Cartwright v. Canada
T-1939-91
Rouleau J.
30/9/94
10 pp.
Appeal from Tax Court decision upholding Minister's determination benefit conferred on plaintiff from corporation -- Plaintiff creating family trust expressly to accumulate capital for benefit of three children -- Trustees acquiring 99 common shares in Merbriheath, company incorporated at same time -- Plaintiff retaining 100 voting preference shares in Merbriheath -- In consideration for settling income earning shares on trust, plaintiff receiving non-voting junior preference shares from Merbriheath -- Merbriheath acquiring recreational property in 1980 -- As plaintiff personally guaranteeing purchase loan by taxpayer, trust getting prime rate -- Selling property in 1985 and buying second cottage -- Not winterized -- Taxpayer again securing loan -- Merbriheath paying for capital improvements, mortgage interest, property taxes -- Plaintiff paying annual operating, maintenance costs -- After separating from wife in 1986 plaintiff never returning to cottage -- Minister determining benefit conferred on plaintiff qua shareholder as cottage made available for use by plaintiff, family throughout 1985 to 1987, value of which to be included in income -- On appeal to Tax Court, plaintiff arguing no benefit since actual use of property minimal -- Alternatively arguing amounts of benefits excessive given cottage appreciating asset, taxpayer paying maintenance, operating costs, value of personal guarantee to obtain lower loan rate not considered -- Tax Court holding availability for use thing of value; value not dependent on extent of use -- Minister reducing assessments by 10 percent -- Appeal herein based on grounds cottage purchased for legitimate business purpose, personal use incidental; if benefit received, offset by payment of all maintenance, operating expenses of property -- Defendant submitting Merbriheath acquiring property for personal use, no legitimate business purpose underlying decision to purchase -- Submitting since property available to plaintiff on year-round basis, actual use irrelevant, efforts at improving property, securing financing should not form basis for reducing interest rate otherwise applicable -- Appeal dismissed except with respect to 1987 -- Counterclaim dismissed, original reassessments not restored -- (1) Taxable benefit conferred on plaintiff qua shareholder during 1985, 1986 only -- Defendant's contention no business purpose behind acquisition rejected -- Facts demonstrating cottage properties purchased by Merbriheath for purpose of gaining income -- Plaintiff's use of cottages incidental to company's ultimate business purpose in acquiring them, i.e. to purchase and sell recreational property for profit -- At same time cottages available to plaintiff for personal use -- Plaintiff receiving benefit during 1985, 1986 when he and family made use of them during summer season -- Not reasonable to suggest benefit conferred on him during 1987 after separation -- No evidence spouse or adult children using it -- (2) Act not providing formula to calculate value of benefit -- Minister choosing to rely on Reg. 4301, but no statutory direction or requirement to do so -- Youngman, L. v. The Queen (1990), 90 DTC 6322 (F.C.A.) providing guidance as to calculation of value of benefit -- Calculation of benefit received by shareholder using corporation's assets depending on corporation's purpose in acquiring it -- Benefit conferred on plaintiff during 1985, 1986 use of exceptional cottage during summer -- Ideally value of benefit of use of cottage calculated according to rental plaintiff would have been required to pay had he not been shareholder -- Due to unique character of cottages and fact such cottages not rented out for summer season, no evidence of appropriate rental amount -- Court considering how much plaintiff would have paid during 1985, 1986 to vacation in exclusive resort for summer season of twelve weeks -- That is what plaintiff received from company and that is amount properly included in income in accordance with Income Tax Act, s. 15(1)(c) -- Reasonable amount $1,000 per week -- Value of benefit conferred on plaintiff $12,000 for each of 1985, 1986 -- Income Tax Act, S.C. 1970-71-72, c. 63, s. 15(1)(c).