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On April 27, 1970 the assessor calculated the aggregate total value of the estate as follows: Declared Total Value $673,167.79 Add: Valuation changes per form ET85 attached 36,530.08 Revised Total Value $709,697.87 Less: General Debts as filed $ 9,101.91 Add: Accounting Fees prior to death 325.00 9.426.91 Revised Aggregate Net Value $700,270.96 Less exempt property — Section 7(1) 5,000.00 Revised Net Value 695,270.96 Less: Exemption for Spouse and Children Spouse — Section 7(1)(a) as per schedule 214,611.72 Children — Section 7(1)(c) 2 children over 26 years 20,000.00 234,611.72 REVISED AGGREGATE TAXABLE VALUE $460,659.24 CALCULATION OF ESTATE TAX Estate Sum Calculation — Section 8(2)(a)(i) $460,659.24 Estate Sum $460,659,24 Tax on Estate Sum $169,529.62 Gift Sum Calculation — Section 8(2)(b) 20,000.00 $20,000.00 Tax on Gift Sum nil Estate Tax Before Abatement and Credits $169,529.62 Less: Provincial Tax Abatement $84,764.81 Foreign Tax Credit 84,764.81 ESTATE TAX ASSESSED $ 84,764.81 DISTRIBUTION Aggregate Net Value $695,270.96 Less: PV Succession Duty applicable $55,967.83 Less: Estate Tax 84,764.82 140,732.64 $554,538.32 Widow — Insurances $ 5,599.64 Gift inter vivos 20,000.00 /2 Residue 189,012,11 $214,611.72 Gift Inter Vivos — Niece 6,000.00 Daughters (2) Gifts inter vivos $ 6,000.00 /2 Residue 189,012.10 195,012.10 Widow and Daughters Real Estate and Household goods 138,914.50 $554,538.32 CALCULATION OF SUCCESSION DUTY DEDUCTIBLE FROM RESIDUE Re assets payable to widow not exempt under Section 7(1)(a) or 7(1)(b) of Estate Tax Act. Gifts Inter Vivos $ 8,595.00 Interest in Income 127,993.09 $136,588.09 Tax @ 13.18% $ 18,002.31 Surtax @ 15% thereon 2,700.35 20,702.66 Propn, of Section 7(2a) exemption applicable 20,702.66 x 4,743.35 36,699.66 1,541.73 $ 19,160.93 Immediate payment $ 1,205.73 Payable by instalments (10 @ 1759.52) 17,955.20 $ 19,160.93 Present Value — Immediate payment $ 1,205.73 1,795.52 x 8.11090 14,563.28 $ 15,769.01 Re assets payable to daughters — Immediate payment 37,691.16 Re assets payable to niece — 2,507.66 Total deductible residue $ 55,967.83 It is the appellants’ contention that Mrs Devitt was entitled to the benefit of the exemption provided for in paragraphs 7(1)(a) and (b), while the respondent contends that she has no right to such exemption. ... Thurlow, J cited Lord Cottenham, LC in Lassence v Tierney (1849), 1 Mac & G 551; 41 ER 1379. ...

The amounts at issue, and the appellant’s contentions regarding them are to be found in the Notice of Appeal: (1) Interest, R Brown — 1974 — $2,600; 1975 — $2,600; 1976 — $2,575. ... Findings Dealing first with Item (3) — the Greenberg Farm — the testimony of the appellant, his business history, and the documentation provided point to only one conclusion — that the property was acquired for the purpose of sale, hopefully in the appellant’s mind after subdivision and development, but for sale nevertheless. ... For Item (2) — the Mortgage Reserve — I recognize that there would be some difficulty in defining “reasonable” for purposes of the section of the Act under review, and this was emphasized by the agent for the appellant. ...

Taxes — $ 304.72 Insurance — 426.00 Mortgage payments — 3,758.16 (monthly payment $313.18) This represents a considerable outlay of funds bearing in mind the annual rent was a nominal $645. ... Again, 1976 is typical: STATEMENT OF FARMING INCOME 1976 WALTER’S FALLS FARM Sales and Land Rentals $ Nil Deduct: Fertilizer for Lawn $ 6.95 Rental and Repairs (chain saw) 29.40 Gasoline (auto, chain saw, tractor, mower etc.) 24.00 Hay and Feed (livestock) 1,202.70 Livestock 320.00 Tools 38.58 Hay Mowing Costs 275.00 Machinery & Tractor Costs 65.00 Hay Baling costs 196.00 Mailing, advertising, etc. 23.42 $2,181.05 Loss $2,181.05 Deduct: Municipal taxes (63.1%) $ 188.71 Mortgage Interest(63.1%) 2,208.52 Telephone 31.60 Bank service charges 6.00 Stationery 14.57 Miscellaneous 29,16 $2,478.56 Net Loss $4,659.61 STATEMENT OF RENTAL INCOME — 1976 WALTER’S FALLS FARM Rents received $ 600.00 EXPENSES: Municipal taxes (36.9%) $ 110.35 Mortgage Interest (36.9%) 1,291,52 Insurance 342.30 House repairs: — roof-eavestroughing 158.57 — windows-paint 16.20 — furnace 15.00 — materials for home 144.37 Barn repairs: — cement, mix for barn gangway 315.00 $2,393.31 Loss $1,793,31 By 1977, when he sold six of his cattle,the appellant had accumulated a herd of 14 but during the immediately subsequent years, he sold these also and finally sold the farm. ... The significant words in both quotations used by the learned Justice are the same — “start-up costs (losses)”. ...

(d) during 1972 through 1976, the appellant’s sources of income were as follow: Invest Family Family Other ment Farming Allow Allow Income Loss ance ance Year Office Income $ $ $ $ 1972 Northtown Ford Sales 84,541.47 60 (11,954) 1973 Northtown Ford Sales 186,030.00 84 (114,400) 1974 Linblasco Investments Limited 267,882.46 316 (199,000) 720.00 1975 HOJ Industries Limited 553,700.23 60 2,215 794.88 836.01 1976 HOJ Industries Limited 688,540.00 124 (449,909) 795.00 (e) the appellant, during the years 1972 through 1976, at no time had invested as great an amount in his farming business compared to the amount invested in HOJ Industries Limited, as revealed by the following schedule: HOJ INDUSTRIES LTD: 1973 1973 1974 1974 1975 1975 Net assets 63,200 869,373 815,996 Net Income before Admin bonus and extraordinary item 273,992 971,475 751,784 Percent 43% 111 % 92% Net income after Admin bonus before income tax 159,621 435,224 42,927 % to net assets 25% 50%.05% FARM OPERATIONS: 1973 1973 1974 1974 1975 1975 Net Assets 421,079 538,712 844,360 % net assets farm operations to net assets HOJ Industries Limited 66.8% 61.96% 103.47% (f) the appellant had no farming experience at the time he commenced farming operations in 1972; (g) from 1972 to 1977 inclusive, the appellant invested over $1,039,880 in the operation of his farming business; this amount represented the purchase of two farms, equipment, livestock, and building contruction costs. ...

This point was admitted by the respondent. 3.13 The appellant’s contention is: Leasehold interest $10,602 Adjusted cost base $ 8,550 Capital gain $ 2,052 Taxable capital gain $1,026 Proceeds of goodwill includable in income $15,000 Section 21 ITAR 25% $3,750 $4,776 3.14 An appraisal report proving goodwill was not presented in testimony by the appellant. ... Canadian Petrofina Limited v P R Martin & City of St Lambert, [1959] RCS 453; 10. ... The computation of this subparagraph is $40,000 x 40% = $16,000. Consequently there is no excess ($16,000- $16,000) = 0). 21(1)(b) To the figure 0, result of subparagraph (a), must be added (notice the word “and” at the end of that subparagraph (a)) another amount—the one which is the result of subparagraph (b). ...

The appellant served notice of objection within the prescribed time and following confirmation of the assessments by the respondent, appealed therefrom to this court; In his reply to the notice of appeal, paragraph 10, subparagraphs (b) to (k) inclusive and (n) to (q) inclusive read as follows: [Translation] (b) By virtue of these letters patent, the appellant has the following powers inter alia: To acquire in any way whatsoever, establish, lease, operate, administer, develop, sell, exchange or otherwise dispose of and mortgage all manner of real property; to acquire, build, operate, administer, sell and otherwise dispose of all manner of buildings and constructions; to buy and sell building materials; (...) ... (g) Since its incorporation, the appellant has made a number of major land and property purchases: Year Description Cost 1972 Lot and building, 3220 Chemin des Quatre-Bourgeois, Ste-Foy $ 123,000 Lot, Boulevard Masson (les Saules sector) $ 38,855.71 1973 Lot, Les Saules, Québec $ 4,048.49 Lot and building, 955 de Bourgogne, Ste-Foy $ 250,800 Lot, 3220 Chemin des Quatre-Bourgeois, Ste-Foy $ 5,972 1974 Lot Ste-Foy, Quebec $ 17,559 Lot Les Saules, Quebec $ 1,137 1975 Lot Ste-Foy, Quebec $ 2,858 Lot Les Saules, Quebec $ 2,867 1976 Lot Ste-Foy, Quebec $ 1,747 Lot Les Saules, Quebec $ 3,609 (h) The building situated at 3220 Chemin des Quatre-Bourgeois was sold 24 months following its purchase, while the building situated at 955 de Bourgogne was sold 5 months after its purchase; (i) The buildings whose disposition has given rise to the instant case were situated in an area of Quebec City that is the subject of intense land speculation; (j) The reason put forward by the appellant in justification of its sale of the building situated at 3220 Chemin des Quatre-Bourgeois (the failure of IBM Ltd to renew its lease) is of little validity and does not amount to frustration of the appellant’s original intention. ... In the case at bar, the method of financing, the experience of the majority shareholders involved in the buying and selling of lots through two other companies, the short period during which the appellant owned the buildings and lots, the lack of perseverance in the pursuit of its aims, the speculation-prone area in which the buildings and lots were acquired — all these factors would suggest that the appellant has failed to rebut the presumption of speculative motives that weighed against it. ...

The impact of losses claimed had the following results in respect of the profit for the year ended March 31, 1967: Rental income — $27,790.00 Sundry expenses — 17,405.84 Net profit before depreciation — 10,384.16 Terminal loss — 28,105.97 Net loss for the year — $17,721.81 The appellant allocated the proceeds of sale of the shopping centre between depreciable and non-depreciable assets as follows: Land Blacktop Buildings Total Capital Cost $30,000.00 $2,000.00 $ 68,000.00 $100,000.00 Additions — 5,992.40 61,363.57 67,355.97 30,000.00 7,992.40 129,363.57 167,355.97 Net Proceeds 57,000.00 7,125.00 102,125.00 166,250.00 Terminal loss/ Capital Gain $27,000.00 $ 867.40 $ 27,238.57 $ 1,105.97 Mr Schaff appeared to be an unsophisticated businessman who bought a shopping centre which he thought he could handle as an investment. ... An index of schedules (Exhibit A-13) shows the legend of properties and projects: LEGEND OF PROJECTS AND PROPERTIES (A) Northwoods Subdivision — 98 houses — north side Sheppard Ave between Keele and Jane (B) Downsview Subdivision — 16 houses — Jane and Sheppard area (C) Islington Acres —518 houses — Finch west of Weston Road (D) Lawrence Terrace Apartments —410 suites — 1440 and 1442 Law- rence Ave West at Keele St (E) Sheppard Gardens Maisonettes —148 units —north side of Shep- pard Ave between Keele and Jane (F) Factory — 2400 Finch Ave West—169,000 Square Feet (G) Claxton Gates Apartments —175 suites —111 Raglan Ave (H) Lawrence Park Apartments —346 suites — 1577 Lawrence Ave W (1) Van Lee Apartments —207 suites — McCowan Rd north of Eglinton (J) Factory — 2420 Finch Ave W — 29,000 Square Feet (K) 2246 Keele Street — 22 suites (L) 2417 Keele Street — 11 suites (M) Farnham Court Apartments — 92 suites — Farnham and Yonge St (N)(O) 467 Roncesvalles and 54 Raglan — 32 suites (P) 34-42 Maitland Ave — 52 suites (Q) 5320-24 Yonge Street — Stores with office space and apartments on second floor (R) Lawrence and Susan —225 suites — Lawrence Ave East Apartments at Susan (S) Islington Avenue — 28 houses Schedule #1 attached to the above-mentioned Exhibit A-13 gives a summary of operations—sales of serviced lots and construction and sale of residential housing—and we can see the net proceeds on operations and the total proceeds available for investment. ... In James Hobson & Sons, Ltd v Newall (HM Inspector of Taxes), 37 TC 609, Harman, J said at page 615: This is another of these cases about builders. ...

For the respondent: — The amount of $100,000* was set up as a liability and deducted as an expense in order to reduce the total amount of taxes payable by the appellant: (*The amount at issue in the appeal, the total was $110,000) — There was no contract or agreement between the appellant and the persons to whom the alleged bonus was owing and a bonus would be paid; — There was no contract of employment between the appellant and any person who was within the management category requiring the payment of the stated bonus; — With respect to the bonuses no expense was made or incurred for the purpose of gaining and producing income for the businesses; — The claim of the bonus expense, if it has been found to have been made or incurred unduly or artificially reduces the income of the appellant; — The appellant did not intend to create a legal obligation to pay the bonuses; — The claim of bonus payable as an expense was in effect a reserve which is not permitted by the Income Tax Act. Evidence Mr Edward R Easton, president of the appellant company, and Mr David Staley, CA, of Smith, Flynn, Staley & Co, testified for the appellant. ... However, there were certain critical factors introduced: — the financial statements for previous years indicated a similar process of “bonus” accrual had regularly taken place; the 1976 financial statements showed in part: Revenue $1,049,301.20 Expenses 794,376.62 Profit before undernoted $ 254,924.58 Add — Gain on sale of fixed assets 150,936.00 $ 405,860.58 Less — Management bonus 110,000.00 $ 295,860.58 — Mr Staley noted that it was the business policy of his firm that clients reduce corporate profits by the utilization of such accrued management bonuses where and when it was advantageous, so that such an accrual would bring the net taxable profit from active business below the small business limit. ...

The employer provided a room in his own offices and did not require her to have an office at her residence, which was at 430 rue St-Alexandre, Longueuil, Quebec. 3.4 The appellant claimed certain expenses against her gross income for 1972 and 1973, and these were disallowed or admitted by the respondent as shown in the following table: Gross Expenses Expenses Expenses Income Claimed Disallowed Allowed Allowed 1972 $13,590.87 $3,505.73 $1,550.47 $1,955.26 1973 $25,630.02 $7,419.07 $3,923.41 $3,495.66 3.5 The expenses claimed and disallowed are shown in more detail below: (1972) (1973) Claimed Disallowed Claimed Disallowed (A) Depreciation of furniture $ 81.10 $ 81.10 $ 64.88 $ 64.88 (B) Insurance 25.00 25.00 25.00 25.00 (C) Commissions, gratuities, tips 130.00 65.00 960.00 860.00 (D) Gifts, advertising expenses, signs 367.00 292.00 502.23 402.23 (E) Entertainment expenses 541.15 271.15 981.58 491.58 (F) Equipment rental (Bell Boy) 216.00 Nil 328.00 Nil (G) Stationery, circulars, reference books and office expenses 258.98 258.98 613.62 613.62 (H) Taxis 82.00 41.00 102.00 51.00 (I) Telephone, telegrams 117.35 57.35 168.65 83.65 (J) Car $1,689.53 (1972) less personal use (25%) $422.38 1,689.53 1,267.15 Car $4,273.11 (1973) less personal use (12 weeks at $50) $600 4,273.11 3,673.11 The appellant stated as regards the car expenses that she used the car seven days a week for business purposes. 3.6 The appellant stated in her testimony that when she filed her tax returns for 1972 and 1973 she had most of the vouchers, which were stored in a filing cabinet in her basement. ...

., Government of Canada bonds with: — serial numbers of F56 000450 and F56 000972 — combined face value $30,000 — accrued interest $977.26 — maturity date of December 15, 1975 (b) The taxpayer borrowed, from the Bank of B.C., by way of a demand promissory note, and secured by the above bonds, sufficient funds to purchase the bonds. ... In response to your letter of May 6, 1980, we confirm the following transactions relative to the subject bond purchase: November 26, 1975 Loan advanced for the purchase of Government of Canada Bonds Heather Jensen $15,495.38 Claus Jensen $30,984.01 November 27, 1975 Government of Canada Bonds (Bearer) Lodged in support of loan Heather Jensen Serial #F56 000969 #F56 000970 #F56 000971 3 @ $ 5,000.00 Claus Jensen Serial #F56 000972 #F56 000450 1 @ $ 5,000.00 1 / $25,000.00 December 15, 1975 Above bonds redeemed and loan retired from proceeds. ...