Muldoon,
J.:—The
plaintiff
sues,
appealing
an
assessment
by
the
Minister
of
National
Revenue,
dated
June
28,
1983,
and
subsequently
confirmed
by
the
Minister,
who
contends
that
the
assessment
is
in
conformity
with
paragraph
7(1)(c)
of
the
Income
Tax
Act.
The
plaintiff,
however,
invokes
paragraph
7(1)(b)
of
the
Act.
Those
statutory
provisions
run
as
follows:
7.
(1)
Subject
to
subsection
(1.1),
where
a
corporation
has
agreed
to
sell
or
issue
shares
of
the
capital
stock
of
the
corporation
or
of
a
corporation
with
which
it
does
not
deal
at
arm’s
length,
(b)
if
the
employee
has
transferred
or
otherwise
disposed
of
rights
under
the
agreement
in
respect
of
some
or
all
of
the
shares
to
a
person
with
whom
he
was
dealing
at
arm’s
length,
a
benefit
equal
to
the
value
of
the
consideration
for
the
disposition
shall
be
deemed
to
have
been
received
by
the
employee
by
virtue
of
his
employment
in
the
taxation
year
in
which
he
made
the
disposition;
(c)
if
rights
of
the
employee
under
the
agreement
have,
by
one
or
more
transactions
between
persons
not
dealing
at
arm’s
length,
become
vested
in
a
person
who
has
acquired
shares
under
the
agreement,
a
benefit
equal
to
the
amount
by
which
the
value
of
the
shares
at
the
time
that
person
acquired
them
exceeds
the
amount
paid
or
to
be
paid
to
the
corporation
therefor
by
that
person
shall
be
deemed
to
have
been
received
by
the
employee
by
virtue
of
his
employment
in
the
taxation
year
in
which
that
person
acquired
the
shares;
...
Subsection
7(1.1)
is
not
relevant
here.
Opposing
counsel
have
most
helpfully
co-operated
in
formulating
an
agreed
statement
of
facts,
which
is
Exhibit
1,
and
which
proceeds
as
follows:
1.
Clarebeau
Management
Corp.
Ltd.
(““Clarebeau’’)
is
a
body
corporate
under
the
laws
of
the
Province
of
Alberta
and
was
incorporated
on
March
15,
1979.
2.
At
all
relevant
times
one-half
of
the
issued
shares
of
Clarebeau
were
owned
by
217814
Investments
Ltd.
of
which
the
Plaintiff
and
Anne
McKerricher,
his
common
law
wife,
owned
all
of
the
issued
shares.
3.
At
all
relevant
times
one-half
of
the
issued
shares
of
Clarebeau
were
owned
by
217816
Investments
Ltd.
of
which
Patrick
Claridge
and
Louise
Claridge,
his
wife,
owned
all
of
the
issued
shares.
4.
The
Plaintiff
has
at
no
time
been
related
to
Patrick
Claridge
or
Louise
Claridge
by
blood,
marriage
or
adoption.
5.
As
a
result
of
an
agreement
between
Nortek
Engines
Ltd.
(presently
known
as
Nortek
Energy
Corp.),
a
public
corporation,
and
the
Plaintiff
dated
June
22,
1979
Nortek
granted
to
the
Plaintiff
an
option
to
purchase
60,000
common
shares
in
the
capital
stock
of
Nortek
for
a
price
of
$1.00
per
share.
A
true
copy
of
the
said
agreement
is
attached
as
Schedule
“A”
hereto.
6.
By
an
agreement
between
the
Plaintiff
and
Clarebeau
dated
June
22,
1979
the
Plaintiff
assigned
and
transferred
all
of
his
rights,
title
and
interest
in
the
option
referred
to
in
paragraph
5
hereof
to
Clarebeau
in
consideration
for
the
payment
of
$1.00
by
Clarebeau
to
the
Plaintiff.
A
true
copy
of
the
said
agreement
is
attached
as
Schedule
“B”
hereto.
7.
As
a
result
of
the
agreement
between
the
Plaintiff
and
Clarebeau
referred
to
in
paragraph
6
hereof
and
the
exercise
of
the
option
referred
to
in
paragraph
5
hereof
Clarebeau
acquired
in
the
1979
calendar
year
60,000
shares
in
the
capital
stock
of
Nortek
Energy
Corp.
in
consideration
of
the
payment
by
Clarebeau
to
Nortek
Energy
Corp.
of
the
sum
of
$60,000.
8.
By
Notice
of
Reassessment
dated
June
28,
1983
the
Minister
of
National
Revenue
reassessed
the
Plaintiff
by
adding
to
his
income
for
the
1979
taxation
year
the
amount
of
$199,000
described
by
the
Minister
as
a
“Stock
option
benefit
received
from
Nortek
Energy
Corp.”
9.
By
Notice
of
Objection
dated
August
11,
1983
and
duly
served
on
the
Minister
of
National
Revenue
the
Plaintiff
objected
to
the
Notice
of
Reassessment
referred
to
in
paragraph
8
hereof.
10.
By
Notice
of
Confirmation
by
the
Minister
of
National
Revenue
dated
March
30,
1984,
the
Minister
of
National
Revenue
confirmed
the
reassessment
in
respect
of
the
Plaintiff’s
1979
taxation
year.
The
question
of
whether
paragraph
7(1)(b)
or
7(1)(c)
is
to
be
applied
will
be
determined
by
whether
or
not
the
plaintiff
and
Clarebeau
were
“dealing
at
arm’s
length.”
If
so,
paragraph
7(1)(b)
governs
the
treatment
of
the
value
of
the
shares:
if
not,
paragraph
7(1)(c)
governs.
Since
the
law
does
not
deem
the
plaintiff
and
Clarebeau
to
have
dealt
not
at
arm’s
length,
the
question
is
one
of
fact,
to
be
determined
on
the
evidence
in
light
of
authoritative
jurisprudence.
The
narrative
may
conveniently
begin
over
two
decades
ago
when
the
plaintiff
and
Sidney
Patrick
Claridge
were
team-mates
in
professional
football.
Mr.
Claridge
retired
from
the
sport
in
1968
and
went
into
other
work
in
Calgary.
Eventually
the
two
former
team-mates
met
in
Edmonton
and
discovered
that
they
were
both
employed
in
1978
by
the
same
firm
in
real
estate
sales.
As
Mr.
Claridge
put
it:
“we
amalgamated
forces,
joined
efforts
and
shared
commissions,
fifty-fifty.”
The
firm’s
head
office
in
Vancouver
was
notified
of
this
amalgamation
of
efforts,
as
was
the
office
manager,
and
despite
their
employer’s
disapproval,
the
plaintiff
and
Mr.
Claridge
were
thenceforth
issued
equal
pay
cheques.
According
to
Mr.
Claridge,
the
plaintiff
had
some
background
in
the
business,
which
Mr.
Claridge
lacked,
ut
the
latter
had
“lots
of
contacts”
and
was
able
to
“find
people.”
The
two
partners
utilized
Clarebeau
specifically
in
the
real
estate
business
and
shared
their
profits
and
losses
through
that
vehicle.
It
was
the
instru-
ment
or
expression
of
their
partnership
to
which
they
brought
investment
opportunities
and
other
exploitable
business
dealings
found
or
generated
by
each
of
them
individually
for
the
purpose
of
pooling
their
respective
talents
and
energies
in
order
to
share
the
gains
and,
if
necessary,
the
losses.
They
both
were
required
to
authenticate
resolutions
and
corporate
minutes
and
both
had
to
sign
the
corporation’s
cheques.
The
arrangement
had
the
inherent
potential
for
deadlock,
but
the
partners
enjoyed
a
good
relationship.
Indeed,
article
59
of
the
corporation’s
articles
of
association,
Exhibit
3,
provided
that
in
the
case
of
an
equality
of
votes
at
a
meeting,
the
chairman
would
have
the
casting
vote.
In
fact
that
right
was
Mr.
Claridge’s
and
not
the
plaintiff's.
It
appears
that
the
two
partners
were
not
aware
of
that
provision
among
the
139
articles,
until
after
the
commencement
of
this
litigation.
Both
Mr.
Claridge
and
the
plaintiff
were
credible
witnesses.
The
plaintiff
and
two
others
became
involved
in
Nortek
of
which
the
plaintiff
became
a
director
in
1977
and
president
in
1979.
They
sought
to
nave
this
company
become
profitably
involved
in
the
oil
and
gas
business.
The
plaintiff
discussed
these
aspirations
with
Mr.
Claridge
before
the
latter
was
prepared
to
devote
time
and
effort
to
the
business
of
Nortek
in
concert
with
his
partner,
the
plaintiff,
upon
their
existing
basis
of
50-50
partnership.
In
June,
1979,
the
three
directors
of
Nortek
agreed
with
that
company
and
among
themselves
to
take
share
options
in
accordance
with
the
time
and
effort
expended
or
intended
to
be
expended
by
each
in
the
development
of
Nortek's
business.
The
other
two
directors
obtained
options
for
10,000
shares
each.
The
plaintiff
obtained
an
option,
expressed
in
Ex.
1(A),
for
60,000
shares
in
view
of
his
being
the
main
person
among
the
three
who
was
willing
to
spend
time
in
the
business.
At
that
time,
June
22,
1979,
the
plaintiff
had
already
in
mind
his
arrangement
with
Mr.
Claridge
to
invoke
their
partnership
in
pooling
their
efforts
for
Nortek,
whereby
they
expected
to
raise
the
value
of
the
shares
of
Nortek.
Accordingly,
it
was
as
of
that
same
date,
June
22,
1979,
that
the
plaintiff
and
Mr.
Claridge
expressed
their
concurrence
in
Ex.
1(B)
to
the
plaintiff's
assignment
of
his
option
to
Clare-
beau
for
one
dollar.
In
fact,
however,
the
document
represented
by
Ex.
1(B)
was
created
some
time
after
its
stated
date.
The
two
partners
realistically
acknowledged
therein
that
“the
option
is
of
no
value
at
the
present
time
and
it
may
never
be
of
any
value
in
the
future.”
It
must
be
noted
that
paragraph
3
of
the
option
(Ex.
1(A))
prohibits
its
assignment;
but
the
plaintiff
testified
that
the
other
two
directors
were
not
the
least
bit
concerned
by
his
assignment
to
Clarebeau,
and
they
actually
approved
such
assignment
at
the
annual
meeting
of
Nortek.
The
plaintiff
evidently
received
the
aid
in
effort
which
he
needed
from
his
partner.
Through
Clarebeau,
they
paid
the
requisite
$60,000
to
Nortek.
As
is
admitted
in
the
pleadings
herein,
Clarebeau
disposed
of
the
Nortek
shares
in
1980
and
it
reported
the
gains
derived
from
the
sale
thereof
in
its
1980
income
tax
return.
It
is
of
some
slight
weight
in
this
matter
to
consider
how
the
two
partners
finally,
in
March
1983,
wound
up
their
dealings
in
and
with
Clarebeau.
Mr.
Claridge
wanted
to
sell
Clarebeau’s
main
asset,
land
on
Salt
Spring
Island.
The
plaintiff
was
opposed,
and
after
obtaining
independent
advice
in
law
and
negotiating
the
price
of
Mr.
Claridge’s
shares,
the
plaintiff
purchased
them.
The
price
was
secured
by
realty
mortgages
on
Clarebeau's
land,
which
were
cleared
over
the
course
of
six
months.
The
plaintiff
testified
that
although
he
reposed
a
certain
degree
of
trust
in
Mr.
Claridge
which
he
would
not
have
given
to
a
stranger,
he
nevertheless
dealt
in
his
own
interest.
It
is
apparent
that
plaintiff
never
did
control
Clarebeau
any
more
than
he
controlled
Mr.
Claridge.
At
all
material
times
the
plaintiff
and
his
partner
Mr.
Claridge
believed
that
they
(with
their
respective
mates)
each
enjoyed
precisely
equal
de
jure
and
de
facto
control
of
Clarebeau.
In
truth,
as
they
would
have
discovered
sooner
or
later,
and
as
they
did
finally
discover,
greater
control
of
Clarebeau
reposed
in
Mr.
Claridge's
hands
by
virtue
of
his
presidential
office
and
of
article
59
of
Ex.
3,
the
articles
of
association.
However,
in
the
event
of
an
agreed
winding-up
or
liquidation
of
assets
the
two
stood
in
precise
equality
as
may
be
discerned
from
paragraphs
2
and
3
of
Ex.
1,
the
agreed
facts.
This
conclusion
is
amply
supported
by
the
evidence.
Furthermore,
neither
the
plaintiff
nor
his
partner
(unless
by
invocation
of
article
59)
could
absolutely
precipitate
a
winding-up
at
will,
as
may
be
noted
by
perusal
of
the
share
transfer
provisions
of
the
articles,
notably
articles
21,
22,
23,
24
and
25.
Each
partner
enjoyed,
in
effect,
a
right
of
first
refusal
to
purchase
the
other's
shares.
In
argument,
counsel
for
the
plaintiff
referred
to
the
Court
the
following
jurisprudence:
M.N.R.
v.
Sheldons
Engineering,
Ltd.
[1955]
C.T.C.
174;
55
D.T.C.
1110;
M.N.R.
v.
Kirby
Maurice
Co.
Ltd.,
[1958]
C.T.C.
41;
58
D.T.C.
1033;
Ancaster
Development
Co.
Ltd.
v.
M.N.R.,
[1961]
C.T.C.
91;
61
D.T.C.
1047;
Pender
Enterprises
Ltd.
v.
M.N.R.,
[1965]
C.T.C.
343;
65
D.T.C.
5202;
M.N.R.
v.
Merritt
Estate,
[1969]
C.T.C.
207;
69
D.T.C.
5159;
Swiss
Bank
Corp.
v.
M.N.R.,
[1972]
C.T.C.
614;
72
D.T.C.
6470;
Robson
Leather
Co.
Ltd.
v.
M.N.R.,
[1977]
C.T.C.
132;
77
D.T.C.
5106;
Busby
v.
The
Queen,
[1986]
1
C.T.C.
147;
86
D.T.C.
6018.
Counsel
for
the
defendant
cited
the
following
jurisprudence:
Viking
Food
Products
Ltd.
v.
M.N.R.,
[1967]
C.T.C.
101;
67
D.T.C.
5067;
Swiss
Bank
Corporation
and
Swiss
Credit
Bank
v.
M.N.R.,
[1971]
C.T.C.
427;
71
D.T.C.
5235;
[1972]
C.T.C.
614;
72
D.T.C.
6470;
The
Queen
v.
Imperial
General
Properties
Limited
(formerly
Speedway
Realty
Corporation
Limited),
[1985]
2
C.T.C.
299;
85
D.T.C.
5500.
The
case
of
Busby
v.
The
Queen
(above)
is
not
relevant
here.
There,
Mr.
Justice
McNair
makes
it
plain
(151
(D.T.C.
6020))
that
he
is
dealing
with
the
meaning
of
“employment”
pursuant
to
section
248
of
the
Act,
and
not
“employee”.
Accordingly,
whether
the
plaintiff
was
an
employee,
or
only
an
unpaid
officer,
of
Nortek
is
not
material,
since
the
section
defines
“employee”
to
include
“officer”.
The
case
at
bar
is
also
distinguishable
from
Windsor
Plastic
Products
Limited
v.
The
Queen,
T-1943-81
[[1986]
1
C.T.C.
331;
86
D.T.C.
6171]
in
this
court,
because
here
Clarebeau
was
not
the
gain-producing
enterprise
but
was
merely
the
vehicle
or
expression
of
the
plaintiff's
partnership
with
Mr.
Claridge.
Clarebeau
was
the
entity
to
which
they
brought
their
business
deals
for
purpose
of
recording,
accounting
and
sharing
the
fruits
of
their
co-operative,
individual,
efforts
and
talents:
of
itself
it
produced
nothing.
Neither
the
plaintiff
nor
his
partner
controlled
from
day
to
day
or
year
to
year
the
distribution
of
Clarebeau’s
gains,
because
that
distribution
was
always
predetermined
by
their
agreement
to
share
equally,
and
neither
one
could
exert
control
over
the
other
in
that
regard.
In
effect,
each
one
trusted
the
other
to
make
the
most
effective
use
of
his
time
and
talents
and
that
investment
of
time
and
talents
produced
the
gain
in
Nortek’s
shares.
Clare-
beau
produced
nothing.
In
this
circumstance,
the
plaintiff
was
in
no
position
at
all
to
dictate
the
terms
of
his
assignment
of
the
Nortek
share
option
to
Clarebeau,
because
there
could
have
been
no
effective
assignment
if
Mr.
Claridge
had
not
been
persuaded,
as
he
was,
to
co-operate
with
his
time
and
talents
in
promoting
Nortek.
If
Mr.
Claridge
had
considered
that
it
was
not
worth
his
time
and
talents,
the
plaintiff
would
have
been
left
with
his
share
option
to
do
with
it
as
he
could.
The
defendant
has
certainly
not
shown
that
Mr.
Claridge's
declining
to
accept
the
plaintiff’s
proposal
would
have
resulted
in
a
winding-up
of
Clarebeau.
Indeed,
on
the
evidence,
such
a
result
cannot
even
be
inferred.
The
relevant
principles
enunciated
in
the
cited
jurisprudence
are
applicable
in
the
circumstances.
The
evidence,
in
sum,
fails
to
indicate
that,
at
the
material
time,
the
plaintiffs
dealing
with
Clarebeau
was
not
at
arm's
length.
On
the
contrary
the
evidence
does
positively
indicate
that
the
plaintiff,
in
the
words
of
paragraph
7(1)(b)
of
the
Act,
..
has
transferred
or
otherwise
disposed
of
rights
under
the
agreement
[Ex.
1(A)]
in
respect
of
...
the
shares
to
a
person
[Clarebeau]
with
whom
he
was
dealing
at
arm’s
length
.
.
.
.”
The
plaintiff's
appeal
is
allowed,
with
costs,
and
the
impugned
assessment
is
referred
to
the
Minister
to
be
revised
in
accordance
with
the
resolution
of
the
questions
in
issue
expressed
in
these
reasons.
Appeal
allowed.