D
E
Taylor:—This
is
an
appeal
by
Mr
Melvin
Joseph
Davis
with
regard
to
his
1978
tax
return.
The
matter
at
issue
is
spelled
out
completely
and
fully
in
the
notice
of
appeal
filed
by
the
appellant,
and
in
the
reply
to
notice
of
appeal
filed
by
the
Minister.
Until
ten
minutes
ago,
I
did
not
have
the
slightest
intention
of
giving
a
decision
on
this
matter
today
and
I
do
reserve
the
right
to
amplify
these
few
comments
if
it
becomes
necessary
or
desirable
to
do
so
in
writing.
Essentially,
the
matter
comes
down
to
an
amount
alleged
to
be
a
loan
to
the
appellant
of
$84,162
made
by
a
corporation
of
which
the
appellant
and/or
his
wife
were
the
controlling
shareholders.
Under
the
circumstances,
copies
of
the
minutes
of
the
corporation’s
directors’
meeting
were
filed
with
the
Board,
together
with
a
copy
of
an
undated,
although
not
questioned
promissory
note
from
Mr
Davis
to
the
Corporation
in
that
amount.
The
disturbing
part
of
that
note,
according
to
the
Minister,
appears
to
be
that
it
is
repayable
on
demand
and
that
it
bears
no
interest.
The
Minister
made
a
major
part
of
his
argument
on
those
points.
The
actual
transaction
concerned,
and
copies
of
jurisprudence
brought
forward
by
both
counsel
for
the
appellant
and
counsel
for
the
respondent
indicate
that
absolute
and
meticulous
care
must
be
taken
in
order
that
a
taxpayer
fit
himself
within
the
exclusion
provisions
of
subsection
15(2)
of
the
Income
Tax
Act.
I
have
approached
the
questions
noted
by
both
counsel
in
this
matter
very
cautiously,
particularly
those
brought
forward
by
Mr
Taylor,
counsel
for
the
respondent,
in
view
of
the
fact
that,
to
my
knowledge,
the
questions
regarding
the
bona
fides
of
this
note
as
reflected
by
the
lack
of
repayment
terms
and
interest
rate,
had
not
been
previously
addressed
by
the
Board
or
the
Courts.
I
have
no
fixed
views
on
whether
or
not
such
a
note
does
indeed
fit
the
requirements
of
subsection
15(2)
of
the
Act.
Whether
those
aspects
of
this
note
would
entitle
this
taxpayer
to
claim
the
exemption
under
subsection
15(2)
of
the
Act
may
be
a
problem
because
the
taxpayer
is
claiming
it
was
a
“bona
fide”
transaction.
But
aside
from
the
“bona
fides”
question,
I
do
have
views
about
one
other
element
that
has
arisen.
In
this
regard,
I
should
like
to
read
from
the
minutes
of
the
shareholders’
meeting
of
Davis
General
Store
Limited
held
on
July
5,
1978,
which
started
this
entire
proceeding:
2.
The
Company
is
to
issue
498
common
shares
of
the
Company
to
Melvin
Davis
for
a
cash
consideration
of
$84,162.
It
is
my
clear
interpretation
of
the
evidence,
testimony
and
documents
that
the
cash
consideration
for
the
shares
themselves
was
only
some
$498,
at
the
rate
of
$1
par
value
per
share.
The
balance
of
the
amount
at
issue
was
put
back
into
the
company,
counsel
for
the
respondent
agreed,
as
“contributed
surplus”.
The
minutes
of
July
5,
1978
indicate
to
me
that
the
total
amount
was
to
be
“locked
into”
the
company
as
capital
stock,
a
situation
which
would,
at
least
on
the
surface,
have
fulfilled
one
basic
requirement
of
subparagraph
15(2)(a)(iii)
of
the
Act
which
reads:
where
the
lender
is
a
corporation,
to
an
officer
or
servant
of
the
corporation
to
enable
or
assist
him
to
purchase
from
the
corporation
fully
paid
shares
of
the
capital
stock
of
the
corporation,
or
to
purchase
from
a
corporation
related
to
the
corporation
fully
paid
shares
of
the
capital
stock
of
the
related
corporation,
to
be
held
by
him
for
his
own
benefit
.
.
.
It
might
be
argued
that
it
was
completely
correct,
from
a
record-keeping
perspective,
to
show
the
transaction
as
broken
down
between
cost
of
shares
$498,
and
contributed
surplus
$83,664,
and
I
mean
no
reflection
on
that
accounting
procedure.
But
one
could
also
assert
that
the
498
treasury
shares
had
been
“fully
paid”,
on
receipt
of
their
par
value
of
$498;
or
that,
for
the
entire
$84,162.
Mr
Davis
was
only
entitled
to
receive
the
498
shares
as
“fully
paid”,
without
a
proportionate
interest
in
an
established
“contributed
surplus”
amount.
As
I
see
it,
the
section
of
the
Act
at
issue
in
this
appeal
does
not
contemplate
the
“valuation”
of
shares
as
if
they
were
being
acquired
from
another
shareholder.
It
contemplates
the
acquisition
of
fully-paid
treasury
shares
—
in
this
case
with
a
par
value.
I
can
only
conclude
that
the
total
amount
at
issue
$84,162,
however
described,
was
not
“a
loan
.
.
.
to
purchase
.
.
.
fully
paid
shares
.
..”.
In
my
view,
the
transaction
as
conducted
and
recorded
does
not
permit
the
exclusion
from
income
sought
by
the
taxpayer.
The
appeal
is
dismissed.
Appeal
dismissed.
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