Jerome,
ACJ:—These
actions
are
by
way
of
appeal
from
the
assessments
made
by
the
Minister
of
National
Revenue
related
to
the
taxation
years
1972,
1973
and
1974,
for
the
plaintiffs
Alpha
Forming
Corporation
Limited
(hereinafter
Alpha
Forming)
and
Jenmari
Properties
Limited
(hereafter
Jenmari).
The
dispute
arises
from
the
Minister’s
assessment
that
for
these
three
years,
the
two
plaintiffs
were
deemed
to
be
associated
companies
pursuant
to
section
247:
ASSOCIATED
CORPORATIONS
247.
(2)
Where,
in
the
case
of
two
or
more
corporations,
the
Minister
is
satisfied
(a)
that
the
separate
existence
of
those
corporations
in
a
taxation
year
is
not
solely
for
the
purpose
of
carrying
out
the
business
of
those
corporations
in
the
most
effective
manner,
and
(b)
that
one
of
the
main
reasons
for
such
separate
existence
in
the
year
is
to
reduce
the
amount
of
taxes
that
would
otherwise
be
payable
under
this
Act
the
two
or
more
corporations
shall,
if
the
Minister
so
directs,
be
deemed
to
be
associated
with
each
other
in
the
year.
APPEAL
(3)
On
an
appeal
from
an
assessment
made
pursuant
to
a
direction
under
this
section,
the
Tax
Review
Board
or
the
Federal
Court
may
(a)
confirm
the
direction;
(b)
vacate
the
direction
if
(i)
in
the
case
of
a
direction
under
subsection
(1),
it
determines
that
none
of
the
purposes
of
the
transaction
or
series
of
transactions
referred
to
in
subsection
(1)
was
or
is
to
effect
a
substantial
reduction
of,
or
disappearance
of,
the
assets
of
a
corporation
in
such
a
manner
that
the
whole
or
any
part
of
any
tax
that
might
otherwise
have
been
or
become
payable
under
this
Act
in
consequence
of
any
distribution
of
income
of
a
corporation
has
been
or
will
be
avoided,
or
(ii)
in
the
case
of
a
direction
under
subsection
(2),
it
determines
that
none
of
the
main
reasons
for
the
separate
existence
of
the
two
or
more
corporations
is
to
reduce
the
amount
of
tax
that
would
otherwise
be
payable
under
this
Act;
or
(c)
vary
the
direction
and
refer
the
matter
back
to
the
Minister
for
reassessment.
At
the
commencement
of
the
trial,
I
ordered
that
the
two
actions
be
tried
together
and
upon
common
evidence
and
this
Judgment
shall
apply
in
both
actions.
Evidence
on
behalf
of
the
plaintiffs
was
given
by
the
companies’
solicitor,
Harold
Lipton,
QC,
Mr
Ivor
Matthews,
his
wife
Jennifer
and
the
companies’
accountant,
Mr
Robert
Green.
Alpha
Forming
was
engaged
in
the
business
of
poured
concrete
foundations
and
basements
and
was
incorporated
in
1963
with
Ivor
Matthews
as
president
and
principal
shareholder.
Other
shareholders
included
Ivor
Matthews’
wife,
Jennifer,
his
business
associate,
Peter
Lombardi
and
Mr
Lipton.
In
its
first
years
of
business,
Alpha
forming
purchased
a
piece
of
real
property
which
it
quite
properly
considered
to
be
an
asset
of
potentially
increasing
value.
Mr
Matthews,
his
business
associate
and
their
wives
wanted
to
find
a
way
to
insulate
title
to
the
realty
from
the
financial
hazards
of
the
construction
business
and,
in
1969,
incorporated
Jenmari
Properties
for
that
purpose.
The
shares
of
Jenmari
were,
and
still
are,
held
by
the
wives
of
Ivor
Matthews
and
Peter
Lombardi
in
the
same
80-20
proportion
in
which
the
two
men
hold
their
interests
in
Alpha
Forming.
After
the
Jenmari
incorporation,
other
properties
were
acquired
and
although
very
much
at
Mr
Matthews’
suggestion
and
with
Alpha
Forming
money
or
credit,
some
effort
was
made
to
disclose,
in
the
initial
acquisition,
that
the
purchases
were
on
behalf
of
Jenmari
and
in
each
case,
title
was
ultimately
transferred
to
Jenmari.
Purchase
money
for
the
acquisitions
was
borrowed
by
Jenmari
from
Alpha
at
no
interest.
As
would
be
expected,
revenue
from
the
properties
was
insignificant
in
the
years
following
each
acquisition.
It
was
in
fact
only
a
few
years
ago,
and
certainly
long
after
the
taxation
years
under
appeal,
that
Jenmari’s
income
from
realty
operations
enabled
it
to
discharge
the
last
of
several
promissory
notes
which
secured
the
loans
from
Alpha.
I
find,
therefore,
that
Jenmari
was
incorporated
as
a
vehicle
for
placing
ownership
of
real
property
in
the
hands
of
the
wives
of
the
two
principal
shareholders
in
Alpha.
Since
the
purpose
was
not
related
to
carrying
out
of
the
business
of
either
corporation
in
the
most
effective
manner,
grounds
obviously
existed
to
satisfy
the
Minister
as
required
in
paragraph
247(2)(a).
On
the
basis
of
realty
ownership
alone,
however,
I
see
no
grounds
which
would
satisfy
the
Minister
as
required
by
paragraph
247(2)(b).
The
usual
experience
with
realty
investment
is
that
expenses
are
greater
than
income
for
some
time
following
acquisition.
From
an
accounting
or
taxation
point
of
view,
therefore,
the
greater
tax
reduction
would
be
expected
through
ownership
in
the
hands
of
Alpha
where
realty
expenses
or
allowances
in
the
early
years
might
reduce
the
heavier
tax
burden.
In
the
years
under
appeal,
moreover,
events
conformed
entirely
to
normal
expectations.
Jenmari’s
ownership
of
realty
produced
no
tax
advantage
nor
could
any
have
been
anticipated,
and
certainly
this
aspect
of
the
business
alone
did
not
provide
the
Minister
with
justification
for
a
direction
under
section
274.
In
July
of
1969
however,
Alpha
acquired
a
crane,
a
piece
of
equipment
which
was
coming
into
more
frequent
use,
but
which
had
previously
been
either
supplied
by
the
general
contractor
or
rented
by
Alpha
for
specific
projects.
The
decision
to
acquire
the
equipment
was
undoubtedly
based
on
expectation
of
greater
efficiency
and
convenience
and
was
therefore
an
entirely
normal
business
manoeuvre.
Alpha
did
make
frequent
use
of
the
machine
and
also
put
it
on
the
market
for
rental
to
others
under
the
name
Alpha
Crane
Service.
In
October
of
1969,
Alpha
transferred
ownership
of
the
crane
to
Jenmari.
The
purchase
price
for
the
transfer
was
once
again
paid
with
money
borrowed
by
Jenmari
from
Alpha
without
interest.
The
crane
could
only
be
operated
by
a
union
member
and,
according
to
Ivor
Matthews,
the
parties
were
anxious
to
have
him
employed
by
Jenmari
so
as
to
reduce
the
risk
of
unionization
at
Alpha.
I
have
no
reason
to
doubt
that
this
was
a
consideration
in
the
mind
of
Mr
Matthews,
but
I
cannot
conclude
that
it
was
the
sole
or
main
reason
which
brought
about
the
association
between
these
two
companies
in
the
crane
business.
In
August,
1971,
Jenmari
traded
the
first
crane
on
a
larger
machine,
but
otherwise
carried
on
the
crane
rental
business
as
before.
The
name
Alpha
Crane
Service
was
printed
in
large
letters
on
the
boom
of
the
crane
and
after
Jenmari
took
over
the
crane
service,
additional
words
were
added
in
smaller
print
to
indicate
that
it
was
operated
by
Jenmari
Properties
Limited.
The
telephone
number
of
Alpha
Crane
Service
was
the
same
number
as
Alpha
Forming.
The
witnesses
indicated
that
the
crane
was
occasionally
rented
to
others,
but
I
am
satisfied
that
in
the
taxation
years
in
question,
Alpha
Forming,
if
not
virtually
the
only
customer,
was
by
far
the
major
account.
In
1972,
Jenmari
reported
a
gross
income
from
crane
rentals
of
$69,180,
a
net
income
of
$34,346
and
property
rental
income
of
$1,137.
In
1973,
Jenmari
reported
a
gross
income
from
crane
rentals
of
$90,410,
a
net
income
of
$60,054
and
property
rental
income
of
$3,092.
In
1974,
Jenmari
reported
a
gross
income
from
crane
rentals
of
$71,106,
a
net
income
of
$41,231
and
no
income
from
property
rental.
From
a
taxation
point
of
view,
therefore,
the
effect
of
the
entry
of
Jenmari
into
the
crane
business
was
that
Alpha,
which
continued
to
use
the
crane
as
it
had
previously,
incurred
rental
charges
from
Jenmari
as
an
operating
expense,
while
Jenmari
received
rental
revenue
from
Alpha
as
income
which
enjoyed
small
business
preferential
treatment.
In
my
view,
such
an
obvious
tax
advantage
provided
ample
justification
for
the
Minister
to
conclude
that
in
these
years,
one
of
the
main
reasons
for
the
separate
existence
of
the
two
companies
was
to
reduce
tax
otherwise
payable
by
Alpha.
I
accept
the
submission
of
counsel
for
the
plaintiffs
that
Jenmari
was
incorporated
for
reasons
entirely
unrelated
to
tax
advantage.
Indeed,
it
continues
to
exist
today
primarily
for
that
original
purpose.
The
language
of
section
247,
however,
does
not
confine
the
Minister
to
the
purpose
or
the
year
of
incorporation.
The
words
in
paragraph
274(2)(b)
“one
of
the
main
reasons
for
such
separate
existence
in
the
year”
indicate
that
corporations
which
have
otherwise
existed
separately
may
engage
in
activities
in
any
taxation
year
which
may
provide
grounds
for
the
Minister
to
determine
them
to
be
associated
only
in
that
year,
provided
of
course
that
they
otherwise
fall
within
paragraph
247(2)(a).
I
find
this
to
be
precisely
the
situation
here.
Jenmari
was
originally
incorporated
so
that
property
which
would
otherwise
have
been
owned
by
Alpha
could
be
transferred
to
Jenmari.
That
was
the
purpose
at
incorpo-
ration
and
continued
to
be
one
of
the
purposes
during
the
years
under
appeal.
Since
it
was
not
related
to
the
carrying
out
of
the
business
of
either
corporation
in
a
more
effective
manner,
it
provided
the
Minister
with
the
requisite
grounds
under
paragraph
247(2)(a).
No
grounds
existed
under
paragraph
247(2)(b),
however,
until
Jenmari
entered
into
the
crane
business
in
the
manner
and
for
the
obvious
tax
advantages
which
I
have
outlined.
When
that
occurred,
and
for
as
long
as
it
continued,
there
was
ample
justification
for
the
Minister
to
direct,
as
he
did
in
1972,
1973,
1974,
that
for
the
purposes
of
taxation,
Alpha
and
Jenmari
be
deemed
to
be
associated
with
each
other.
Accordingly,
the
Minister’s
direction
is
confirmed.
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