D R Lordly v. Minister of National Revenue, [1978] CTC 2794

Guy Tremblay:—This case was heard at Halifax, Nova Scotia, on June 13, 1978.

1. Point at Issue

The point at issue is to know whether the respondent is justified in adding $1,560 to the appellant’s income, on the basis that this sum represents a benefit to him. According to the respondent, the appellant, during the 1974 and 1975 taxation years, occupied an apartment located in the motel operated by a company in which he was the main shareholder.

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof derives not from one particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. Facts

3.1 The appellant was the principal shareholder in Dan Lordly Development Company Limited, a company incorporated in the province of Nova Scotia and held a 20% interest in Parkside Holdings Limited.

3.2 Parkside Holdings Limited was the owner of a motel located in the city of Dartmouth in the province of Nova Scotia.

3.3 Dan Lordly Development Company Limited leased the land, buildings and equipment from Parkside Holdings Limited and operated the motel under a franchise from Wandlyn Motel Limited under the name of Wandlyn Motor Inn.

3.4 The appellant, during his 1974 and 1975 taxation years, occupied a three-bedroom apartment located on the motel premises.

3.5 The appellant paid no rent and incurred no obligation either to Dan Lordly Development Company Limited or to Parkside Holdings Limited as a result of his occupation of the apartment.

3.6 The appellant received remuneration from Dan Lordly Development Company Limited.

3.7 The appellant’s wife worked for Hospitality Food Limited (which apparently had contract for foods, kitchen, dining room in the: motel) and she had the responsibility of the kitchen and everything concerning meals.

3.8 The appellant’s daughter was working at the front desk and was paid by Dan Lordly Development Company Limited.

3.9 According to the appellant, who was the only witness, on many occasions they worked 24 hours a day and in fact they had to be available 24 hours a day.

3.10 The three-bedroom apartment occupied by the appellant, his wife and his daughter, was located in the centre of the motel: near the kitchen, near the parking. Privacy was quite often impossible. Traffic, noises of every kind started at six o’clock every morning.

3.11 In fact, when a new administration took charge of the motel, the new manager did not want to stay in the three-bedroom apartment because it was not appropriate. It was utilised for something else.

3.12 The appellant owned a comfortable fully furnished home 16 miles from the motel which the appellant and his family would have preferred to use. The appellant made monthly personal mortgage payments of $145 on that residence.

4. Law, Jurisprudence, Comments

4.1 Subsection 15(1) is invoked by the respondent to justify his assessment:

15. Appropriation of property to shareholder.

(1) Where in a taxation year

(a) a payment has been made by a corporation to a shareholder otherwise than pursuant to a bona fide business transaction.

(b) funds or property of a corporation have been appropriated in any manner whatever to, or for the benefit of, a shareholder, or

(c) a benefit or advantage has been conferred on a shareholder by a corporation,

otherwise than

(d) on the reduction of capital, the redemption of shares or the winding-up, discontinuance or reorganization of its business, or otherwise by way of a transaction to which section 84, 88 or Part II applies,

(e) by the payment of a dividend, or

(f) by conferring on all holders of common shares of the capital stock

of the corporation a right to buy additional common shares thereof,

the amount or value thereof shall be included in computing the income of the shareholder for the year.

4.2 Jurisprudence and Comments

The respondent cited the case of Gerald I Cockerill v MNR, 38 Tax ABC 446; 65 DTC 525, wherein a company paid for the rental of a furnished apartment in Ottawa for its president who was American with residence in Ohio. The amount paid was considered as income according to subsections 5(1) and 8(1) of the old Act. Undoubtedly, it was an advantage to that person. Other cases of the same nature can be cited.

In the present case, even if the employer were a company in which the appellant was the main shareholder, the Board is of the opinion that the advantage was totally for the employer and not for the employee. The appellant and his family had to work more than 12 hours a day, seven days a week. They had to be available almost 24 hours a day. How could they do such work without staying on the premises? The Board also believes the appellant when he says he would have preferred to use his private furnished residence in Law- rencetown. In the Board’s opinion, the main condition provided in subsection 15(1) (advantage or benefit conferred to the shareholder) does not apply in this case.

5. Conclusion

The appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment in accordance with the above reasons for judgment.

Appeal allowed.