A J Frost:—This is an income tax appeal in respect of the appellant’s 1967 and 1968 taxation years. Upon Notices of Objection duly filed and signed, the Minister of National Revenue confirmed the assessments on the ground that the amount of $12,200 received from Medi-Dent Service Limited (hereinafter referred to as “Medi-Dent”) for dental equipment was not proceeds of disposition of depreciable property within the meaning of paragraph 20(5)(c) of the Income Tax Act and therefore there is no amount required to be included in computing appellant’s 1967 income pursuant to the provisions of subsection 20(1) of the Act; that accordingly for the purpose of paragraph 11 (1)(a) of the Act and section 1100 of the Income Tax Regulations the undepreciated capital cost of the appellant’s property of Class 8 of Schedule B to the Income Tax Regulations has been properly determined in accordance with the provisions of paragraph 20(5)(e); that payments amounting to $3,810.96 made to Medi-Dent claimed as deductions from 1968 income were capital outlays within the meaning of paragraph 121(1)(b) of the Act; that the deductions claimed by the appellant in respect of the said payments would unduly or artifically reduce the appellant’s 1968 income within the meaning of subsection 137(1) of the Act.
The appeal of Albert Selina, a partner of the appellant, was heard at the same time on common evidence. Both appeals came on for hearing on May 27, 1971 at Victoria, BC by the Tax Appeal Board as it was then constituted.
The appellant, a dental practitioner, carried on his profession in the County of Victoria, British Columbia on a partnership basis with Dr Albert J Selina. In February 1967, the partners sold their dental equipment by two bills of sale absolute for $16,000 and $8,400 to Medi-Dent, a company incorporated under the laws of the Province of Ontario, with its head office in Hamilton, Ontario, and immediately thereafter leased back the subject equipment on a rental basis.
The question before the Board is: did the appellant depart so far from what might be regarded as a normal professional business practice that the transaction complained about by the Minister must be regarded as artificial?
Counsel for the respondent contended that the appellant was not entitled to deduct moneys paid to Medi-Dent as a rental expense, as the whole transaction was a sham and a simulacrum; that the whole purpose of the transaction was to artificially reduce income within the meaning of subsection 137(1); that the expense was not reasonable; and that in any event the payments were of a capital nature.
lt was established in evidence that the equipment was sold by the appellant to Medi-Dent at its appraised value in an arm’s length transaction. The evidence further showed that there was not the slightest sign of fraud or improper conduct in anything that the appellant did.
In my opinion, the sale was a well-documented properly negotiated legal transaction between strangers. The appellant was not a shareholder or officer of Medi-Dent and had no financial interest in the company. No evidence was adduced to show any unusual relationship between the appellant and Medi-Dent, or that the value placed on the equipment was unrealistic. The only evidence before the Board as to value was a sworn testimony of the appellant. To suggest, as counsel for the respondent did in his pleadings, that the undepreciated capital cost of the equipment was the fair market value is untenable. The onus of proof concerning value shifted from the appellant to the respondent during the course of the hearing, and the Minister was unable to prove to the Board that he was right in any of his assumptions as to value or otherwise.
I find no ground which would support a conclusion on my part that the transaction between the appellant and Medi-Dent was of an artificial nature.
Appeal allowed.