Corporate/Separate Personality

Seeking to protect herself from being sued by her brother, the taxpayer transferred title to all her real properties for no consideration to corporations under her majority control. She reported rental and business income and expenses from these properties while her accountant did the same in the corporations' returns. The Minister's reassessment included the inclusion in her income of a taxable capital gain on a disposition of the properties to the corporations.

Hogan J. noted (para. 30) that "a transfer of property for no consideration generally results in a rebuttable presumption of a resulting trust" . This presumption was further supported by the fact that, following the transfer, the taxpayer continued to operate the business properties in a personal capacity. All invoices for repairs and renovations, and all rent cheques were addressed to her personally, and all income and expenses went into or came from her personal bank accounts; and the corporations held themselves out to third parties as the property owners only in limited circumstances.

Hogan J. found that the resulting trust was a bare trust, in which the corporations could reasonably be considered to have acted as mere agents for the taxpayer. The trust was therefore not a "trust" for the purposes of the Act, pursuant to s. 104(1). Furthermore, the transfer was not a "disposition" under s. 248(1) because, as per paragraph (e), the taxpayer retained beneficial ownership. The income and expenses on the properties therefore were those of the taxpayer, and she did not realize a capital gain on the transfer.

In rejecting a submission that, in determining whether a corporation was carrying on an active business, account could be taken of the activities of a related corporation, Tardif T.C.J. stated (at p. 1190) that:

"This argument has no basis in law and is completely contrary to the very essence of a corporation, which is an independent legal entity."

The taxpayer, which was a shareholder of a private corporation engaged in land development and to which it made advances, was unable to deduct lossses sustained on its advances on income account. It relied on the activities of the corporation being on income account.

In light of the "fundamental principle laid down in Salomon v. A. Salomon and Company Limited, [1897] A.C. 22 that a corporation is regarded in law as a legal entity with the personality of its own and it is quite distinct from its shareholders" (p. 1592), Christie A.C.J. found (at p. 1596) "that a person who acquires a share in a corporation does not thereby acquire an interest in land that is an asset of the corporation", and accordingly refused to extend the principle in the Fraser case to find that loans made to a real estate company by its shareholder had the same character as if they had been incurred in connection with the business of that company.