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The appellant succeeded in borrowing $96,900 from City Savings and Trust Company and $30,000 from N & L Enterprises Ltd on the security of mortgages of the two rental properties. ... In his Reply to the appellant’s Notice of Appeal, the respondent states, inter alia: (a) that the Appellant borrowed monies from N & L Enterprises Ltd and City Savings and Trust Company, claimed interest deductions and had interest disallowed in accordance with the following amounts: N & L City Savings & Enterprises Trust Loan $30,000.00 $96,900.00 Processing Fee 6,700.00 Net proceeds of Loan $30,000.00 $90,200.00 Loans to Neifer’s Companies $13,269.60 $53,832.93 % of Funds Reloaned to Companies 44.23% 59.68% Interest Claimed — 1970 $ 5,264.03 $11,761.00 Interest Disallowed — 1970 $ 2,754.38 $ 7,018.96 Interest Claimed — 1971 $ 5,400.00 $13,566.00 Interest Disallowed — 1971 $ 2,288.42 $ 8,096.19 (b) that only a portion of the said monies borrowed from City Savings and Trust Company and from N & L Enterprises Ltd was reloaned by the Appellant and forwarded for use by Neifer Installations (1968) Ltd and Neifer Installations Ltd; (c) that only the interest on that portion of monies borrowed from City Savings and Trust Company, and from N & L Enterprises Ltd by the Appellant and which was reloaned by the Appellant to Neifer Installations (1968) Ltd and Neifer installations Ltd was disallowed. ...

Contentions For the appellant: (a) From the notice of objection: — The Minister has added $12,169.47 to my taxable income which is alleged to have been profit from engaging in betting on horses. — They have not recognized any losses for my betting that had no return. ... For the respondent: From the reply to notice of appeal: — During his 1975 and 1976 taxation years, and for a number of years prior to these years, the appellant carried on business as a bookmaker, without reporting any income from that source when he filed his income tax returns; — The appellant was convicted of criminal offences relating to betting and bookmaking; — during his 1975 and 1976 taxation years, the appellant made profits in the amount of $12,169.47 from his bookmaking activities in each of the said taxation years; — at all material times, the appellant failed to maintain proper books, records and accounts; — the appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in, the making of statements or omissions in his income tax returns as a result of which the tax that would have been payable by him for his 1975 and 1976 taxation years, if the tax had been assessed on the basis of the information provided in the returns, was less than the taxes payable by him for those years. ... This document was entered as Exhibit R-7 and is reproduced in total: GEORGE WILSON Schedule of Determination of Income For the Years Ended December 31, 1975 and 1976 Assets 1974 1974 1975 1976 House — 2436 Cadillac................. $ 5,000.00 $ 5,000.000 $ 5,000.00 Toronto-Dominion Bank — Wyandotte & Ouellette — #2626 6,178.50 1,690.62 6,109.21 Term Deposit — 263162............... 11,000.00 11,000.00 11,000.00 — 0094AL0064940 10,000.00 10,000.00 Toronto-Dominion Bank — Tecumseh & Aubin — 1175 330.85 4,899.00 4,832.25 — 103210 1,363.94 950.58 477.36 — 103302 7,053.97 7,576.38 11,434.10 Royal Bank of Canada — Tecumseh & Albert — 2048 1,570.08 1,821.52 998.04 — 3218 4,655.09 4,389.97 7,712,68 US — 1088 300.58 355.64 384.54 PCA — 576-402-4 (16.10) 113.13 607.84 Motorco Truck Division (Windsor) Credit Union — 22773 10,207.88 4,650.22 6,571.47 — RRSP 2,900.00 — Term Deposit 8,000.00 8,000.00 1968 Dodge 4,000.00 4,000.00 4,000.00 1975 Dodge 5,638.40 5,638.40 Furniture 4,906.00 4,906,00 4,906.00 Total Assets........................ $56,550.79 $74,991.46 $90,171.89 Liabilities................................. ...

ILLUSTRATION OF THE INCOME OF A POLICE OFFICER ABSENT DUE TO OCCUPATIONAL DISABILITY Officer injured 52 weeks (col 1) (col 2) (col 3) (col 4) (col 5) Situation — 1974-1977 Suggestion Situation 1978 Officer on Agreement of Department Reductions Reductions duty — 1976 Situation of Revenue — Article XX T-4 — TP-4 52 weeks Deductions on Quebec $22,445 Situation — Deductions on $8,945 $ $ $ $ $ Salary 22 445,00 8 945,00 8 945,00 2 834,75 19 610,25 (22 445- (996,63- 13 500) 1 838,12) Source deductions Quebec Pension Plan 169,20 169,20 143,01 33,03 136,17 MUC pension plan 1 626,40 1 169,20 1 652,59 1 762,57 (136,17) UIC 187,20 187,20 134,17 42,52 144,68 Health program contributions 235,00 235,00 101,20 — 235,00 Provincial tax 3 017,68 3 017,68 487,50 — 3 017,68 Federal tax 2 712,89 2 712,89 324,97 — 2 712,89 Total: 7 948,37 7 948,37 2 843,44 1 838,12 Net salary received from employer 14 496,63 996,63 6 101,56 996,63 (8 945- (14 496,63- 7 948,37) 13 500) Benefits payable under the Workmen’s Com pensation Act — 13 500,00 13 500,00 13 500,00 Tax repayments — 5 104,93 — — Total net income 14 496,63 19 601,56 19 601,56 14 496,63 Source: Table of source deductions for 1978 1981.11.16 3.11 In paragraphs 5, 6, 7, 8, 9, 10 and 11 of his pleading, counsel for the respondent provided a good summary of the facts explained by witnesses regarding the 1978 amendments. ... IV — STATEMENT OF EARNINGS AND DEDUCTIONS (I-4, p 5) FOR 1978 A B C ($) ($) ($) Income — Salary 20 488,30 3 097,43 17 390,87 — Overtime 473,98 — 473,98 Total: 20 962,28 3 097,43 17 864,85 Deductions — Federal tax 2 272,86 588,92 1 683,94 — Quebec tax 2 785,23 686,24 2 098,99 — MUC pension plan 1 458,92 — 1 458,92 — QPP 169,20 — 169,20 — Unemployment insurance 187,20 — 187,20 — Health program contributions 145,80 4,94 140,86 Total: 7 019,21 1 280,04 5 739,11 A: Provisional totals as of December 29, 1978 B: Adjustments to totals reflecting the application of article XX C: Totals according to the pay record for 1978 entered on 1978-T-4 and TP-4 slips and not including the benefits payable under the Workmen’s Compensation Act 1981.11.16 16. ... Is it then $19,041.09, or $20,962.28 — $1,921.19, as the appellant claims? ...

The partners’ shares were as follows: Charles Laurin $ 3,385.18 Jacques $ 6,358.88 Jean-Guy $10,907.00 Laurent ”’ $10,429.25 Hubert ”’ $10,561.80 Jean-Pierre ”’ $10,447.65 These amounts, derived from the partnership distribution, were included by the respondent in the income of the appellant and his brothers respectively. 3.9 The respondent included in each partner’s income an amount of $1,843.10, one-sixth of $11,058.77, which the partnership had earned and not reported. ... The changes are underlined: Salary Share: Charles Laurin $ 3,385.18 $ 3,385.18 Jacques ”’ $ 6,358.18 $ 6,358.18 Jean-Guy $ 5,407.00 $10,907.00 Laurent $ 4,929.25 $10,429.25 Hubert ”’ $ 5,061.80 $10,561.80 Jean-Pierre ”’ $ 4,947.65 $10,447.65 $30,089.06 $52,089.76 The salaries totalling $30,089.06 were deducted from the total income of $52,089.76, leaving assets of $22,000.70 in the partnership. ... This notice shows that the appellant was assessed as follows: Salary: $ 4,947.65 Share: $ 5,500.00 Unreported income: $ 1,843.10 $12,290.75 The Board’s decision is that the appellant’s income should be computed thus: Salary: $ 4,947.65 Profit share: $ 5,509.76 $10,457.41 5. ...

He filed a schedule of farm losses for the years 1969 to 1976 inclusive which reads as follows: 1A ARTHUR BELL HOLDINGS LTD SCHEDULE OF FARM LOSSES 1969 — 1976 Year Available Date loss Ending Farm Carried 30 June Loss Available 30 June Loss Claimed Forward 1976 Expired To 1969 $ 7,500.00 $ 5,000.00 $ 2,500.00 $- $2,500.00 1970 15,848.67 5,000.00 10,848.67 — 10,848.67 1971 21,299.12 5,000.00 16,299.12 — 16,299.12 1972 38,363.04 5,000.00 33,363.04 33,363.04 — 30 June 1977 1973 37,828.26 5,000.00 32,828.26 32,828.26 — 30 June 1978 1974 28,115.00 28,115.00) — — — 1975 15,309.33 15,309.33) (1)- — — 1976 74,650.42 74,650.42) — — $238,913.84 $143,074.75 $95,839.09 $66,191.30 $29,647.79 (1) Treated as a business loss, but Revenue Canada has already served notice that 1974 loss is being disallowed and treated as restricted farm loss. ... I quote from a decision of my colleague, Mr D E Taylor, in James R Leslie v MNR, [1982] CTC 2233; 82 DTC 1216, at 2244 and 1225 respectively: It would appear from Moldowan (supra) that “start-up costs” as a deduction may not be limited to just the restricted farm loss — the Court speaks of.. deduct the full impact.. ... The “start-up costs” for farming which this taxpayer is entitled to deduct as operating “losses” are founded in the appropriate classification into which he falls, as outlined in Moldowan (supra) — Class (2), restricted to $5,000 per annum. ...

It was on the basis of these that the appellant and the respondent were able to establish the following income: 1976 — $ 5,307.34 1977 — $ 9,015.39 1978 — $11,858.33 The returns were then completed for the years in question (Exhibits 1-1, 1-2 and I-3). ...

Chairman of the pediatrician’s Reunification Committee in Quebec City. 3.03 For the years concerned the appellant claimed the following expenses in computing his net income, part of which were allowed by the respondent and part disallowed: Claimed Allowed Disallowed 1972 $6,430.79 $4,367.92 $2,062.87 1973 $7,735.99 $5,171.86 $2,564.13 1974 $9,672.73 $4,484.64 $5,188.09 The following is a breakdown of these amounts for 1974: 1974 Claimed Allowed Difference General expenses Association $ 913.50 $1,003.00 $ (89.50) Travel, conferences, entertainment and subscriptions $4,089.59 293.51 $3,696.08 Legal fees and collection Telephone $ 379.33 $ 279.30 $ 100.03 Medicaments and instruments $ 400.75 205 97 $ 194.78 $5,783.17 $1,881.78 $3,901.39 Automobile expenses Gas and maintenance $3,170.73 $2,746.15 $ 424.58 Insurance $ 392.00 $ 392.00 Garage rental and snow removal $ 319.23 — $ 319.23 Parking $ 46.30 — 47.30 Depreciation-Automobile $1,114.02 $1,199.94 $ (85.92)-Snowblower $ 142.80 — $ 142.80 $5,186.08 $4,338.09 $ 847.99 Less Personal use $,296.52 $,735.23 $ 438.71 $3,889.56 $2,602.86 $1,286.70 $9,672.73 $4,484.64 $5,188.09 3.04 The appellant produced an impressive number of receipts to prove these expenses. ... There are — I’m sorry — there aren’t just presents! When I receive a colleague at our home, if I decide to buy him a drink, I think that out of regard or gratitude for what he’s done, or if he comes to see me or consult me, then I’m entitled to deduct it. ... Act — case law — comments 4.1 Act The statutory provisions relevant to this case are paragraph 18(1)(a) and section 67 of the Income Tax Act. ...

Net Farming Loss $13,210.45 Less: Net Garage Profit 390.05 Farming Loss to be carried forward to future years $12,820.40 $12,820.40 Fixed Assets and Depreciation Balance Oct. 31/62 Additions Depreciation Oct. 31/63 Garage, — Equipment $2,388.91 $ 477.78 $ 1,911.13 Automotive 2,517.76 503.55 2,014.21 4,906.67 $ 981.33 $ 3,925.34 Farm, — Land $12,500.00 $12,500.00 Building 7,500.00 $ 750.00 6,750.00 Equipment 7,860.00 1,572.00 6,288.00 $27,860.00 $2,322.00 $25,538.00 Rent Garage — AD Rosene, Cam rose $ 1,740.67 Farm — D McLeod, Viking 500.00 Total $ 2,240.67 Interest Garage, — Provincial Treasury Branch $ 48.29 Farm, — Provincial Treasury Branch 21.32 Mr Boyd, Edmonton, Alberta 574.36 $ 643.97 Assets Sold to Company by shareholder Assets of Jubilee Esso Service $16,816.75 20 head of cattle 3,000.00 $19,816.75 Shares Issued for Cash — October 10, 1962 Mr Alfred D Rosene, Cam rose, Alberta 20 shares Mrs Dorothy E Rosene, Cam rose, Alberta 1 share In 1971 the appellant changed accountants as he found the first firm “too expensive” and hired a Mr Loren Blain, APA, who continued to complete Jubilee’s returns until 1974 when the company was wound up. In the balance sheet of Jubilee for the taxation year 1963, there is an item referred to as: Deferred Liabilities Loans payable — shareholders $15,686.97 The appellant cannot explain this item. ...

Argument The relevant points highlighted by counsel for the appellants, which had been brought out in evidence, were: (For Finch) — Phillip Moubray knew the orchard business; — He had some indication that the land would be suitable; — He acquired some equipment; — He cleared about 25 to 30 acres; — Soil tests were done; — The climate was good; — The irrigation costs discouraged him from continuing in the grape business; — He planted some 4,000 Scotch pine trees; — He fenced the property; — He ran some cattle on it; — There was little speculation on land going on in the area at the time of acquisition; — He wanted to try something different that selling real estate, and going back into the vineyard business was natural; — The land still remains undeveloped. (For McKinley) — Purchased a farm and potential orchard; — It had substantial timber on it; — Some limited logging was done; — Property was fenced; — Some cherries were planted as an experiment; — Irrigation was improved; — Ran some cattle; — Property held for some 14 years; — The land still remains to this day in its same undeveloped condition. (For Peachland) — Thirty-eight (38) acre operating farm; — Two thousand fruit trees; — Of three (3) managers, only one had been satisfactory; — Trees were being destroyed by animals; — The land and farm remain relatively unchanged since the sale. ...

If the provisions of section 7 relating to exemptions for children can be applied herein, the total of such exemption amounts to $106,000 as hereunder set out, and therefore no estate tax is payable: Sheal Richard Green $10,000 + $17,000 $27,000 David Zalman Green $10,000 + $13,000 $23,000 Charles Leslie Green $10.000 + $11,000 = $21,000 Cheryl Adrienne Green $10.000 + $ 8,000 $18,000 Coleman Oscar Green $10.000 + $ 7,000 = $17,000 Total $106,000 The pertinent portion of section 7 of the Estate Tax Act, RSC 1970, c E-9, reads as follows: 7. (1) For the purpose of computing the aggregate taxable value of the property passing on the death of a person, there may be deducted from the aggregate net value of that property computed in accordance with Division B such of the following amounts as are applicable: (c) in respect of each child of the deceased who survives him, the lesser of (i) the value of any property passing on the death of the deceased to which the child is the successor that can, within six months after the death of the deceased or such longer period as may be reasonable in the circumstances, be established to be vested in the child for his benefit indefeasibly, or subject to defeasance only in the event of his death before attaining such age, not exceeding forty years, as is specified in the will or other instrument under or by virtue of which the property so passing became vested in him, except any such property comprising a gift described in paragraph (b) or (e) or consisting of a pension or compensation described in paragraph (f) or (g), and (ii) $10,000 plus (A) where the child was, at the time of the death of the deceased, wholly dependent upon the deceased or his spouse, or both, for support by reason of being infirm, an amount equal to the product obtained when $1,000 is multiplied by the number of full years in the period commencing on the day of the death of the deceased and ending on the day on which the child will, if ever, become 71 years of age, or (B) in any other case, the amount, if any, by which (I) the product obtained when $1,000 is multiplied by the number of full years in the period commencing on the day of the death of the deceased and ending on the day on which the child will, if ever, become 26 years of age, exceeds (11) [not applicable]. ...