The appellant acquired a farm from one of its shareholders at a price far exceeding the original cost to the vendor. The appellant claimed a capital cost allowance based on the price paid. All the issued shares of the appellant, minus three, were owned by the vendor and his five brothers, with more than one-half of the shares being owned by the vendor and any three of his brothers. Considering that the purchase -by the appellant was not a transaction "at arm's length" but was one between a corporation and one of several persons by whom the corporation was controlled, the Minister rejected the claim and based the allowance on the original cost to the vendor. The appeals to the Income Tax Appeal Board and to the Exchequer Court respectively were dismissed.
Held: The appeal should be dismissed.
Under s-s. (5) of s. 127 of the Income Tax Act, 1948, c. 52, the appellant and the vendor were deemed not to have dealt with each other at arm's length.
Per Kerwin C.J. and Fauteux J.: Since the appellant was controlled by the vendor and three of his brothers, the vendor was one of several persons by whom the appellant was directly or indirectly controlled. Kerwin
C.J. and Taschereau,
Kellock, Fauteux and Abbott JJ.
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Canada (1), Fournier J., dismissing the appellant's appeal from the Income Tax Appeal Board which in turn had dismissed his appeal from the Minister's assessment. A. Laurendeau, Q.C. for the appellant.
D. H. W. Henry and R. G. D6cary for the respondent. :- THE CHIEF JUSTICE:-I am unable to agree that this case is governed by the decision of this Court in Johnston v. Minister of National Revenue (2).
Here there was an appeal to the Income Tax Appeal Board, and, before the Board counsel for the appellant outlined facts to which counsel for the respondent agreed. As stated in the reasons for judgment in the Exchequer Court (1), when the appeal to it came on for hearing, "the facts not being disputed, no. verbal evidence was heard". It appears to me that upon the statement of facts in the Notice of Appeal to the Exchequer Court and the reply to that notice both parties considered that all the evidence that had any bearing upon the matter appeared in what was agreed upon. The parties having gone to trial under those circumstances it must be assumed that there are no other facts upon which the appellant relies, but it is entitled to a decision as to whether upon those admitted facts the purchase by it from one of its shareholders was a transaction "between persons not dealing at arm's length" within s-s. (2) of s. 20 of The Income Tax Act, as enacted in 1949.
In that connection it is necessary to refer to s-s. (5) of s. 127 of the Act by which
This and the other provisions of this sub-section are not exhaustive of the meaning to be attached to the expression
G6rard Miron and any three of his brothers owned more KerwinCJ. than one-half of all the common (voting) shares of the appellant (at least 650 shares) and consequently the appellant was controlled by G6rard Miron and any three of his brothers.
G6rard Miron and his five brothers owned 997 common (voting) shares out of the 1,000 common (voting)
shares of the capital stock of the appellant. G6rard Miron was, therefore, one of several persons by whom the appellant was directly or indirectly controlled.
The appeal should be dismissed with costs.
The jydgment of Taschereau, Kellock and Abbott JJ. was delivered by:- J.: -The appellant, having acquired from one of its shareholders in June, 1949, for a consideration
$600,000, a farm which the said shareholder had in the latter part of 1948 himself purchased at a price of $90,000, claimed capital cost allowance on the basis of the price paid by it. Of a total issue of 1,000 common shares, the said shareholder held 200, another brother 200, a third brother
150, and three other brothers 149 each, and three remaining shares being held by other individuals.
The Minister, in the view that the transaction by which the property had been acquired by the appellant had taken place "between persons not dealing at arm's length" within the meaning of s. 20, s-s. (2) of the statute, rejected the claim and made the allowance on the basis of the cost to the shareholder, in conformity with paragraph (a) of the said subsection.
Both in his reply to the notice of appeal to the Tax
Appeal Board and in his reply to the notice of appeal to the
Exchequer Court (1), the Minister stated that he relied upon the provisions of s. 127, s-s. (5), particularly upon that part of paragraph (a) of the said subsection which provides that for the purposes of the statute, a corporation and one of several persons by whom it is "directly or
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Statutes and regulations cited
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Income Tax Act
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Unresolved citations
- s. (5)
- s. 127 of the Income Tax Act, 1948
- s. (2)
- paragraph (a)