Andrew G Tulloch v. Minister of National Revenue, [1972] CTC 2196, 72 DTC 1158

W O Davis:—Andrew Graham Tulloch has appealed from an assessment to income tax dated July 18, 1969 in respect of his 1964 taxation year, wherein the net proceeds from the sale of a vessel known as the “Sea Prince” have been added to his reported income for the year and additional tax levied in respect thereof.

In his income tax return for the said year, the appellant described himself as engaged in the fish business in the employ of North Coast Fisheries Ltd, a T4 statement of remuneration attached to his income tax return indicating that he had been employed with that firm for nine months of the year. A second T4 slip also attached indicates that he was employed for the other three months of the year by Tulloch- Western Fisheries Limited (hereinafter referred to as “Tulloch-Western”) of which company he was both president and a minority shareholder, that company having gone into voluntary liquidation on December 31, 1963. He was also an officer and a 50% shareholder of Crescent Enterprises Limited (hereinafter referred to as “Crescent’’), which organization had leased two boats, the “Sea Queen” and the “Sea Prince” from Pacific Leasing Corporation and chartered them to Tulloch-Western, the latter undertaking to pay all the operating expenses of the two vessels.

The evidence is that when Tulloch-Western went into voluntary liquidation on December 31, 1963 its receiver was obliged to turn back to Pacific Leasing Corporation (hereinafter referred to as “Pacific”) the two boats, “‘Sea Prince” and “Sea Queen”, which had been leased for a term of sixty months under an agreement with Pacific dated December 15, 1959.

On February 19, 1964 Pacific entered into an agreement with Crescent, whereby the latter company agreed to purchase the “Sea Prince” from Pacific for $37,000, of which $1,000 was paid as a deposit to apply on account of the purchase price, but with the proviso that the bill of sale was to be made in the name of Crescent or its nominée. The said agreement also provided for Pacific to lease the “Sea Queen” and certain equipment belonging to Pacific, “the rental to be paid . . . to be the same as would have been paid by Tulloch-Western under its Lease dated the 15th day of December 1959”. This agreement between Pacific and Crescent was made subject to Pacific being able to make satisfactory arrangements with the Vancouver Shipyard Division of Vancouver Tug and Barge Co Ltd for the release of the said vessels free of any lien or encumbrance by that company.

By an agreement of sale dated February 20, 1964 Pacific, at the request of Crescent and, more specifically, on the instructions of the appellant Andrew Tulloch, transferred the “Sea Prince” to a company known as Blaine Myers & Co Ltd and one Norman Sigmund for a consideration of $40,000 and, on February 21, 1964, entered into an agreement of indemnity whereby Pacific agreed to indemnify the purchasers from all manner of actions, suits, claims and demands, etc, with respect to any liens, encumbrances or other charges attaching to the boat “Sea Prince”.

Of the $40,000 purchase price, the purchasers’ solicitors paid $36,000 to Pacific and, at the request of the appellant Andrew Tulloch, on February 20, 1964, issued a cheque for the balance of $4,000 to the Main & Hastings Branch of The Royal Bank of Canada in Vancouver, which amount was deposited in the Manager’s Account at that bank. A covering letter accompanied the cheque, worded as follows:

At the request of Mr A G Tulloch we enclose our cheque in your favour in the sum of $4,000.00 on behalf of our client Pacific Leasing Corporation Limited which kindly disburse as you shall be directed by Mr Tulloch.

The evidence was that on the day following, that is, on February 21, 1964, the appellant instructed the manager of that branch of The Royal Bank to issue a cheque for $4,000 in favour of the appellant’s wife Mona Tulloch, which cheque was deposited on February 24, 1964 to the credit of her account in the West Vancouver Branch of the same bank.

On the day after that (February 25), the sale of the boat “Sea Prince” to Blaine Myers and Co Ltd was closed, but not before the appellant had intervened and demanded that he be paid $3,000 by Blaine Myers & Company, the said amount to be over and above the $40,000 they had obligated themselves to pay Pacific in the agreement of February 21, 1964. Being eager to complete the transaction and put the “Sea Prince” into service with as little delay as possible, Blaine Myers & Co Ltd somewhat reluctantly issued their cheque for $3,000 to the appellant personally on February 25, 1964. This cheque was cashed by the appellant at the Main and Hastings Street Branch of The Royal Bank of Canada at Vancouver and the said sum of $3,000 was subsequently deposited to Mona Tulloch’s account at the West Vancouver Branch of the said bank.

From the appellant’s evidence, it is reasonable to conclude that he personally had advanced the $1,000 deposit paid under the agreement of February 19, 1964, whereby the “Sea Prince” was sold to Crescent by Pacific and also an amount of $1,246.54 necessary to pay off certain liens and claims against the “Sea Prince” and the “Sea Queen” in respect of unpaid wages and other unpaid amounts which had apparently been guaranteed by the appellant personally.

There is no room for doubt that, in the course of these several agreements to buy and sell, lease and indemnify, the appellant did receive personally the two payments of $4,000 and $3,000 respectively. What disposition he made of those funds thereafter is somewhat less clear.

In assessing the appellant, the Minister of National Revenue started from the premise that the appellant had received this $7,000 and then proceeded to make allowance for the disbursements totalling $2,246.54 which the appellant appeared to have made in connection with the execution of the said agreements. The balance of $4,753.46 remaining was treated by the Minister as unreported income of the appellant in the form of net commissions which the appellant had succeeded in garnering from the sale of the “Sea Prince”. It should be noted here that, although Crescent was the party that had agreed to purchase the “Sea Prince” under the agreement of February 19, 1964, none of the transactions whereby the “Sea Prince” was eventually transferred or sold to Blaine Myers & Co Ltd was recorded in the books or financial records of Crescent.

From a consideration of all the evidence adduced, it appears well established that the two payments totalling $7,000 which the appellant received from Blaine Myers & Co Ltd and from Pacific were in the nature of commissions earned by the appellant in the course of an adventure in the nature of trade and that the net proceeds thereof were taxable income in his hands. The -appellant has failed to establish any error on the part of the Minister in assessing him as he did. The transactions involved were so arranged as to create a complicated network of dealings and it was not unreasonable in the circumstances for the Minister to reach the conclusion he did.

The appeal is therefore dismissed.

Appeal dismissed.