Agency

Lamarre J. found that the taxpayer could not hold a vehicle operating permit as a mandatary for his corporation, because doing so would have violated Quebec law. (A mandatary in civil law is analogous in to an agent.) Therefore, even though the corporation received all revenue and paid all expenses connected with the taxpayer's use of the vehicle, the Minister was correct in including the revenue and expenses in the taxpayer's income instead.

The Quebec trucking industry was regulated through a system under which each holder of a trucking permit would list a "priority" vehicle, and not be allocated jobs for non-priority vehicles until the priority list for all holders was exhausted. By holding a permit for a second vehicle personally, the taxpayer was able to register a second "priority" vehicle for the same business.

Lamarre J. reasoned that because it would have been illegal for the corporation to hold the operating permits for two vehicles on the priority list, the taxpayer could not have held his permit as agent for the corporation - and therefore must have held it in his personal capacity instead. Lamarre J. stated (at para 11):

[A]n agent cannot have a legal capacity that exceeds that of the principal.

The proper interpretation of the agency agreement between the taxpayer, a Canadian-resident corporation, and its Puerto Rican subsidiary, was that the subsidiary was the taxpayer's agent for carrying on business in Puerto Rico with respect to the start-up period of the business. Given that there was no ambiguity in the agreement, it was not necessary to consider any extrinsic evidence of the parties' intention, and the fact that the Puerto Rican subsidiary represented in its tax returns to the Puerto Rican authorities that it was carrying on the business itself did not alter this conclusion.

Before going on to find that the taxpayer was carrying on business by virtue of an arrangement under which he purchased a non-exclusive licence to exploit futures trading software and then entered into a "Agency Agreement" pursuant to which an entity connected with the licensor of the software to him traded in futures contracts on his behalf, Bell J. stated (at p. 2651):

"The law is clear that whenever an agent carries on business on behalf of a principal, the principal is deemed to be carrying on that business."

The taxpayer purchased conditional sales contracts from Canadian General Motors franchise dealer and was reimbursed by General Motors of Canada Limited ("GMCL") under a "rate support program" for the amount by which the principal or face amount of the purchased contracts exceeded their discounted value. In later taxation years, the rate support program amounts were paid by GMCL directly to the dealers. The taxpayer brought the difference between the discounted amount and the face amount of the contracts into its income over the life of the contracts.

In finding that the rate support program amounts were paid by the taxpayer as agent for GMCL, Rip TCJ. noted ( at p. 1856) that although the dealer did not know of the agency relationship "the agency relationship does not rely on the knowledge by third parties of its existence or its specific terms", and that the taxpayer had no chance of profit and no risk of loss with respect to the program.

In order to implement an income splitting strategy, the taxpayer opened up trading accounts with brokerage firms which were guaranteed by his wife acting on his instructions; his wife, following his instructions, opened up brokerage accounts at the same firms which he guaranteed; and a family corporation opened up accounts with the brokerage firm which accounts were guaranteed by him and her. A hedging strategy then was implemented under which short positions taken in common shares in one account would have a corresponding long position (e.g., through the purchase of warrants and treasury bills) in another account. Teskey TCJ. found that the taxpayer's wife, whose only action was to open up the accounts in her name and to guarantee the other accounts, and who did so on instructions from the taxpayer, was the taxpayer's agent, as was the corporation, so that losses purportedly realized by the taxpayer were offset by gains in other accounts.

A flow-through share agreement between the taxpayer and a mining company established an agency relationship for the purpose of incurring CEE on behalf of the taxpayer only, and did not have the effect of making the taxpayer carry on the mining operation in question. Accordingly, expenses incurred on her behalf pursuant to the agreement did not qualify for a deduction under section 9.

Before going on to find that a corporation owned by an Indian band did not earn income as agent for the band, Bowman TCJ. stated (p. 1236):

"Where a corporation holds itself out to third parties as owning its property and business, kept separate financial records, files its own corporate income tax returns and acts like any other corporation that is independent of its shareholders, it would require extremely cogent evidence to establish that all along it was really just an agent or trustee for its shareholders on the basis of an unwritten oral understanding or assumption on the part of some of the shareholders or directors."

He went on to find that because one of the reasons for its incorporation was a belief of the band council that banks would not deal directly with the band because of the band's lack of separate legal personality, the band could not be assumed to be borrowing through the corporation as agent in light of the principle that a person cannot do by an agent what he cannot do himself.

A wife was found not to have engaged in transactions (which were part of an arrangement for income splitting with her husband) as agent for her husband given that she was motivated by a desire for more income for herself and was a more enthusiastic participant in the transactions than her husband.

Lamarre Proulx TCJ. accepted evidence that the taxpayer had received income under contracts as mandatary for its wholly-owned subsidiary.

The individual shareholder of a nominee corporation holding title to real estate was treated for U.S. tax purposes as the beneficial owner of the property. "It seems to us that the genuineness of the agency relationship is adequately assured, and tax-avoiding manipulation adequately avoided, when the fact that the corporation is acting as agent for its shareholders with respect to a particular asset is set forth in a written agreement at the time the asset is acquired, the corporation functions as agent and not principal with respect to the asset for all purposes, and the corporation is held out as the agent and not principal in all dealings with third parties relating to the asset."

The Court affirmed a finding that sales by the taxpayer, which was a U.K. special-purpose manufacturing subsidiary of a U.S. corporation, were made by it as agent for the U.S. corporation.