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In assessing the appellant for the 1978 taxation year, the respondent, the Minister of National Revenue, relied on the following facts, inter alia: (a) The appellant’s net income for each of the 1974 to 1978 taxation years was as follows: 1974 $250,910 1975 $ 30,762 1976 $ 32,298 1977 $ 35,568 1978 $ 42,764 (b) For the 1978 taxation year the appellant did the general averaging tax calculation on form T-2077; (c) In his 1978 general averaging tax calculation, the appellant erroneously used the tax tables instead of the 1978 rates of federal income tax; (d) The appellant’s basic federal tax for the 1978 taxation year computed using general averaging is $9,487.61, the same amount as the appellant’s basic federal tax computed using the 1978 rates of federal income tax provided for in section 117 of the Income Tax Act: (e) It is of no advantage to the appellant to use general averaging in computing the tax he owes for the 1978 taxation year. 3. ... Act — Analysis 4.01 Act The principal provisions involved in this case are sections 117 and 118. ...

Year Ended September 30 Gross Income Salaries Profits Profits 1969 NIL NIL NIL 1970 $ 3,458 — $ (3,921) 1971 65,235 — (14,977) 1972 275,200 16,000 11,362 1973 324,458 70,000 96,654 1974 982,744 79,334 443,408 1975 233,507 500,000 (225,999) 1976 306,596 100,000 69,253 1977 151,418 161,200 109,640 6. ... Mr Alfred Berry outlined the development and progress of the company, and in particular emphasized the reasons as he saw them — largely unexpected and external to the operations of the business — which brought about the business decline after 1974. ... In the instant case, the circumstances put forward in support of the proper declaration of the management bonus are even more striking — particularly the resolution of the Board of Directors (Exhibit A-2). ...

He incorporated a number of companies, of which the relevant ones are as follows: J Steenbakkers Lumber Limited — (retail sales) Capital Roof Truss (1969) Limited — (trusses) Valley Vu Realty (Ottawa) Limited — (construction) Steenbakkers Realties Limited — (land development) Iber Construction Limited — (construction) Ottawa Forest Products Ltd — (wholesale lumber) Steenbakkers had in mind that the appellant family company would acquire land and eventually construct a building of highest quality as a lasting investment. The appellant acquired five acres of land on Riverside Drive, in the City of Ottawa, Ontario, over a period of years as follows: 1964 — 1747 Riverside Drive for a cost of $21,019; 1971 — 1743 Riverside Drive for a cost of $40,000; 1972 — 1755-85 Riverside Drive for a cost of $546,687. ...

The land that had been purchased had been bought with the set intention of building a large housing complex; this would not have been detrimental to Steinberg’s operations — rather the contrary. ... Promise of sale signed August 21, 1964 Calculation of reserve according to section 85-B May 31/65— 85,649.20 x 247,000.00 = 82,316.54 257,000.00 ===== May 31/66 85,649.20 x 181,565.80 = 60,505.70 257,000.00 ===== May 31/67 85,649.20 x 150,000.00 49,989.80 257,000.00 == Confederation Life mortgage assumed Un- Initial Cost Accumulated depreciated Edifice Ferland Land Building Depreciation Balance April 3/64—Purchase $8,500.00 $239,000.00 $239,000.00 Additions 877.90 877.90 239,877.90 239,877.90 May 31/64—C.C.A. 11,950.00 11,950.00 Balance $8,500.00 $239,877.90 $11,950.00 $227,927.90 May 31/65—C.C.A. 11,396.40 11,396.40 Balance 8,500.00 239,877.90 23,346.40 216,531.50 Additions 25,439.10 25,439.10 $8,500.00 $265,317.00 $23,346.40 $241,970.60 Oct. 5/65—Sale Selling price 450,000.00 Less: Commission 15,000.00 $435,000.00 8,500.00 426,500.00 Total profit $184,529.40 Recovered in C.C.A. 23,346.40 Surplus over initial cost 161,183.00 $184,529.40 Terms of sale Selling price $450,000.00 Cash 100,000.00 Balance $350,000.00 by the purchaser 350,000.00 Place des Chênes Shopping Centre Un Un- Initial Cost Accumulated depreciated Land Building Depreciation Balance Aug. 9/63 Purchase $45,543.00 Construction 3,037.40 $305,007.65 305,007.65 48,580.40 305,007.65 305,007.65 May 31/64 C.C.A. $15,250.38 15,250.38 Balance 48,580.40 305,007.65 15,250.38 289,757.27 Additions 30,881.31 30,881.31 $335,888.96 $15,250.38 $320,638.58 May 31/65 C.C.A. 16,031.93 16,031.93 Balance 48,580.40 335,888.96 31,282.31 304,606.65 Mar. 18/66 Sale Selling price $375,000.00 48,580.40 326,419.60 Recovered in C.C.A. $21,812.95 If we analyse the statements made by the witnesses before the Board, we can see that no reliance can be put on appearances. ...

The report, however, was co-signed by the principal of R Hilton & Associates. ... Argument In a very efficient manner, Mr Cappell provided the Board with a summary of the points he wished to raise in argument and, since this summary is not only detailed but concise, it should be quoted: Notes for Argument on Behalf of Appellant — South Side — Best Location — Renovate — Proven Premium Value Same approach in two appraisals. ... No weight to Miller’s appraisal because — (a) he appraised the wrong property — see page 6 of his report; and (b) his “unconscious” bias is flagrant. ...

As Exhibit A-1, he filed a two-page document headed “Expenses 1978”; these expenses are as follows: Advertising and promotion: $ 50.00 Insurance (on musical instrument): 38.00 Interest (loan for van and musical equipment): 1,274.00 Maintenance and repairs: 85.00 Supplies and materials: 489.00 Office expenses: 13.00 Telephone: 25.00 Musical instruction: 192.00 Truck expenses (including: insurance —$237; engine repairs — repairs — $400; automatic transmission repair — $498, etc) 1,705.00 $3,871.00 Capital cost — $2,709.68 Additions — bass guitar, electric organ, speakers, microphones 744.47 $4,615.47 In the income tax return the Capital Cost Allowance 20, vouchers were also filed concerning the van expenses. ... Law — Analysis 4.01 Law The main sections of the Income Tax Act involved in the present case were paragraphs 18(1)(a), (h) and section 248, definition of “personal or living expenses”, which read as follows: 18. (1) General limitations. ... As he declared $675 of income (despite the fact that the actual amount received is not clear — see subparagraph (a) above). ...

To demonstrate that the project was seriously considered, Mr Dumas submitted stationery with the letterhead ‘Place Henri IV’’ and a list of expenses (Exhibit A-17): EXPENSES 1—Robert Morin (accountant) $ 4.000.00 2—Begin, Charland, Valiquette (appraisers) $ 3.235.58 3—Duval, Grenier, Taschereau (notary) $ 2,580.00 4—School and municipal taxes $ 27,130.32 5—St-Gelais, Tremblay, Tremblay and L'Abbé (architect) $ 12,495.16 6—Cossette and Associates $ 145.42 7—André Blanchet (lawyer) $ 43,000.00 8—Thron, Group and Co (accountant) $ 4,435.36 9—Travel expenses, accommodation and meals $ 3,133.06 10—Lease with Wilfred Légaré Inc $ 665.00 TOTAL $100.819.90 On September 22, 1969 Mr Dumas received a letter from Mr Gauv- reau telling him that Eaton’s was not interested in locating in Quebec City; he further learned that Simpsons-Sears was moving into the Laurier Project. ...

Yours very truly, Dunwoody & Company Per (Signature) JDD/hb J. D. ... In this respect, the following amounts will be added to your income: 1971 — $ 6,000.00 1972 — $ 7,000.00 1973 — $12,000.00 1974 — $12,000.00 Any further action will be held in abeyance for fifteen (15) days in order to allow you time to submit any information which you would like to have considered. Yours truly, (Signature) for Chief of Audit PF:hf In addition, the following information has been extracted by the Board from the financial statements of Oil Field which have been made available in the exhibits: Manage Gross Revenue Other ment Fixed Year (Given in $) Sales Income* Fees Assets (Net) Inventory 1955 $402,402 $101,695 $ 707 $15,197 $ 36,386 (8 mos.) 1956 216,913 215,713 1,200 17,352 54,978 1957 425,404 420,695 4,709 37,932 125,124 1958 487,024 480,568 6,456 45,855 94,222 1959 505,491 498,849 6,642 51,327 93,825 1960 418,568 412,524 6,044 41,998 150,808 1961 341,853 340,101 1,752 28,637 110,969 1962 468,323 467,229 1,094 26,918 111,840 1963 421,573 416,390 5,183 46,503 84,018 1964 330,981 325,159 5,822 35,905 71,785 1965 110,701 93,505 17,196 13,597 5,758 1966 3,965 2,556 1,409 10,529 10,114 1967 10,682 6,877 3,805 10,529 3,159 1968 1,408 1,044 364 Nil 2,694 1969 (not made available) 1970 Nil Nil Nil Nil 2 1971 5,600 600 Nil $ 5,000 Nil Nil 1972 7,160 552 608 6,000 Nil Nil 1973 13,585 Nil 2,085 11,500 Nil Nil 1974 14,563 2,563 12,000 Nil Nil Other Income consisted mainly of interest earned and discounts received. ...

The basic amounts in question from the assessment notices were: Additional Penalty on additional Monarch Unreported income tax assessed 1974 $ 7,896.90 $ 475.65 1975 14,626.59 1,169.05 1976 2,694.89 188.65 Bereskin 1973 $ 1,804.74 $ 216.94 1974 19,633.67 3,655.53 1975 4,041.91 562.12 The appellants, in their respective Notices of Appeal, represented the problem in this way: 1. ... There was no basis presented by the appellants upon which the Minister’s assessment of tax should be disturbed — see P Rawsthorne v MNR, [1981] CTC 2187; 81 DTC 116. ...

As the book value of the property was $7,925 the increase in value is $ 10,075 2. ... As the book value of the buildings was $33,249 the increase in value is $ 22,751 3. ... Calgary Valuation Section M D Skapple March 19/80 SCHEDULE “A” Crescent Bakery Ltd Calculation of Adjusted Net Book Value as at December 31, 1971 Shareholders’ Equity — May 31, 1972 $64,418 Ada: Land — Appraised Value $18,000 — Cost 7,925 10,075 Building — Appraised Value $56,000 — Net Book Value 33,249 22,751 $97,244 Less: CCA Recapture Building 25% of 15,003 3,750 Adjusted Net Book Value — December 31/71 $93,494 Calculation of Liquidation Value Adjusted Net Book Value — per above $93,494 Deduct: Realization Expense Real Estate Commission $4,700 Liquidation loss on inventory receivable, equipment and autos 2,500 Tax on Distribution 1971 UIOH (15% of 64414 + 15003 — 3750) 11,350 18,550 Estimated Liquidation Value — December 31, 1971 $74,944 SCHEDULE “B" Crescent Bakery Ltd Calculation of Maintainable After Tax Earnings 1972 1971 Profit Before Tax 8,838 14,744 Less: Interest Income 337 Sundry Income 141 Rental Income 13,000 Adjusted Income Before Tax 8,360 1,744 Average Profit (10104 + 2) $ 5,050 Tax @ 25% 1,262 Maintainable After Tax Profit $ 3,788 Calculation of Fair Market Value on a Capitalization of Earnings Basis Maintainable After Tax Earnings — $ 3,788 Apply Multiples of 6 & 7 Low High 6 X 3788 22,728 7 X 3788 26,516 Fair Market Value $25,000 Since the results in his report were based on original cost for machinery and equipment, and an agreed upon valued for land and buildings, in Mr Skappie’s view it was reasonably accurate. ...