Marceau,
J.
(Linden,
J.A.,
concurring):—In
this
appeal,
Her
Majesty
the
Queen
contests
a
judgment
rendered
by
the
Trial
Division.
The
respondent—a
corporation
formed
under
the
provisions
of
the
Canada
Business
Corporations
Act
on
the
amalgamation
of
Placer
Development
Ltd.,
Dome
Mines
Ltd.
and
Campbell
Red
Lake
Mines
Ltd.—had
disputed,
by
way
of
action,
the
validity
of
a
notice
of
reassessment
issued
against
it
by
the
Minister
of
National
Revenue
under
the
Income
Tax
Act
that
disallowed
the
deduction
it
had
claimed
for
its
1985
taxation
year.
The
judgment
declares
the
action
well
founded
and
varies
the
assessment
in
order
to
allow
the
disputed
deduction.
At
the
heart
of
the
litigation
is
a
very
complex
and
sophisticated
stock
purchase
plan
(the
"plan"),
made
available
by
the
respondent
(hereinafter
“Placer”
or
"the
employer”)
to
all
its
employees
of
at
least
19
years
of
age
who
have
more
than
one
year
of
service
with
it
or
one
of
its
affiliated
companies.
Basically,
the
plan
dictates
that
the
employer
provide
contributions
that
are
added
to
amounts
subscribed
by
the
participating
employees
towards
buying
Placer
Dome
common
stock.
It
is
these
contributions,
which
in
the
relevant
year
amounted
to
some
$282,876,
that
the
respondent
seeks
to
deduct
from
its
taxable
income.
The
respondent's
contention,
which
was
accepted
by
the
trial
judge,
is
that
the
employer's
contributions
under
the
plan
are
made
as
additional
remuneration
to
the
participating
employees;
they
constitute,
therefore,
taxable
income
in
the
hands
of
the
employees
pursuant
to
the
general
provision
of
subsection
5(1)
of
the
Act,
and
are
also
deductible
from
the
employer's
own
taxable
income.
The
Minister
thinks
otherwise.
He
argues
that,
in
a
proper
interpretation
of
the
plan,
it
is
clear
that
the
employer's
contributions
are
provided
merely
to
allow
the
acquisition
of
shares
by
the
employees
at
a
reduced
price;
as
a
consequence,
they
must
be
governed
by
the
specific
provisions
of
section
7
of
the
Act,
more
precisely
subparagraph
7(1)(a)(ii)
and
subsection
7(3),
which,
in
superseding
the
general
provision
of
section
5,
renders
the
contributions
taxable
in
the
hands
of
the
employees
yet
not
deductible
by
the
employer.
I
reproduce
here
those
provisions
of
the
Act
which
are
put
in
question:
5.
(1)
Subject
to
this
Part,
a
taxpayer's
income
for
a
taxation
year
from
an
office
or
employment
is
the
salary,
wages
and
other
remuneration,
including
gratuities,
received
by
him
in
the
year.
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
to
an
employee
of
the
corporation
or
of
a
corporation
with
which
it
does
not
deal
at
arm's
length,
(a)
if
the
employee
has
acquired
shares
under
the
agreement,
a
benefit
equal
to
the
amount,
if
any,
by
which
.
.
.
.
(ii)
the
total
amount
paid
or
to
be
paid
to
the
corporation
by
the
employee
for
the
shares
and
any
amount
paid
by
the
employee
to
acquire
the
right
to
acquire
the
shares
shall
be
deemed
to
have
been
received
by
the
employee
by
reason
of
the
employee's
employment
in
the
taxation
year
in
which
the
employee
acquired
the
shares;
(3)
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
to
an
employee
of
the
corporation
or
of
a
corporation
with
which
it
does
not
deal
at
arm's
length
(a)
no
benefit
shall
be
deemed
to
have
been
received
or
enjoyed
by
the
employee
under
or
by
virtue
of
the
agreement
for
the
purpose
of
this
Part
except
as
provided
by
this
section,
and
(b)
the
income
for
a
taxation
year
of
the
corporation
or
of
a
corporation
with
which
it
does
not
deal
at
arm's
length
shall
be
deemed
to
be
not
less
than
its
income
for
the
year
would
have
been
if
a
benefit
had
not
been
conferred
on
the
employee
by
the
sale
or
issue
of
the
shares
to
him
or
to
a
person
in
whom
his
rights
under
the
agreement
have
become
vested.
There
is
no
question
of
fact
arising
on
this
appeal
nor
was
there
any
before
the
trial
judge.
The
case
proceeded
on
the
basis
of
an
agreed
statement
of
facts,
so
the
issue
is
strictly
one
of
law.
It
may
appear
to
be
a
narrow
one,
but
its
disposition
requires
a
review
of
the
entire
operation
of
the
plan
and
a
proper
understanding
of
the
commercial
and
practical
nature
of
the
underlying
transactions
provided
for
therein.
As
we
will
see,
this
is
not
an
easy
matter.
The
plan
is
set
out
in
an
obscure
and
most
convoluted
document,
the
text
of
which
covers
some
eight
double
column
small
print
pages
and
is
fraught
with
repetitions,
references
and
cross-references
between
articles.
It
is
far
too
long
to
be
reproduced
in
these
reasons.
As
indicated
above,
however,
the
agreed
statement
of
facts
contains
the
basic
provisions
of
the
plan.
This
statement
is
also
extremely
lengthy,
and
as
the
articles
to
which
it
refers
are
reproduced
verbatim,
I
had
first
thought
of
limiting
myself
to
a
mere
overview
of
it.
I
quickly
realized,
though,
that
it
would
be
much
more
satisfactory,
for
a
proper
appreciation
of
my
understanding
of
it,
to
reproduce
the
statement
(save
the
attached
schedules)
in
its
entirety.
AGREED
STATEMENT
OF
FACTS
The
parties
hereto
by
their
respective
solicitors
admit
the
following
facts,
provided
that
the
admission
is
made
for
the
purpose
of
this
action
only
and
may
not
be
used
against
either
party
on
any
other
occasion,
and
provided
further
that
the
parties
may
adduce
further
and
other
evidence
relevant
to
the
issues
and
not
inconsistent
with
this
agreement.
1.
The
plaintiff
is
an
amalgamated
corporation
formed
under
the
provisions
of
the
Canada
Business
Corporations
Act
effective
August
13,
1987
on
the
amalgamation
of
Placer
Development
Ltd.,
Dome
Mines
Ltd.
and
Campbell
Red
Lake
Mines
Ltd.
2.
On
February
13,
1973,
Placer
Development
Ltd.
approved
the
establishment
of
the
Placer
Development
Ltd.
Stock
Purchase
Plan
(the"Plan")
for
the
benefit
of
its
employees
and
the
employees
of
its
branches
and
associated
companies.
Although
Placer
Development
Ltd.
is
one
of
three
predecessor
corporations
of
the
plaintiff
herein,
for
simplicity
in
this
Agreed
Statement
of
Facts,
Placer
Development
Ltd.
will
hereinafter
be
referred
to
as
the“
plaintiff”.
3.
A
copy
of
the
Plan,
as
amended
May
7,
1985,
is
Schedule
A
to
this
Agreed
Statement
of
Facts.
This
is
as
the
Plan
read
during
the
1985
taxation
year,
the
year
here
under
appeal.
The
amendments
of
May
7,
1985
are
inconsequential
to
this
appeal.
4.
By
resolution
of
the
Board
of
Directors
of
the
plaintiff
dated
June
15,
1973
(a
copy
of
which
is
Schedule
B
to
this
Agreed
Statement
of
Facts),
the
Board
resolved
that
"all
shares
purchased
by
the
Trustee
pursuant
to
the
Plan
shall
until
May
31,
1974
or
until
this
direction
is
changed,
whichever
shall
later
occur,
be
purchased
through
a
member
firm
of
the
stock
exchange
on
which
the
Company
shares
are
listed".
5.
By
resolution
of
the
Board
of
Directors
of
the
plaintiff
dated
August
5,
1975
(a
copy
of
which
is
Schedule
C
to
this
Agreed
Statement
of
Facts),
the
Board
resolved
that
“effective
September
1,
1975
all
shares
purchased
by
the
Trustee
pursuant
to
the
Company's
Employee
Stock
Purchase
Plan
shall
be
purchased,
until
this
direction
is
changed,
from
the
Company
as
original
issue
shares".
6.
The
Plan
provided,
inter
alia:
(a)
Article
I—Definitions
"Salary"—means
the
base
salary
paid
to
an
Employee
by
a
Participating
Company
for
personal
services
rendered
by
him
as
an
Employee
of
such
Participating
Company,
including
vacation
pay
and
payments
under
the
Placer
Development
Ltd.
Annual
Incentive
Plan
but
not
including
bonuses,
commissions,
overtime
pay,
living
or
other
allowances,
reimbursements
or
special
payments,
or
any
contributions
or
benefits
under
this
or
any
other
plan
of
current
or
deferred
compensation
adopted
by
a
Participating
Company.
(b)
Article
II—General
The
purpose
of
the
Plan
is
to
enable
Employees
to
acquire
Placer
Common
Shares
through
payroll
deductions
with
financial
assistance
provided
by
the
Participating
Company.
The
Placer
Common
Shares
purchased
by
the
Trustee
under
the
Plan
shall,
at
the
election
of
the
Board,
be
purchased
either
(i)
through
a
member
firm
of
a
stock
exchange
on
which
such
shares
are
listed,
or
(ii)
from
Placer
or
a
subsidiary
of
Placer.
(c)
Article
IV
A
Contributions
by
Members.
Any
Member
may,
except
while
on
leave,
contribute
in
any
calendar
month
toward
the
purchase
of
Placer
Common
Shares
for
his
account
under
the
Plan
an
amount
which
shall
not
exceed
six
percent
(6%)
of
his
salary
during
such
month.
(d)
Article
IV
F
Contributions
by
Participating
Companies.
The
Participating
Company
employing
any
Member
who
makes
a
contribution
in
any
calendar
month
pursuant
to
this
Article
shall
pay
over
to
the
Trustee
within
six
days
after
the
close
of
such
calendar
month,
as
contribution
on
behalf
of
and
as
an
absolute
benefit
for
such
Member
for
such
calendar
month,
an
amount
(in
Canadian
funds,
if
required
by
the
Trustee)
equal
to
one-half
(/2)
of
the
amount
contributed
by
such
Member.
(e)
Article
IV
G
Withholding
Taxes.
The
contribution
by
a
Participating
Company
to
the
Trustee
on
behalf
of
any
Member
for
any
calendar
month
shall
be
regarded
as
additional
compensation
paid
to
such
Member
in
such
month,
and
any
taxes
payable
to
any
jurisdiction
with
respect
thereto
shall,
where
required,
be
withheld
from
the
salary
payable
to
him
during
such
calendar
month.
(f)
Article
V
VA
Individual
Accounts.
The
Trustee
shall
cause
to
be
maintained
a
cash
account
and
a
share
account
for
each
Member.
(g)
Article
V
B
Posting
of
Transactions.
The
Trustee
shall
cause
the
cash
account
of
each
Member
to
be
credited
with
the
amount
of
any
contributions
by
such
Member,
any
contributions
for
his
benefit
by
the
Participating
Company
employing
him
or
by
Placer,
any
dividends
or
other
income
received
on
Placer
Common
Shares
held
for
his
account
and
any
net
proceeds
from
the
sale
of
Placer
Common
Shares
for
his
account.
It
shall
cause
such
account
to
be
debited
with
the
cost
of
any
Placer
Common
Shares
purchased
for
his
account
(in
the
manner
described
in
Article
VI
hereof)
and
any
cash
distributed
to
him
or
his
legal
representatives.
The
Trustee
shall
cause
the
share
account
of
each
Member
to
be
credited
with
any
Placer
Common
Shares
purchased
for
his
account
including
fractional
interests
in
such
shares
(in
the
manner
described
in
Article
VI
hereof).
It
shall
cause
such
account
to
be
debited
with
any
Placer
Common
Shares
sold
for
his
account
or
distributed
to
him
or
his
legal
representatives.
(h)
Article
VI
A
Purchase
of
Placer
Common
Shares.
On
the
next
business
day
following
the
10th
day
of
each
calendar
month
the
Trustee
shall
purchase
Placer
Common
shares
for
the
accounts
of
the
Members,
to
the
extent
necessary,
in
accordance
with
the
following
procedure:
(1)
The
Board
shall
direct
that
the
Placer
Common
Shares
purchased
in
any
calendar
month
by
the
Trustee
under
the
Plan
(other
than
shares
required
to
be
purchased
from
other
Members
pursuant
to
Paragraph
C
of
Article
Vil
hereof)
shall
be
purchased
either
(i)
through
a
member
firm
of
a
stock
exchange
on
which
such
shares
are
listed,
or
(ii)
from
Placer
or
a
subsidiary
of
Placer.
Any
such
direction
by
the
Board
shall
not
be
effective
with
respect
to
any
calendar
month
unless
it
is
received
by
the
Trustee
10
days
prior
to
the
commencement
of
such
calendar
month.
Any
such
direction
shall
remain
in
effect
for
all
subsequent
calendar
months
until
it
is
changed.
(2)
The
price
of
any
Placer
Common
Shares
purchased
from
Placer
or
a
subsidiary
of
Placer
and
the
price
of
any
Placer
Common
Shares
or
fractions
thereof
which
the
Trustee
is
required
to
purchase
from
any
Member
on
behalf
of
any
other
Member
shall
be
equivalent
to
the
price
per
share
of
the
last
sale
of
Placer
Common
Shares
on
the
Toronto
Stock
Exchange
on
the
10th
day
of
the
calendar
month
following
the
calendar
month
in
which
the
contributions
were
made
by
the
Members
for
the
purchase
of
such
shares
or
dividends
or
other
income
were
received
for
the
accounts
of
the
Members;
or
if
the
said
shares
did
not
trade
on
such
10th
day
on
the
applicable
exchange,
the
last
day
prior
to
such
10th
day
such
shares
traded
on
the
applicable
exchange
(hereinafter
called
the
"Issued
Price").
(3)
The
Trustee
shall
determine
the
aggregate
sum
carried
in
the
cash
accounts
of
the
Members
at
the
close
of
business
on
such
10th
day,
except
in
the
cash
accounts
of
those
Members
for
whose
account
it
is
required
to
sell
all
the
Placer
Common
shares
carried
in
their
share
accounts
pursuant
to
Paragraph
C
of
Article
VII
hereof
(hereinafter
called
the
"Net
Contributions").
(4)
If
the
Net
Contributions
are
less
than
an
amount
equal
to
the
Issued
Price
multiplied
by
the
number
of
shares
to
be
sold
by
all
Members
as
described
in
Paragraph
C
of
Article
VII
hereof,
the
Trustee
shall
proceed
in
accordance
with
said
Paragraph.
If
the
Net
Contributions
of
the
Members
are
more
than
such
amount,
the
Trustee
shall
purchase
such
shares
and
shall
credit
the
cash
account
of
each
Member
for
whom
Placer
Common
Shares
or
fractions
thereof
are
being
sold
with
an
amount
equal
to
the
Issued
Price
multiplied
by
the
number
of
Placer
Common
Shares
or
fractions
thereof
being
sold
for
his
account.
At
the
same
time,
the
Trustee
shall
debit
the
share
account
of
such
Member
with
the
number
of
Placer
Common
Shares
or
fractions
thereof
being
sold
for
his
account.
(5)
The
Trustee
shall
then,
according
to
the
direction
made
by
the
Board
as
to
the
purchase
of
shares
with
respect
to
the
calendar
month
in
which
such
shares
are
to
be
made,
either
(i)
Place
orders
with
one
or
more
member
firms
of
a
stock
exchange
as
provided
under
Subparagraph
(1)
of
this
Paragraph
to
purchase
at
the
market
price
in
the
name
of
the
Trustee
or
its
nominee,
the
largest
number
of
whole
Placer
Common
Shares
which
can
be
purchased
with
the
Net
Contributions,
after
the
same
has
been
reduced
by
the
aggregate
amount
of
cash
credited
to
the
accounts
of
those
Members
for
whom
shares
have
been
sold
pursuant
to
Subparagraph
(4)
of
this
Paragraph,
provided,
however,
that
the
Trustee
shall
not
be
required
to
purchase
shares
in
the
market
at
times
or
prices
which,
in
the
opinion
of
the
Trustee,
would
not
be
consistent
with
the
conduct
of
orderly
transactions
in
the
market
for
such
shares;
or
(ii)
Purchase
from
Placer
or
a
subsidiary
of
Placer
at
the
Issued
Price
the
largest
number
of
whole
Placer
Common
Shares
which
can
be
purchased
with
the
Net
Contributions,
after
the
same
has
been
reduced
by
the
aggregate
amount
of
cash
credited
to
the
cash
accounts
of
those
Members
from
whom
shares
have
been
sold
pursuant
to
Subparagraph
(4)
of
this
Paragraph.
(6)
After
eight
of
the
purchases
described
in
Subparagraph
(5)
of
this
Paragraph
have
been
completed,
the
Trustee
shall
determine
the
average
price
per
share
(excluding
all
commissions,
taxes
and
other
expenses
incurred
in
connection
therewith)
at
which
Placer
Common
Shares
have
been
acquired,
for
Members
pursuant
to
Subparagraphs
(4)
and
(5)
of
this
paragraph
(hereinafter
called
the
"Purchase
Price")
and
shall
cause
the
share
account
of
each
Member
to
be
credited
with
the
number
of
shares
(carried
to
the
fourth
decimal
place)
equal
to
the
amount
that
was
carried
in
his
cash
account
on
such
10th
day
divided
by
the
Purchase
Price.
At
the
same
time,
the
Trustee
shall
debit
the
cash
account
of
such
Member
with
an
amount
equal
to
the
Purchase
Price
multiplied
by
the
number
of
Placer
Common
Shares
(carried
to
the
fourth
decimal
place)
that
have
been
credited
to
such
Member's
share
account.
(i)
Article
VI
B
Custody.
The
Trustee
shall
hold
for
safekeeping
all
Placer
Common
Shares
purchased
by
it
pursuant
to
this
Plan
until
the
Member
for
whose
account
they
have
been
purchased,
or
his
legal
representatives,
direct
the
Trustee
to
transfer
and
deliver
the
same
to
him
or
such
legal
representatives
pursuant
to
Paragraph
A
of
Article
VII
hereof
or
Paragraph
B
of
Article
VIII
hereof
or
to
sell
such
shares
pursuant
to
Paragraph
C
of
Article
VII
hereof.
While
shares
are
held
by
the
Trustee,
the
Trustee
shall
credit
all
distributions
received
thereon
to
the
proper
account
of
such
Member.
(j)
Article
VI
C
Voting
Rights.
Each
Member
for
whose
account
the
Trustee
holds
Placer
Common
Shares
shall
have
the
right
to
receive
all
material
mailed
by
Placer
to
its
shareholders
including
all
notices
of
meetings
of
the
shareholders
thereof.
The
Trustee
(or
its
nominee)
shall
vote
such
shares
at
such
meetings
of
the
shareholders
in
accordance
with
instructions
given
to
the
Trustee
in
writing
by
each
Member.
Notwithstanding
the
foregoing
sentence,
to
the
extent
that
the
Trustee
receives
directions
from
Members
in
whose
accounts
fractional
interests
in
Placer
Common
Shares
are
carried,
the
Trustee
(or
its
nominee)
shall
have
the
right
to
vote,
in
a
manner
consistent
with
those
directions,
a
number
of
full
shares
equal
to
the
aggregate
fractional
interests
with
respect
to
which
it
has
been
given
similar
directions.
(k)
Article
VII
A
Directions
to
Withdraw.
A
Member
may
direct
the
Trustee
(i)
to
transfer
all
or
any
part
of
the
Placer
Common
Shares
carried
in
his
share
account
(except
any
fractional
interest
in
a
Placer
Common
Share)
into
his
name
and
to
deliver
the
same
to
him,
or
(ii)
to
sell
all
or
any
part
of
his
Placer
Common
Shares
and
fractions
thereof,
in
accordance
with
Paragraph
C
of
this
Article,
and
remit
the
balance
of
his
cash
account,
after
the
same
has
been
credited
with
the
proceeds
of
such
sale,
to
him.
All
directions
to
withdraw
shall
be
made
by
the
Member
directly
to
the
Trustee
by
letter,
telegram
or
cable,
in
a
form
approved
by
the
Committee
and
acceptable
to
the
Trustee.
All
directions
to
sell
Placer
Common
Shares
that
are
received
during
a
calendar
month
shall
be
deemed
to
be
effective
at
the
close
of
business
on
the
10th
day
of
the
following
calendar
month.
A
Member
who
makes
a
withdrawal
in
excess
of
two
during
any
ten-year
period
shall
be
ineligible
to
make
contributions
under
the
Plan
for
a
period
of
12
calendar
months
commencing
on
the
effective
date
of
such
withdrawal.
(l)
Article
VII
C
Sale
of
Placer
Common
Shares.
On
the
next
business
day
following
the
10th
day
of
each
calendar
month,
the
Trustee
shall
determine
the
total
number
of
Placer
Common
Shares
(including
any
fractional
interest
in
a
Placer
Common
Share)
that
it
has
received
directions
to
sell
in
accordance
with
Paragraph
A
of
this
Article
or
Paragraph
B
of
Article
VIII
hereof
and
shall
sell
such
shares
in
accordance
with
the
following
procedure:
(1)
If
the
Net
Contributions
of
the
Members
as
described
in
Subparagraph
(3),
Paragraph
A
of
Article
VI
hereof
exceeds
an
amount
equal
to
the
Issued
Price
(determined
in
accordance
with
Sub-paragraph
(2)
of
that
Paragraph)
multiplied
by
the
number
of
shares
to
be
sold
by
all
Members,
the
Trustee
shall
proceed
in
accordance
with
Paragraph
A
of
Article
VI
hereof.
If
the
Net
Contributions
of
the
Members
are
less
than
such
amount,
the
Trustee
shall
determine
the
number
of
shares
to
be
sold
that
may
be
purchased
for
the
accounts
of
the
other
Members
by
(i)
subtracting
from
the
Net
Contributions
of
the
Members
an
amount
equal
to
the
Issued
Price
multiplied
by
any
fractional
interest
in
a
share
to
be
sold
and
(ii)
by
dividing
the
balance
by
the
Issued
Price.
The
Trustee
shall
then
purchase
the
fractional
interest
and
the
number
of
shares
determined
as
aforesaid
and
shall
cause
the
share
account
of
each
Member
for
whom
Placer
Common
Shares
must
be
acquired
to
be
credited
with
a
number
of
shares
(carried
to
the
fourth
decimal
place)
equal
to
the
amount
that
was
carried
in
his
cash
account
at
the
close
of
business
on
such
10th
day
divided
by
the
Issued
Price.
At
the
same
time,
the
Trustee
shall
debit
the
cash
account
of
such
Member
with
an
amount
equal
to
the
Issued
Price
multiplied
by
the
number
of
such
Placer
Common
Shares
(carried
to
the
fourth
decimal
place)
that
have
been
credited
to
his
share
account.
(2)
The
Trustee
shall
then
place
orders,
with
one
or
more
member
firms
of
a
stock
exchange
on
which
Placer
Common
Shares
are
listed
to
sell
at
the
market
the
remaining
whole
number
of
Placer
Common
Shares
for
which
it
has
received
directions
to
sell.
(3)
After
all
of
the
sell
orders
described
in
Subparagraph
(2)
of
this
Paragraph
have
been
executed,
the
Trustee
shall
determine
the
average
price
per
share
(after
the
payment
of
all
commissions,
taxes
and
other
expenses
incurred
in
connection
therewith)
at
which
Placer
Common
Shares
have
been
sold
pursuant
to
Subparagraphs
(1)
and
(2)
of
this
Paragraph
and
shall
cause
the
cash
account
of
each
Member
for
whom
such
shares
were
sold
to
be
credited
with
an
amount
equal
to
such
average
price
per
Placer
Common
Share
multiplied
by
the
number
of
Placer
Common
Shares
that
were
sold
for
his
account.
At
the
same
time,
the
Trustee
shall
debit
the
share
account
of
such
Member
with
the
number
of
Placer
Common
Shares
sold
for
his
account.”
(m)
Article
VIII
A(1)
A.
Manner
of
Distribution.
Upon
the
termination
of
the
membership
of
any
Member,
the
cash
and
Placer
Common
Shares
held
by
the
Trustee
for
the
account
of
such
Member
shall
be
distributed
as
follows:
(1)
If
such
Member
or
his
legal
representative
directs
the
Trustee,
in
the
manner
and
within
the
period
described
in
Paragraph
B
of
this
Article,
to
liquidate
his
share
account,
the
Trustee
shall
sell
all
Placer
Common
Shares
credited
to
his
share
account
and
remit
the
net
proceeds
(after
the
payment
of
all
commissions,
taxes
and
other
expenses
incurred
in
connection
with
such
sales
or
redemptions),
together
with
any
amount
remaining
in
his
cash
account,
to
him
or
such
legal
representative.
All
Placer
Common
Shares
shall
only
be
sold
at
the
times
and
in
the
manner
described
in
Paragraph
C
of
Article
VII
hereof.
(2)
If
such
Member
or
his
legal
representative
directs
the
Trustee,
in
the
manner
and
within
the
period
described
in
Paragraph
B
of
this
Article,
to
distribute
the
Placer
Common
Shares
in
his
share
account,
or
if
the
Trustee
shall
not
have
received
any
directions
with
respect
to
such
account
in
such
manner
and
within
such
period
the
Trustee
shall
sell
any
fractional
interest
in
Placer
Common
Shares
at
the
time
and
in
the
manner
described
in
Paragraph
C
of
Article
VII
hereof.
It
shall
then
deliver
to
such
Member
or
his
legal
representative
all
of
the
remaining
whole
Placer
Common
Shares
and
the
total
amount
carried
in
his
cash
account,
including
the
net
proceeds
from
the
sale
of
any
fractional
interests.
Any
Placer
Common
Shares
shall,
before
delivery,
be
transferred
into
the
name
of
such
Member
(in
the
manner
and
within
the
period
described
in
Paragraph
B
of
this
Article)
or
if
the
Member
shall
have
died
or
been
adjudged
incompetent,
then
in
the
name
of
his
legal
representative.
(n)
Article
IX
A
Appointment
of
a
Committee.
The
Board
shall
appoint
a
committee,
called
the
Stock
Purchase
Plan
Committee,
of
not
less
than
three
(3)
or
more
than
five
(5)
persons
who
shall
serve
at
the
pleasure
of
the
Board.
Any
vacancy
in
the
Committee
arising
by
death,
resignation,
or
otherwise
shall
be
filled
by
the
Board.
(o)
Article
X
A
Appointment.
The
Trustee
shall
be
appointed
by
the
Board.
Thereafter,
the
Board
shall
have
the
power
to
remove
the
Trustee
and
appoint
a
new
Trustee.
In
every
case,
the
Trustee
shall
be
a
trust
company
duly
qualified
to
act.
(p)
Article
X
B
The
Trust
Agreement.
The
terms
and
conditions
of
the
trust
agreement
shall
be
determined
by
the
Board.
Said
agreement
shall
be
deemed
to
form
part
of
the
Plan,
and
any
and
all
rights
or
benefits
which
may
enure
to
any
person
under
the
Plan
shall
be
subject
to
all
the
terms
and
conditions
of
said
agreement
which
are
not
inconsistent
with
the
Plan.
7.
By
way
of
example
as
to
how
the
Plan
worked
we
have
used
the
month
of
September
1985
and
there
is
attached
hereto
as
Schedule
D
a
summary
sheet
prepared
by
the
National
Trust
Company
entitled
"Placer
Stock
Purchase
Plan:
Summary
of
Purchase:
Month
September
1985”.
The
working
of
the
plan
was
as
follows:
(a)
For
the
month
of
September
1985,
the
plaintiff
wrote
a
cheque
to
the
Trustee
of
the
Plan
for
$127,820.79
representing
the
employee
and
employer
contributions
for
the
plaintiff,
its
Endako
division,
and
its
Gibraltar
and
Equity
subsidiaries;
and
the
plaintiff's
division,
Placer
CEGO
Petroleum,
wrote
a
cheque
to
the
Trustee
of
the
Plan
for
$20,547.08
representing
its
employee
and
employer
contributions.
These
contributions
were
made
in
accordance
with
Articles
IV
A
and
IV
F
of
the
Plan.
Pursuant
to
Article
V
B
of
the
Plan
the
amounts
contributed
were
credited
by
the
Trustee
to
the
employees’
cash
accounts.
(Copies
of
the
cheque
stubs
are
Schedule
E
to
this
Agreed
Statement
of
Facts.)
(b)
On
October
10,
1985,
the
Trustee
determined
that
the
last
trade
of
the
plaintiff's
stock
on
the
Toronto
Stock
Exchange
on
that
day
had
been
at
$22.50
which
was
thus
established
to
be
the
price
at
which
shares
for
the
Plan
would
be
purchased
and
sold.
(Copy
of
the
National
Trust
letter
to
the
plaintiff
is
Schedule
F
to
this
Agreed
Statement
of
Facts.)
(c)
Pursuant
to
Articles
V
B
and
Vi
A
of
the
Plan,
the
cash
account
of
each
employee
was
credited
and
the
money
was
first
used
to
acquire
the
shares
from
the
accounts
of
those
Members
who
were
making
withdrawals
from
and
terminating
their
membership
in
the
Plan.
For
that
month
$46,670.80
was
used
to
acquire
2,074.2568
shares.
(d)
There
was
paid
to
terminating
Members
the
contributions
made
on
their
behalf
for
the
month
of
September,
which
moneys
had
not
been
utilized
to
buy
shares.
The
total
amount
of
contributions
so
returned
for
the
month
of
September
was
$1,021.65.
As
well,
there
was
returned
to
terminating
Members
$180.19
representing
dividends
that
had
been
received
with
respect
to
their
shares.
(e)
There
was
added
to
the
amount
available
for
the
purchase
of
shares
$13,809.08
representing
dividends
received
with
respect
to
the
shares
held
by
the
Plan,
and
there
was
deducted
$330.20
of
withholding
tax
relating
to
dividends
that
were
credited
to
the
cash
accounts
of
non-resident
Members
of
the
Plan.
(f)
The
balance
after
all
of
these
adjustments
was
$113,973.15
which
amount
was
used
to
acquire
5,066
shares
in
the
capital
stock
of
the
plaintiff
from
the
treasury
of
the
plaintiff
pursuant
to
Article
VI
A
(5)(ii)
of
the
Plan.
(g)
Pursuant
to
Article
VI
A(6),
the
Trustee
credited
the
share
account
of
each
Member
with
the
number
of
shares,
carried
to
the
fourth
decimal
point,
equal
to
the
amount
in
that
Member's
cash
account
on
October
10,
1985
divided
by
$22.50
(the
purchase
price
of
the
shares)
and,
at
the
same
time,
the
Trustee
debited
each
Member's
cash
account
accordingly.
(h)
The
Trustee
credited
the
cash
account
of
each
withdrawing
Member
with
the
proceeds
of
the
sale
of
shares
and
remitted
the
balance
in
his
cash
account
to
such
Member,
pursuant
to
Article
VII
A
of
the
Plan;
and
remitted
the
net
proceeds
of
the
sale
of
shares
of
each
terminating
Member,
together
with
any
amount
remaining
in
his
cash
account,
to
such
Member,
pursuant
to
Article
VIII
A
(1)
of
the
Plan.
8.
How
the
Plan
affected
each
employee
is
demonstrated
by
the
example
of
Mr.
John
Eckersley.
During
the
month
of
September,
Mr.
Eckersley's
"employee
contribution”
was
$375.02
which
was
matched
by
the
plaintiff's
50%
contribution
of
$187.51
for
a
total
of
$562.53.
When
the
plaintiff
paid
Mr.
Eckersley
his
regular
salary
cheque
for
September
30th
the
taxes
that
were
withheld
were
based
on
the
amount
actually
paid
to
him
plus
the
amount
of
$562.53
that
was
paid
to
the
Plan.
This
was
pursuant
to
Article
IV
G
of
the
Plan.
The
Trustee
credited
Mr.
Eckersley's
cash
account
with
the
amount
of
$562.53,
plus
the
amount
of
dividends
received
by
the
Plan
on
the
shares
held
for
his
account,
pursuant
to
Article
V
B
of
the
Plan.
On
October
11,
1985,
the
Trustee
purchased
shares
of
the
plaintiff,
equal
in
number
to
the
amount
in
his
cash
account
on
October
10,
1985
divided
by
the
price
of
$22.50
per
share,
and
credited
Mr.
Eckersley's
share
account
with
the
number
of
shares
purchased
and
debited
Mr.
Eckersley’s
cash
account
with
the
amount
of
the
purchase
price
for
such
shares,
pursuant
to
Article
VI
A
(6)
of
the
Plan.
9.
During
the
1985
taxation
year
the
total
number
of
shares
acquired
out
of
contributions
made
to
the
Plan
was
84,106.5412
of
which
40,794.7412
were
purchased
from
the
accounts
of
other
members
in
the
Plan
and
43,304
were
acquired
from
the
plaintiff's
treasury.
10.
By
Notice
of
Reassessment
dated
July
7,
1989
for
the
plaintiff's
1985
taxation
year,
the
Minister
of
National
Revenue
reassessed
the
plaintiff
disallowing
as
a
deduction
contributions
made
by
the
Company
to
the
Plan.
The
form
T7WC
attached
to
the
Notice
of
Reassessment
stated:
Disallowed
employer
contributions
to
Employee
Stock
Purchase
Plan
$282,076
11.
By
Notice
filed
on
July
20,
1989
the
plaintiff
objected
to
the
said
reassessment.
By
Notification
dated
December
13,
1989,
the
Minister
of
National
Revenue
confirmed
the
Reassessment.
My
introductory
remark
regarding
the
difficulty
of
clearly
understanding
the
operation
of
the
plan
will
now
be
properly
appreciated.
There
are,
however,
some
observations
that
a
careful
reader
cannot
avoid
making;
two
of
them,
which
are
particularly
striking,
must
be
stressed
for
our
purposes.
The
first
one
concerns
the
actual
authority
directing
the
plan
and
the
function
of
the
trustee
in
relation
to
that
authority.
It
will
have
been
noted
that
Article
IX
provides
that
the
operation
of
the
plan
is
overseen
by
a
committee,
endowed
with
the
largest
powers
of
regulation
and
interpretation,
the
members
of
which
are
appointed
at
the
pleasure
of
the
board
of
directors
of
Placer.
The
latter
have
even,
per
Article
XII,
the
right
to
amend
the
plan,
to
give
the
amendment
retroactive
effect
and
to
terminate
the
plan
at
any
time,
provided
only
that
the
benefits
already
earned
by
the
employees
be
left
intact.
Now,
coming
to
the
trustee’s
role,
it
will
have
been
noted
that
it
is
precisely
defined.
The
trustee
is
bound,
once
the
company
provides
the
tax
adjusted
contributions
on
the
6th
day
of
the
month,
to
credit
the
amounts
to
the
appropriate
members'
cash
accounts.
The
trustee
then
attempts
to
deplete
the
members’
cash
accounts
through
the
purchase
of
shares
sold
by
withdrawing
and
terminating
members
("old
shares").
The
share
price
at
which
the
trustee
must
trade
is
automatically
set
by
the
market
on
the
10th
day
of
the
month.
If
any
cash
account
credits
remain
after
exhausting
this
source
of
old
stock,
the
trustee
is
required
to
buy
treasury
shares
until
the
cash
accounts
of
all
purchasing
members
are
depleted.
If,
on
the
other
hand,
the
cash
account
credits
are
insufficient
to
pay
for
all
the
old
shares
to
be
sold,
those
remaining
will
be
offered
on
the
stock
market.
It
is
impossible
to
deny,
in
view
of
all
these
rules,
that
the
trustee’s
function
is
an
automatic,
and
not
an
autonomous,
one.
Every
phase
of
the
trustee's
activity
is
specifically
predetermined.
There
is,
of
course,
nothing
irregular
about
such
an
arrangement,
but,
it
is
apparent
that
the
trustee
exercises
absolutely
no
independence
of
thought
or
action.
The
trustee
is,
in
fact,
a
mere
executor,
an
agent
or
a
servant
with
no
power
to
decide
and
no
initiative
whatsoever.
The
trustee
may
be
said
to
be
an
administrator
in
the
broad
sense
of
the
word,
since
he
has
legal
acts
to
perform,
but
the
view
that
he
is
an
administrator
acting
for
the
benefit
of
the
employees
does
not
appear
to
be
wholly
accurate.
He
is
an
intermediary
or
a
conduit
acting
for
the
benefit
of
all
concerned
and
his
only
role
is
to
execute
passively
the
operations
as
dictated
by
the
provisions
of
the
plan
and
the
directives
of
Placer’s
board
of
directors.
The
second
observation
regards
the
assignment
of
the
funds
to
be
paid
by
the
employer
and
the
time
of
their
actual
payment.
It
is
important
to
realize
that
the
employer
never
pays
out
money
to
the
employees
directly
and
never
pays
out
money
to
the
trustee
the
destination
of
which
is
not
precisely
predetermined
by
the
rules
of
the
plan.
In
fact,
except
to
give
effect
to
the
cash
demands
of
the
departing
or
withdrawing
members,
no
actual
transfer
of
funds
need
occur;
all
transactions
can
be
satisfied
through
bookkeeping
entries.
Even
when
cash
is
needed,
which
is
to
be
drawn
from
the
contributions,
the
actual
amount
to
be
remitted
by
the
company
to
the
trustee
is
only
that
required
to
purchase
shares
of
withdrawing
or
terminating
members;
for
the
balance
of
the
contributions,
one
need
merely
adjust
the
books
to
reflect
the
offsetting
payments.
I
realize
that
a
cheque
signed
by
the
respondent
and
payable
to
the
trustee
for
the
month
of
September,
1985
(which
had
been
submitted
to
present
a
concrete
view
of
the
operations
of
the
arrangement)
is
on
file,
but
there
is
no
indication
that
the
cheque
was
ever
cashed.
Even
if
it
was,
there
is
no
indication
as
to
who
benefited
from
the
accumulated
interest.
Is
it
not
interesting
that,
despite
its
complexity,
no
provision
of
the
plan
addresses
the
interest
gained
on
contributions
either
between
the
30th
and
the
6th
of
the
following
month,
when
all
of
the
contributions
rest
with
the
employer,
or
between
the
6th
and
the
10th
of
the
month,
when
the
trustee
is
theoretically
holding
the
money
on
the
employees'
behalf?
This
second
observation
which,
in
effect,
pertains
to
the
actual
transfer
of
funds,
and
more
particularly,
to
the
manner
in
which
the
cash
demands
of
departing
or
withdrawing
members
are
satisfied
each
month,
can
be
extended.
As
we
have
seen,
the
money
required
to
buy
the
old
shares,
i.e.
shares
credited
to
the
accounts
of
those
who
depart
or
have
decided
to
exercise
their
limited
right
of
withdrawal,
will
first
be
taken
from
the
total
contributions
for
that
month.
But,
we
know
that
two-thirds
of
those
contributions
come
from
the
employees'
wages
set
aside
by
the
employer
to
cover
the
employees'
subscriptions.
What
follows
is
of
prime
importance:
as
the
only
other
source
of
shares
is
the
capital
pool
of
the
company,
the
employer
will
have
to
actually
disburse
money
beyond
what
it
has
retained
from
the
employees'
wages
only
if
more
than
two-thirds
of
the
total
sum
payable
to
the
trustee
for
that
month
is
required
to
buy
old
shares.
In
my
view,
there
is
no
need
to
go
any
further
in
the
analysis
of
the
plan;
conclusions
flow
from
these
two
basic
observations
that
are
determinative
of
the
issue.
Based
on
the
following
facts:
that
the
trustee
is
merely
a
conduit
through
which
the
employer
administers
the
plan;
that
the
employees
never
receive
money
or
money's
worth
until
termination
or
withdrawal
and,
even
then,
never
from
the
employer
directly;
and,
that
the
funds
payable
by
the
employer
to
the
trustee
each
month
have
a
predetermined
destination
and
never
fall
under
any
real
control
or
genuine
power
of
the
employees
or
the
trustee,
it
must
be
concluded
that
the
true
benefit
the
employees
acquire
by
their
participation
in
the
plan
is
not
the
entitlement
to
an
additional
remuneration
but
the
entitlement
to
a
credit
for
shares
of
Placer
at
two-thirds
of
their
market
value.
It
is,
of
course,
equivalent
for
a
corporation
to
sell
its
treasury
shares
at
a
discount
or
to
gratuitously
give
money
to
the
purchasing
employee
on
the
express
condition
that
it
be
(immediately
or
eventually)
applied
to
cover
part
of
the
full
value
purchase
price
of
those
treasury
shares.
Obviously,
the
two
operations
cannot
be
treated
differently
as
to
their
tax
incidence.
The
situation
created
by
the
plan
is,
as
I
see
it,
precisely
the
one
envisaged
by
section
7
of
the
Act,
even
if
the
draftsman
had
probably
in
mind,
in
formulating
the
provision,
the
more
recognizable
"stock
option
plan”,
where
the
employee
acquires
the
right
to
purchase
shares
at
a
fixed
price
which
is
actually,
or
may
become,
lower
than
the
market
price,
or
a
“share
purchase
plan”
in
which
shares
are
offered
at
a
price
less
than
their
actual
value.
Indeed,
the
very
words
used
in
paragraph
7(1)(a)
describe
that
situation,
since
the
employees
are
simply
given
the
opportunity
to
acquire
shares
of
the
capital
stock
of
their
employer
by
paying
only
a
fraction
of
the
market
price.
It
follows
that
subsection
7(3)
will
govern
all
of
the
respondent's
contributions
which,
applied
to
the
purchase
of
its
treasury
shares
by
the
trustee,
have
merely
served
to
reduce
the
price
actually
paid
by
the
employees.
There
is
another
conclusion
to
be
drawn,
which,
in
my
view,
is
even
more
telling
and
incontrovertible
than
the
first
one.
For
the
respondent
to
be
compelled
under
the
plan
to
make
any
irrecoverable
cash
outlay,
more
than
two-thirds
of
the
combined
contributions
of
an
entire
year
(income
tax
being
chargeable
on
a
yearly
basis)
would
be
needed
to
satisfy
the
cash
demands
of
the
departing
or
withdrawing
members
during
that
year;
or,
put
otherwise,
more
than
twice
as
many
old
shares
as
new
treasury
shares
had
to
be
sold
during
the
year.
The
eventuality
is
quite
a
remote
one
indeed,
as
the
employer's
contributions
are
due
monthly
and
are
dependant
on
the
actual
employees'
contributions.
In
any
event,
it
is
clear
that,
in
the
relevant
year,
1985,
the
respondent
has
not
made
any
output
of
funds
under
the
Plan.
Since,
in
that
year,
more
treasury
stock
was
bought
than
old
stock
was
sold
(43,304
v.
40,795),
the
respondent
remained
well
above
the
minimum
ratio
of
2:1
required
before
an
actual
capital
outlay
was
demanded.
The
respondent
is,
therefore,
in
no
position
to
speak
of
deductibility,
it
being
well
established
that
an
employer
must
incur
an
expense
or
a
cash
outlay
or
a
loss
of
value
of
its
assets
in
order
to
claim
a
deduction
from
its
taxable
income
(see
Lowry
(Inspector
of
Taxes)
v.
Consolidated
African
Selection
Trust,
Ltd.,
[1940]
A.C.
648
(P.C.)).
Counsel
for
the
respondent
put
great
emphasis
on
the
statements
which
appear
in
Article
IV
F
of
the
plan
to
the
effect
that
the
employer's
contribution
is
"on
behalf
of
and
as
an
absolute
benefit
for
(the)
member"
and
that
such
contribution
”
shall
be
regarded
as
additional
compensation
paid
to
(the
member)";
they
likewise
attach
much
importance
to
the
fact
that
income
taxes
for
participating
employees
are
withheld
not
only
from
their
wages
but
also
from
the
employer's
contribution.
But,
it
is
the
substance
of
a
transaction
that
must
be
looked
at
in
order
to
determine
the
true
legal
rights
and
obligations
of
the
parties.
Similarly,
it
is
the
commercial
and
practical
nature
of
the
transaction,
the
true
legal
rights
and
obligations
flowing
from
it,
that
must
be
looked
at
to
determine
its
tax
implications.
As
to
the
amounts
withheld
and
presumably
remitted
to
the
Department
in
the
name
of
the
employees,
it
was
a
necessary
corollary
of
the
employer's
assumed
position
under
the
plan,
but,
of
course,
it
cannot
transform
the
reality
of
the
transaction.
Before
closing,
I
pause
to
address
a
statement
made
by
the
Crown's
representative
at
trial,
the
relevant
portion
of
which
follows:
The
Minister
will
be
conceding
that
to
the
extent
that
the
plaintiff
did
not
receive
back
funds
from
the
trustee
to
purchase
treasury
shares,
those
amounts
are
deductible
so
what
we're
speaking
only
of
in
this
appeal
are
the
amounts
paid
back
from
the
trustee
to
the
corporation
for
the
purchase
of
treasury
shares.
It
is
suggested
that,
by
this
statement,
the
Crown
conceded
that
that
portion
of
the
employer's
contribution
going
towards
the
purchase
of
old
shares
was,
in
fact,
deductible.
This
is
not
my
interpretation.
What
the
Crown
is
actually
saying
here
conforms
to
my
analysis
of
the
plan;
that
is
to
say,
if
any
portion
of
the
employer's
contribution,
over
the
year,
is
not
returned
to
it,
then,
that
amount
would
be
deductible.
As
demonstrated
above,
this
certainly
was
not
the
case
here.
My
final
conclusion
will
now
be
clear.
With
respect,
in
finding
that
Placer's
contributions
to
the
plan
form
part
of
the
remuneration
paid
to
its
employees,
and
were
therefore
deductible,
I
think
that
the
trial
judge
failed
to
identify
the
overall
focus
of
the
plan
and
to
accurately
characterize
all
its
underlying
transactions.
In
my
judgment,
the
commercial
reality
of
the
plan
is
that
it
puts
shares
into
the
hands
of
the
employees
at
a
discounted
price.
The
Minister
was,
therefore,
correct
in
concluding
that
the
benefits
accruing
to
the
employees
under
the
plan
were
taxable
pursuant
to
paragraph
7(1)(a)
of
the
Act,
not
subsection
5(1),
and
could
not
be
treated
by
the
employer
as
an
expenditure
deductible
from
its
taxable
income
in
view
of
the
provision
of
subsection
7(3)
of
the
Act.
I
would
allow
the
appeal,
set
aside
the
judgment
of
the
Trial
Division
and
reinstate
the
reassessment
of
the
Minister,
the
whole
with
costs
in
the
Trial
Division
and
in
this
Court.
Appeal
allowed.
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