Irving Oil Ltd., Canada V., [1991] 1 CTC 350, [1991] DTC 5106

Mahoney, J.A. (Hugessen and MacGuigan, I].A., concurring):—

Introduction

It is said that there is now about $200,000,000 at stake in this appeal from a reported decision of the Trial Division ([1988] 1 C.T.C. 263; 88 D.T.C. 6138) which allowed the respondent's appeal against assessments under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") in respect of its 1971,1972,1973,1974 and 1975 taxation years. The Minister had disallowed the cost of crude oil purchased by the respondent from its wholly owned Bermuda subsidiary [1] to the extent that the price paid the subsidiary exceeded the cost of the crude oil to the subsidiary. The subsidiary purchased Middle East crude oil for delivery at Saint John, New Brunswick, from Standard Oil of California (hereafter Socal”) at Socal’s cost, a base price of about $2.24 per barrel, and immediately resold it to the respondent at a base price of about $2.90 per barrel, [2] which the learned trial judge found was the fair market value of the crude oil delivered to Saint John. It is the 664 differential that is in issue.

The evidence at trial consisted of a lengthy statement of agreed facts, fully recited in the judgment below, and testimony of witnesses, both expert and otherwise, called only by the respondent, whom the learned trial judge found at 271 (D.T.C. 2143) “all to be worthy of belief.” He iterated and reiterated his finding of credibility as to particular witnesses throughout his reasons. Documents were exhibited to the statement of agreed facts and introduced through witnesses, as to which he said at 272 (D.T.C. 6144): "Unless adverse reference be made herein specifically to either of those qualities, the Court is accepting the relevance and truth of the contents of the documents exhibited herein at trial." Since he did not have occasion to make such adverse reference, it is to be assumed that he considered all of the documentary evidence both credible and relevant.

Rather than setting forth his findings of fact in a distinct part of his reasons for judgment, the learned trial judge chose to deal with the Minister's assumptions seriatim reciting such findings of fact as he found necessary to dispose of each. In setting out in narrative form the facts I consider material, I do not believe that I have adopted any factual conclusion not in accord with either undisputed evidence or his express finding.

The Facts

a. The 1957 Agreement and its Renegotiation

Prior to 1957, Irving Oil Company Ltd., a company wholly owned by Kenneth Colin Irving and members of his immediate family, marketed petroleum products in Eastern Canada. It had no refining capacity. It purchased the finished products it sold. In 1957, the Irving family and Socal entered into agreements having two major objectives: construction of a refinery at Saint John to supply finished products to Irving Oil Company Ltd. and the exclusive supply of the refinery's crude requirement by Socal from the production which it was obliged to take as a result of its interest in Arabian American Oil Company. [3] Irving Refining Ltd. was incorporated to build and own the refinery. Socal acquired 51 per cent of the voting stock of Irving Refining Ltd. and the Irving family acquired 49 per cent. [4] Socal purchased 49 per cent of the voting stock of Irving Oil Company Ltd. Socal and the Irving family agreed to exercise equal voting rights in each company.

The supply agreement between Socal and Irving Refining Ltd. was expressed to run for a term of 20 years from a date which, in the event, turned out to be March 23, 1960. It provided for a renegotiation of the base price as of its tenth anniversary. The renegotiation began in 1968 and was influenced by a number of new factors, among them the advent of supertankers, the need for a deep water terminal at Saint John to accommodate them and the desirability of expanding refining capacity. The Irving family also insisted on sharing equally in production and transportation profits.

The concept appears to have been that the oil in issue moved from the point of its acquisition by Socal to its ultimate consumers in Eastern Canada in a continuum through production, transportation, refining and marketing stages. Each stage was considered to be a distinct profit centre. The profits ascribed to production and transportation were the difference between the cost and the fair market value of the crude delivered to Saint John. Under the 1957 agreement, Socal received all of the production and transportation profits. While the ultimate source of those profits lay in the price paid by Canadian consumers for the finished products, Socal was not a Canadian resident and those profits were, therefore, not subject to Canadian income tax. In consider

ing the demands of the Irving family that it participate in those profits, Socal was anxious to avoid exposing its remaining share to Canadian income tax.

Socal and the Irving family also appear to have accepted that the latter had an option to provide one-half the transportation of the refinery's crude requirement from the Persian Gulf to Saint John although the evidence falls short of establishing precisely what the terms of the option were prior to its being defined on closing of renegotiations by execution of a number of agreements on August 9, 1971. [5] There is no evidence at all of a pre-existing commitment to share production profits.

The bargaining between Socal and the Irvings was protracted and difficult. There is no doubt that they dealt at arm's length.

An internal Socal document entitled "Proposed Transfer Price into Eastern Canada", [6] circulated April 29, 1971, suggested a proposal to be put to the Irving family.

Problem

The negotiated price under the Irving Contract (i.e., $2.25 effective 6-1-71) is 60€ to 654 below indicated competitors’ pricing as shown by attachment I. [7]

This $2.25 price coupled with announced product price increases will result in substantial Canadian tax (i.e. estimated at 864 per barrel of crude).

Proposed Changes

1. Organize a new trading company to be owned by Irving Refining Company and Irving Oil Company. As one of its functions, the new company would acquire crude oil and provide transportation to Irving Refining Company. The new company may have other functions such as the acquisition of refined products for Irving Oil Company and may be party to oil exchange transactions. The new company would acquire 100% of its crude oil from Socal in accordance with the terms of the most recent contract negotiated with the Irving interests (i.e., $2.19 per barrel).

2. The new trading company would sell to Irving Refining Company at a competitive landed price. For example, at the present time, this would be on the order of $2.85, a 60¢ uplift. Such landed price would be subject to future adjustment from time to time as competitive conditions change. Alternatively, the price to Irving Refining could be structured at $1.80 FOB plus AFRA, [8] which currently would also be $2.85.

Comments and Relative Economics

We think the above recommendations will best protect the past, current and future tax positions of both Socal and Irving and will result in the following economics if the price to the refinery is increased 604 per barrel:

		1972 per bbl.—Refinable Crude
	Presently Proposed Contract		Alternate Arrangements
	Socal	Irving	Socal	Irving
Refining & Marketing
Before Tax	.86	.86	.56	.56
Canadian Tax	(.43)	(.43)	(.28)	(.28)
	.43	.43	.28	.28
Joint Trading Company*
	243	.43	58	58

♦Dividends received by a Canadian corporation from a foreign corporation are not taxable if the Canadian corporation owns over 25% of the foreign corporation shares.

It may be of interest in weighing the above recommendation that this is the way Creole (Esso) sells to Imperial. Creole sells to a foreign trading company wholly owned by Imperial (because of a 30% minority interest in Imperial) at a price which gives the offshore trading company 204 per barrel profit even at the latest Venezuelan prices. This arrangement has existed for several years without challenge by the Canadian Government despite the fact that, as noted above, the dividends are tax free to Imperial.

On May 5, 1971, the addressee of that memorandum, Mr. R.T. Savage, reported to Socal’s Chairman and directing mind, Mr. O.N. Miller. [9]

During my visit to Saint John Monday, May 3, I discussed with Mr. Irving the proposal regarding our crude contract which you, Scott Lambert and I discussed on Friday, April 30. In general, Mr. Irving was quite receptive to this proposal. He saw the many obvious benefits, and I am sure he will agree to an arrangement in this general form, unless he receives strong objection from his legal counsel.

Then, following the annual meeting May 25, at which he, Savage, had been elected Chairman of the Board of Irving Oil Company Ltd., he again reported to Miller: [10]

Mr. Irving advised that he would very much like to implement our crude contract along the lines recently discussed with him, provided Mr. Dunley, his legal counsel did not raise serious objections. Mr. Irving stated that Mr. Dunley is considering the problem and will be in touch with our Tax Counsel to discuss the matter in more detail.

On July 23, Savage reported to Miller on the outcome of meetings with the Irvings and their respective legal counsel stating, in part, [11]

As a result of these discussions, agreement has been reached to establish immediately an offshore trading company that will be owned 50% each by Irving Oil Ltd. and Irving Refining Ltd.. The function of this company will be to acquire crude and transportation for the refining company and to acquire products and transportation for the oil company. Other functions will be delegated to this company as the occasion arises. As a result of this, Socal will enter into a contract with the joint trading company for crude supplies to Irving Refining.

As an outcome of this meeting, our crude contracts can now be finalized, pending only working out the implementation of details with respect to this joint trading company.

At that juncture, incorporation of a company in either Bermuda or the Bahamas appeared probable. On July 28, 1971, Irving Refining Ltd. and Irving Oil Company Ltd. each acquired a 50 per cent interest in an existing company incorporated by an Act of the Bermuda legislature. That company, sometimes referred to as " Bomag" in the statement of agreed facts and other evidence, will hereafter be referred to as“Irvcal".

As of August 9, 1971, the agreements whereby Socal sold crude at cost to Irvcal [12] and rvcal sold it to Irving Refining Ltd. at its fair market value were executed. [13] As the learned trial judge aptly found at 292 (D.T.C. 6158), they provided for " the metaphysically sequential, if apparently simultaneous, shifts of ownership'at the ship's permanent hose connections at the loading port'."

b. The Activities of the Bermuda Subsidiary

A retired Socal executive, Martin McKee, became president of Irvcal November 1, 1971. He was its only full-time employee during the relevant period. He was paid an annual salary of $30,000 (U.S.). The only other employee was a part-time secretary. Office space was obtained in March 1972, and McKee took over the clerical functions from Socal in April. Irvcal's operating expenses aggregated $273,869 (U.S.) during the years 1971 to 1975 inclusive, about 23/1,000 of one per cent of its $1,208,839,840 sales to the respondent. It made 141 oil purchases during those years, all for resale to the respondent, whereof 118 were conducted pursuant to the contracts described above. Of the remaining 23, 15 were cargoes of Venezuelan crude for the manufacture of asphalt and four each were cargoes of heating oil from Venezuela and Aruba. Irvcal never took possession of the oil and never insured it.

The following table compares the modus operandi under the 1957 agreement and the 1971 agreements:

In 1973, a new company was formed, acquired the assets of Irving Oil Company Ltd. and was merged with Irving Refining Ltd. to form the respondent. Irvcal became its wholly owned subsidiary. In the result, the Irving family owns 51.1 per cent of the respondent and Socal the balance. By agreement, they exercise equal voting rights.

Conclusions of the Trial Judge

As stated, the learned trial judge approached his task by dealing seriatim with the Minister's assumptions pleaded in the statement of defence. The key assumptions of fact, which he held to be unsupported by the evidence, were designated (e), (f) and (h).

(e) The transactions or agreements whereby Irvcal was interposed in the chain of acquisition of crude oil by the [respondent](or its predecessors) from Socal, whereby it purported that Irvcal was acquiring the oil from Socal and then selling it at a profit to the [respondent], was done but [i.e. only] for a fiscal purpose, lacked a bona fide business purpose and were shams, and in fact and substance the purchase and sale of crude oil was between the [respondent] and Socal.

(f) The profits reported by Irvcal from its purported sales to the [respondent], including any interest earned thereon, were in substance the profits of the [respondent], which were transferred to Irvcal by way of inflated costs of goods sold to be returned to the [respondent] by Irvcal as tax free dividends.

(h) Irvcal acted as a mere paper routing intermediary between the [respondent] and Socal;

The learned trial judge clearly regarded the fact, as he found it, that the production and transportation profits had been earned outside Canada, to be highly material. It is a recurring theme throughout his decision. It is the principal basis on which he distinguished the present case from Indalex Ltd. v. The Queen, [1988] 1 C.T.C. 60; 88 D.T.C. 6053. Vid. pages 296-97 (D.T.C. 6161).

The learned trial judge's determinative conclusions as to the relationship between Irvcal and the respondent, were made in disposing of assumption (e). They included (at 290-91 (D.T.C. 6156-57)):

None of Irvcal's directors was resident in Canada. Illustrative of the [respondent's] lack of control over Irvcal is the evidence of frequent disputes between them over demurrage charges arising from ships’ laytimes. Irvcal's directors never permitted dividends to be paid until cash became available and never in order to enable the [respondent] to pay Irvcal for crude oil supplied under their supply contract. Indeed, Irvcal did not even time its dividend payments to the [respondent] so as to help the [respondent] to make its payments to Irvcal for crude oil deliveries. Irvcal’s surplus funds were invested in eurodollars by Mr. McKee to whom the directors accorded broad authority to do so, . . .

. . . Irvcal did perform the functions for which it was created by serving to garner the non-Canadian profits of production and transportation of the crude oil in question. It also did a minor amount of business outside of its contractual affairs with the [respondent]. It sold crude oil to the [respondent] at competitive fair market prices. It disputed demurrage with the [respondent], and operated at arm's length from the [respondent]. It cannot be regarded as the [respondent's] agent in carrying out its business operations, described more fully above.

He also found it (at 280 (D.T.C. 6149)) ” noteworthy that, insofar as the evidence discloses, neither Arthur L. Irving nor his father sought or received any Canadian income tax advice regarding that Irvcal proposal. "That Irvcal proposal" is what was outlined in the document entitled “Proposed Transfer Price into Eastern Canada" recited above.

Most importantly, in my view, relying on the evidence as to the hard bargaining between Socal and the Irving family and the consistent and only expert evidence he had, he concluded at 286 (D.T.C. 6153) that" the prices paid by Irving Oil Ltd. (and its predecessors) to [Irvcal], for purchases of crude oil during the period from August 9, 1971, to December 31, 1975, were reasonable in comparison to the prices paid during the period between arm's length vendors and purchasers.” In the result, he held, at 292 (D.T.C. 6158) "assumption (e) is, on the evidence, not made out; it is, in fact, demolished.”

His conclusion [ibid] as to assumption (f), based mainly on the findings of fact as to assumption (e), illustrates his preoccupation with the relevance of the notion that the production and transportation profits were earned outside Canada.

That all-pervasive fact of the [respondents] paying competitive market prices for its crude oil takes the field immediately to contradict the Minister’s now discredited assumption about" inflated costs of goods.” It is true that the [respondent's] share of dividends from Irvcal was tax free, because Irvcal's dividends were generated in a state, Bermuda, whose legislature does not levy taxes on such dividends. But, the point is that the profits and any interest earned thereon, whence came the dividends, were generated in Bermuda where the [respondent] did not transfer them to Irvcal. Far from it. Those profits were realized by Irvcal outside of Canada before the [respondent] could do anything with or about them. Irvcal, not the [respondent], earned the profits, despite the metaphysically sequential, even if apparently simultaneous, shifts of ownership "at the ship's permanent hose connections at the loading port".

On the basis of the same findings of fact, the learned trial judge summarily dismissed assumption (h) [ibid]:

In light of the evidence reviewed and the findings made throughout the earlier passages of these reasons, the assumption (h) is without basis. Irvcal’s operations, business purpose, services, its manifestations of independence and in effect its very raison d'être, lift it far out of, and above, the insubstantial pejorative by which the Minister characterizes it.

Bona Fide Business Purpose

The limited role of an appellate court reviewing findings of fact by a trial judge was definitively stated in Stein v. The Ship "Kathy K”, [1976] 2 S.C.R. 802; 62 D.L.R. (3d) 1 where, after a review of the authorities, it was said at 808 (D.L.R. 5):

These authorities are not to be taken as meaning that the findings of fact made at trial are immutable, but rather that they are not to be reversed unless it can be established that the learned trial judge made some palpable and overriding error which affected his assessment of the facts. While the Court of Appeal is seized with the duty of re-examining the evidence in order to be satisfied that no such error occurred, it is not, in my view, a part of its function to substitute its assessment of the balance of probability for the findings of the judge who presided at the trial.

Later, on the same page, the criterion was stated in terms of whether the trial judge "was plainly wrong in any of the relevant findings of fact made in the course of his reasons for judgment". That standard applies as well to findings of fact based on opinion evidence. (N.V. Bocimar S.A. v. Century Insurance Co., [1987] 1 S.C.R. 1247; 76 N.R. 212.)

The evidence upon which the trial judge inferred that Irvcal had a business purpose aside from tax avoidance strikes me as a very dubious basis for such an inference. While none of Irvcal's directors were Canadian residents, all were nominees of the Irving family or Socal, if not the respondent. Whether the dividend policy was a matter of substance or merely cosmetic, it can be but tenuously related to any purpose that generated the funds with which the dividends were paid. What business purpose of Irvcal could conceivably have been served in disputes over demurrage? On whose behalf was it disputing demurrage? The ships were Socal owned or chartered. McKee's Eurodollar activities were carried out in total conformity to the scheme envisaged inter- nally by Socal well before he had been hired and Irvcal organized. An internal memorandum dated August 26, 1971, suggested ” appropriate banking arrangements for [Irvcal]". [14] While finding that the respondent was not directing the affairs of Irvcal, the learned trial judge appears not to have considered the possibility that Socal, rather than its retired employee, McKee, was calling the shots.

The significance attached to the absence of evidence that the Irvings had sought Canadian tax advice seems to me totally misplaced. Perhaps they found adequate the comfort to be taken from the fact that if Socal succeeded in sheltering its share of the production and transportation profits diverted through Irvcal to the respondent, their share would be equally sheltered.

As to the respondent and Irvcal operating at arm's length, a conclusion that a parent and its wholly owned subsidiary deal at arm's length is unusual. That said, the appellant expressly declined to challenge that finding of fact and, indeed, relied on it to distinguish this case from Spur Oil v. The Queen, [1982] 2 F.C. 113, reversing [1981] 1 F.C. 461. Leave to appeal refused [1981] 2 S.C.R. xi.

In my respectful opinion, the learned trial judge was plainly wrong in finding, on a balance of probabilities and having regard to the totality of the evidence, that Irvcal had a bona fide business purpose. I, therefore, propose to approach the remaining issues on the basis that what was concocted and carried out was a tax avoidance scheme, pure and simple, as conceived in the so-called “ Irvcal proposal”, recited above.

Be all that as it may, a transaction or arrangement does not fail effectively to avoid tax simply because it lacks a bona fide business purpose. That heresy was put to rest by Estey, J., in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; [1984] C.T.C. 294; 84 D.T.C. 6305 at 314-15 (D.T.C. 6322; S.C.R. 575 ff.).

I would therefore reject the proposition that a transaction may be disregarded for tax purposes solely on the basis that it was entered into by taxpayer without an independent or bona fide business purpose. A strict business purpose test in certain circumstances would run counter to the apparent legislative intent which, in the modern taxing statues, may have a dual aspect. Income tax legislation, such as the federal Act in our country, is no longer a simple device to raise revenue to meet the cost of governing the community. Income taxation is also employed by government to attain selected economic policy objectives.

Parliament presumably had a policy objective, obviously unrelated to the raising of revenue, in maintaining, until 1976, the deduction from taxable income of dividend income received by a corporation from a foreign affiliate provided by subsection 113(1) of the Act. [15]

The Tax Avoidance Scheme

The basis in law for the reassessment, as pleaded by the Minister, was set forth in his assumption (k).

(k) The amounts disallowed on reassessment were:

(i) outlays or expenses not made or incurred for the purpose of earning income within the meaning of section 12(1)(a) of the former Income Tax Act and section 18(1)(a) of the amended Income Tax Act;

(ii) outlays or expenses in the circumstances within the meaning of section 12(2) of the former Income Tax Act and section 67 of the amended Income Tax Act;

(iii) disbursements or expenses that if allowed, would unduly or artificially reduce the income of the [respondent] within the meaning of section 137(1) of the former Income Tax Act and section 245(1) of the amended Income Tax Act." [16]

Those provisions follow.

18. (1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;

67. In computing income, no deduction shall be made in respect of an outlay or expense in respect of which any amount is otherwise deductible under this Act, except to the extent that the outlay or expense was reasonable in the circumstances.

245. (1) In computing income for the purposes of this Act, no deduction may be made in respect of a disbursement or expense made or incurred in respect of a transaction or operation that, if allowed, would unduly or artificially reduce the income.

In view of the finding of fact that the price paid by the respondent for the crude was its fair market value, a finding not open to question on this appeal, the learned trial judge did not err in holding that the 664 difference was paid by the respondent for the purpose of earning its income and that it was reasonable in the circumstances. It follows that he did not err in concluding that neither paragraph 18(1)(a) nor section 67 provided a basis for the reassessment.

While the appellant did not abandon the argument that the learned trial judge had erred in not finding the interposition of Irvcal to be a sham, it did not press that with any vigour. I would simply say that I fully agree with the learned trial judge that it was not a sham in the sense defined by Lord Diplock in Snook v. London & West Riding Investments, Ltd., [1967] 1 All E.R. 518 at 528. As the trial judge found at 290 (D.T.C. 6156-57): " the actions of the parties and the documents executed by them do not mask, but correspond with, the very legal rights and obligations upon which the parties embarked.”

The appellant also argued that the agreements, executed August 9, 1971, merely coopered up an already existing agreement in a fashion designed to render the difference between the cost of the crude and its fair market value non-taxable. The evidentiary basis for the argument is found in the opening words of the Irvcal proposal, which was dated April 29, 1971: "The negotiated price under the Irving Contract (i.e., $2.25 effective 6-1-71)." (Appeal Book, Vol. 18, page 2713.)

The evidence of both Irving and Socal witnesses was consistent. Neither considered that it had a deal until the contracts were signed. Their evidence was found to be entirely credible. The trial judge was entitled to prefer it.

As the appellant argued, there remain two questions which I would phrase as follows:

1. Did the learned trial judge err in concluding that the taxability of Irvcal’s profits in the respondent's hands turned on the fact, as he found it, that they had not been earned in Canada?

2. Did the learned trial judge err in concluding that the case at bar is not distinguishable from Spur Oil, supra, and, it follows, err in failing to find subsection 245(1) of the Act applicable?

As to the first, the respondent says it misstates what the trial judge really decided. It is clear that, in the scheme of the Income Tax Act, taxability does not turn on the question "were the profits earned in Canada?" but, rather, "whose profits were they?" If they were the respondent's, they were taxable by Canada wherever they had been earned. The learned trial judge found, as a fact, that the production and transportation profits were Irvcal's. In my opinion, it is not a conclusion which was plainly wrong. The finding that they had been earned outside Canada was not irrelevant to it.

As to the second, Irvcal, having no bona fide business purpose, was nothing more than a vehicle for tax avoidance. The transactions through Irvcal were artificial.

Omitting irrelevant complexities in the corporate structure of the Murphy Oil family, in Spur Oil, supra, the appellant, Spur, was a wholly owned subsidiary of Murphy (Canada) which, in turn, was a partly owned subsidiary Murphy (U.S.). Tepwin, a Bermuda company, was wholly owned by Murphy (Canada). In issue, in respect of Spur's 1970 taxation year, was the 274 difference between the $1.98 per barrel paid to Murphy (U.S.) by Tepwin for crude oil and the $2.25 per barrel Spur paid Tepwin for the same oil. None of the parties dealt at arm's length. It was admitted that $2.25 was below the then current fair market value in arm's length transactions.

In order to come within the terms of subsection 245(1), a transaction or operation must have the effect of unduly or artificially reducing income; the artificiality of the transaction or operation itself does not determine the issue. Heald, J.A., speaking for the Court in Spur Oil, supra, at page 124, said:

. . . the finding of artificiality in the transaction does not, per se, attract the prohibition set out in subsection [245(1)] of the Income Tax Act. To be caught by that subsection, the expense or disbursement being impeached must result in an artificial or undue reduction of income. "Undue" when used in this context should be given its dictionary meaning of "excessive". In light of the Crown's concession . . . that under the Tepwin contract the appellant would be paying slightly less than fair market value, it cannot be said that the Tepwin contract and the Tepwin charge result in an excessive reduction of income. Turning now to artificial, the dictionary meaning when used in this context is, in my view, "simulated" or“ fictitious”. On the facts in this case, the reduction in the income of the appellant can, in no way, be said to be fictitious or simulated.

It is likewise here. Since the respondent paid Irvcal fair market value, it cannot be said that payment resulted in an excessive reduction of income. There was nothing fictitious or simulated in the reduction of the respondent's income as a result of paying Irvcal 664 more per barrel of crude than the crude cost Irvcal. It was very real.

The ratio in Spur Oil, supra, was reached on the basis that the result of a non-arm’s length transaction was the result that would have been reached at arm's length. The appellant's submission that the fact, as found by the trial judge, that the respondent and Irvcal dealt at arm's length distinguishes this case from Spur Oil is therefore singularly unpersuasive.

Conclusion

The Supreme Court of Canada's decision in Stubart, supra, reaffirmed that it remains the law of Canada that

Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.

.R.C. v. Duke of Westminster, [1936] 1 A.C. 1 at 19-20.

On the facts as found herein, it is my opinion that the tax avoidance scheme contrived in the present case did not offend the Income Tax Act.

I would dismiss this appeal with costs.

Appeal dismissed.