Canada v. Hughes & Co. Holdings Ltd.
T-503-90
Muldoon J.
15/6/94
18 pp.
Appeal from Tax Court judgment allowing appeal from assessment re: 1985 -- MNR disallowing small business deduction on basis defendant's income Canadian investment income as principal purpose of business to derive income from property, defendant not employing more than five full-time employees throughout its 1985 taxation year -- Defendant alleging active business consisting of property management and farming interests; during 1985 employed more than five full-time employees -- Defendant carrying on property ownership and management business -- Employing full-time property manager, full-time bookkeeper secretary, permanent part-time secretary, full-time maintenance man, full-time caretaker, regular part-time help in summer and constant full-time supervision by president, Mr. Hughes -- Income Tax Act, s. 125(7)(a) definition of "active business carried on by corporation" excluding any business carried on by corporation other than specified investment business -- S. 125(7)(e)(i) definition of "specified investment business" including business of leasing property principal purpose of which to derive income from property unless "corporation employs in the business throughout the year more than five full-time employees" -- Defendant alleging could have "more than five full-time employees" by supplementing five with few part-timers -- Appeal allowed -- (1) In reply to tax consultant's submission on defendant's behalf plaintiff writing to defendant's representative "since the taxpayer employed only 5 full-time employees" -- Not unpleaded admission Mr. Hughes full-time employee as merely repeating tax consultant's assertion -- Any admission unconscious or inadvertent -- Such alleged admission neither pleaded in Tax Court nor asserted in statement of defence -- Defendant's letter not formulated by defendant's solicitors -- Defendant not misled by plaintiff's inadvertent phraseology -- (2) Defendant's president and director not full-time employee of defendant within contemplation of s. 125(7)(e)(i) -- As s. 248 definition of "employee" including officer, i.e. president, nothing preventing president from being employee -- Based on telephone records, visits to Brandon (plaintiff's place of business), Mr. Hughes' working time for taxpayer amounting to part-time, not full-time -- Annual honorarium falling far below full-time remuneration for services -- Mr. Hughes practising law full-time in Winnipeg in 1985 -- Employed for irregular hours of duty; services not required for normal work day, week, month or year -- Regularly employed to work fewer than regular working hours of each working day -- (2) "More than five full-time employees" meaning no fewer than six full-time employees or at least six full-time employees -- R. v. Shenowski, [1932] 1 W.W.R. 192 (Man. K.B.) applied -- S. 125(7)(e)(i) not even contemplating part-time employees -- No reference to any employees other than full-time employees -- Income Tax Act, S.C. 1970-71-72, c. 63, s. 125(7)(a) (as am. by S.C. 1984, c. 45, s. 40), (e)(i) (as am. idem).