The Chairman (orally):—This is an appeal by the taxpayer, Bernard R Axmith, from a reassessment by the Minister for the taxation year 1967 involving two specific sets of transactions. One transaction involved the Northville Explorations Limited and Copperville Mining Corporation Limited which resulted in a reassessment adding $36,734.24 to the income of the appellant. The second item dealt with the sale of shares of North American Research and Development Corporation for the sum of $81,899.57, which said sum was also added back to the income of the appellant in the 1967 taxation year.
After the opening of the hearing counsel on behalf of the appellant indicated that the appeal with respect to Northville Explorations Limited and Copperville Mining Corporation Limited was being abandoned and accordingly the appeal with respect to the sum of $36,734.24 is thereby dismissed.
The second matter has taken up a considerable period of time and is not an easy matter to resolve. I am grateful to both counsel for the manner in which the hearing has been conducted and the assistance they have given to the Board in helping it to reach its final decision.
The facts briefly are that Bernard R Axmith, also known as Robert Axmith, is a shoe merchant carrying on a long-established family business at 117 Yonge Street in the City of Toronto. He is now president of the company and apparently attained that position as a result of succeeding his father, who is now apparently deceased. He gave evidence on his own behalf in this appeal, which was the only evidence called on behalf the appellant. This is not unusual in a case such as this. He stated that all his life he has been in the shoe business and like most people has dealt to some extent in stocks, starting as he said when his father started and later purchasing stocks on his own behalf.
It was indicated that in 1965 the appellant promoted two companies, Northville and Copperville, which I had previously referred to as being disposed of. In this he was guided by the advice and direction of his brother-in-law, one Sam Freeman, originally described as a financial consultant but later, I think as the evidence unfolded, more accurately described as a mining promoter.
Freeman had also advised the appellant’s wife in the purchase of some Bank of Nova Scotia shares which she purchased in 1968 or 1969 and subsequently sold. The facts from which this reassessment arose occurred when Freeman advised the appellant to buy some shares in a corporation that was then known apparently as Utah Fortuna Gold Mines Limited, which subsequently changed its name to North American Research and Development Corporation. The appellant’s evidence was that Freeman told him to buy these shares as they would be a good investment, to put them away, and I take from that the appellant was to buy them and hold on to them until such time as they appreciated in value.
He had been dealing in previous promotions with a broker by the name of Lars Hagglof and Company Limited, a broker in the City of Toronto. He says he ’phoned his broker and told him to buy him $1,000 worth of Utah Fortuna. He says that in the course of discussion about this stock he had been advised by Freeman that they were acquiring certain rights in the Northwest Territories. So far as he knew they had acquired those rights but he really had no knowledge, according to his evidence, of what or where this speculative stock was that he was purchasing. This took place, according to the evidence, in April 1967, as shown by the evidence of Mr Axmith and also by respondent’s Exhibit R6, which is a copy of the account of Robert Axmith on the ledger sheet of the Lars Hagglof and Company. The shares cost a total of $1,075 and Exhibit R6 shows that $1,163 was paid and the balance was subsequently transferred by a journal entry, according to the evidence of Mr Helliker called on behalf of the respondent on the account of the broker. As Mr Helliker says, it would be assumed that the difference was the brokerage fees or the charges on the purchase. Mr Axmith indicated in his evidence that he did not know very much about the operations of the stock market, that he did not know the difference between listed and over-the-counter stocks. He said that he simply ’phoned his broker and asked him to purchase shares for him. Within a couple of months, it would appear from the evidence, he was called by his broker and exhorted to sell these shares. He said that he was reluctant to do so and that he did not discuss it with his brother-in-law who had originally advised him. After the broker being persistent for awhile he did agree to sell the shares and approximately 28,900 shares were sold which resulted in the figure with which we are concerned in the reassessment. The total came to a figure less than $81,899.57 but the evidence of Mr Helliker is that the difference was probably as a result of adjustments between United States and Canadian funds. I find as a fact, since that evidence is not contradicted, that the amount for which the shares of Mr Axmith were sold resulted in his receiving this amount of money.
The Minister subsequently reassessed the taxpayer and in doing so relied on several assumptions. It is not surprising that the Minister would be drawn to this large profit because the facts surrounding it were facts that would certainly at first glance lead one to suspect that the taxpayer had done more than make a very fortuitous profit in a short period of time. He has been associated in two previous promotions with Freeman. He had been an officer and director of two companies for a period of one day. He said that, as soon as he found out he was an officer and director of Colleen Copper Mines Limited and V I “Production and Arts Limited”, he resigned because he could not afford the time. He says Freeman was the man that put him on as a director.
The other facts surrounding it which formed the basis of the assumptions made by the Minister, as shown by the evidence of Mr Helliker, are that certain persons named in the Reply obviously conspired to promote the shares of what became North American Research and Development Corporation, and to do this promotion in the United States. The indications in the assumptions are that certain people in the year 1967 acquired a large number of shares of Utah Fortuna Gold Mines Limited. One group headed by Edward White acquired 1.2 million of approximately 1.8 million outstanding shares. Another group, including Freeman, acquired 750,000 shares. The allegations in the assumptions by the Minister are that both these groups intended to promote trading in the shares to increase the over-the-counter price of shares; in other words, to create a market whereby they could resell their shares at a substantial profit.
There is no doubt in my mind thai that is probably correct because certainly on the shares that the appellant acquired he made a substantial profit. There is not much doubt in my mind as to the manner in which the promotion was to take place because subsequently the United States SEC obtained an interim injunction which stopped trading in these shares and apparently litigation is still pending.
All of these things may be very true, and I suspect that for the most part of the facts as set out in the Minister’s assumptions are true, but the question before me is: how do they, if they do, affect the appellant? If I start with the various assumptions, beginning on page 4 of the Reply and following through, many of the assumptions are based on facts that would not be within the knowledge of the appellant, if I accept his evidence as it was presented in the witness-box at this hearing.
He comes before this Board and says that he had nothing other than tips from his brother-in-law to buy these shares; that he was never an officer or a director of North America; that he was never privy to its internal information or operations; that he was never a broker of any of the shares or never a promoter of any of the shares; that he had no knowledge of the United States proceedings except that he did learn that trading had been stopped. Of course this took place subsequent to his sale of the shares, the stock order apparently being effective as of July 20, 1967.
He was recalled at the request of counsel for the respondent and indicated that he had never been served with any document with reference to the Securities and Exchange Commission action in the United States, and so far as he knew he was never a defendant.
If I believe the evidence of this witness I think he has sufficiently rebutted the assumptions of the Minister so far as they relate to matters that would be within his knowledge. In my view he cannot be held taxable on assumptions made from information solely within the knowledge of persons other than himself and to which he was not privy and when there is no evidence that he had such knowledge. I have observed him in the witness-box and have considered his demeanour in answering questions. I have considered the considerable interest he has in the outcome of this appeal. There are some discrepancies in his evidence. He said in examination-in-chief that he was not a promoter of Copperville or Northville, and yet in the prospectus which was filed in each case he signed or was shown as the promoter, although it is also pointed out that in the prospectus, I suppose in compliance with the requirements of the Ontario Securities Commission, paragraph 3(b) it states:
(b) Promoter—there is no promoter as such but Robert Axmith, the vendor (see paragraph 12 herein) may be regarded as the promoter
In my view the appellant gave his evidence in a manner that would lead me to the conclusion that he was not an extremely brilliant man capable of falsifying and hiding the truth from this tribunal or any other. He struck me as a man who was what he said he was, a businessman, inexperienced in dealing with over-the-counter stocks, in dealing with stock markets generally. I accept his evidence unhesitatingly that he received this tip from his brother-in-law; that he ordered the shares through his broker; that he did not know where the shares were being purchased although the evidence of the respondent’s witness indicated the shares came from a brokerage house in the United States; that subsequently at the insistence of his broker he authorized the sale of 28,900 shares and that those shares were sold as set out in respondent’s Exhibit R6; that it was all done without any complicity on the part of the appellant in the actions of Freeman or any other of the persons named in the assumptions of the Minister.
I accept the proposition that the onus is upon the appellant taxpayer in these cases to satisfy the Board that the assumptions are wrong, but I do not believe that this is intended to mean that it is an onus that can never on the evidence of the appellant himself be re- butted where the Board is prepared to accept that evidence as factual, to accept the veracity of the evidence as given.
Therefore on all the evidence, the evidence of the appellant himself, the evidence of Mr Helliker and the evidence of the exhibits filed, with respect to the assessment of $81,899.57 and with respect to the North American Research and Development Corporation shares sale the appeal should succeed and the matter be referred back to the Minister for reassessment on that basis. In summary the result of this appeal is that it will be allowed in part and referred back to the Minister for the deletion of the sum of $81,899.57.
Appeal allowed in part.