Potvin v. R., [1997] 1 CTC 2569, 97 DTC 1538

Teskey J.T.C.C.: — The Appellant appeals from his assessment of Income Tax for the years 1985 and 1986. The sole issue before me is whether the Appellant should be assessed on the basis of taxable business income of $46,192.00 and $80,829.00, respectively, in the years in question or 617977 Ontario Limited (the Corporation).

Facts. The Minister when assessing the Appellant made assumptions of fact that were reproduced in paragraph 6 of the Reply to the Notice of Appeal. The Appellant agreed with those facts in subparagraphs (a), (b), (c), (d), (e), (f), (g), (h) and (j). These read as follows:

(a) The Appellant was involved in the brokerage of mutual funds and financial planning during the 1985 and 1986 taxation years.

(b) At all material times the Appellant was authorized by the Ontario Securities Commission to engage in such activities.

(c) At all material times the Appellant was the majority shareholder of the corporation.

(d) The corporation was not authorized by the Ontario Securities Commission to engage in the trading of securities, either as principal or agent.

(e) There was an agreement between the Appellant in his personal capacity and Regal Capital Planners where the Appellant would receive a percentage of the commission income paid by clients to Regal Capital Planners.

(f) The Appellant received commission income payments of at least $46,192.00 and $80,829.00 from Regal Capital Planners in respect of the 1985 and 1986 taxation years respectively.

(g) These payments were made from Regal Capital Planners to the Appellant in his personal capacity.

(h) The amounts of commission income reported by the corporation in its. returns of income for the relevant years.

(j) The Appellant failed to report business income earned in his personal capacity in the amounts of $46,192.00 and $80,829.00 in respect of the ’85 and ’86 taxation years, respectively.

It is interesting to note that the Appellant agreed with the facts in subparagraph (c) above. That agreement is wrong. When you look at the corporate Minute Book which is Exhibit A-1, at all times the Appellant and his spouse each owned half of the issued shares of the corporation.

The Appellant during the period in question at all times was a registered security salesperson pursuant to the provisions of the Securities Act of Ontario. The corporation is not registered in any capacity under the Securities Act. There is no evidence before me whatsoever what the wife or the spouse of the Appellant was in regards to registration.

There are no bills of sale or documentation of any kind transferring to the corporation what was obviously the Appellant’s sole proprietorship. The corporation was incorporated on June 13th, 1985. The taxpayer/Appellant started representing Regal Capital Planners in 1982 as a registered commissioned salesperson and entered into a written agreement dated October the 8th, 1982. This written agreement was never altered or amended in writing or cancelled.

Several other documents were entered into as Exhibits. The Appellant produced from Regal Capital Planners a letter addressed to him dated 18th of February, 1986 concerning, and this is a letter from Regal to the Appellant. And it’s addressed to him personally for debits of commission. So obviously on the 18th of February, 1986 Regal Capital felt they were dealing with Gerald Potvin in his personal capacity. He also produced a letter dated the 25th of February. Again, it’s addressed to him personally and not to a corporation.

The Appellant did produce a balance sheet prepared by Touche Ross. It claims there’s a hundred and one common shares. That’s just not the case. The corporation Minute Book shows one share to the Appellant and one share to his spouse. And there is directions or there are directions from Touche Ross to lawyers to issue an additional fifty to each. At no time was there only one hundred and one common shares issued.

The Appellant left Regal Capital obviously under strained and adversarial situation. And on August the 17th, 1987 solicitors representing Regal Capital wrote to Gerald Potvin trying to collect from him $29,329.88. And this would be draws on commissions. Again, evidence that as far as Regal Capital were concerned they were dealing with Gerald Potvin and not a corporation. Also in both years in question Regal Capital issued T4A’s to Mr. Potvin and not to the corporation.

The Appellant has not been able to demonstrate to me that he did, in fact, transfer his sole proprietorship to the company and that the company id enter into a contract with Regal and, therefore, the business income should be assessed to the corporation.

There is no doubt the Appellant did have a corporation. And I assume that he deposited the money into the corporation’s account. And I assume that the telephone was in the corporation’s name. And I assume that he paid his expenses out of the corporation, but we have a contract. We have to look at the contract. The contract was between him and Regal Capital. That contract was never changed to the corporation. That alone puts the Appellant out of court.

Even if, however, the Appellant had transferred his sole proprietorship to his company, which obviously was the intention but it was never done, and even if they had entered into a new contract with Regal where the corporation was the salesperson, and even if after that day all commission cheques had been paid to the company, it would have been an illegal contract. The company would be acting contrary to the laws of the Province of Ontario. It would be against public policy. And the income would have to go to the licensed commission agent. That would’ve put the Appellant’s case at its highest possible position, that he had done all that’s necessary for the corporation, but what he would’ve done would’ve been operating contrary to public policy and illegal. For those reasons the appeal is dismissed with costs.

Appeal dismissed.