”, this appellant would clearly qualify. I know there have been interpretation bulletins put out, at least two of them, by the Department of National Revenue as to what it will consider to be an “active” business. These are sometimes very helpful, but they are not law, they are merely directives.
10 I am also just as certain, if one can be certain of anything about this section, that it was included in the Act, not to assist this type of business, but to assist small businesses to build up their capital reserves over a period of years, to increase their productivity and thereby increase employment and that it was never intended, in my view, to cover a company such as this. Nevertheless, I am also of the opinion that they have failed to prevent a company such as this appellant from succeeding on the evidence before me due to the way in which the section has been worded.
11 The appeal will, therefore, be allowed.
Email this Content