Lamarre Proulx J.T.C.C.: — The appellant instituted an appeal from the assessment by the Minister of National Revenue (the “Minister”) made under paragraph 6(1 )(a) of the Income Tax Act (the “Act”) for the 1986 taxation year.
The point at issue is whether an amount received by the appellant for the cancellation of a stock option was received as a result of a transfer of rights under that agreement within the meaning of paragraph 7(1 )(b) of the Act or as a benefit received in respect of employment within the meaning of paragraph 6(l)(a) of the Act. If paragraph 7(l)(b) of the Act applies, at the time of the transfer, were the shares subject to this agreement prescribed shares within the meaning of paragraph 110( 1 )(d) of the Act and paragraph 6204(1 )(b) of the Income Tax Regulations, (the “Regulations”)? The time of the transfer of the rights provided for in the agreement is also in issue.
Paragraphs 7(1 )(b) and 110(l)(d) of the Act and paragraph 6204(1 )(b) of the Regulations read 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 to an employee 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;
110(1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable:
(d) Employee stock options. - where, after February 15, 1984,
(i) a corporation has agreed to sell or issue a share of its capital stock, or of another corporation with which it does not deal at arm’s length, to the taxpayer,
(ii) the share is a prescribed share at the time of its sale or issue, as the case may be,
(iii) the amount payable by the taxpayer to acquire the share under the agreement is not less than the fair market value of the share at the time the agreement was made, and
(iv) at the time immediately after the agreement was made the taxpayer was dealing at arm’s length with the corporation, the other corporation and the corporation of which he is an employee,
an amount equal to one-half of the amount of the benefit deemed by subsection 7(1) to have been received by the taxpayer in the year in respect of the share or the transfer or other disposition of the rights under the agreement;
6204. (1) For the purposes of paragraph 110(l)(d) of the Act, a share is a prescribed share of the capital stock of a corporation at the time of its sale or issue, as the case may be, where, at that time,
(b) the corporation or a specified person in relation to the corporation cannot reasonably be expected to, within two years after the time the share is sold or issued, as the case may be,
(i) acquire or cancel the share in whole or in part, or
(ii) reduce the paid-up capital of the corporation in respect of the share; and
The facts in issue are described more fully below, but, for the moment, I shall provide a brief summary. On May 1, 1985, an agreement was entered into by the appellant and her employer, Nordair Inc., a corporation, through which the latter granted the appellant an option to purchase common shares. On October 24, 1985, the corporation was notified that there had been a failure to comply with the Quebec Securities Act (R.S.Q., c. V-1.1) and that it was virtually certain that the shares described in the options could not be validly issued. On November 12, 1985, the corporation formally notified the Quebec Securities Commission (“Q.S.C.”) that it would treat the options that it had awarded as null and void. The waiver of the rights arising from the agreement entered into on May 1, 1985 in exchange for payment of the amount in issue in the instant case, that is $58,000, was signed by the appellant on December 19, 1986 and took effect on December 31, 1986.
The appellant claimed that she had transferred rights provided for under a share issue agreement within the meaning of paragraph 7(1 )(b) of the Act on October 24, 1985, at the time the corporation allegedly made the decision to cancel its stock options. The appellant contended that she was entitled under paragraph 110( 1 )(d) of the Act to deduct half of the value of the benefit deemed under the aforementioned paragraph to have been received because the shares in issue were at the time of their issue prescribed shares within the meaning of paragraph 6204(1 )(b) of the Regulations.
According to the appellant, it was important that the time of disposition of the rights be October 24, 1985, not December 31, 1986 because, at that time, Nordair Inc. had not been taken over by another corporate entity.
The respondent’s claim 1s that the amount received as a result of the waiver of the appellant’s rights was a benefit within the meaning of paragraph 6(1 )(a) of the Act and was not a transfer of rights provided for by the agreement within the meaning of paragraph 7(1 )(b) of the Act. The respondent relied on the decisions rendered by both divisions of the Federal Court in À. v. Huestis, (sub nom. Reynolds v. R.), (sub nom. Huestis v. The Queen)  C.T.C. 85, 75 D.T.C. 5042 (F.C.T.D.); affirmed  C.T.C. 560, 75 D.T.C. 5393 (F.C.A.); affirmed  C.T.C. 792, 77 D.T.C. 5044. These decisions were that amounts received as compensation for the cancellation of an agreement were not amounts received for the transfer of a right provided for by that agreement. However, these decisions did not provide that the amounts received should be included in computing the taxpayer’s income. The case law cited in support of the inclusion, under paragraph 6(1 )(a) of the Act, of the amount received in compensation for the cancellation of the appellant’s rights in the agreement were in particular Robertson v. R., (sub nom. Robertson v. Canada), (sub nom. Robertson v. The Queen)  1 C.T.C. 114, 90 D.T.C. 6070; and Schwartz v. R., (sub nom. Schwartz v. Canada)  2 C.T.C. 99, (sub nom. R. v. Schwartz), 94 D.T.C. 6249 (F.C.A.); reversed (sub nom. Schwartz v. Canada)  1 S.C.R. 254,  1 C.T.C. 303, 96 D.T.C. 6103.
If the amount was an amount received under paragraph 7(l)(b) of the Act, the respondent contends that the shares that were the subject of the agreement were not prescribed shares and that the appellant therefore was not entitled to the deduction under subsection 110(1) of the Act.
At the start of the hearing, counsel for the appellant informed the Court that this appeal was a test appeal since there were 16 other cases similar to this one.
The facts of the case were not properly speaking disputed. A joint document book was filed as Exhibit A-1. It was divided into 42 tabs. Exhibit A-2 was filed following the appellant’s testimony at the request of counsel for the respondent. (It was a letter from the appellant’s employer describing the employer’s and the appellant’s rights and obligations resulting from the latter’s termination of employment.)
The appellant and André Bourque testified at the request of counsel for the appellant. Both were managerial employees at Nordair Inc. at the time of the events in issue. The appellant was vice-president for public affairs and Mr. Bourque head of legal services and secretary of the corporation. The appellant had held the position since 1982. She left it in July 1986.
The airline industry had been tightly regulated until 1984, but, according to testimony, there was a very strong perception in the industry that there would be deregulation, as had happened in the United States.
Innocan Inc. (“Innocan”), a company described by the witnesses as a venture capital company, had acquired control of Nordair Ltd. through a merger of 132894 Canada Inc. (of which Innocan held all the shares) and Nordair Ltd. on December 27, 1984 (Exhibit A-l, tab 2). The name of the new corporation was Nordair Inc.
At its meeting of May 8, 1985, Nordair Inc.’s new board of directors considered the question whether certain incentives for the business’s executive staff were appropriate and to this end decided to award options to purchase 275,000 Nordair Inc. shares (Exhibit A-1, tab 5). The draft agreement was approved at the same meeting.
The appellant signed such an agreement, which is reproduced in tab 4 of Exhibit A-1. It is dated May 1, 1985 and I cite clause 1 thereof:
1. The Company (Nordair Inc.) hereby awards the Executive, as an incentive and by separate agreement respecting her employment with the Company, not to stand in lieu of any salary or other compensation whatever for her services, the right and option to purchase at the time and in accordance with the terms and conditions set forth below, all or part of the total of EIGHT THOUSAND
(8,000) common shares of the Company’s capital, as constituted at the time of this Agreement (hereinafter called “Shares Subject to Option”) at the purchase price of nine dollars ($9) per share.
Tab 6 of Exhibit A-l contains a message from the president and chief executive officer of Nordair Inc. to the employees dated September 13, 1985. The purpose of the message was to reassure employees with regard to the rumours of a merger, takeover or other major structural changes brought about by another air carrier. The Court’s attention was drawn to two passages of the message:
Nordair plays an essential role and furthermore is the main building block in the creation of a second network. Its association with a major private Canadian carrier can only put it in a better position to face the competition of the two state- owned airlines, and, as a result of this fact, negotiations have been undertaken to achieve this objective.
As you will agree, it is essential to the success of these negotiations that this process be kept confidential, and I can assure you that the interests and job security of Nordair employees are a top priority. It will be my pleasure to inform you of our plans as soon as they become final.
On September 20, 1985, Québecair made a bid of $11 a share for all the common shares of Nordair Inc. The expiry date of the bid was October 25, 1985 and the bid was valid if it was accepted by the holders of at least 67 per cent of the common shares (Exhibit A-l, tab 7). On October 11, 1985, a supplement to the bid of September 20, 1985 was issued (Exhibit A-l, tab 8). The price now offered was $14.25 a share. I cite the second paragraph of this supplement:
You will note that the bid price is now $14.25 per share. We believe that this price is more attractive than the cash equivalent provided for in the bid announced by CP Air on October 8, 1985. Furthermore, Nordair Inc.’s shareholders will thus be able to make an immediate cash profit which CP Air does not make available under its bid.
On October 24, 1985, there was a new bid from Québecair at $16 a share (Exhibit A-1, tab 9).
According to the witnesses, views among Nordair Inc.’s executive personnel were divided as to which bid to favour.
On October 29, 1985 (Exhibit A-l, tab 15), the president of Innocan wrote to Innocan’s shareholders reminding them that all Innocan shareholders had signed an agreement whereby they had given their voting rights to Innocan so that it would have the same flexibility with regard to the investment in Nordair Inc. as it had in Innocan’s other investments. He referred to his letter of October 11, 1985 in which he had described to them the reasons that had led Innocan’s board of directors to negotiate with CP Air. He also referred to the meeting of Innocan’s board of directors on October 17, 1985 to which all Innocan’s shareholders had been invited and at which a painstaking analysis of CP Air’s bid had been conducted. The board had approved the bid and given the instruction to sign the agreement. An agreement in principle was signed with CP Air on October 23, 1985.
A meeting of Nordair Inc.’s board of directors was held on October 24, 1985. One of the subjects addressed at the meeting in the absence of the Company’s executives was the options awarded by Nordair Inc. to its executive employees. The passage from the minutes (Exhibit A-1, tab 10) relating thereto reads as follows:
PRESENTATION BY MR. KAUSER ON OPTIONS AWARDED BY THE COMPANY
In the absence of the Company’s executives, Mr. Kauser stated that, as part of the review of all the Company’s corporate files conducted by the firm of Stikeman, Elliott with a view to the transaction contemplated by CP Air, it was discovered that, in May 1985, the Company could not issue 275,000 options. Although the Company’s securities were not registered on any stock exchange, the Company had never lost its status as a reporting issuer and consequently was under the jurisdiction of the Quebec Securities Commission (QSC). Under the QSC’s policy, the Company could not issue a number of shares exceeding a maximum of 5 per cent of all its issued and outstanding shares. The Company had exceeded this limit by issuing a number of options corresponding to 11.24 per cent of its issued and outstanding shares. The Company also had to give notice to the QSC of its intention to award options to some of its directors and senior executives. At the time, the QSC had a period of 15 days within which to object to this plan. This notice was not filed with the QSC. For these reasons, all the options that have been awarded by the Board are, in the QSC’s view, null and void.
Mr. Kauser emphasized that the options were part of a profit sharing program and that the Company would consider other ways of remunerating the Company’s directors and senior executives to whom those profits were granted.
Mr. Butler added that the options represented monetary compensation that could readily be dealt with. Mr. Butler also asked that all directors be informed by management of every development that might occur, especially if, as was expected, the press issued comments on the subject. Senior executives were then invited to attend the meeting.
During their testimony, the appellant and Mr. Bourque stated that the senior executives were informed on the day of the meeting that the agreements might be cancelled. The minutes of the meeting of October 24, 1985 end at the point where the senior executives entered the meeting room. However, it is possible that the senior executives were informed of the matter at this meeting since, on October 25, 1985, Mr. Bourque filed an application for retroactive exemption with the Q.S.C. (Exhibit A-1, tab 11). Mr. Bourque stated in his testimony that he had taken this action in response to a wish by the senior executives, even though it was certain that the Q.S.C. would not grant such an exemption since it was its firm policy not to authorize this kind of application retroactively. On October 29, 1985, another application was filed with the Q.S.C. by the lawyers of Nordair Inc. to obtain the Q.S.C.’s agreement for a prospectus exemption respecting other options to purchase Nordair Inc.’s shares, this time 122,350 shares at $14.40 each (Exhibit A-1, tab 12).
On November 7, 1985, the Q.S.C. confirmed in its letter (Exhibit A-1, tab 16) what Mr. Bourque had anticipated, and I cite the second paragraph of that letter:
We inform you that we cannot grant this application since the distribution has been made. The Securities Act contains no provision permitting consent or non-opposition of a retroactive nature.
On November 8, 1985, the Q.S.C. answered the lawyers’ application respecting the second series of options. It requested that the first series of options be cancelled because it would otherwise oppose the second ap- plication (Exhibit A-1, tab 17):
Unless the entire matter is confirmed to us before November 13, 1985, we shall consider it our obligation to oppose your application.
On November 12, 1985 (Exhibit A-l, tab 18), Mr. Bourque, secretary and head of legal services, wrote the following to the Q.S.C.:
Further to your request of November 8, 1985, we hereby wish to notify you that Nordair Inc. recognizes that the options concerned by the application of October 25, 1985 are null and void and that they will be treated as such.
On November 14, 1985, the Q.S.C. granted the prospectus exemption with respect to the aforementioned 122,350 shares.
On November 18, 1985, CP Air finalized the agreement with Innocan’s shareholders indicating that the purchase price of the shares would be $16.25 a share. The bid expired on November 22, 1985 and was conditional on the Canadian Transport Commission’s not preventing the acquisition of Nordair Inc. by CP Air.
On December 19, 1985 (Exhibit A-1, tab 25), CP Air made the official bid to all the holders of Nordair Inc.’s common shares. That bid contained the following statement respecting the cancelled option agreements in the chapter entitled “Contracts, Arrangements and Understandings”:
In May 1985, the board of directors of Nordair authorized the issuance of options to certain of its officers to acquire common shares of Nordair. In November 1985, the Quebec Securities Commission requested that Nordair not implement the original stock option plan as regulatory approval had not been obtained. While CP Air has no written or oral agreement or arrangement with any of the directors or officers of Nordair with respect to this matter, CP Air’s present intention is to take such steps as may be appropriate and legally permissible to compensate (whether in cash or in some other manner) the relevant directors and officers of Nordair for the loss of benefits which would have accrued to them under the original stock option plan.
On April 4, 1986, pursuant to a request by Québecair, the Canadian Transport Commission rendered its decision that it did not object to Nordair Inc.’s acquisition by CP Air (Exhibit A-l, tab 29). On June 24, 1986, the Federal Court of Appeal denied leave to appeal from this decision (Exhibit A-1, tab 30).
On December 19, 1986, the appellant signed the following document (Exhibit A-1, tab 33), which provided for the waiver of its rights under the agreement:
December 19, 1986
Dear Mrs. Bernier:
RE: Agreement dated May 1, 1985 (the “Option Agreement”) between Nordair Inc. (“Nordair”) and M. Bernier (the “Executive”) pursuant to which Nordair granted to the Executive the right and option to purchase 8,000 common shares (the “Option Shares”) in the capital stock of Nordair
As you are aware on December 19, 1985, Canadian Pacific Airlines, Limited
(“CPAL”) made an offer (the “Take-Over Bid”) to all shareholders of Nordair to purchase all outstanding common shares of Nordair for a purchase price per share of $16.25 cash together with three warrants, each to purchase one common share of CPAL at a price of $7.00, if CPAL makes a distribution to the public of its common shares prior to December 31, 1988. This is to confirm the agreement of Nordair to pay to the executive upon acceptance of this agreement, in consideration of the Executive cancelling the Option Agreement and waiving all rights thereunder effective December 31, 1986, $58,000 representing the difference between the purchase price of $9.00 per common share provided in the Option Agreement and the $16.25 cash per common share payable under the Take-Over Bid and which would have been payable to the Executive had the Option Shares been issued prior to the expiry of the Take-Over Bid.
Please confirm your acceptance of the foregoing by signing the duplicate copy of this letter and returning to the undersigned.
Accepted and agreed this 19th day of December, 1986
On April 19, 1990, following discussions with the taxpayers, Revenue Canada answered as follows (Exhibit A-1, tab 36):
April 19, 1990
1155 Boulevard René-Lévesque Ouest
Attention: Guy Masson, Gary Nachshen
Subject: Tax treatment of amounts received by Nordair Inc. executives in December 1986 in order to cancel their options to purchase shares of that company.
Further to your memo of January 18, 1990, we wish to inform you of our position on the above subject.
On the basis of the relevant facts gathered to date, we conclude that Nordair Inc.’s executives disposed of their share options in December 1986 upon signing the agreement to that effect dated December 19, 1986.
As a result of the disposition of their stock options, the amounts received by Nordair Inc.’s executives are taxable in the 1986 taxation year as employment income.
However, the deductions claimed by the taxpayers concerned in respect of the stock options cannot be allowed in the circumstances since, on the date of disposition, in December 1986, the condition stated at subparagraph 110(1 )(d)(ii) had not been met.
Consequently, we propose to make the necessary adjustments in 1986 for each of the taxpayers concerned (see list of taxpayers appended hereto).
You are hereby granted a period of 30 days as of the date hereof to enable you to present any additional information that you believe should be taken into consideration.
Audit Division Department of National Revenue Taxation
The first question that comes to mind in analysing this case is whether the shares that were the subject of the options in issue were valid. With respect to the ab initio validity of the shares provided for in the agreement, counsel for the appellant referred to an article written by Linda Giroux, LL.M., entitled [Translation.] “Civil Sanctions Open to Savers in Cases of Transactions Performed Without Prospectus or Offering Memorandum” published in Revue du Barreau, volume 49, no. 2, March-April 1989. The author deals with the nature of the validity of stock option agreements entered into without complying with the prescriptions of the Quebec Securities Act (R.S.Q., c. V-1.1). According to the author, the nullity of such agreements is relative, not absolute. In her view, under sections 214 and 215 of the Quebec Securities Act, it is the person who subscribed for the security at the time of a distribution of securities made without prospectus who can apply to have the transaction rescinded.
For the purposes of this analysis, I agree that the agreements were subject to relative nullity and were not subject to absolute nullity from the outset. This, however, does not remove all doubt as to their possible existence at the time the options were cancelled.
The arguments of both counsel focused first on the question whether the amount received must be included in computing income under paragraph 7(1 )(b) of the Act (position of counsel for the appellant) or under paragraph 6(1 )(a) of the Act (position of counsel for the respondent). Counsel for the respondent also added subsection 5(1) of the Act and section 3 of the Act. Counsel referred in particular to the following decisions:
R. v. Huestis, (sub nom. Reynolds v. R.)  C.T.C. 85, 75 D.T.C. 5042 (F.C.T.D.); affirmed  C.T.C. 560, 75 D.T.C. 5393 (F.C.A.); affirmed  C.T.C. 792, 77 D.T.C. 5044 (S.C.C.); Jorgenson v. Jack Cewe Ltd., (sub nom. Jack Cewe Ltd. v. Jorgenson)  1 S.C.R. 812,  C.T.C. 314, 80 D.T.C. 6233; Dundas v. Minister of National Revenue,  1 C.T.C. 2492, 90 D.T.C. 1529; affirmed  1 C.T.C. 398, (sub nom. Dundas v. R.) 93 D.T.C. 5162 (F.C.T.D.); affirmed (sub nom. Dundas v. Canada)  1 C.T.C. 184, 95 D.T.C. 5116; (F.C.A.); Schwartz v. R., (sub nom. Schwartz v. Canada)  2 C.T.C. 99, (sub nom. R. v. Schwartz) 94 D.T.C. 6249 (F.C.A.).
There is no doubt that the amount received must be included in computing income under one of the provisions cited. There was no argument to the contrary. It is in the taxpayer’s interest to characterize the income under paragraph 7(1 )(b) of the Act if he is entitled to the deduction provided for under paragraph 110( 1 )(b) of the Act. If he is not entitled to that deduction, that characterization no longer has any importance.
Counsel for the appellant contended that reference must be made to October 24, 1985, the date on which Nordair Inc. decided to cancel the stock options. It was at that time that the appellant disposed of her rights under the agreement and, at that time, the shares were prescribed shares because one could not reasonably expect, given the train of events adduced in evidence, that in two years Nordair would cancel all or part of the shares subject to option. On this point, these shares thus met the conditions of paragraph 6204(1 )(b) of the Regulations.
Counsel for the appellant admitted, however, that there was no possibility of issuing the shares subject to the options and, in this, he abided by the facts and by his own argument respecting the date of October 24, 1985 as being the date of disposition of the rights provided for in the agreement, Nordair Inc. having decided on that date not to issue the shares subject to the options and accordingly to cancel the options awarded to its executive employees. It is therefore impossible for me to agree with his claim that subparagraph 110(l)(d)(ii) of the Act and paragraph 6204(1 )(b) of the Regulations still apply in respect of those shares. He contended that subparagraph 110( 1 )(d)(ii) of the Act stipulated a statutory fiction and that, as a result of that fiction, even if the share could not be issued, that subparagraph required that it be analyzed as though the share could be issued. If it had been issued, nothing at that time could have permitted anyone to foresee that, in two years, the corporation would cancel all or part of the share within the meaning of paragraph 6204(1)(b) of the Regulations.
I obviously cannot share this view. First, I do not believe that subparagraph 110(l)(d)(ii) of the Act stipulates a statutory fiction and I shall give my reasons below. Second, even if this subparagraph provided for a fiction, the fiction provided for in this subparagraph is in respect of a share that 1s not yet issued but that could be issued, not in respect of a share that cannot be issued either now or later. It is clear from the very object of the statutory provisions in question that their purpose is not to prescribe shares that will never exist.
It is not important whether paragraph 110(l)(d) of the Act constitutes a statutory fiction, but as the argument was raised, I shall therefore analyze it. The notion of what is a statutory fiction was developed by Judge Rip in Dundas v. Minister of National Revenue, supra, and I cite the relevant passage at page 2505 (D.T.C. 1539):
... In À. v. Vermette,  2 S.C.R. 838 (S.C.C.), Beetz J. described the function of a deeming provision at page 845:
A deeming provision is a statutory fiction; as a rule it implicitly admits that a thing is not what it is deemed to be but decrees that for some particular purpose it shall be taken as if it were that thing although it is not or there is a doubt as to whether it is. A deeming provision artificially imports into a word or an expression an additional meaning which they would not otherwise convey beside the normal meaning which they retain where they are used; it plays a function of enlargement analogous to the word “includes” in certain definitions; however, “includes” would be logically inappropriate and would sound unreal because of the fictional aspect of the provision.
Dickson J., as he then was, also explained the purpose of such a provision in R. v. Sutherland,  2 S.C.R. 451 at page 456:
The purpose of any “deeming” clause is to impose a meaning, to cause something to be taken to be different from that which it might have been in the absence of the clause.
[...] Dans l’arrêt R. v. Vermette,  2 R.C.S. 838 (C.S.C.), le juge Beetz a décrit, à la page 845, le rôle que joue une telle disposition:
Une telle disposition déterminative est une fiction légale; elle reconnaît implicitement qu’une chose n’est pas ce qu’elle est censée être, mais décrète qu’à des fins particulières, elle sera considérée comme étant ce qu’elle n’est pas ou ne semble pas être. Par cet artifice, une disposition déterminative donne à un mot ou à une expression un sens autre que celui qu’on leur reconnaît habituellement et qu’il conserve là où on l’utilise; elle étend la portée de ce mot ou de cette expression comme le mot “comprend” dans certaines définitions; cependant, en toute logique, le verbe “comprend” n’est pas adéquat et sonne faux parce que la disposition crée une fiction.
Le juge Dickson, tel était alors son titre, a aussi expliqué le but que remplit une telle disposition dans l’arrêt R. c. Sutherland, (1990) 2 R.C.S. 451, à la page 456:
L’objet d’une disposition qui crée une “présomption” est d’imposer une signification, de faire en sorte qu’une chose soit interprétée différemment de ce qu’elle aurait été en l’absence de la disposition.
A statutory provision requiring one to place oneself at a certain time in order to determine the nature of a thing is not a statutory fiction. It is not a statutory fiction to stipulate that the taxpayer is entitled to the deduction provided for under paragraph 110(l)(d) of the Act at the time of the disposition of a right provided for in a stock option agreement if the shares provided for in that agreement have the characteristic of prescribed shares. The effect of this provision is not to decree that something is not what it is when that provision asks one to verify whether a share would have the characteristic of a prescribed share if it were issued.
Whatever the case may be, even if subparagraph 110(l)(d)(ii) of the Act constituted a fiction, that fiction goes no further than what I stated above, that is to say that it applies only to shares that may be issued. It does not consider only shares that may not exist. The amount received by the appellant was received for the cancellation of the stock option that had been awarded to her in May 1985. When the stock options were cancelled, the shares subject to the options clearly would not be issued or purchased. Furthermore, if those options were cancelled, that was because the corporation had made the decision to comply with the requirements of the Quebec Securities Act and accordingly not to issue those shares and to cancel the options.
The object of the provisions of the Act is to enable employees to invest in the capital stock of the corporations for which they work. To conclude that those shares are prescribed shares when they will never be either issued or purchased goes against the object of those provisions.
Although this has no bearing on my preceding conclusion that the appellant was not entitled to the deduction provided for under paragraph 110(l)(d) of the Act, I believe it is important to determine the date on which disposition of the rights arising from the agreement took place. It could not be October 24, 1985 since only one party to the agreement acted on that date. The agreement was an agreement between two parties, the employer and the employee. The employer perhaps decided in October 1985 not to fulfil its obligation arising from the agreement, although it was in November 1985 that it so informed the Q.S.C. Whatever the case may be, this was a unilateral breach of contract. It is true that the appellant appears to have been made aware of this breach, but, in 1985, she signed neither a waiver of her rights nor any other document of the same kind and there was no oral acceptance on her part. She was waiting. It was in December 1986 that she signed such a document in consideration of a compensatory amount. It was thus at that time that she disposed of her rights under the agreement.
In light of my decision that the shares were not prescribed shares and that the deduction under paragraph 110(l)(d) of the Act does not apply, it does not appear to me useful to decide whether paragraphs 7(1 )(b) and 6(1 )(a) of the Act apply in the instant case.
There is no doubt that the amount received could be included in computing income under paragraph 6(1 )(a) of the Act. The option awarded was a benefit conferred on the appellant as an employee. The decisions of the Federal Court of Appeal in Robertson and Schwartz, supra, confirmed that the payments for breaches of agreements relating to their employment found their source in those agreements and were benefits received on the basis of employment. However, in accordance with the principles of interpretation of legislative texts taken up and stated in Minister of National Revenue v. Chrysler Canada Ltd., (sub nom. Canada v. Chrysler Canada Ltd. (No. 3))  2 C.T.C. 95, at page 96, when a choice must be made between two provisions that could apply equally, the more specific provision applies. Counsel for the respondent tried to differentiate the circumstances of the compensatory payment received in the instant case from those of the compensatory payment received in Dundas, supra, in which Dundas agreed for this payment to be made under paragraph 7(1 )(b) of the Act. I do not wish to dwell on this point because the amounts received in compensation of the cancellation of the option must be included in computing the appellant’s income either under paragraph 6(1 )(a) or under paragraph 7(l)(b) of the Act. For the reasons given above, I have concluded that the appellant was not entitled to the deduction provided under paragraph 110(l)(d) of the Act and, accordingly, I do not have to decide under which of the provisions cited above the amount in question must be included in computing her income for 1986.
The Minister’s assessment is valid in fact and in law and the appeal is dismissed, with costs.