Tax Court of Canada Judgments

Date: 20000113

Docket: 1999-1429-IT-G

BETWEEN:

SAFETY BOSS LIMITED,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Bowman, J.T.C.C.

[1] These appeals concern two assessments under Part I of the Income Tax Act for the 1991 and 1992 taxation years as well as an assessment under Part XIII of non-resident withholding tax and penalties.

[2] In 1991, the appellant paid a bonus to its president and 99% shareholder, Mr. Michael Miller, who at the time was a non-resident of Canada. In 1992, it paid a fee to Mr. Miller's non-resident company. The Minister of National Revenue disallowed a portion of the bonus paid to Mr. Miller and of the fee paid to his company on the basis that these amounts were in excess of the amounts that would have been reasonable had the parties been dealing at arm's length. In addition, the Minister treated the amount disallowed as a benefit conferred on Mr. Miller and accordingly imposed non-resident withholding tax and a penalty. The issue is whether the Minister was right in doing so.

[3] The appellant carries on the business of oilfield firefighting and the capping of blow-out oil and gas wells. Its fiscal period is August 31.

[4] Michael Miller is an oilfield firefighter. At the time of the trial he was 55 years old. During the years in question he was the president and chief executive officer of the appellant, as well as the owner of 99% of the shares. He bought the company from his father in 1979. It had been a family company since 1956. He has had many years of experience in the oil and gas business and in fighting oil well fires throughout the world. One example of a large fire that he worked on was the blow-out at Lodge Pole which burned for 67 days. In 1983, he fought two fires on offshore rigs off the coast of Iran.

[5] After Mr. Miller's acquisition of Safety Boss in 1979, the company went through a period of extreme financial difficulty for about 10 years, probably as the result of the National Energy Program, which had a devastating effect on the oil and gas industry in western Canada. Mr. Miller was forced to sell all of his oil and gas reserves and borrow money simply to keep the business afloat.

[6] The business of fighting oil and gas well fires is dangerous in the extreme. It requires extraordinary skill, endurance and courage. Mr. Miller is the one person who predominantly contributed to the success of the company.

[7] The following paragraphs in the notice of appeal are admitted by the respondent:

6. Miller had over 30 years of oilfield experience including significant experience outside Canada and in particular, in the Middle East.

7. Miller had developed skills and a personal reputation worldwide as a person capable of dealing with the most adverse oil and gas fires. His reputation was particularly strong in the Middle East because of work he had done in that region.

8. At all relevant times, Miller's duties in connection with the Business included undertaking all strategic planning, direct responsibility for negotiating all contracts with customers and for maintaining good relationships with suppliers, responsibility to ensure that the contracts of the Business were completed to an appropriate standard, responsibility for management of day to day operations for all oilfield firefighting activities, recruitment of all personnel, purchasing of all supplies necessary to carry out contracts, and arranging for all financial aspects pertaining to the Business.

9. Any goodwill of the Appellant in relation to the Business was attributable to the personal reputation and capabilities of Miller.

[8] In addition to the above admissions, the following allegations in the notice of appeal are substantially admitted by the respondent and, to the extent that they are not admitted, they have been amply proved in the viva voce evidence:

10. At the end of the 1991 war between Iraq and Kuwait ("Gulf War") the retreating Iraqi troops exploded and ignited 731 oilwells in Kuwait, creating an ecological disaster of a magnitude several times greater than anything previously experienced by mankind.

11. This carnage created by the retreating Iraqi troops had been anticipated by the Kuwaiti government. By virtue of Miller's prior personal contact with officials of the Kuwait Oil Company, his reputation and the work previously undertaken by him, on February 28, 1991, the Government of Kuwait entered into an agreement with Miller's company, the Appellant, to extinguish oilwell fires which were expected to be ignited by the retreating Iraqi troops. Shortly after the termination of the Gulf war, the Appellant began performing its contractual duties in Kuwait.

12. The work undertaken by the Appellant and its staff in Kuwait was incredibly difficult and dangerous. Miller provided the extraordinary motivational leadership which sustained the employees of the Appellant and enabled the Appellant to perform and complete its contract in Kuwait.

13. The unique hazardous circumstances of the work provided Miller an opportunity to apply certain original concepts he had devised for battling oilwell fires. This innovation allowed the Appellant to extinguish more fires than any other team active in the Kuwait operation.

[9] Part of the evidence of devastation created by the retreating Iraqi troops by their blowing up and igniting oil wells was adduced by means of photographs and videos. It is difficult to describe the magnitude of the disaster, or of the task that was undertaken by the appellant under the leadership of Mr. Miller.

[10] Three other oilfield firefighting companies, all Texas based were involved: the famous Red Adair's company, Boots & Coots and Wild Well Control. In addition to all of the other difficulties that he encountered, Mr. Miller had to put up with the arrogance and bullying of the Texans, who resented the intrusion of a Canadian company on what they regarded as their exclusive bailiwick.

[11] There is no doubt that the contract with Kuwait was obtained through Mr. Miller's initiative and contacts, as well as his reputation and skill. There is equally no doubt that his innovations contributed substantially to the success of the company. Some of these innovations included mobile monitoring sheds, huge fire trucks, the use of foam or water as opposed to explosives, a crane attached to mobile vehicles for use in inserting a "stinger" into a burning oil well, the purpose of which was to draw off and ultimately extinguish the burning oil, and the design of a wide tracked vehicle, the purpose of which was to separate burning wells from those that had been extinguished. It was in part as the result of Mr. Miller's innovations that the appellant capped 180 wells — more than any one else, including the three Texas companies, even though the appellant arrived several weeks after the Texans. Mr. Miller's operation was fundamentally different from that of the Texas companies and this may account for his success, as well as for the fact that, after the fires were all put out, the appellant was asked to remain in Kuwait to do clean up work, whereas the Texans were not. In fact, the fires were put out in a matter of months, not, as anticipated originally, years.

[12] It is clear on the facts that the substantial earnings of the appellant from this work in Kuwait was the direct result of Mr. Miller's leadership, initiative, intelligence and business acumen. In saying this, I do not in any way mean to minimize the skill and courage of the men whom he hired to work under him. The heat, danger, and gruelling conditions under which they all worked were indescribable. It was however, Mr. Miller who inspired them to do so. For this he was awarded the Order of Canada and was named Oilman of the year by Oilweek magazine.

[13] So much then for the somewhat dramatic background to this income tax appeal.

[14] On June 28, 1991 Safety Boss International Limited ("SBIL") was incorporated under the laws of Bermuda. Mr. Miller acquired 11,996 of the 12,000 issued shares. On August 2, 1991 he moved to Bermuda. It is admitted that he became a non-resident of Canada and became a resident of Bermuda.

[15] On August 30, 1991, the appellant declared a bonus to Mr. Miller of $3,000,000, and deducted it in computing its income.

[16] The resolutions of the sole director of the appellant read as follows:

WHEREAS the Company has benefited greatly through the efforts of Michael J. Miller, its President, in obtaining, negotiating and performing the contract with the Government of Kuwait.

AND WHEREAS without the expertise and efforts of its President the Company would not have acquired the contract or have been in a position to benefit from it.

AND WHEREAS the Company wishes to recognize in a tangible way the significant contribution of its President.

NOW THEREFORE BE IT RESOLVED that a bonus in the amount of $3,000,000.00 be declared to Michael J. Miller effective August 30, 1991.

RESOLVED FURTHER that the bonus be paid within 180 days of the fiscal year end of the Corporation.

RESOLVED FURTHER that the bonus be deemed to have been earned by Mr. Miller pro rata from February 28, 1991 to August 30, 1991.

RESOLVED that the officers and directors of the Corporation be and they are hereby authorized to execute and deliver all necessary documents, agreements and other papers which may be requisite or necessary to fulfill the full intent and meaning of this resolution.

Dated at Al Ahmadi, Kuwait, this 30th day of August, 1991.

[17] The recitals are fully supported by the facts.

[18] The bonus was paid to Mr. Miller before the end of December 1991. He declared $2,513,513 as income earned in Canada and subject to Canadian tax, and excluded $486,487. The portion of the bonus declared by him was arrived at as follows:

155 X $3,000,000 = $2,513,513

185

[19] The precise rationale for this particular method of allocation was not made particularly clear. The denominator (185) is roughly the number of days between February 28 and August 30. The numerator (155) is roughly the number of days in 1991 between the February 28 and August 2, the day Mr. Miller became a non-resident. The exact basis of the figure is not particularly germane to this case, but it is noteworthy that the appellant, on the advice of his accountant, Mr. Duncan Moodie, adopted a most conservative position and, notwithstanding his residency in Bermuda when the bonus was received, declared as subject to Canadian tax almost 84% of the bonus.

[20] The Minister did not seek to tax Mr. Miller on the $486,487. Rather, he disallowed a portion of it, $418,987, on the theory that only $67,500 was a reasonable amount within the meaning of subsection 69(2) of the Income Tax Act.

[21] The second issue has to do with a fee of $800,000 per month paid by the appellant to SBIL. On August 30, 1991 Mr. Miller resigned as president and director of the appellant and commenced an exclusive employment contract with SBIL, under which SBIL was to pay him $800,000 per month. On September 1, 1991, the appellant and SBIL entered into an agreement under which SBIL was to render services to the appellant for a consideration of $800,000 per month. As a term of that contract SBIL agreed to make the services of Mr. Miller available to the appellant.

[22] By November 14, 1991 the fires in Kuwait had been put out and the appellant's contract with Kuwait came to an end and the appellant stopped paying SBIL the amounts specified in the contract. The appellant paid SBIL $800,000 for each of the months of September and October, 1991 and $373,333 for the 14 days in November, for a total of $1,973,333.

[23] Of this amount, the Minister allowed as a deduction in computing the appellant's income for the taxation year ending August 31, 1992 only $126,000, on the basis that any amount in excess of this figure that was paid for Mr. Miller's services was unreasonable.

[24] The Minister treated the amounts of $418,987 and $1,847,333 disallowed in 1991 and 1992 as benefits conferred by the appellant on Mr. Miller and subject to withholding tax. He also imposed a penalty under Part XIII of the Act.

[25] The provision of the Act that is central to the Crown's position is subsection 69(2) which reads:

(2) Unreasonable consideration. — Where a taxpayer has paid or agreed to pay to a non-resident person with whom he was not dealing at arm's length as price, rental, royalty or other payment for or for the use or reproduction of any property or as consideration for the carriage of goods or passengers or for other services, an amount greater than the amount (in this subsection referred to as "the reasonable amount") that would have been reasonable in the circumstances if the non-resident person and the taxpayer had been dealing at arm's length, the reasonable amount shall, for the purpose of computing the taxpayer's income under this Part, be deemed to have been the amount that was paid or is payable therefor.

[26] It is interesting, although perhaps not significant, that the Minister relied upon subsection 69(2), but not on section 67. Section 67 allows as a deduction of an outlay or expense only "to the extent that the outlay or expense was reasonable in the circumstances."

[27] "Reasonable" in section 67 is a somewhat open-ended concept requiring the judgement and common sense of an objective and knowledgeable observer. "Reasonable amount" in subsection 69(2) as between non-arm's length persons, is essentially defined as an amount that would have been reasonable in the circumstances had the non-resident and the taxpayer been dealing at arm's length.

[28] If there is a difference between the concepts in the two provisions it is not readily apparent.

[29] If the amounts paid by the appellant to Mr. Miller and SBIL are not "reasonable amounts" within subsection 69(2), the disallowance of the excessive payments follows inevitably.

[30] The other two consequences — the withholding tax and the penalties — are less clear. In light of the conclusion that I have reached on the main issue it is unnecessary that I deal with these subsidiary issues, but out of deference to the submissions made by both counsel, I shall touch briefly on them.

[31] If the amounts paid are unreasonable the excessive amount, on the Minister's view, is a benefit conferred by the appellant on Mr. Miller, a shareholder within subsection 15(1). I should think this argument would be difficult to resist in the case of the bonus if it is unreasonable. If it is a benefit under subsection 15(1), subsection 214(3) would deem it to be a dividend paid by a corporation resident in Canada where it is a benefit conferred on a non-resident shareholder, taxable under subsection 212(2) and subject to the requirement of withholding by the resident payor under subsection 215(1).

[32] However, in the case of the disallowed fee of $1,847,333 paid to SBIL in the 1992 taxation year, counsel argues that the benefit, if any, was conferred not on the shareholder, Mr. Miller, but on his company, SBIL. He contends that to treat an unreasonable or excessive payment to SBIL as a benefit conferred on its sole shareholder would constitute an unwarranted piercing of the corporate veil. While I express no concluded view on the matter, because I do not need to, I should have thought as a matter of common sense that the conferral of a benefit on a corporation, all of the shares of which are owned by a taxpayer, would constitute a benefit conferred on the taxpayer. It increases the value of the taxpayer's shareholding in the corporation that receives the benefit and allows the corporation to make payments to the shareholder that it could not otherwise do.

[33] The second subsidiary issue touched on by counsel for the appellant is the matter of penalty. Subsection 227(8) reads:

(8) Subject to subsection (8.5), every person who in a calendar year has failed to deduct or withhold any amount as required by subsection 153(1) or section 215 is liable to a penalty of

(a) 10% of the amount that should have been deducted or withheld; or

(b) where the person had at the time of the failure been assessed a penalty under this subsection in respect of an amount that should have been deducted or withheld during the year, 20% of the amount that should have been deducted or withheld.

Paragraph (b) was amended in 1994, applicable after 1992 to read:

(b) where at the time of the failure a penalty under this subsection was payable by the person in respect of an amount that should have been deducted or withheld during the year and the failure was made knowingly or under circumstances amounting to gross negligence, 20% of that amount.

[34] Counsel for the appellant contends that the 10% penalty which was imposed in this case under paragraph 227(8)(a) is one of strict as opposed to absolute liability and he relies upon Consolidated Canadian Contractors Inc. v. Canada, [1998] G.S.T.C. 91 and Pillar Oilfield Projects Ltd. v. Canada, [1993] G.S.T.C. 49.

[35] Counsel for the respondent submits that in light of paragraph 227(8)(b), which imposes a higher penalty where a failure to withhold was made knowingly or under circumstances amounting to gross negligence, the inference to be drawn is that the penalty under 227(8)(a) is automatic and absolute and that no defence of due diligence is available. While I need not decide the point in this case, I question the correctness of this proposition, even if the amended version of paragraph 227(8)(b) applied. I do not think it is supported by Consolidated Canadian Contractors. Section 285 of the Excise Tax Act contains a more severe penalty where false statements are made knowingly or under circumstances amounting to gross negligence and this did not displace the existence of a defence of due diligence under section 280.

[36] I turn now to the principal issue — whether the bonus paid to Mr. Miller or the fees paid to SBIL were "greater than the amount that would have been reasonable in the circumstances if the non-resident person and the taxpayer had been dealing at arm's length" within the meaning of subsection 69(2).

[37] I begin by observing that it is passing strange that so long as Mr. Miller was a resident of Canada, the Minister did not question the reasonableness of remuneration paid to him. The 84% of the bonus allocated by Mr. Miller and his accountant to Mr. Miller's income taxable in Canada was evidently quite reasonable in the eyes of the Minister. It was only the 16% portion, $486,487, allocated to him as a resident of Bermuda, that caught the Minister's attention. No doubt there is a practical rationale for what must appear to be a somewhat anomalous and inconsistent approach by the Minister. The justification is presumably that so long as the remuneration was fully taxable in Mr. Miller's hands the deduction by the company did not result in any loss to the fisc. This position is understandable but it must be emphasized that the reasonableness of an expense is not affected by the question whether the amount is taxable in the hands of the recipient.

[38] The assessment is based on the view that Mr. Miller's remuneration, whether in the form of the bonus in 1991 or through the fees paid to SBIL in 1992, should not exceed $2,250 per day when he was in Kuwait and $750 per day when he was not. The $2,250 figure was simply $1,500 per day that was paid to another employee who acted as team leader plus an additional $750 per day for any managerial duties performed by Mr. Miller.

[39] The premises that form the foundation of the assessments and the assessments themselves are flawed for a number of reasons:

(a) They fail to take into account the fact that the existence of the contract with Kuwait and its fulfilment were attributable to Mr. Miller. However competent the other employee may have been he was nonetheless an employee of Mr. Miller's company whom Mr. Miller hired and directed. That employee did not, to put it colloquially, bring in the business. He participated in performing the work that Mr. Miller brought in. To relegate Mr. Miller to the position of just another employee, when he was the driving force behind the company without which neither the company nor its contract with Kuwait would have existed, is both demeaning to Mr. Miller and commercially unrealistic.

(b) The assessments fail to take into account the years in which Mr. Miller struggled to keep the company afloat during the lean years, and in which he accepted no or reduced remuneration. Indeed, the Minister sought to justify the assessments for 1991 and 1992 by referring to the remuneration Mr. Miller received in the earlier lean years. I should have thought that precisely the opposite inference ought to be drawn.

(c) The justification advanced for ignoring the fact that Mr. Miller was the person who single-handedly brought in the business is that when he was paid the bonus in 1991 and when his company was paid a fee of $800,000 per month for about 2½ months in 1992, the contract was already in place, and therefore what he did in the past to bring about the company's profits was simply past history and could have no bearing on what he was to be paid when, as the result of his efforts, the company was in a position to pay him amounts that were commensurate with his contributions to its profits. This theory is not sustainable, either as a matter of commercial practice or of common sense. It is quite common to reward valued employees in profitable years in recognition of services rendered in prior years. In any event, the contract with Kuwait was entered into in 1991.

(d) What seems obvious to me — and it was evidently not obvious to the departmental officials — is that the substantial amounts paid by Kuwait to the Appellant were paid because of Mr. Miller. It was he who predominantly contributed to the appellant's profits. He was the rainmaker.

[40] It is interesting to note that in a memorandum dated December 12, 1994 to the Calgary office of the Department of National Revenue from the head office, it was accepted that a withholding tax on the fees under paragraph 212(1)(a) (management or administration fee or charge) could not be sustained because of paragraph 212(4).

[41] The memorandum of December 12, 1994 reads in part as follows:

You have asked for our comments on two possible approaches. Your first approach would be to apply a 25% withholding tax to the management fees paid by SBL to Safety Boss International Ltd. (SBIL). You feel that paragraph 212(4)(b) is not applicable using the same logic as in the Peter Cundill & Associates Ltd. case. I have reviewed this case it deals with a paragraph 212(4)(a) exclusion and not a paragraph 212(4)(b) exclusion. Thus it is our opinion that the Peter Cundill case does not deal with the same issue as your case. It appears that the taxpayer has clearly shown that the paragraph 212(4)(b) exclusion is appropriate and thus no Part XIII tax should be assessed. The only situation that paragraph 212(4)(b) would not be appropriate is if the management fee was not reasonable in the circumstances in which case the 25% withholding tax would be applicable. With regards to your second approach, we make the following comments:

The facts are well laid out in Felesky Flynn's letters of July 18, 1994 and October 24, 1994. SBL made two separate types of payments for services rendered to it for work on the Kuwait fire contract. I will deal with each separately.

1. SBL declared a bonus for its fiscal year ended August 31, 1991 in favour of Mr. Miller in the amount of $3,000,000. It was in connection with Mr. Miller's efforts on the Kuwait project. Mr. Miller was a resident of Canada for most of this time and all but $486,587 was reported by Mr. Miller on his 1991 T1. For this reason, I do not feel it is worth while to pursue the reasonableness of this payment.

2. On September 1, 1991 SBL and SBIL entered into an agreement whereby SBIL agreed to render services, including Mr. Miller's services, to SBL in respect of SBL's contract with the Government of Kuwait. SBL agreed to pay to SBIL, a fixed fee of $800,000 per month based upon SBIL's obligation to pay Mr. Miller remuneration of $800,000 per month. SBL expensed $1,973,333 which covered the 2½ month period ending November 14, 1991. SBL does not deal at arm's length with SBIL and thus the management fee must be the reasonable amount as per subsection 69(2). In order to determine the reasonable management fee, we suggest that the following steps be taken.

[42] I shall not reproduce the remainder of the memorandum. It contains a number of suggestions, all of which were ignored by the Calgary office.

[43] Paragraph 212(4) reads:

(4) For the purpose of paragraph (1)(a), "management or administration fee or charge" does not include any amount paid or credited or deemed by Part I to have been paid or credited to a non-resident person as, on account or in lieu of payment of, or in satisfaction of,

(a) a service performed by the non-resident person if, at the time he performed the service

(i) the service was performed in the ordinary course of a business carried on by him that included the performance of such a service for a fee, and

(ii) the non-resident person and the payer were dealing with each other at arm's length, or

(b) a specific expense incurred by the non-resident person for the performance of a service that was for the benefit of the payer,

to the extent that the amount so paid or credited was reasonable in the circumstances.

[44] Paragraph 212(4)(b) is not restricted to arm's length transactions. All that is required to exclude a fee paid to non-residents from the ambit of paragraph 212(1)(a) is that it be in satisfaction of a specific expense incurred by the non-resident for the performance of a service that was for the benefit of the payor and that the amount paid be "reasonable in the circumstances".

[45] Counsel for the appellant asks in effect: If the Minister accepts that the fees paid to SBIL are reasonable for the purpose of subsection 212(4), why do they become unreasonable for the purpose of subsection 69(2)? I agree there is an inconsistency here. Income tax appeals are not, however, won solely by demonstrating inconsistencies in the reasoning of the departmental officials. They are won by demonstrating that an assessment is objectively wrong, whether factually or legally.

[46] Counsel also suggests that subsection 212(4) is more specific than subsection 69(2), and that therefore subsection 212(4) would exclude the application of section 69(2) on the principle of generalia specialibus non derogant and that if the department accepts that 212(4) does not apply, it cannot then apply subsection 69(2). In light of the conclusion I have reached, I need not express a concluded view on this point, but I should have thought that the argument pushes the generalia specialibus non derogant well beyond its purpose as an aid to construction.

[47] Subsection 69(2) is aimed at denying under Part I the deduction of unreasonable payments to non-arm's length non-residents. Subsection 212(4) is intended to exclude certain payments from paragraph 212(1)(a). The purpose of the two provisions is so fundamentally different that it would be pointless to try to ascribe predominance to one of them. Moreover, the principle embodied in the Latin maxim is simply that general words in a later statute should not be construed as repealing the specific provisions of earlier statutes.

[48] While departmental practice is not determinative it is sometimes useful to look at it, particularly where the assessment in question is a departure from a beneficial and sensible practice. In the 1981 Revenue Canada Round Table, the following answer was given in response to a question relating to the reasonableness of salaries and bonuses:

In general, the Department will not challenge the reasonableness of salaries and bonuses paid to the principal shareholders-managers of a corporation when

(a) the general practice of the corporation is to distribute the profits of the company to its shareholders-managers in the form of bonuses or additional salaries; or

(b) the company has adopted a policy of declaring bonuses to the shareholders to remunerate them for the profits the company has earned that are, in fact, attributable to the special know-how, connections, or entrepreneurial skills of the shareholders.

[49] Mr. Miller, as noted above, falls squarely within paragraph (b) of the response.

[50] The determination of the amount of the bonus, the allocation of 84% to Canada, and the amount of the fee were not arbitrary decisions. Mr. Moodie, the accountant, made a conscious effort to leave money in the company for future needs, and to compensate Mr. Miller for his contribution to the profits.

[51] I revert to the question: Would it have been unreasonable for an arm's length person to pay to Mr. Miller or SBIL the amounts that the appellant in fact paid to them? One must not ignore the fact that Kuwait — clearly at arm's length with the appellant — in fact paid substantially more for what were essentially Mr. Miller's services, including his expertise, experience, know-how, reputation and managerial skills. The appellant is essentially a one-man company, and, although it had employees and equipment, it was in many ways a one-man operation. Had Mr. Miller operated as a sole proprietorship and received fees from Kuwait out of which he paid salaries, wages and expenses, his income from the arm's length source, Kuwait, would have been significantly greater. Yet it could not have been suggested that Kuwait was paying an unreasonable fee for his services.

[52] There have been numerous cases on the question of the reasonableness of expenses. Essentially the determination is one of fact. I shall refer to only one that sets out the principle and that has been frequently cited: Gabco Ltd. v. M.N.R., 68 DTC 5210. At page 5216 Cattanach J. said:

It is not a question of the Minister or this Court substituting its judgment for what is a reasonable amount to pay, but rather a case of the Minister or the Court coming to the conclusion that no reasonable business man would have contracted to pay such an amount having only the business consideration of the appellant in mind. I do not think that in making the arrangement he did with his brother Robert that Jules would be restricted to the consideration of the service of Robert to the appellant in his first three months of employment being strictly commensurate with the pay he would receive. I do think that Jules was entitled to have other considerations present in his mind at the time of Robert's engagement such as future benefits to the appellant which he obviously did.

[53] It has in my view been overwhelmingly established that the bonus paid to Mr. Miller in 1991 and the fees paid in 1992 to his company SBIL were fully commensurate with the services rendered by Mr. Miller and were not in excess of the amounts that it would have been reasonable to pay had the parties been at arm's length.[1]

[54] The appeals for the 1991 and 1992 taxation years are allowed and the assessments under Part I of the Income Tax Act are referred back to the Minister of National Revenue for reconsideration and reassessment to permit the deduction in computing the appellant's income of the bonus paid to Mr. Miller and the fees paid to Safety Boss International Ltd.

[55] The appeal from the assessment of non-resident withholding tax under Part XIII of the Income Tax Act made on October 1, 1998 is allowed and the assessment of tax, interest and penalties is vacated.

[56] The appellant is entitled to its costs.

Signed at Ottawa, Canada, this 13th day of January 2000.

"D.G.H. Bowman"

J.T.C.C.

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