Maarten Slingerland v. Minister of National Revenue, [1978] CTC 2343, 78 DTC 1280

A W Prociuk (orally: January 16, 1978):—The appellant, Maarten Slingerland, appeals from the reassessments of his income by the respondent for the taxation years 1972, 1973 and 1974 wherein in each year the sum of $3,000 was added back to his income and taxed accordingly. The appellant’s ground of appeal is that these sums represent wages he paid to his three children at a rate of $1,000 each in each of the taxation years and that he ought to be permitted to deduct such wag^s as a properly incurred expense item.

The appellant, prior to and at the material time, was a dairy farmer and a feedlot operator in the Coaldale district of Alberta. At the material time the number of milking cows averaged between 80 and 90 head and approximately 300 head of cattle. The appellant and his wife have 14 children. In former years the appellant paid his older son wages for working on his farm. This was not objected to nor disallowed by the respondent.

There is some suggestion in the evidence presented by the appellant and his agent, Mr Visser, that when the appellant’s records were audited by the Department of National Revenue, the matter of wages paid or payable to the children was discussed and the appellant was advised that these should be properly recorded and a businesslike account kept of same.

The amount in issue here involved three of the appellant’s youngest children namely, Judith, born on May 5, 1957; Marinus, born on July 8, 1958; and William. born on April 15, 1960. Thus, in 1972 they were 15, 13 and 12 years of age respectively.

The appellant stated that they help him with chores around the cow barns, feeding calves, cleaning the barn floor, milking cows and such other jobs as they could do before and after school hours. Judith also drove the tractor when required to do so and assisted her mother with the housework and in the garden.

In December of each year herein, the appellant would issue a cheque on his general farm account in the sum of $1,000 to each of his three said children, drawn on the Royal Bank of Canada, Main Branch, Lethbridge, Alberta. The appellant then opened an account for each of the children in the same bank. The children deposited their respective cheques in their accounts and forthwith each issued a cheque in the sum of $1,000 in favour of their father, the appellant herein, who then deposited those three cheques into his own general farm account.

This happened in 1972, 1973 and 1974. The appellant stated that he treated this as a loan from his children. In his synopsis for the years 1973 and 1974, which the appellant produced at the hearing, there appear the abovementioned entries only—in other words, out and in. No other entry with regard to the loan account was made there nor anywhere else.

As far as 1972 was concerned, the same situation prevailed. The appellant did not have his synopsis with him for that year. When questioned by Miss Watchuk, counsel for the respondent, as to how he intended to repay the loans, the appellant stated he made provisions in his will wherein he directed, after making provisions for his wife, that the remainder of the property be divided equally amongst his children. He further states that as each child should reach the age of 21 years during his lifetime—that is the appellant’s lifetime—he would assist him or her to get started in some gainful enterprise or employment.

Ten of his children are now married and the appellant states that he assisted each one to a certain degree. In 1975 he sold his farm holdings to three of his oldest sons. They applied for a loan from a government agency to assist them to make the purchase and applied the proceeds of the loan on part of the purchase price. The remainder of the purchase price is being paid to the appellant annually from the profits of the farming operation.

The loans to the children, mentioned above, were not paid off at the time when the farm was sold. Judith got married in 1977. On cross- examination the appellant stated he repaid part of the loan from her by paying for the wedding which cost $1,158. He also bought her a sewing machine and a vacuum cleaner. There was no record made of the loans payable to his three youngest children when the farm was sold nor was the loan secured in any way.

The appellant stated that this matter was within his family and he would eventually straighten it out with his children. He did not want the government to interfere with his family affairs. The appellant further Stated that he was able to raise his rather large family and to teach them to work and to help each other. He has had no problem with any of his children because each knew that he or she had a stake in the family farm and each knew that he or she had to work to earn a living.

Laudable as the conduct of the appellant is in respect of raising his children to make them good citizens, this alone does not meet the requirements of the Income Tax Act to permit the said deductions claimed as proper farm expense. For instance, in his 1973 and 1974 returns there is no indication that the children earned any income at all.

Mr Visser, who prepared the appellant’s returns and signed them on his behalf, explained that since the amount involved in each case was at, or below, the limit of income allowed per child, it made no difference at all since the appellant could claim the full dependant’s exemption anyway, which he did.

I do not think there would have been any problem herein at all had the appellant treated his borrowing back from the children as a proper business transaction and made proper records of same. I am driven to the inevitable inference that the cheque exchange and likely a simultaneous deposit in each case was no more than a paper transaction. The cost of the wedding for Judith was merely recorded as such and not as a payment of the loan.

It is at least doubtful in my mind whether the loan was given any further consideration after the cheque exchange. The payment of wages and the loan back was a non-arm’s length transaction. In the absence of any other relevant documents or evidence to substantiate the appellant’s position, the entire transaction appears artificial. The onus is on the appellant to establish by at least a preponderance of evidence that what he did with his children was a bona fide business transaction.

The evidence in my view falls very short of that requirement.

The Board, accordingly, has no alternative but to dismiss the appeal and-the appeal is dismissed.

Appeal dismissed.