Teskey,
T.C.C.J.:—The
appellant
appeals
her
assessment
of
tax
for
the
year
1988.
Issue
The
issue
is
whether
the
appellant
received
a
loan
or
became
indebted
to
Kirkland
Family
Farm
Ltd.
(the
"corporation")
in
the
1988
taxation
year
in
the
amount
of
$50,000.
Facts
The
Minister
of
National
Revenue
(the
Minister”)
in
assessing
the
appellant
assumed
certain
facts
that
were
reproduced
in
paragraph
5
of
the
reply
to
the
amended
notice
of
appeal
in
this
action.
These
assumptions
of
fact
are:
(b)
The
appellant,
her
spouse
and
one
Stan
Kirkland
are
the
principal
shareholders
of
Kirkland
Family
Farm
Ltd.
(hereinafter
referred
to
as
the
"corporation"),
as
follows:
|
Mary
Kirkland
|
10
per
cent
|
|
Spouse
|
80
per
cent
|
|
Stan
Kirkland
|
10
per
cent
|
(c)
The
corporate
year
end
of
the
corporation
is
July
31.
(d)
At
all
material
times
the
appellant
and
her
spouse
maintained
a
Shareholder's
Loan
account
in
the
corporation
which
was
recorded
in
a
joint
amount.
(e)
At
all
material
times
the
appellant
and
her
spouse
had
a
joint
savings
account
#7010-549
with
the
Bank
of
Montreal,
Unity,
Saskatchewan
Branch
(hereinafter
referred
to
as
the
“
savings
account”).
(f)
The
savings
account
was
used
to
deposit
all
funds
from
both
personal
and
the
corporation
sources.
(g)
At
all
material
times,
the
appellant,
her
spouse
and
the
corporation
each:
(i)
maintained
separate
checking
accounts
with
the
Bank
of
Montreal;
(ii)
maintained
a
standing
order
with
the
Bank
of
Montreal
to
transfer
multiples
of
$100
from
the
savings
account
to
cover
checks
written
on
any
of
the
checking
accounts.
(h)
At
the
corporation's
year
end:
(i)
the
savings
account
is
analyzed
by
the
corporation's
accountant
and
journal
entries
are
made
to
allocate
the
transactions
as
either
business
income
or
expenses;
or
personal;
(ii)
a
net
figure,
(either
debit
or
credit),
is
allocated
to
the
shareholder's
loan
account
for
all
personal
transactions;
(iii)
the
final
balance
in
the
savings
account
is
allocated
to
a
corporate
asset
balance
on
the
financial
statements
filed
with
the
T2
corporate
return
for
the
year.
(i)
During
1988,
the
appellant
and
her
spouse
ceased
farming
and
an
auction
was
held
to
dispose
of
the
corporate
farming
assets
together
with
some
personal
assets.
(j)
The
proceeds
from
the
said
auction
were
deposited
to
the
savings
account.
(k)
On
April
23,
1988,
funds
from
the
savings
account
were
used
to
purchase
an
annuity
in
the
joint
names
of
the
appellant
and
her
spouse
from
Mutual
Life
of
Canada
in
the
amount
of
$50,000
(hereinafter
referred
to
as
the
first
annuity).
(l)
The
purchase
of
the
first
annuity
was
reflected
as
a
debit
to
the
shareholder's
loan
account
of
the
corporation
in
the
amount
of
$50,000.
(m)
On
August
23,
1988,
a
second
$50,000
annuity
was
purchased
from
Mutual
Life
of
Canada
in
the
joint
names
of
the
appellant
and
her
spouse
from
the
savings
account
(hereinafter
referred
to
as
the
"second
annuity”).
(n)
At
the
corporation's
July
31,1989
year
end,
the
actual
balance
in
the
savings
account
was
$110,255.42
whereas
the
balance
indicated
on
the
corporation’s
financial
statements
was
$165,170.42,
resulting
in
a
discrepancy
of
$54,915.
(o)
A
portion
of
the
said
discrepancy
related
to
the
purchase
of
the
second
annuity
which
had
not
been
debited
from
the
shareholder's
loan
account
in
the
amount
of
$50,000.
(p)
The
personal
withdrawals
of
the
appellant
and
her
spouse
in
the
1988
and
1989
taxation
years
exceeded
the
personal
deposits
made
by
the
appellant
and
her
spouse
in
both
years.
(q)
The
portion
of
the
shareholder's
loan
account
allocated
to
the
appellant
as
a
loan
or
indebtedness
to
the
corporation
at
the
end
of
the
1988
taxation
year
is
$50,000,
calculated
as
follows:
|
DATE
|
TRANSACTION
|
DEBIT
|
CREDIT
|
BALANCE
|
|
31/7/87
|
Opening
Balance
|
—
|
|
nil
|
|
29/4/88
|
Annuity
Purchase
|
$25,000
|
—
|
$25
,000
|
|
31/7/88
|
Wages
|
|
$14,752
|
$10,248
|
|
31/7/88
|
Correct
Wages
|
$14,763
|
—
|
$25,011
|
|
31/8/88
|
An
nuity
Purchase
|
$25,000
|
—
|
$50,011
|
(r)
The
appellant's
portion
of
the
loan
account
with
the
corporation
was
increased
by
the
amount
of
$50,011
during
the
1988
taxation
year.
(s)
No
bona
fide
agreement
existed
as
between
the
appellant
and
the
corporation
for
the
retirement
of
the
appellant's
portion
of
the
debit
balances
in
the
shareholder's
loan
account.
(u)
No
bona
fide
trust
agreement
existed
between
the
appellant
and
the
corporation
in
respect
of
either
annuity.
(v)
The
amount
of
the
loan
or
indebtedness
on
the
portion
of
the
shareholder's
loan
account
allocated
to
the
appellant
was
not
repaid
by
the
appellant
within
one
year
from
the
end
of
the
fiscal
year
of
the
corporation
in
which
it
was
made
or
incurred.
(w)
Any
repayments
made
to
the
shareholder's
loan
account
throughout
the
course
of
the
1988
taxation
year
constituted
part
of
a
series
of
loans
or
other
transactions
and
repayments.
Although
these
assumptions
of
fact
refer
to
annuities
purchased
from
Mutual
Life
of
Canada
and
will
be
referred
to
herein
as
“annuities”,
they
are
in
fact
only
term
deposits.
I
have
not
produced
assumption
5(t)
as
that
is
a
conclusion
of
law
and
not
a
fact.
None
of
these
assumptions
of
fact
have
been
challenged
in
any
way
by
the
evidence
of
the
appellant
and
therefore
stand.
The
appellant
argues
that
the
annuities
are
held
by
her
and
her
husband
in
trust
for
the
corporation.
Under
cross-examination,
the
appellant's
1988
and
1989
T1
income
tax
returns
were
acknowledged.
The
appellant
in
her
T1
tax
return
for
1988
declared
one-half
of
the
income
from
these
annuities
as
interest
income,
her
husband
declaring
the
other
half.
In
1989,
the
appellant
declared
one-half
of
the
income
(without
one
valid
reason)
as
pension
income
and
claimed
a
$1,000
deduction.
Her
husband
did
as
well.
Fortunately
for
them,
the
Minister
failed
to
notice
this
and
they
both
have
been
allowed
the
$1,000
deduction
that
neither
of
them
were
entitled
to.
Appellant's
position
The
appellant
asserts
she
and
her
husband
are
holding
these
annuities
in
trust
for
the
corporation.
She
argues
her
case
using
my
colleague
Rip's
judgment
in
Miconi
v.
M.N.R.,
[1985]
2
C.T.C.
2457,
85
D.T.C.
696
(T.C.C.)
wherein
he
indicated
in
certain
circumstances,
that
a
trust
can
be
established
even
if
not
in
writing
and
that
lack
of
a
written
trust
agreement
should
not
in
and
by
itself,
be
fatal.
Analysis
The
appellant's
actions
here
are
entirely
different
from
those
of
Miconi,
Supra.
Herein,
the
money
from
the
sale
of
the
farm
assets
were
placed
in
a
personal
bank
account.
The
annuities
were
purchased
in
the
joint
names
of
the
appellant
and
her
husband
and
both
declared
the
interest
received
therein
as
their
personal
income
and
paid
income
tax
thereon.
There
is
no
written
documentation
whatsoever
of
a
trust
arrangement.
The
only
evidence
of
a
trust
is
the
oral
allegation
of
the
appellant.
Rip,
T.C.C.J.
in
Miconi
referred
to
five
questions
the
Court
must
ask
itself
before
accepting
an
oral
trust,
namely:
1.
is
the
claim
supported
by
probability?
2.
is
it
supported
by
writing
in
any
form?
3.
is
it
supported
by
any
indisputable
facts?
4.
is
it
supported
by
disinterested
testimony?
5.
is
the
parol
evidence
quite
satisfactory
and
convincing?
When
I
ask
myself
these
five
questions
as
to
whether
these
annuities
were
held
in
trust
by
the
appellant
from
the
corporation,
I
answer
each
question
in
the
negative.
The
big
difference
between
these
annuities
and
the
joint
savings
account
is
that
the
moneys
therein
were
reconciled
and
treated
as
corporate
money.
The
annuity
money
herein
was
treated
as
personal
money
and
the
husband's
portion
of
the
annuity
was
used
by
the
corporation
to
reduce
its
indebtedness
to
him.
Heald,
J.,
as
he
then
was
in
the
Federal
Court,
Trial
Division,
said
in
The
Queen
v.
Neudorf,
[1975]
C.T.C.
192,
75
D.T.C.
5213
at
page
196
(D.T.C.
5215):
It
is
my
further
view
that
since
one
of
the
parties
to
the
arrangement
was
a
corporation,
there
is
more
formality
required
(such
as
corporate
resolutions,
for
example)
than
in
the
case
of
individuals
and
particularly
where
the
details
of
a
relationship
are
important
as
against
third
persons
such
as
the
Revenue.
I
believe
that
when
taxpayers
deal
with
their
own
non-arm’s
length
corporations
that
there
is
an
onus
on
them
to
make
sure
all
documents
are
prepared
and
completed
in
proper
form.
Obviously,
over
the
years,
both
the
appellant
and
her
husband
dealt
with
all
personal
and
corporate
assets
as
their
own
and
left
it
to
their
accountant
at
the
end
of
each
year
to
straighten
the
matter
out
for
them.
The
appellant
should
have
been
reminded
by
their
professional
advisers
what
Cattanach,
J.
of
the
Exchequer
Court
of
Canada
said
in
Sazio
v.
M.N.R.,
[1968]
C.T.C.
579,
69
D.T.C.
5001,
at
page
588
(D.T.C.
5007)
namely:
Ever
since
Salomon
v.
Saloman
and
Co.,
[1897]
A.C.
22
(H.L.),
it
has
been
a
well
settled
principle,
which
has
been
jealously
maintained,
that
a
company
is
an
entirely
different
entity
from
its
shareholders.
Its
assets
are
not
their
assets,
and
its
debts
are
not
their
debts.
The
Supreme
Court
of
Canada
has
said
it
is
not
what
a
taxpayer
could
have
done
but
what
the
taxpayer
did.
My
colleague
Taylor,
T.C.CJ.
in
Heal
v.
M.N.R.,
[1980]
C.T.C.
2199,
80
D.T.C.
1169
(T.R.B.)
said
at
page
2201
(D.T.C.
1171):
The
subsections
of
the
Act
(15(1)
and
15(2))
at
issue
here
were
obviously
placed
therein
at
least
in
part
for
the
purpose
of
dissuading
taxpayers
from
using
the
funds
of
corporations
in
which
they
were
shareholders
for
purposes
and
in
ways
materially
different
from
those
to
which
such
funds
would
be
put
by
them
in
the
regular
business
operations
of
the
corporation.
The
risk
in
perceiving
a
closely**
held
private
corporation
as
a
mere
business
extension
or
alter
ego
of
a
shareholder
taxpayer
personally
must
be
avoided,
or
the
penalty
paid.
There
are
only
a
limited
number
of
mechanisms
by
which
a
shareholder
may
legitimately
put
himself
personally
in
control
of
funds
of
a
corporation
—
salary,
dividends,
and
interest
primarily.
Any
other
procedures
must
be
carefully
scrutinized
by
the
shareholder
to
ensure
that
he
is
not
also
assuming
an
income
tax
liability
personally.
The
lack
of
proper
advice,
or
a
lack
of
understanding
by
the
taxpayer
does
not
absolve
him
of
the
results
however
unfortunate
or
oppressive.
I
cannot
think
of
a
more
damaging
spike
to
the
claim
of
trust
when
the
income
is
received
by
the
appellant
and
is
declared
in
income
tax
returns
as
her
personal
income
and
tax
is
paid
thereon.
Her
actions
totally
refute
any
allegation
of
trust
that
she
makes.
The
appeal
is
dismissed
with
costs
to
the
respondent.
Appeal
dismissed.
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