Arnold Vandenbelt Jr v. Minister of National Revenue, [1984] CTC 2817, 84 DTC 1771

Goetz, TCJ:—This is an appeal with respect to the appellant’s 1975 taxation year. The issue is to determine whether there was a disposition, in 1975, of certain property owned by the appellant, Scottdale Developments Limited (“Scottdale”) (or John E. Shore) and Morris M Kertzer (“Kertzer”).

The property, composed of 47 acres, was purchased by the appellant, Kertzer and Scottdale on October 9, 1975, for the sum of $156,500 with a down payment of $50,000 and the balance secured by a mortgage to the vendor. The $50,000 down payment was obtained through a loan made by the partners on the credit of the appellant. The title to the property was taken in the name of Morris M Kertzer as trustee. Each of the three partners held a one-third interest in the property and on October 22, 1975, Kertzer signed a declaration to this effect.

The partners, on making inquiries concerning the development of the property, were immediately appraised of the necessity of acquiring more capital and property.

M Kertzer, a lawyer, then drew a “Memorandum of Agreement to Form Inroad Land Syndicate”, in November of 1975, a month after the purchase of the property. The agreement provided that the property would be acquired at $316,500 with the assumption of the $106,500 mortgage by the unit holders of the Syndicate. Each unit holder was to contribute $30,000 to the Syndicate’s funds. There were seven units of which one unit was shared by three persons. The four additional participant unit holders contributed $120,000. All participants signed the Agreement in November 1975 with a view to setting up a limited liability company.

M Kertzer, shortly after, signed a further trust declaration “for the holders of seven (7) units of the Inroad Land Syndicate”. The appellant, Kertzer and Scottdale paid no money into the Syndicate’s bank account because, as the appellant stated, “their (the partners’) interest was already in”.

The respondent contends that the three partners disposed of the property to the Syndicate in 1975. The agreement to form Inroad Land Syndicate is completely silent as to a partnership being formed, rather it does specifically refer to the incorporation of a company. The appellant, on the other hand, asserts that the Syndicate agreement was merely a restructuring of the old partnership to acquire more capital.

Kertzer admitted that the $120,000 paid by the four new unit holders into the Syndicate was not necessary for development activities. In fact, the three original partners used part of that money to pay off their $50,000 bank loan. Further, on January 26, 1976, the appellant withdrew $19,000 from the Syndicate’s account. The respondent alleges as follows:

— The Appellant’s gain on the sale of the said land to the Inroad Syndicate was $49,000.00 and was calculated as follows:

	Sale Price to Syndicate	$316,500.00
Minus:	Cost	156,500.00
	Difference:	160,000.00
Minus:	Expenses	13,000.00
	Net Gain	$147,000.00
	Appellant’s /3 share
	of Net Gain	$49,000.00

— The Appellant received the gain in the following manner:

Cheque	$ 19,000.00
1 Unit of Syndicate
not paid for	30,000.00
Total	$ 49,000.00

It is clear that there was a disposition or sale in 1975; the succession of events narrated above convince me of this and the appellant’s $49,000 gain on the sale was omitted from his 1975 tax return. Though title remained in the name of M Kertzer, in trust, the Syndicate group became the beneficial owners in 1975.

The Minister assessed the appellant and imposed a penalty with respect to the non-disclosure of the $49,000 in his 1975 tax return, pursuant to the provisions of subsection 163(2) of the Income Tax Act, SC 1970-71-72, c 63, as amended, which reads as follows:

163. (2) Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made, or has participated in, assented to or acquiesced in the making of, a statement or omission in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, as a result of which the tax that would have been payable by him for a taxation year if the tax had been assessed on the basis of the information provided in the return, certificate, statement or answer is less than the tax payable by him for the year, is liable to a penalty of 25 per cent of the amount by which the tax that would so have been payable is less than the tax payable by him for the year.

The appellant was a very successful and astute businessman. He was aware of the gain of income in the amount of $49,000 in 1975. Even though he relied on accounting advice, this does not relieve him from his duty under the Act to disclose all income. The undisclosed income was substantial and sufficient enough to cause the appellant to be at least apprehensive. I do not impugn his integritity but I do find that his conduct was such as to be described as gross negligence and falls under the provisions of section 163 of the Act. See:

Regina v Special Commissioners of Income Tax (ex parte Martin) (1971), 48 TC 1, 9,

Sylvester Brygman v MNR, [1979] CTC 3117; 79 DTC 858;

John W Howell v MNR, [1981] CTC 2241; 81 DTC 230.

For the above reasons, the appeal is dismissed.

Appeal dismissed.