Maurice
Boisvert:—This
appeal
is
from
an
assessment
involving
the
taxation
year
1965.
Appellant
was
the
principal
shareholder
in
a
company
known
as
Montreal
Terra
Cotta
Limited
(hereinafter
referred
to
as
“Terra
Cotta”),
which
came
into
being
on
June
26,
1936.
He
held
273
shares
of
the
authorized
capital,
which
gave
him
control
of
the
company,
since
there
were
only
490
issued
and
paid
up
shares.
Among
the
shareholders
was
Central
Motor
Sales
Ltd
(hereinafter
referred
to
as
“Central
Motor”),
which
held
193
shares.
In
1965
Central
Motor’s
shares
were
held
by
the
Estate
of
A
H
Rocheleau.
On
July
28,
1965
appellant
offered
to
buy
the
Estate’s
193
shares
for
the
amount
of
$350,000.
On
August
12,
1965
the
Estate
accepted
the
offer.
At
the
time
the
offer
was
made
to
the
Estate,
Terra
Cotta
was
about
to
sell
land
in
one
case,
and
to
be
expropriated
in
another.
The
sum
of
$350,000
was
a
huge
amount
to
pay;
the
situation
called
for
imagination
and
reflection.
On
November
15,
1965,
on
an
accountant’s
advice,
Terra
Cotta
held
a
meeting
at
which
all
the
company’s
directors
were
present,
the
minutes
of
which
read
as
follows:.
(TRANSLATION)
WAIVER
OF
NOTICE
We
the
undersigned,
being
all
the
directors
of
Montreal
Terra
Cotta
Limited,
by
these
presents
do
waive
notice
of
time,
place
and
object
of
the
meeting
of
directors
of
the
company,
to
be
held
in
the
sales
office
of
the
same,
Suite
936,
Dominion
Square
Building,
Montreal,
Que,
on
the
fifteenth
day
of
November,
one
thousand
nine
hundred
sixty-five,
at
eleven
A.M.
Montreal,
November
15,
1965.
(signed)
Chas
Perrault,
Pres.
(signed)
T
Bénard,
Secretary.
The
Secreary
read
the
minutes
of
the
last
meeting,
which
were
unanimously
adopted.
The
President
informed
the
meeting
that
a
dividend
of
$1813.50
per
share
could
be
declared,
but
he
waived
this
dividend
of
$1813.50
per
share
which
could
be
declared.
The
Vice-President
informed
the
meeting
that
he
shared
the
President’s
opinion
that
a
dividend
of
$1813.50
per
share
could
be
declared,
but
he
waived
this
dividend
of
$1813.50
per
share
which
could
be
declared.
By
motion
duly
proposed
and
seconded,
it
was
unanimously
resolved
to
declare
a
dividend
of
$1813.50
per
share,
payable
the
day
of
19
to
holders
of
shares
registered
in
the
books
of
the
company
before
the
day
of
19
The
President
informed
the
meeting
that
he
waived
this
dividend
of
$1813.50
per
share.
The
meeting
took
notice
of
a
letter
in
the
following
terms,
dated
November
15,
1965,
and
written
to
the
company
by
the
President.
Montreal,
November
15,
1965.
Montreal
Terra
Cotta
Limited
Dominion
Square
Building
Suite
936
Montreal,
Que.
Dear
Sirs:
I
the
undersigned,
CHAS
PERRAULT,
by
these
presents
do
waive
the
dividend
of
$1813.50
declared
on
this
day.
(signed)
CHAS
PERRAULT.
By
motion
duly
proposed
and
seconded,
the
Secretary
was
ordered
to
include
this
letter
of
waiver
in
the
minutes
of
the
meeting.
The
Vice-President
informed
the
meeting
that
he
waived
this
dividend
of
$1813.50
per
share.
The
meeting
took
notice
of
a
letter
in
the
following
terms,
dated
November
15,
1965,
and
written
to
the
company
by
the
Vice-President.
Montreal,
November
15,
1965.
Montreal
Terra
Cotta
Limited
Dominion
Square
Building
Suite
936
Montreal,
Que.
Dear
Sirs:
I
the
undersigned,
OSKAR
NOMM,
by
these
presents
do
waive
the
dividend
of
$1813.50
declared
on
this
day.
(signed)
OSKAR
NOMM.
By
motion
duly
proposed
and
seconded,
the
Secretary
was
ordered
to
include
this
letter
of
waiver
in
the
minutes
of
the
meeting.
The
meeting
was
closed.
As
can
be
seen
from
the
minutes,
by
taking
an
amount
of
$1813.50
for
each
share
as
a
basis,
appellant
arranged
payment
of
the
sum
of
$350,000
by
the
company
which
he
controlled,
and
of
which
he
was
President.
The
amount
of
the
pseudo-dividend
was
paid
to
the
Estate,
and
full
ownership
of
the
shares
passed
from
the
Rocheleau
Estate
to
the
appellant.
At
the
time
in
question
Terra
Cotta
had
been
paid
the
sum
of
$465,000
by
the
city
of
Pointe-Claire,
and
in
addition
had
signed
a
promise
to
sell
land
for
the
amount
of
$800,000.
In
this
way,
without
spending
a
cent,
appellant
became
owner
of
the
shares
of
Central
Motor.
Naturally
respondent
taxed
appellant
on
the
sum
of
$350,000,
relying
on
the
provisions
of
subsection
8(1)
of
the
Income
Tax
Act
then
in
effect
(RSC
1952,
c
148).
The
subsection
relied
on
by
respondent
reads
as
follows:
8.
(1)
Where,
in
a
taxation
year,
(a)
a
payment
has
been
made
by
a
corporation
to
a
shareholder
otherwise
than
pursuant
to
a
bona
fide
business
transaction.
(b)
funds
or
property
of
a
corporation
have
been
appropriated
in
any
manner
whatsoever
to,
or
for
the
benefit
of,
a
shareholder,
or
(c)
a
benefit
or
advantage
has
been
conferred
on
a
shareholder
by
a
corporation,
the
amount
or
value
thereof
shall
be
included
in
computing
the
income
of
the
shareholder
for
the
year.
The
proven
facts
establish
beyond
any
doubt
that
the
voting
of
a
dividend
to
a
third
party
was
not
a
bona
fide
business
transaction:
it
was
a
subterfuge
to
have
the
Terra
Cotta
company
pay
what
was
appellant’s
personal
obligation.
It
is
clear
that
funds
belonging
to
the
company
were
appropriated
for
the
appellant’s
benefit,
as
he
did
not
have
to
pay
out
the
sum
of
$350,000
which
he
personally.
owed
to
the
Rocheleau
Estate.
If
this
was
not
a
benefit
or
advantage
for
appellant,
what
does
a
benefit
or
advantage
consist
of?
The
person
of
appellant
is
a
different
entity
in
law
from
that
of
a
corporation.
The
Exchequer
Court
of
Canada
has
ruled
on
the
meaning
to
be
given
to
the
words
“benefit”
and
“advantage”.
In
MNR
v
D
Dufresne,
[1967]
2
Ex
CR
128
[1967]
CTC
153;
67
DTC
5105,
Jackett,
P,
said,
at
page
138
[162,
5110]:
That
question
cannot,
in
my
view,
be
realistically
answered
by
an
analysis
of
each
of
the
respective
steps
taken
without
taking
account
of
the
ordinary
well
known
facts
of
life
in
the
world
of
affairs.
The
resolution
granting
the
“rights”
was,
it
is
true,
passed
by
the
board
of
directors;
and
the
respondent
was
only
one
director
and
had
in
the
proceedings
of
the
board
only
one
vote.
There
is
nothing,
moreover,
to
show
that
the
wife
and
children
did
not
each
act
independently
in
deciding
their
respective
courses
of
action
in
the
whole
series
of
events.
Nevertheless,
in
the
absence
of
any
evidence
by
the
respondent
or
on
his
behalf
to
show
what
in
fact
happened,
I
am
of
the
view
that
the
balance
of
probability
is
that
he,
as
the
owner
of
practically
all
the
shares
in
the
company
and
the
head
of
the
family,
had
the
controlling
influence
in
the
determination
of
the
course
of
events
with
which
we
are
concerned.
The
sequence
of
events
bears
all
the
earmarks
of
a
series
of
company
transactions
that
had
been
arranged
in
advance
by
the
major
shareholder
and
father,
after
taking
appropriate
professional
advice,
with
a
view
to
achieving
the
result
of
increasing
the
children’s
proportions
in
the
ownership
of
the
stock
of
the
company.
That
that
is
what
in
fact
happened
is
corroborated
by
the
evidence
given
before
the
Tax
Appeal
Board.
There
was
very
little,
if
any,
consultation
in
advance
between
the
children
and
the
respondent,
who,
in
effect,
presented
them
with
what
he
had
arranged
for
their
benefit
and
assumed
that
they
would
accept
it,
which
they
did.
Moreover,
the
benefit,
if
it
was
one,
was
an
increase
in
the
proportions
of
the
children
almost
entirely
at
the
expense
of
a
decrease
in
the
respondent’s.
There
is
no
doubt
in
my
mind
that,
if
the
result
of
the
transaction
was
a
benefit
to
the
children,
it
was
conferred
on
them
by
the
respondent.
Humanity
and
feeling
do
not
enter
into
tax
computations.
Much
was
made
of
the
Rocheleau
Estate’s
financial
situation,
and
the
fact
that
the
dividend
transaction
was
the
Estate’s
only
hope.
True
though
that
may
be,
the
law
has
no
heart,
and
it
must
be
strictly
applied
regardless
of
whatever
inconveniences
and
consequences
flow
from
its
application.
For
the
foregoing
reasons,
I
feel
the
appeal
should
be
dismissed.
The
above
appeal
was
heard
at
Montreal,
Province
of
Quebec,
on
October
21,
1971
by
the
undersigned,
then
Assistant
Chairman
of
the
Tax
Appeal
Board,
as
then
constituted.
Appeal
dismissed.
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