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No profit was in fact realized in the first five years of operation, as stated by the respondent in his reply to the notice of appeal The figures are not contested: 4 (f) The farming operation incurred the following farming losses: Year Income Income Expenses Loss Loss 1976 $2,360.00 $ 4,129.69 $ 1,769.69 1977 $2,350.00 $ 7,087.00 $ 4,737.02 1978 $3,760.01 $10,833.20 $ 7,073.19 1979 $1,741.83 $11,396.98 $ 9,655.15 1980 $2,782.55 $15,650.49 $12,867.94 The 1981 taxation year also showed a loss of some $9,000. ...

The lease was for five years plus two five-year options (Exhibit A-1-16 — Lease). ... (Testimony of I Adelson, p 102-103) 3.39 By admission from counsel for the respondent, Mr Adelson’s testimony with respect to the first payment, ie, $15,000 for Granby, was made equally applicable to the other two payments and his testimony was corroborated by Mr David Nussbaum (Testimony of I Adelson, p 107 and testimony of D Nussbaum, p 116). 3.40 By notices of reassessment for its 1976 and 1977 taxation years and by notice of assessment for its 1978 taxation year, the payments were allocated by the respondent in the following manner: Amounts received from the Shopping Centres to be used to reduce rental expenses as follows: Year Granby Granby Terrebonne St-Jérôme Total Total (1) (2) (3) d) 1975 $ 902.00 — — $ 902.00 1976 983.52 $ 4,833.00 — 6,816.52 1977 983.52 7,000.00 $ 1,800.00 9,783.52 1978 983.52 7,000.00 3,600.00 11,583.52 1979 983.52 7,000.00 3,600.00 11,583.52 1980 1,830.60 7,000.00 3,600.00 12,430.60 1981 2,000.00 1,167.00 3,600.00 6,767.00 1982 2,000.00 — 3,600.00 5,600.00 1983 2,000.00 — 600.00 2,600.00 1984 2,000.00 — — 2,000.00 1985 332.32 — — 333.32 $15,000.00 $34,000.00 $20,400.00 $70,400.00 3.41 The basis for the respondent’s treatment of these payments is explained by Mr Roy in his testimony where he states: Q Pourriez-vous expliquer à la Commission sur quels faits le Ministère s’est fondé pour arriver à la conclusion que ces montants étaient en fait une réduction de loyer? ... British Insulated & Helsby Cables Ltd v Atherton, [1926] AC 205; 29. ...

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 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 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)”. ...

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). ...

(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. ...

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. ...

The balance sheets for the years 1977, 1979 and 1981 show the cost of inventory, land, building relating to the farming and laboratory activities as follows: 1977 1979 1981 Farm Lab Lab Farm Lab Lab Farm Lab Lab Inventory $40,435 $ 3,200 $213,039 $ 4,500 $169,634 $ 5,600 Land 54,000 152,000 54,000 152,000 54,000 152,000 Building — — 239,984 429,216 255,287 429,216 Equipment 24,244 143,821 19,393 154,308 23,517 157,965 $118,679 $299,021 $526,416 $740,024 $502,438 $744,781 The laboratory operation of the appellant shows in 1980 and 1981 the following figures (Exhibits A-13 and A-14): 1980 1981 Revenue $913,314 $1,156,955 Net income $190,629 $ 212,488 Moreover, the evidence shows that in the same years the main shareholder of the appellant received bonuses of $150,000 in 1980 and $200,000 in 1981. ... A Well, I’ll just have to try and — you see I’ve been with him for three years and the first year l came up he had like kind of a Mickey Mouse operation. ... Pursuant to the financial statements the land on Charlotte Street is worth $122,000 ($122,000 + 7 $17,428 + $30,000 $47,428). ...