HER MAJESTY THE QUEEN,
REASONS FOR JUDGMENT
 This unusual appeal is for a determination of whether the amount of $3,080,000 received by the Appellant in 1998 from Paul Johnson is taxable. The Appellant's principal position is that the amount is not subject to tax because it was not employment income, there being no employer/employee relationship and it was not business income because the Appellant was not carrying on a business. The Minister of National Revenue takes the opposite position stating, primarily, that the payment was employment income. The facts evolve from the relationship between two extraordinary men, Peter Au, the Appellant, and Paul Johnson. All of the testimony was provided by the Appellant and his labour lawyer, Randell Earle. They were both credible witnesses.
 The Appellant immigrated to Canada from Asia at an early age. He lived four years with his older sister attending school in Pittsburg, Pennsylvania. He said that for the most part he raised himself. He moved from Pittsburg to Newfoundland where he completed his education becoming a chartered accountant. He joined Clarkson Gordon, a national accounting firm, in about 1980, becoming a partner in 1985 when he was about 38 years old.
 Clarkson Gordon, through the Appellant, provided accounting services and tax advice to the following insurance companies in Newfoundland, Unifund Service Company Ltd. and its subsidiary, Johnson Insurance Ltd. (the Insurance Group). The Insurance Group was controlled by Johnson Financial Limited, a holding company, and Paul Johnson owned all of the shares of Johnson Financial. The Insurance Group from at least 1980 to 1996 was expanding rapidly and Mr. Johnson felt that the Group badly needed a person with the Appellant's talents. Mr. Johnson had given up significant equity in the Insurance Group through a partial estate freeze effected in 1983. He had four children who were all employed with the Insurance Group but he felt that none of them had the necessary talent to take over the management of the Insurance Group upon his death.
 The Appellant spoke of Mr. Johnson with considerable affection and admiration and described him as a philanthropist and the brightest and most innovative businessman that he knew. He was a very successful insurance business owner. While only in his early 60s in 1986, he had serious concerns about his health and, consequently, about the well-being of his wife and children after his death. He was in need of a friend and confidante, competent in the business world who was likely to survive him and upon whom he could rely to take care of his estate and family concerns after his death. He was particularly concerned with the ability of his family to realize upon the value of the Johnson Financial shares after his death.
 While providing complex tax planning to the Insurance Group from 1980 to 1987, the Appellant and Mr. Johnson developed a strong bond, a close personal and business relationship. After several overtures by Mr. Johnson, the Appellant left Clarkson Gordon in the spring of 1987 to be an employee of the Insurance Group and Johnson Financial. The Appellant's tax, accounting and business abilities were well-known in the St. John's business community and there could have been a "line-up" of employers seeking his services. Mr. Johnson sought him aggressively and succeeded in March 1987 when both parties signed an agreement which is the most significant document in the Joint Book of Exhibits with respect to the issues. It is a somewhat informal offer written by Mr. Johnson to the Appellant in letter form. Because of its importance, much of it is reproduced as follows:
This letter is written on behalf of Johnson Family Limited (and its associated companies); myself personally and my family; and the Johnson/Unifund "Insurance Group". It will outline the understanding in connection with your employment within Johnson Family Limited and the Insurance Group. (It may be advisable to issue a separate letter on the letterhead of Unifund Service Company Limited to ensure that the arrangements within the Insurance Group are clearly stated for their records?). You will understand that the arrangements between yourself and Johnson Family Limited, the "Family Group", are confident between you and me, except to the extent that the Corporate Management Group of Johnson/Unifund will need to understand that you will hold a vital Management responsibility within the "Family Group" of Companies, for a valuable "consideration", which is private.
You and I and Jim Chalker, will be addressing the question of the duration of the Family Group, and its possible perpetuation, as a separate issue. In terms of your own future security, I would see not less than twenty or twenty-five years, as a minimum, for the continued existence of the Family Companies.
I want to point out that Johnson Family does not presently have any Benefit Plans. It would not be difficult to have Johnson Family added as a named insured to the existing Benefit Programs, but that would provide access to salary and other figures within Johnson Family Limited, which is not desirable under the arrangements we are contemplating. I want you to be aware of this fact, because we must be sure to overcome that situation in terms of pension and disability on the portion of your income that originates within the Family Group, e.g. Pension or Income Protection. It may be advisable to purchase separate Pension and Income Protection coverage, for retirement or disability.
The annual salary from the Family Group will be $20,000, indexed to the cost of living, up to a maximum of 10% in any one year. I will also be providing you with a personal $50,000 tax-free bequest, from my own resources. I make this bequest because of the extreme importance to me of ensuring that I have, through your good self, highly-competent management and taxation skills, for the benefit of myself and my family, through your agreement to become the "1st Vice President and Chief Financial Officer" of Johnson Family Limited.
The arrangement with the Insurance Group is that your salary for the first year (pro-rata) will be $52,500, and there is a guaranteed minimum bonus of $15,000, plus a car allowance of $6,600. You will be engaged within the Insurance Group as "Vice President, Financial Services", and will specifically be involved in the development of the Financial Planning Service and activation of "Unifund Financial Company Limited". You will be a member of the Corporate Management Group from the outset, and will be entitled to participation in the Senior Management Incentive (Bonus). You will not be participating in the QSO arrangement, other than through the continued advantage of the 15% equity interest in the Insurance Group, that will be maintained by the Family Group.
Referring back to my own estate, and that of Joy, there are certain areas of "gifting" which I intend to fund out of Johnson Family and/or my estate - - namely, 10% to community projects and somewhere between 2 1/2 to 4 percent to "friends". As mentioned, much of this is to be done during the next few years, rather than posthumously. There is also my wish to provide an income for life for my brother, and a capital payment into his estate, of possibly $100,000 from Family sources. As you are aware, my brother has a partial physical impairment, which might worsen at any time, and there could be a decision to amend or hasten that arrangement. If he should become totally disabled, he will have a claim under the disability insurance arrangements of the insurance business.
The eventual ownership of the estate, after Joy and I are deceased, (or shares in Johnson Family Limited) would be in the proportion of nine shares in all, with each of my children having two shares each, and one share for yourself. I believe it will be necessary for me to reach an understanding with Joy on the intended use of the income or assets in Johnson Family Limited by me, by her, or by the business itself. Personally, I have no present plans to do anything other than abiding some of the Food Service losses or investment, costs out of Johnson Family, (and I have reached a point where that has to be minimized). I don't know of anything in particular that Joy will wish to spend money on. We have all the real estate and furniture that we could ever ask for, and in fact, have to concern ourselves with the disposition of those properties as something outside of Johnson Family Limited.
As you will know, there are a variety of things which are still to be determined, but I believe that the most essential of all intentions are reasonably well known. We now need to determine how to put them into effect. I am not quite clear how the community and friends funding/disbursements would be handled, and whether that should be taken into account.
I would be extremely pleased to have you confirm the acceptability of the contents of this letter, by signing and returning the extra copy, at your convenience. Advice about the commencement date can follow.
Best personal regards.
The above letter was signed by both parties.
 The Appellant was to receive $20,000 as First Vice President and Chief Financial Officer of Johnson Financial which owned all of the shares in the Insurance Group. Mr. Johnson promised him what could be described as a signing bonus of $50,000, for the benefit that his 'highly competent management' would bring to the Johnson family. In addition to the $20,000 salary, he would receive $73,000 from the Insurance Group. His total compensation of $93,000 was in excess of what he was drawing as a partner of Clarkson Gordon. The letter outlined Mr. Johnson's intentions regarding his estate and the future interest that the Appellant would eventually have in this property.
 Obviously, Mr. Johnson was very anxious that the Appellant take over the financial end of his insurance operations. The Appellant stated that the promised one-ninth of the estate was not a benefit he considered in accepting the offer of employment contained in the March 11, 1987 letter. At this time, he was married, had, I believe, three children and intended spending the rest of his days with his family in the St. John's area and needed the $93,000.
 While the letter stated he would not be participating in the QSO arrangement, Mr. Johnson changed his position and had the Appellant participate in the QSO from which he realized a profit of approximately $1,200,000 through the exercise and sale of stock options. I believe this was provided to the Appellant, in addition to his salary, to give him further incentive to carry out his significant corporate duties.
 He did not ask for the promise by Mr. Johnson to grant him one-ninth of his estate nor did he undertake to do anything in consideration for the promise. It was a gratuitous and unilateral gesture although with an ulterior motive. He was to be well paid for the services to be rendered to the Insurance Group and representing the Johnson Financial Limited and family interests in Insurance Group. There is no mention of services required of the Appellant to Mr. Johnson and family in consideration for a one-ninth estate interest.
 In a memo to his lawyer dated February 29, 1988, respecting his last Will, Mr. Johnson stated at paragraphs 5, 6 and 7 as follows:
5. Where the complexities begin is with my intention that Peter's involvement is intended to be committed (both ways) starting right now. I believe that maybe we need what I would call an "Estate and Management Agreement" (EAMA) between myself and Peter, and Johnson Financial Limited. EAMA might serve as a contractual summary of Peter's responsibilities toward me, my Family, the Estate, and JFL (and vice versa). There must be no uncertainties or misunderstandings about Peter's absolutely key role, nor his entitlements - - committed through EAMA now, as well as through the Will.
6. Peter is to have a 10% beneficial ownership of the estate, after specific bequests and real estate are settled. That 10% will grow (or shrink) according to the fortunes of the estate. Peter is going to be the manager of JFL and the estate, in close consultancy with the other trustees/owners. Whether and how that 10% ownership is to be committed and constituted, will take careful consideration, including the tax considerations. Having entitlement to income from JFL now; and/or deferred income; and/or capital now and/or later from the estate; needs exploration and skillful planning.
7. I can understand the thought involved for having Peter's 10% interest "earned" over 5 years. But, I believe I would like to have my commitment to Peter established now. I want his eventual "stake" and interest to be significant, and linked directly and long-term to the welfare and fortunes of Joy and the children.
 Through the promise of a one-ninth share of his estate, Mr. Johnson believed he was securing the loyalty and commitment of the Appellant towards the benefit of his and his family's financial interests in Johnson Financial Limited. It is evident from this memo that Mr. Johnson did not believe that there was an existing contractual relationship between himself personally and the Appellant. In stating: "whether and how that 10% is to be committed ... will take careful consideration ..." indicates that the decision with respect to the estate interest was within his discretion. The Estate and Management Agreement was never created and the Appellant never spoke of it. Clearly Mr. Johnson did not consider the one-ninth interest to be a contractual term of the 1987 letter and nor did the Appellant. Mr. Johnson retained control of his estate bequests and the Appellant had no input.
 Thereafter, the Appellant was given a draft of Mr. Johnson's last Will and Testament wherein his interest was 10% and not one-ninth of his estate, and it was conditional on the Appellant being an employee of Johnson Financial Limited at the time of Mr. Johnson's death. This unilateral change of Mr. Johnson's will is further evidence that it was not a contractual term of the employment between the Appellant and Mr. Johnson or the Insurance Group. The granting of an estate interest to the Appellant evolved from the personal relationship between the two men and Mr. Johnson's desire to cultivate their friendship and continued business relationship. Testimony was given of several situations which exemplify this. When Mr. Johnson's wife died in 1988, the Appellant looked after him in personal ways. When Mr. Johnson remarried several years later, the Appellant was his best man or witness.
 In 1995, Mr. Johnson provided the same familiar support for the Appellant when the Appellant's wife died. She had been diagnosed with breast cancer a few years earlier. Mr. Johnson assisted the Appellant by sending meals and allowing him flexible hours to look after his then four children. The Appellant testified that he suffered physically and emotionally after his wife's death. In 1998, he was diagnosed with depression after seeing a psychiatrist. I do not believe he has worked outside his home since 1997.
 While working for Johnson Financial and the Insurance Group, the Appellant also assisted Mr. Johnson and family in financial matters and philanthropic endeavours. I have no doubt that these services were invaluable. In a letter dated September 25, 1990 addressed to Mr. Johnson's four children, he stated, in part:
I have already spoken with Peter and he is prepared to provide such consultation with you, individually and privately. You are already aware of his outstanding, professional and friendly expertise, and of his long-term and heartfelt dedication to our family. His interests are exactly the same as mine, and your own, and I would like you to work with him, for everyone's comfort and advantage.
 In the late fall of 1996, Johnson Financial sold its interest in the Insurance Group to Royal Insurance for $78,000,000. Mr. Johnson and the Insurance Group no longer needed the Appellant's expertise. His expectations of working the rest of his days with the Insurance Group ended. At this time, the Appellant spoke to Mr. Johnson's lawyer, Mr. Chalker, who advised him that he had no claim upon Mr. Johnson's estate and that Mr. Johnson retained sole discretion over any amount he chose to disburse and bequeath.
 Reluctantly, in 1997 the Appellant sought the advice of a labour lawyer, Randell Earle. Having knowledge of Mr. Johnson's reluctance towards litigation and the potential publicity it could bring, Mr. Earle took a very aggressive approach. He commenced an action against Mr. Johnson, Johnson Financial (in 1997, Johnson Estate Inc.), The Johnson Corporation, and Johnson Incorporated. The Statement of Claim, Statement of Defense and Amended Statement of Claim are found at Tabs 20, 21 and 22 of Exhibit A-1. The action against the Johnson Estate Inc. and the Insurance Group was for wrongful dismissal.
 In his Statement of Claim, the Appellant alleged that he had an employment contract with all four defendants. This would come back to haunt him when, for the purposes of issues in the present dispute, he maintains that he had no contract of employment with Mr. Johnson. In the action against the four named defendants, he sought general damages for loss of permanent employment and for breach of agreement to provide one-ninth interest in the estate or a declaration of constructive trust for a one-ninth interest in Mr. Johnson's estate.
 In the Statement of Defense, the corporate defendants admitted that the Appellant had an employment contract with Johnson Financial (Johnson Estate Inc.) and the Insurance Group. Mr. Johnson consistently denied that the Appellant had a contract of employment with him personally and insisted that an interest in his estate was not a term of the employment contracts.
 The parties agreed to mediation headed by a retired judge in Montreal and they settled upon the terms set out in two Releases. Under the first Release, the following amounts were paid to the Appellant:
(i) Johnson Financial (Johnson Estate Inc.) - $598,000;
(ii) Insurance Group - $418,000;
(iii) Costs - $150,000;
Under the second Release, Mr. Johnson paid the Appellant the amount of $3,080,000.
 The Appellant reported the amounts of $598,000 and $418,000 in his 1998 income tax return. He did not report the $3,080,000 paid by Mr. Johnson. This amount represented approximately 10% of the net value of Mr. Johnson's estate in 1997. This was a mitigated settlement with the intent that the Appellant not be included as a beneficiary in Mr. Johnson's last Will and Estate. The Appellant stated that he did not consider this amount to have the character of income under the Income Tax Act either as employment income under section 5 or 6 or income from a business under section 9 or a retiring allowance pursuant to subparagraph 56(1)(a)(ii).
 The Respondent counters this with the position that the Appellant admitted in his Statement of Claim that he had a contract of employment with Mr. Johnson and that the $3,080,000 was employment income.
 In summary, the facts as I find them include the following. In a letter dated March 11, 1987, Mr. Johnson on behalf of his corporations entered into a preliminary agreement to retain the Appellant's services. In the same letter he outlined the intended terms of his last Will and Testament. He informed the Appellant of his intent to grant him a one-ninth interest in the remainder of his estate. Mr. Johnson unilaterally changed his last Will between 1987 and 1997 and the Appellant's share varied from one-ninth to 10%. The changes to it over time, reflected the personal relationship between the Appellant and Mr. Johnson.
 The Appellant became director of Johnson Financial, which essentially owned all the shares of the operating insurance companies. These shares were the bulk of Mr. Johnson's net worth. The Appellant also became a senior manager of the Insurance Group and was probably essential in directing the 1996 sale of the Insurance Group. After the sale, the assets of Johnson Financial, then Johnson Estate Inc., were liquid and the Appellant's services were no longer required.
 In 1998, a settlement was reached wherein, inter alia, the Appellant received a cheque from Mr. Johnson in the amount of $3,080,000. The question is whether this amount is taxable.
 Again the Respondent's most dominant argument is that the Appellant is bound by the submission in his Statement of Claim stating that he had a personal contract with Mr. Johnson with respect to his inclusion in the Will as to a one-ninth interest. The Statement of Claim was prepared by Mr. Earle. This was an unproved allegation that was categorically and consistently denied by Mr. Johnson. This denial is more significant given that, for the most part, all other of the Appellant's allegations are admitted.
 Subsequent to the hearing, the Supreme Court of Canada issued the decision in Tsiaprailis v. Canada, 2005 SCC 8, and both parties presented further submissions. The Respondent stated, in part:
It is important to note that what determines taxability y is not what interest or legal right could have been sued upon but was not, but rather what interest or legal right was in fact sued and settled upon. The undisputed facts of the present appeal are that the Appellant received the amount in issue in settlement of the claim he made against Paul Johnson and for no other reason, and that the Appellant sued Paul Johnson under an employment contract. The interest or legal right that was in fact sued and settled upon was, therefore, employment income or benefits. The amount in issue is, therefore, taxable as employment income or benefits under the surrogatum principle.
Also, the Appellant stated in part:
In paragraphs 3 and 7, the Respondent asserts that the amount received by the Appellant from Paul Johnson must have been employment income or benefits because: (i) the Appellant's Statement of Claim asserted a contract between the Appellant and Paul Johnson; and (ii) as a result of subsequent negotiations, a settlement amount was paid. This is an incorrect conclusion of law, as submitted at paragraphs 1 through 5 herein. However, in contrast to the Tsiaprailis case and in contrast to the amounts paid to the Appellant by Johnson Estate Inc. (formerly Johnson Financial Limited) and Johnson Incorporated (formerly Unified Service Company Limited) in which, on the facts, the existence of a contract between the payer and the payee was not disputed and the right to compensation under that contract was not disputed, in the Appellant's tax appeal the very existence of a contract of employment between the payer (Paul Johnson) and the payee (the Appellant) is in issue. This question, and the further question of what the payment to the Appellant was intended to replace, falls to be decided on the basis of all the relevant evidence before this Honourable Court, as was the case in Tsiaprailis, and not simply on the basis of the assertions of the Appellant's Statement of Claim.
The Appellant never disputed that it was Paul Johnson's wish that the Appellant stay around after his death to look after his estate. Even if this Honourable Court were to find that such wish attained the threshold of a contract between the Appellant and Paul Johnson, the rights and obligations of such a contract would take effect only after Paul Johnson's death. On the basis of the Tsiaprailis decision, a payment to replace an obligation to make a payment in the future would be a capital payment. In Tsiaprailis, it was only that part of the settlement amount allocated to the arrears owing by the insurer that were considered income. The part of the settlement amount located to the right to future benefits was considered a capital receipt, not an income receipt. Indeed, it was precisely on this basis that the majority judgment in Tsiaprailis (Paragraphs 8 to 11) distinguished the Supreme Court's previous decision in M.N.R. v. Armstrong.
 For the reasons that follow, I accept the position of the Appellant with respect to his interpretation of the Tsiaprailis tests. Ms. Tsiaprailis was seriously injured in a car accident and received long-term disability benefits in accordance with her employer's insurance policy. When the insurer terminated her benefits more than eight years later, she sued the insurer for a declaration that she was entitled to a continuation of these benefits. The parties settled and Ms. Tsiaprailis received a lump sum payment after signing a release in which the insurer denied all liability. The Court had to determine if a portion of the settlement was to compensate the Appellant for past disability benefits "payable on a periodic basis ... pursuant to a disability insurance plan" and thus taxable within the meaning of paragraph 6(1)(f). At paragraph 13 of Tsiaprailis, the majority of the Court held that the taxability of damages or a settlement amount will depend on the nature of the settled interest. At paragraph 15, Charron J. outlined the test as:
... (1) what was the payment intended to replace? And, if the answer to that question is sufficiently clear, (2) would the replaced amount have been taxable in the recipient's hands?
 In the present case, the Respondent argued that I must determine the taxability based upon the cause of action that the Appellant sued upon, namely an employment contract. The Respondent emphasized that Charron J. quoted with approval the Federal Court of Appeal's statement:
... Ms. Tsiaprailis cannot assert the insurer's liability under the policy in her action, recover an amount from the insurer in that action, and then argue that the payment does not flow from the obligations of the insurer under the policy.
The Respondent concluded that this statement applies equally to the present facts. I do not agree. The taxability of the settlement is based upon the taxability of the amount that the settlement ultimately replaced. For sure, the Appellant's counsel did allege in his Statement of Claim that a contract existed between the Appellant and Mr. Johnson legally obligating Mr. Johnson to include the Appellant in his last Will and Testament. It is also true however that the Appellant alleged that Mr. Johnson and the Insurance Group owed him damages for breach of an employment contract. Although the latter was admitted by the defendants, the first allegation was only set out in the Statement of Claim. It was never proved and it was continuously denied by the Respondent. Surely it is the trial judge's prerogative, based on all of the evidence, to decide whether or not Mr. Johnson had a personal contract with the Appellant with regard to an estate bequest.
 It is also clear that the Appellant was paid two amounts in two separate releases. In the first release, he received a total of $1,116,000 from the Insurance Groups and he waived any claims against his past employers. He properly included these amounts as income from employment. In the second release, the Appellant received $3,080,000 in exchange for a waiver to any right to the estate of Mr. Johnson. The taxability of this amount is in dispute.
 In answering the first test in Tsiaprailis, what was the payment intended to replace, I find that the $3,080,000 was paid to compensate the Appellant for the loss of his interest in the estate of Mr. Johnson. This is sufficiently clear to allow me to move to the second test, which determines the outcome of this appeal. Would the interest in the estate of Mr. Johnson have been taxable in the recipient's hands?
 Generally, the payment of a bequest from an estate is not taxable under the Income Tax Act. Therefore, unless the bequest was made to fulfill a contractual obligation that arose from the employment contract this appeal must be allowed. Lacking a final contract between the Appellant, Mr. Johnson and the Insurance Groups, I must turn to the letter of March 11, 1987 and the subsequent documentation regarding Mr. Johnson's last Will and Testament to determine if the interest in the estate was granted to the Appellant as a term of his employment contract. I find that there was no legally binding contract with respect to the legacy for the following reasons:
(i) The statement in the March 11, 1987 letter was an expression of intention and not a final contract. The conditions of employment were still to be finalized and did in fact vary from those outlined in the letter. That the interest in the estate was mentioned in the Statement of Claim does not provide evidence that it became a final term of the employment contract.
(ii) I accept the Appellant's testimony that an estate interest was not a condition of the employment in the negotiations. He took it to be an intention from Mr. Johnson of what may or may not happen.
(iii) Although it is possible that the bequest could be interpreted as a financial incentive to ensure the Appellant fulfilled his corporate duties, it is more likely that this incentive was actually provided by the QSO. The QSO was not initially offered to the Appellant but was subsequently granted to him as a part of the employment contract.
(iv) In the statement of defense, the corporate defendants and Mr. Johnson admitted to all the allegations in the Statement of Claim regarding the employment contract while denying that the bequest was a term of the contract. This evidences Mr. Johnson's intention regarding the contract, and lacking a formal and written employment contract, I give it more weight than the interpretation provided by the Respondent.
(v) It was not until the memo of February 29, 1988 that Mr. Johnson finally gave his lawyer instructions to grant an interest in his estate to the Appellant. He also made it clear that he rejected the idea of having the Appellant "earn" the interest, and asked his lawyer to make the change to his Will effective immediately. It was also in this memo that Mr. Johnson decided to "link" the interest to the long-term welfare of his wife and children. The earliest evidence that this term had made it into a draft last Will and Testament of Mr. Johnson dated March 3, 1989, was produced at trial, and it read:
... subject to the proviso hereinafter contained in this Clause ..., on the date of my death (such date in this Clause ... called the "Date"), I hereby direct that my Executors transfer, transmit or set over unto the said Peter W. Au, or in the event the said Peter W. Au should die prior to the Date, to his estate in specie from my Estate that portion of my Estate determined by multiplying the net value of my Estate as at the Date by ten percent (10%). For the purposes of calculation of the net value of my Estate, I hereby direct that my Executors shall deduct from the value of my Estate:
(i) all taxes either paid prior to or payable by my Estate as at the Date,
(ii) all such sums as may be properly payable by my Estate whether pursuant to ... this my Will or otherwise, and
(iii) all such sums of money or the value of all such assets distributed in specie pursuant to the specific bequests ... of this my Will.
PROVIDED ALWAYS THAT the devise and bequest contained in this Clause ... shall terminate and be void unless the said Peter W. Au shall be an employee of Johnson Financial Limited on the Date, or in the event the said Peter W. Au should die prior to the Date an employee of Johnson Financial Limited on the date of his death.
(vi) I believe that Mr. Johnson, in his personal capacity, treated the Appellant as a son and friend and not as an employee.
 On the evidence, it is clear that the letter of March 11, 1987 outlined the potential terms of an employment contract with the Appellant. However it is also clear that these terms were not the final terms. Based on the evidence before me, it appears that although Mr. Johnson might have offered the promise of an interest in the estate to the Appellant to ensure he fulfill his corporate duties, I believe, in the end, the QSO was made a condition of the contract, and the interest in the estate was not.
 Having concluded that since the interest in the estate existed independently of the Appellant's employment, I find that the settlement amount was paid in lieu of Mr. Johnson's bequest. Had the 10% interest been paid to the Appellant in the normal course of events, upon the death of Mr. Johnson, it would not have been employment income. It is perhaps unfortunate that the communication from Mr. Johnson to the Appellant regarding his interest in the estate was often included in letters about his employment. This only reflects the intertwined nature of the Appellant and Mr. Johnson's relationship. At the time of settlement, the Appellant received an amount that was rightly included in his taxable income, and an amount that was not paid to replace a source of employment income. It was rightfully not included in his taxable income.
 For these reasons, the appeal is allowed with costs.
Signed at Ottawa, Canada, this 29th day of April, 2005.