MNR v. Bisson, 72 DTC 6374 (FCTD)

The taxpayer, who was the general manager and one of the two principal shareholders of a bus company ("Hull City Transport") agreed, in settlement of a dispute with the other principal shareholder ("Thorn"), to purchase the beneficial ownership of the shares of Thorn in consideration for annual payments of $3,000 for four years, and $5,000 per year thereafter until the sum of $60,000 had been fully paid. The previous day, the board of directors of Hull City Transport, resolved to pay Thorn the same sums directly.

Pratte J. rejected the taxpayer's submission that the shares purchased by him from Thorn were worthless, that the purchase agreement "was only a fictitious deed which concealed the real nature of the contract" (p. 6379) and that the taxpayer, in reality was under this agreement acting as agent of Hull City Transport in order for it to pay salary to Thorn (who had been President up to that time on a salary of $3,000 per year) . Pratte J. found that Thorn had undertaken no obligations to Hull City Transport (although the company directors hoped that he would not interfere with their franchise with the City being renewed) and found that there was a taxable shareholder benefit to the taxpayer under s. 16 of the pre-1972 Act resulting from the payment of the agreed-to sums by Hull City Transport to Thorn.

After finding that the taxpayer had received a taxable benefit from a corporation of which he was a major shareholder as a result of the corporation paying, over a number of years, amounts to the other major shareholder corresponding to the amounts that the taxpayer owed to that shareholder, Pratte J. went on to find that the taxpayer did not know that the sum so paid to the other shareholder by the corporation formed part of the taxpayer's income, that this error was "one which a normally wise and cautious taxpayer could have committed" (p. 6380) and that there was no "misrepresentation" for purposes of s. 46(4)(a)(i) of the pre-1972 Act "when the taxpayers made an innocent misrepresentation involving no negligence on his part." Accordingly, the taxpayer could not be assessed for shareholder benefits in the years for which the four-year normal reassessment period had passed.