ee ee ie

 

 

 

 

"The Company, Raireia T. Scazio, Ltd.
became tite head conc: of tira Ticats”

 

pany then hires the artiste out to

’ whomsoever requires his service and

itself obtains the consideration for
them.—All this is perfectly legitimate
and indeed, in the case of persons whose
high earnings may be shortlived, under-
standable .. .”

An example of such an incorporation
is demonstrated in the case of Ralph J.
Sazio, who in the sixties, was head
coach of the Hamilton Tiger-Cats Foot-
ball Club. Mr. Sazio, in addition to his
coaching assignments, also managed the
affairs of a leasing company, sold insur-
ance, operated a restaurant and man-
aged a farm. In 1964 he formed a
company, Ralph J. Sazio, Limited, in
which he was the principal shareholder
owning 501 shares of the 1001 common
shares issued. The other shareholders
were his wife who owned 499 shares
and a Dr. C.C. Hopmans who owned
one share. The objects for which the
company was incorporated were as
follows:
a) To engage in the business of furnish-
ing advice and services with respect to
the coaching of sports and athletic
endeavors of every nature and kind and
for this purpose to enter into, make,
perform and carry out contracts of
every kind with any person, firm, as-
sociation, private corporation, public
corporation, municipal corporation or
body politic.
b) To acquire rights to the services of
and to employ persons in any and all
fields of sports and athletic endeavours
of every nature and kind and to con-
tract or deal with others with respect to
the services of such persons.
c) To organise, re-organise and manage
the business or operations of any other
company, corporation, firm, business or
undertaking whatsoever, and to receive
in payment therefor fees, royalties,
commissions and other remuneration in
cash, securities or other property: and
d) To purchase, receive, hold, own, sell,
assign, transfer, mortgage, pledge or
otherwise acquire or dispose of shares,
bonds, mortgages, debentures, notes or
other securities, obligations or contracts
of any company, corporation or
association.

In 1964 Mr. Sazio agreed with Ralph
J. Sazio Ltd. to be its general manager
at a remuneration to be determined
from time to time. Initially, his salary
was $6,000 per year. In addition to

48 VANCOUVER CALENDAR MAGAZINE
}

some of Mr. Sazio’s previous business
interests, the company acted as manager
and rental agent of an office building,
managed a medical clinic and engaged in
some real estate. The company also
contracted with a newspaper for a series
of articles on football and negotiated
for a regular radio and television pro-
gram. These were all conducted by Mr.
Sazio and in all cases the remuneration
was paid to the company.

Mr. Sazio then resigned as head
coach of the Ticats, and the same day
the Club agreed to employ the company
Ralph J. Sazio, Ltd. as its head coach, at
the same annual salary of $18,000 plus
bonuses, for the duration of the original
agreement between the Ticats and Mr.
Sazio. The resulting contract between
the company and the Club stated that

“Ralph J. Sazio Limited shall well
and faithfully serve the Club and use its
best endeavours to promote the interest
of the Club and during the term of this
agreement it shall restrict its entire
business undertaking and operation and
the efforts, endeavours, talents, business
operation and undertaking of any of its
officers, directors or servants to the
business of the Club. ... :

Lf the company shall at any time, by
reason of death, illness, mental or
physical incapacity of Ralph Joseph
Sazio be incapacitated from carrying
out the terms of this agreement, accord-
ing to its true intent, or if the said
Ralph Joseph Sazio shall cease to be an
officer, director or servant of Ralph J.
Sazio, Limited devoting his whole time,
attention and talents to the business of
the Company, the Club shall be at
liberty to terminate this agreement and
the Club shall only be responsible to
pay to the Company an amount for
remuneration proportionate to the num-
ber of months served by the Company
during such year.”’

In 1964 Mr. Sazio reported the
$6,000 salary he received from the
company as his sole income. The Mini-
ster of National Revenue assessed Mr.
Sazio on the basis that the income of
the company, Ralph J. Sazio, Limited
was taxable to Mr. Sazio personally and
not to the corporation. The Minister
contended that?

(1) the amounts received by the corpor-
ation were taxable to Mr. Sazio as
income from employment;

(2) the amounts paid by the Tiger-Cat

ey Ee

Football Club were for services rendered
by Mr. Sazio and not by his company,
and

(3) the transaction was not a bona fide
business transaction but rather a device
designed to artificially reduce the in-
come of the taxpayer. :

The courts, however, found that there
was nothing illegal in Mr. Sazio’s forma-
tion of the company. As they said “the
company was fully competent to engage
in football coaching activities and the
agreements entered into in connection’
with these activities were bona fide
commercial transactions.” As Mr. Jus-
tice Cattanach said, “There is no doubt
whatsoever that the company is a pro-
perly constituted legal entity and that |
the company could legitimately carry
on the objects for which it was in-
corporated. Any person rendering ser-
vices may incorporate a company to
render those services provided there is
no prohibition of those services being
performed by a corporation rather than
a natural person.”

It is evident from this and a number
of other cases that the ordering of your
affairs to reduce tax is acceptable. But
the key thing is the ordering of your
affairs!

Benefits of
incorporation

nincorporated businessmen are pre-
[1Fjauece under the Income Tax Act
is#from obtaining a deduction for
salary paid to wives assisting them in the
business—a restriction which is an ob-
vious hardship in many practical situa-
tions. Thus a doctor whose wife is a
registered nurse could not pay her a
salary for her services and get a deduc-
tion from income for tax purposes.
Under incorporation however, a nursing
service, owned by the doctor and his
wife, could be formed to supply him
with staff and medical supplies. For this
service he pays a fee and his wife gets a
salary which is deductible. An example
of this is furnished by the case of a
dentist in Belleville, Ontario. In 1963 a
corporation was formed of which the
dentist’s wife owned all the shares. As
an employee-shareholder of the com-
pany she managed both the business and
the practice. In addition she purchased
continued page 50