Search - considered

However, whether or not, as stated in that case, it is to be considered as settled law that an expenditure for a list of customers, which includes file copies of current insurance policies, is nevertheless to be considered as a current operational expense, it is clear that, where the goodwill of the business is included as part of the assets transferred, the transaction is regarded as the sale of a business as a going concern and the whole expenditure is considered to be of a capital nature.... ...

The Issue Should the sum of $7,974.10 received be considered a capital gain or income? ... Comments After studying the facts entered in evidence, the cases cited by the parties Ryall v Hoare: Ryall v Honeywill, 8 8 TC 521; Sherwin v Barnes, 16 TC 278; Wilson v Manooch, 21 TC 178: Tercier et al v MNR, 11 Tax Tax ABC 113: 54 DTC 537; Fengstad v MNR, 13 Tax ABC 299; 55 DTC 449; MNR v Steer, [1966] CTC 731; 66 DTC 5481; Sanders v MNR, 6 Tax ABC 159; 52 DTC 136, and considering the burden of proof, the Board finds, for the following reasons, that the appellant has discharged this burden and that his appeal should be allowed, and the sum of $7,974.10 considered as a Capital gain. ... In fact, dividends received by the taxpayer from the trustee following the bankruptcy of the borrowing company, which operated oil wells, was considered a repayment of capital paid as a guarantor. ...

In 1969, however, the appellant claims that he no longer was racing as a hobby but considered his racing activities as a business which he intended to pursue on a full-time basis as soon as he had the necessary financial support. ... In my view it is not necessary that a person be engaged in some activity on a full-time basis for that activity to be rightly considered as a bona fide business. ... However, automobile racing, which under the circumstances of this appeal can be considered business, is nevertheless far more subject to risk and chance than most other businesses because of its great dependency on the performance of the machinery which operates at unusually high speeds. ...

The appellant considered himself to be a professional trader, and argued that he was entitled to deduct trading losses from his income as a commission salesman. ... Having considered the evidence adduced, I have formed the opinion that the appellant was an employee and not in business for himself. ... The question of the right of a taxpayer to lodge an appeal from an assessment notice issued by the Minister to the effect that no tax Is payable has been before the Courts for some time and now appears to have been settled by a ruling of Gibson, J (now of the Trial Division of the Federal Court of Canada but then of the Exchequer Court of Canada) in Newfoundland Minerals Limited v MNR, as set forth in a Practice Note reported in [1969] CTC 639, which ruling was considered and followed by me in Lazis v MNA, [1970] Tax ABC 605. ...

Since subsection 125(1) deals particularly with small companies, it would be unrealistic, in my view, to require that the appellant's intensity and standard of operation be comparable to that of a large enterprise in the same field before it can be considered as being active. 11 Counsel for the respondent, in presenting his arguments, considered only that part of the appellant's activities which generated income from the rental of the premises. Although, in my view, the leasing of the premises is only part of the appellant's general business, the question as to whether the leasing of the warehouses by the appellant in 1972 can also be considered as part of an active business, as suggested by counsel for the respondent, does arise. 12 In my view, the actual leasing of the warehouses may or may not be an active business, depending on whether the object of the leasing is to receive rental income on a long-term basis of whether it is merely a preliminary step to the eventual sale of the rented property. 13 Had the appellant purchased land, built warehouses thereon and leased the premises on a long-term basis, providing only those essential services which are directly related and incidental to the maintenance of the building and the leased premises, it would, in my opinion, have invested in property, and the revenue it would have derived therefrom would necessarily have been merely rental income and not profit from an active business within the meaning of section 125 of the Act. ...

Nor, I believe, would anyone disagree with the proposition that a person may invest his money in a business in order to derive a profit from its active operation or he may choose to invest in property and passively derive revenue from rentals or from interest on his investment. 13 However, the Income Tax Act has made an important and consistent legal distinction between income from a business and income from investment or property, and it seems to me that this basic distinction is an essential consideration in determining whether or not the appellant falls within the meaning of subsection 125(1) of the Income Tax Act. 14 In my opinion investment in movable or immovable property on a long-term basis cannot in general be considered to be a profit-producing business enterprise. ... Although it is always unwise to generalize, I think it is safe to say that most hotels and motels are considered business enterprises only because they provide in their public areas a variety of services that are very different from merely providing a roof over one's head, and go well beyond maintenance of the building and structural upkeep of the leased premises. ... Nor did it take part in the promotion of the Plaza, other than by displaying a sign indicating the name of the shopping centre which, in my view, is certainly not sufficient to be considered as administrating or operating a shopping centre. 18 On the basis of the facts, I can only conclude that the appellant was engaged in the leasing and the normal maintenance of rental property which, in my opinion, does not constitute a business. ...

On the facts of that case it was held that the separate incorporation of the companies was dominated by considerations other than tax advantages, and that the tax advantages were not the main reason for the separate incorporation. 16 From the facts of the appeal before us it is not that clear that the separate existence of Wee Folks and ABC Diaper Service Inc is dominated by considerations other than tax advantages. 17 Even if one were to conclude that the reasons advanced by the appellant for the separate existence of the two companies could be considered a sound business arrangement, it still does not eliminate the possibility that one of the main reasons for the separate existence of the two companies is to pay less taxes than otherwise payable. 18 It is clear from the evidence that ABC Diaper Service Inc had no hard assets whatever, no plant, no equipment, no office, no employees, all it had was a list of clients whose laundering was done by Wee Folks and all the administrative work and bookkeeping was done by the personnel of Wee Folks. ... Although there may exist some business advantages to be gained by their separate existence, there also exist some major fiscal advantages which, in my opinion, were seriously considered in making that arrangement. 19 In Annex B of Exhibit R-13, the following is recorded: Taxable Income 1967 1968 1969 1970 "WEE" $25,573.00 $19,461.00 $ 5,415.00 $33,992.00 "ABC" 24,439.00 35,874.00 28,457.00 25,353.00 "MONTREAL BABY"-- 4,607.00 16,962.00 21,167.00-------------------------------------------------- $50,012.00 $59,942.00 $50,834.00 $80,512.00 Additional Taxes Income taxable at 40% instead of 11% if subsection 138A(2) is applied on above income for 1967–68–69–70: 1967 $50,012.00 35,000.00---------- $15,012.00 @ 29% $ 4,353.00 1968 $59,942.00 35,874.00---------- $24,068.00 @ 29% 6,980.00 1969 $50,834.00 35,000.00---------- $15,834.00 @ 29% 4,592.00 1970 $80,512.00 55,159.00---------- $25,353.00 @ 29% 7,352.00---------- TOTAL TAXES INVOLVED $23,277.00 20 If subsection 138A(2) were applied and ABC Diaper Service Inc were to be associated with Wee Folks, the total tax payable would then be $23,277. On the basis of the evidence adduced, this amount of additional tax in relation to the income of each of the companies for 1967, 1968, 1969 and 1970 is sufficiently substantial, in my opinion, to have been considered by the appellant as one of the main reasons for the separate existence of the two companies. 21 On the evidence before us, I find that the appellant did not satisfy the Board pursuant to subsection 138A(3) that none of the main reasons for the separate existence of ABC Diaper Service Inc and Wee Folks was to reduce the amount of tax that would otherwise be payable. 22 The appeal is therefore dismissed. ...

It should be noted, moreover, that after the 1967 judgment of Jackett, J in Hansen, supra, the Supreme Court of Canada clearly laid down in 1968 that a lump sum payment made once and for all cannot be considered a payment of alimony. ... However, it has long been established that it is not necessary for alimony to continue throughout the recipient’s lifetime in order to be considered alimony (No 67 v MNR, supra). Moreover, if a payment is made in order to prevent payment of alimony in the future, it may be considered to be compensation in lieu of the alimony lost by the spouse or, as was stated by Mr St-Onge in David Franklin v MNR, supra, to “discharge the husband to support his wife, which is the reverse of alimony.” ...

It could be six, eight or ten years before the non-capital loss of 1975 was exhausted and the issue of this bonus in 1974 could be considered, which would then be too late to apply the 1974 non-capital loss to 1973 income. ... He considered the quantum he was to get was fair compensation and he knew the appellant could pay it in mid-1974. ... The profit picture is usually considered before making a bonus. He would have preferred if the resolution had been passed before the year-end with the quantum to be decided after the year-end. ...

In addition, sales within that area of property zoned other than agricultural were not considered comparable. ... He considered four sales as the best comparables. His sale #7 was zoned agricultural and it was nearly the same size as the subject lot. ... Counsel also submitted that the Crown’s valuator considered properties which were not comparable to the subject property and ignored others which were comparable. ...