Barjo Investments Ltd. v. Minister of National Revenue, (1975) 7 N.R. 134 (FCA)

• Judge: Jackett, C.J., Thurlow and Ryan, JJ.
• Court: Federal Court of Appeal (Canada)
• Case Date: January 14, 1975
• Jurisdiction: Canada (Federal)
• Citations: (1975), 7 N.R. 134 (FCA)

Barjo Inv. Ltd. v. MNR (1975), 7 N.R. 134 (FCA)

MLB headnote and full text

Barjo Investments Ltd. v. Minister of National Revenue

Indexed As: Barjo Investments Ltd. v. Minister of National Revenue

Federal Court of Appeal

Jackett, C.J., Thurlow and Ryan, JJ.

January 14, 1975.

Summary:

This case arose out of the assessment of five corporations by the Minister of National Revenue as associated corporations and the corporations were taxed accordingly. The principal shareholder of an active business corporation was responsible for the incorporation of four separate corporations. All the shares of each of the four corporations were purchased for $3.00 by four children of the shareholder. The active corporation, a realty developer and the four new corporations entered into a partnership agreement to sell and develop realty. In 1964 the active corporation declared a net income from the partnership of $159,000.00 and each of the four new corporations declared a net income from the partnership of $35,000.00 each. The Minister of National Revenue pursuant to s. 138A(2) of the Income Tax Act deemed all five corporations to be associated corporations and assessed tax accordingly. On appeal to the Tax Appeal Board the assessment of the Minister was affirmed.

On appeal to the Trial Division of the Federal Court of Canada the appeal was dismissed and the decision of the Tax Appeal Board was affirmed.

On appeal to the Federal Court of Appeal the appeal was dismissed and the judgment of the Trial Division was affirmed.

S. 138A(2) of the Income Tax Act states:

"138A(2) Where, in the case of two or more corporations, the Minister is satisfied (a) that the separate existence of those corporations in a taxation year is not solely for the purpose of carrying out the business of those corporations in the most effective manner, and (b) than one of the main reasons for such separate existence in the year is to reduce the amount of taxes that would otherwise be payable under this Act the two or more corporations shall, if the Minister so directs, be deemed to be associated with each other in the year."

Income Tax - Topic 6803

Computation of tax - Rules for corporations - Associated corporations - Whether the main reason for the existence of several separate corporations was for the reduction of taxes - The principal shareholder of an active corporation was responsible for the incorporation of four separate corporations - All of the shares of each of the four corporations were purchased for $3.00 by four children of the shareholder - The active corporation, a realty developer, and the new corporations entered into a partnership agreement to sell and develop realty - In 1964 the net income of the active corporation from the partnership was $159,000. and each of the four new corporations had a net income of $35,000. from the partnership - The Minister of National Revenue pursuant to s. 138A(2) of the Income Tax Act deemed all five corporations to be associated corporations and assessed tax accordingly - The Federal Court of Appeal affirmed the decision of the Minister of National Revenue - The Federal Court of Appeal stated that the evidence justified an inference that one of the main purposes of the separate existence of the five corporations was for the reduction of taxes.

Words and Phrases

Associated corporations - The Federal Court of Appeal discussed the meaning of the words "associated corporations" as found in s. 138A(2) of the Income Tax Act.

Statutes Noticed:

Income Tax Act, R.S.C. 1952, c. 148, sect. 138A(2) [see above].

Counsel:

H. Buchwald, Q.C., for the appellant;

G. Ainslie, Q.C. and R. Pyne, for the respondent.

This appeal was heard by the Federal Court of Appeal at Ottawa, Ontario on January 14, 1975. Judgment was delivered by the Federal Court of Appeal on January 14, 1975.

The judgment of the Federal Court of Appeal was delivered by THURLOW, J.