Bonner T.C.J.:
1 This is an appeal from an assessment of income tax for the Appellant's 1988 taxation year. It relates to the inclusion in the Appellant's income of a benefit under subsection 15(1) of the Income Tax Act. The assessment was triggered by a $350,000 credit entry made on September 30, 1988 in the Appellant's shareholder's loan account with Steadford Investments Limited (S. Limited). That credit recognized the transfer by the Appellant to his corporation, S. Limited, of a receivable from 581283 Saskatchewan Ltd. (Leisureland). The Minister of National Revenue assumed on assessment that the receivable was worthless at the time of transfer and the contrary was not established.
2 The position of the Appellant is that the benefit was conferred, not in the Appellant's 1988 taxation year when, according to the Appellant, all that happened was the entry of a credit in the accounts of S. Limited, but rather in the Appellant's 1987 taxation year when S. Limited acquired the receivable from the Appellant.
3 The circumstances leading to the dispute now follow. The Appellant was at all relevant times principal if not sole shareholder of S. Limited, a corporation whose business is described in its 1988 tax return as “sale of tax sheltered investments”. The Appellant and two other persons each held one third of the voting shares of Leisureland, a corporation which I gather was formed for the purpose of acquiring land and developing it. In August of 1987 the Appellant loaned $450,000 to Leisureland. The loan was evidenced by promissory note payable to the Appellant and dated August 18, 1987. Leisureland repaid $100,000 to the Appellant in October of 1987. The Leisureland venture encountered difficulties and it became evident that Leisureland was incapable of repaying the balance of the loan.
4 On November 10, 1987 the Appellant assigned or at least purported to assign the Leisureland note to S. Limited. An entry was made in the books of account of S. Limited on September 30, 1988, the last day of the 1988 fiscal period of S. Limited, recording a $350,000 credit to the Appellant's shareholder's loan account. The Minister of National Revenue viewed the transaction as the conferral on the Appellant in 1988 of a subsection 15(1) benefit.
5 The position taken by counsel for the Appellant is that the benefit was conferred in November 1987 when the Appellant transferred a worthless note to S. Limited for a consideration of $350,000. All that happened in 1988, she argued, is the entry in the shareholder's loan account of the $350,000 credit which reflected or recorded the November 1987 transaction. She characterized that entry as a year end adjusting entry which was required to correct the balance in the shareholder's loan account in order to properly reflect the credit arising from the November 1987 sale of the note.
6 The Respondent did not admit that the $350,000 receivable was ever assigned to S. Limited. The Appellant testified that he assigned the note to S. Limited on November 10, 1987 and he produced a copy of an assignment in writing bearing that date and his signature. What Mr. Nesis did not produce, and the omission in my view is fatal to his position, is any evidence that S. Limited agreed in November 1987, or for that matter at any time before December 31, 1987, to pay $350,000 to him as consideration for the note. In my view it cannot be said that S. Limited conferred any benefit on the Appellant until it either paid or agreed to pay valuable consideration for a worthless note. The Appellant might in his own mind have intended in 1987 to cause S. Limited to pay him $350,000 and to use the assignment as an excuse for doing so but there is no evidence that he took any such step before September 30, 1988. A contractual commitment between a shareholder and a closely-held corporation is not formed by a decision in the mind of a shareholder unless that decision is accompanied by some overt corporate act.. The first such act according to the evidence in this case was the September 30, 1988 entry.
7 In the circumstances it is unnecessary to consider the Respondent's argument that the Appellant is estopped from asserting that he transferred the note to S. Limited by reason of representations which he made to the Minister that he was at all material times the sole creditor of Leisureland with respect to the $350,000 balance owing on the note.
8 For the foregoing reasons the appeal will be dismissed with costs.
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