Citation: 2006TCC347
Date: 20060727
Docket: 2003-3573(IT)G
BETWEEN:
CHRISTOPHER M. HENLEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] From 1995 to 1999, the Appellant, Christopher M. Henley, was employed as an investment
banker. In 1998, his employer was issued share warrants by a client in partial
payment of the employer's fees. A portion of these share warrants had been
earlier allocated to the Appellant by his employer as part of his remuneration
for his services on that client's file.
[2] In 2000, the
Appellant caused the share warrants to be exercised and the shares immediately
sold. In assessing the Appellant's income for 2000, the Minister of National
Revenue included as income from employment under subsection 5(1) and paragraph
6(1)(a)[1] of the Income Tax Act the proceeds of $967,480.16,
the difference between the market value per share at the time of their
acquisition (and disposition) and the share warrant exercise price of 31 cents
per share. In response to the Appellant’s objection, the Minister confirmed the
assessment by Notice of Confirmation dated June 26, 2003. It is from that
confirmation that the Appellant is appealing.
[3] A Joint Book of
Documents and an Agreed Statement of Facts was filed at the hearing:
AGREED
STATEMENT OF FACTS
For purposes
only of this appeal and any appeal from it or any other proceeding taken in
this matter, the parties agree that the facts set out herein are true. The
parties also agree that the documents referred to below and attached as
exhibits are true copies of the documents they represent, were signed by the
persons who purported to have signed them, and were signed on the dates they
were purportedly signed. This agreement does not preclude either party from
proving other facts provided they are not inconsistent with these facts.
a) the Appellant was an employee with Canaccord Capital
Corporation (Canaccord) between December 1995 and May 4, 1999. The Appellant
was not an employee of Canaccord in the year 2000;
b) Canaccord
is in the business of investment banking and related activities;
c) on June 10, 1997 Canaccord and Unique Systems Inc., who
would eventually become Unique Broadband Systems Inc. (UBS) entered into an
agreement whereby Canaccord was to act exclusively as agent for UBS in
connection with a proposed treasury financing for UBS for a minimum of
$3,000,000 and a maximum of $6,000,000 raised (the "Offering) by way of a
private placement of equity;
d) in connection with the offering Canaccord agreed to: (1)
use best efforts to structure, market and obtain commitments on mutually
agreeable terms in respect of the proposed financing of the company; (2) comply
with all applicable securities laws in respect of its obligations hereunder (3)
advise the company as to the appropriate structure of the financing and assist
with the preparation of required documentation; (4) organize meetings between
representatives of the company and potential investors; and (5) assist the
company in the negotiating and structuring of the final terms of the financing
and assist with closing the transaction;
e) part of the compensation Canaccord received for its
services was a Compensation Option to purchase an aggregate of 10% of the
Offered Securities issued or issuable at the issue price of the Offering for a
period of 24 months;
f) Canaccord allocated 742,692 UBS Compensation Options, or
share purchase warrants (the UBS Warrants), or other consideration received in
lieu thereof, to the Appellant on May 28, 1998;
g) (i) on September 4, 1998 Unique Broadband Systems Inc.
(UBS) issued a press release that the Vancouver Stock Exchange had approved the
issuance of 2,970,767 share purchase warrants (also referred to as Compensation
Options in the above paragraph) to Canaccord in connection with the acquisition
of another company by UBS in September 1997 with a stock price of $0.31.
(ii) the share purchase warrants were exercisable for two
years at $0.31 per share
(iii) the shares of UBS closed on the Vancouver Stock
Exchange on September 4, 1998 at $.31 per share and a high of $0.34 per share
that day
(iv) the warrants were issued as compensation for services
provided by Canaccord to UBS.
h) the warrants entitled Canaccord to purchase shares of UBS
at $0.31 per share, for a period of 2 years. The warrants were issued on
September 28, 1998, at a time when the shares had a closing price of
$0.32 per share. The closing price of UBS shares was less than
$0.31 per share for the remainder of 1998;
i) the terms of the UBS warrants received by Canaccord
included the following: the warrants could not be traded on the stock exchange;
the warrants could not be transferred or assigned; the warrants could not be
converted to shares if the shares were on a restricted list; and the warrants
had an expiry date of 24 months from the date of issue;
j) at all material times to this litigation, prior to their
exercise, these warrants were held in the name of Canaccord;
k) Canaccord allocated a portion of these warrants to its
employee, the Appellant, as compensation for services provided in his
employment;
l) Canaccord continued to hold the warrants for the
appellant, even after the Appellant left their employment;
m) Upon leaving his employment with Canaccord, the Appellant
signed a release and settlement agreement (the "Agreement") with
Canaccord. The Agreement, in part, stipulated that;
(i) Canaccord had allocated 742,692 UBS Warrants to the
Appellant on his understanding, and upon his acknowledgement by signing the release,
the said options are non-transferable and non-assignable;
(ii) Canaccord would exercise the warrants on the
direction of the Appellant;
(iii) the Appellant could exercise the Warrants for cash
and corresponding shares deposited to his account;
(iv) Canaccord had the right to exercise the Warrants from
time to time, and if they did so, the Appellant was to receive a pro rata share
of the value of the options less any applicable deductions;
(v) the Appellant was to give instructions to identified
employees of Canaccord by telephone, fax or e-mail, during normal business
hours.
n) Canaccord did not include the value of benefits in respect
of warrants in the taxpayer's 1998 T4 slip;
o) Canaccord exercised the options and immediately sold the
acquired shares of UBS upon instructions from the Appellant and throughout the
period commencing January 12, 2000 and ending September 26, 2000;
p) Canaccord charged the Appellant commission on each trade
which it executed upon the instructions of the Appellant in connection with the
Warrants;
q) Canaccord paid the net proceeds from the exercise of the
options and the disposition of the UBS shares to the Appellant;
r) Canaccord included the difference between the exercise
price of the options and the sale price of the UBS shares as income from
employment on the T4 form issued by Canaccord to the Appellant in respect of
the 2000 taxation year.
[4] The relevant
portions of subsection 5(1) and paragraph 6(1)(a) of the Income Tax
Act read as follows:
5(1) Subject
to this Part, a taxpayer’s income for a taxation year from … employment is the
salary, wages and other remuneration, including gratuities, received by the
taxpayer in the year.
6(1) There
shall be included in computing the income of a taxpayer for a taxation year as
income from … employment such of the following amounts as are applicable:
(a) the value
of … other benefits of any kind whatever received or enjoyed … in the year in
respect of, in the course of, or by virtue of … employment …
[5] The Appellant
was the only person to testify. I found him to be a knowledgeable and entirely
credible witness. While he accepts that the allocation of the share warrants
gave rise to an employment benefit under paragraph 6(1)(a), the
Appellant disputes that it was taxable in 2000. The Appellant's position is that
that benefit was quantifiable when the approval of the issue of the share
warrants was announced on September 4, 1998, or alternatively:
1. on May 28, 1998, the date
Canaccord allocated the share warrants to the Appellant;
2. on September 28, 1998, the
date the share warrants were issued to Canaccord; or
3. on May 7, 1999, the date the
Appellant ceased to be employed at Canaccord.
According
to the Appellant, the benefit ought to be included in his 1998 income under paragraph 6(1)(a)
of the Act. The Appellant further argues that the proceeds of $967,480
received in 2000 upon the exercise of the share warrants and disposition of the
acquired shares ought to be treated as a capital gain.
[6] The Respondent
relies on a decision of the Federal Court of Appeal, Robertson v. The Queen[4], to argue that it was not possible for the Appellant
to have received a taxable quantifiable benefit from employment until 2000 when
he exercised the share warrants, acquired the shares and disposed of them.
[7] The facts of the Robertson case are summarized
by Marceau, J.A. as follows:
…
In 1974, the appellant was employed as a ranch manager supervising the ranching
operations of a Mr. Jack M. Pierce. Mr. Pierce was also the President and
a shareholder of an oil company, Ranger Oil (Canada) Limited. As an
inducement to the appellant to stay on as ranch manager, Pierce granted the
appellant, by agreement signed October 9, 1974, an option
to purchase up to 2,500 common shares he owned in Ranger Oil at $15 per share,
which price approximated their fair market value at the time. The option was to
become exercisable at the rate of 500 shares per year, over the next 5 years,
subject to certain conditions, the main condition being that the appellant
continue his employment.
Five years later the appellant was still
Pierce's ranch manager and he had not yet exercised the greatest portion of the
option. In the interim, there had been a split of the common shares of Ranger
Oil, entitling him, under the agreement, to purchase 6,000 shares at a price of
$3.75 per share. On September 15, 1980, he called for the shares at the
aggregate price of $22,500. On that date, the 6,000 shares had a fair market
value of $258,000.
[8] The Minister assessed the difference as a benefit
under sections 5 and 6 of the Act. Robertson appealed unsuccessfully on
the basis of a House of Lords decision, Abbott v.
Philbin. On further appeal to the Federal Court of Appeal, Marceau,
J.A. rejected the reasoning of the trial judge but "finally" concluded
that his decision must "nevertheless be upheld", qualifiers which suggest a certain
lack of satisfaction with the outcome.
[9] Adopting the
reasons of the dissenting Lords Keith and Denning in Abbott v. Philbin,
the learned appellate justice expressed his thinking in these words:
The question
debated is whether the benefit of an option to purchase shares at a fixed price
(assuming that it is a taxable benefit) should be measured and seen to have
accrued at the time of its conferral, or at the time of its exercise. In the Abbott
v. Philbin case, the judgment of the majority, as I understand it, hinges
on two propositions, a basic one and an alternative one. If, say the three
learned law lords, a benefit can be said to have been granted at one time, more
precisely when the option was given, it is not possible to speak of another
benefit being granted later at another time. In any event, adds Lord Reid, even
if we can speak of a benefit realized by the exercise of the option, it would
not be possible to relate it directly to the employee's office.
...
My reaction to
the main proposition is this. Obviously, double-tier taxation should not be
imposed on gains from a single transaction, nor should the same benefit be
taxed on two occasions. We certainly cannot have two benefits of a same type,
both taxable under paragraph 6(1)(a) of the Act. But, that being
said, let me ask why the arrangement should necessarily be seen as conveying
only a single benefit. It can hardly be contested, it seems to me, that a first
benefit arises upon the employer binding himself, over a period of time, to
sell shares at a fixed price, regardless of the appreciation in the market
value of such shares, and a second benefit arises if and when the employee
makes use of the rights flowing from the first one and exercises the option. The
fact is however that while the second benefit can be measured by the
discrepancy between the cost of exercising the option and the market value of
the shares at the time of the acquisition, the first benefit, although a real
one, eludes independent quantification.
...
In any event,
outside any difficulty of text [between the English and Canadian legislation],
I fail to see how one can get around the fact that if the purchase of shares
for an amount less than their value is possible, it is only because of the
existence of a promise made by the employer to reward the services of his
employee. The exercise of the option is inseparable from the signing of the
agreement and the employer-employee relationship. We cannot look at the
taxpayer who exercises the option as if he had owned the shares all along; the
power to acquire the shares should not be confused with ownership of the shares
itself. Finally, was it not here a condition of the agreement that the option
be exercised before or within a few days after the end of employment: the
relation with the services rendered as an employee is there too made manifest.
Thus, in my
view, there are two economic benefits, both arising from employment, but only
the second is quantifiable as only that one is realized by a flow of money or
money's worth from the employer to the employee. Nothing flows from the
employer on the granting of the option: while the employer retains the shares,
votes them, collects dividends for his own account and may dispose of them, the
employee only acquires a possibility to eventually obtain a proprietary
interest in those shares and realize a profit therefrom. In my view, individual
taxation on employment-source income is based on the flow of money or money's
worth from the employer to the employee. Only the second benefit, the
quantifiable one, falls within the scope of paragraph 6(1)(a) of the Act.
[10] Counsel for the
Respondent submitted that the present case is indistinguishable from Robertson;
thus, while conceding that the Appellant received a "right" when the
share warrants were allocated to him in 1998, counsel argued that that right
could not constitute a taxable benefit until 2000:
... Even if
the Appellant was allocated and had a legal right to these warrants, when I
walk through Robertson I'll point out to Your Honour that Robertson
is quite clear that yes, the allocation of warrants or option grants a right to
the Appellant but it’s not a taxable benefit when you’re under 5 and 6. The
taxable benefit arises as a result of the flow of monies to the Appellant.
...
It's the Respondent's submission that the income that the Appellant
received is not quantifiable until he exercises these warrants through the
mechanism that was placed through his former employer and it's only then that
he knows that he traded 3,000 shares for $15,000 or 3,000 shares for $30.
Whatever the value of his shares determines, it determines the income he
received.[10]
...
And in this situation and the facts and the testimony of the Appellant,
with what we saw there's a very clear flow of money when he puts the order to Canaccord.
They do what I previously described; they sell, buy the shares and send a
cheque to the Appellant. That’s the flow of money that I respectfully submit
the Federal Court of Appeal is describing should be dealt with as a taxable
benefit under section 5 and section 6 of the Act.[11]
[11] As I understand the Respondent's argument as set out above, Robertson makes it impossible, as a matter of law, for the
Appellant to have received a quantifiable taxable benefit within the meaning of
paragraph 6(1)(a) before 2000, when the share warrants were exercised
and the acquired shares sold.
[12] Clearly, as both
counsel pointed out in their arguments, this Court is bound by decisions of the
Federal Court of Appeal. I am not, however, convinced of the correctness of the
Respondent's interpretation of the reasons in Robertson. I am more
inclined to the Appellant's argument that Robertson was decided on its
particular facts; accordingly, this Court is not precluded in law from finding
as a fact that the share warrants were capable of quantification prior to their
exercise in 2000. I also accept the Appellant’s submission that the facts of
the present case are distinguishable from those in Robertson.
[13] Turning first to the legislation, paragraph 6(1)(a)
forms part of Division B of Part I of the
Act, appearing under the heading Computation of Income. Section 3,
the opening provision of Division B, provides that "income" is to be computed
according to the rules for its source; where there are multiple sources, each
must be computed individually, with the "total of all amounts" from such
sources comprising the taxpayer's "income" for that taxation year.
[14] Under Subdivision a - Income or Loss from Office or Employment of
Division B are found
sections 5 and 6. Section 5 is set out
under the heading Basic Rules and defines income from employment as "salary
wages and other remuneration, including gratuities received by the taxpayer in
the [taxation] year".
[15] Section 6 appears
under the heading Inclusions. Paragraph 6(1)(a) provides for the inclusion of the value of
"other benefits of any kind whatever". The intention of this broadly
drafted provision
is to catch the value of employee rewards which, otherwise, might fall outside
the meaning of "salary, wages and other remuneration". Consistent
with the general provisions of subsection 5(1), under paragraph 6(1)(a) the
value of such benefits is to be included as income from employment in the
taxation year in which that value is received.
[16] Paragraph 6(1)(a)
is silent, however, as to what constitutes a "benefit" or how the "value"
of that benefit is to be quantified. These are questions left to the trier of
fact, depending on the particular circumstances of each case. In making such
determinations, the Court must be mindful of the Minister's duty under the Act
to assess the economic advantage received by a taxpayer in a taxation year,
while also respecting fundamental principles underpinning the Canadian taxation
system: that (absent a deeming provision), the taxpayer must have, in fact, had
an economic advantage, and that the source of that economic advantage must be
identified and the computation rules applicable to that source applied.
[17] In Robertson, though adopting the reasons of the dissenting
minority in Abbott v. Philbin, Marceau, J.A. did refer to the majority
reasons in which Lord Reid distinguishes, as a matter of fact, between a "…reward
given in the form of an option … [where] the option itself is the perquisite[14] … and [where] the option is not the perquisite –
[where] there is no perquisite until the option is exercised and the shares are
issued…"[15] Although ultimately concluding that Robertson's
situation fell into the latter category, the Court's reference to this passage
suggests that, depending on the facts, the other possibility exists.
[18] In the particular
facts of Robertson, the Court was of the view that "the first
benefit, though a real one, eludes independent quantification." Though
referring to the first benefit as an "option" in the recitation of
the facts found at trial, Marceau, J.A. ultimately concluded that:
… what the
employee has is an offer (an offer which may be made irrevocable at will and will
then usually be called "option", but remains nevertheless a
simple offer), and in none of them does a quantifiable benefit arise until
the offer is acted upon. It is only if and when the offer is so acted upon that
a benefit may be received by the employee and become taxable as income from
employment, regardless of whether the employment relationship is still in
existence. [Emphasis added.]
The
Court also specifically referred to the conditional nature of Pierce's "simple
offer" and its link to Robertson's employment:
Finally, was
it not here a condition of the agreement that the option be exercised before or
within a few days after the end of employment: the relation with the services
rendered as employee is there too made manifest.
[19] Also significant
is the finding of fact that the Ranger Oil shares subject to the offer were
already issued and, at all times, remained under the Pierce's control: "…
the employer retains the shares, votes them, collects the dividends for his own
account and may dispose of them…",
this latter suggesting that Pierce had not bound himself to retain enough
shares to fulfill his promise to Robertson, if ever he chose to take him up on
his "simple offer". According to Marceau, J.A., the "simple
offer" of 1974 did not crystallize into an "option" until 1980,
the year it was acted upon. It was in this context that the Court concluded
that:
It can hardly
be contested, it seems to me, that a first benefit arises upon the employer
binding himself, over a period of time, to sell shares at a fixed price,
regardless of [page726] the appreciation in the market value of such shares,
and a second benefit arises if and when the employee makes use of the rights flowing
from the first one and exercises the option. The fact is however that while the
second benefit can be measured by the discrepancy between the cost of
exercising the option and the market value of the shares at the time of the
acquisition, the first benefit, although a real one, eludes
independent quantification.
[Emphasis added].
[20] In the present
case, the only benefit received by the Appellant in respect of his employment was
the share warrants themselves. It is common ground that they formed part of his
compensation for his services on the UBS file. Indeed, the notion of using share
warrants as a form of compensation originated with the agreement between
Canaccord and UBS.
[21] Canaccord had
bound itself to do all things necessary to permit the Appellant to enjoy its
rights as share warrant holder in respect of his allocated share warrants. The
terms of the share warrants obliged UBS to honour subscriptions for shares from
the share warrant holder. Further, in the event of the share warrants not being
issued, UBS was required to compensate Canaccord in "other consideration
in lieu thereof"; in such circumstances, Canaccord was likewise bound to pay
a pro rata share of that alternate consideration to the Appellant - a
promise worth very little if no quantifiable value could be ascribed to the
share warrants unless or until they were issued, exercised and the shares sold.
The inclusion of such a term in the agreement between parties with the
experience and understanding of investment banking of Canaccord and the
Appellant bolsters the Appellant's argument that the share warrants were
capable of valuation as early as their allocation in May 1998. As it happened,
the share warrants were issued, as anticipated, on September 28,
1998 and held by Canaccord, as agreed, in its "inventory" account as
an "allowance" for the Appellant, in essentially the same way as
Canaccord would have done for any of its clients.
[22] Counsel for the
Respondent argued that the limitations imposed by the terms of the share warrants on the
Appellant put the share warrants on par with Robertson's "simple offer".
I do not think this is so. In Robertson, the Court found a link of some
kind between Robertson's employment and the limitation on his power to act on his
employer's offer. In the present case, what limitations there were stemmed, not
from the employment relationship between Canaccord and the Appellant but rather,
directly from the compensation agreement between Canaccord and UBS, or
indirectly, from the Vancouver Stock Exchange, as industry regulator. Indeed,
what was rooted in the Appellant's employment was his ability to bypass
these third party-imposed limitations; for example, the process by which the
Appellant could fully exercise his rights to the share warrants[21].
[23] Counsel for the
Respondent submitted, however, that because Canaccord retained the right to
exercise the share warrants throughout their 24-month term, the Appellant did
not have an "absolute vested interest" in them and thus, was as
vulnerable to the whim of his employer as Robertson. I am not persuaded by this
argument. Given that the share warrants were issued to Canaccord and that they
were, on their face, not transferable or assignable, Canaccord could not escape
its legal rights under the share warrants. This did not diminish, however, the
Appellant's enforceable equitable right, flowing from his employment agreement with
Canaccord, to his allocated share warrants, once issued. Furthermore, even if Canaccord
had exercised the share warrants[23],
it was bound by their employment agreement to turn over to the Appellant his pro rata
share of the proceeds, less any fees and commissions. This underscores the
unconditional nature of the Appellant's interest in the share warrants qua
property; it does not, however, necessarily lead to the conclusion that the
source of such proceeds was the Appellant's employment.
[24] I am further persuaded by the Appellant's evidence that, in retaining this
right, Canaccord was fulfilling its oversight duties as broker, ensuring (as it
would do for any client) that the Appellant did not, through inadvertence, miss
a profitable opportunity by failing to exercise the share warrants prior to
their expiry. This, and the charging of fees to the Appellant are indicative of
the change in the nature of the relationship between Canaccord and the
Appellant once the share warrants were issued. As of that moment, their
dealings in respect of the allocated share warrants were not as employer and
employee but rather, qua broker and client. It was then, that the link
was broken between the Appellant's employment and any economic advantage in
excess of the September 28, 1998 value of the share warrants.
[25] Though the concept
of evaluating options is not new[24],
since Robertson was decided, technology has increased dramatically the
facility with which the data necessary for the calculation of their value may
be obtained. In Robertson, it is not clear from the reasons what
evidence was before the Court as to how such an evaluation could be made; at
the hearing of this matter, however, the Appellant presented a sheaf of
computer-generated documents[25] containing the daily ranges of values of the UBS
shares between May 1998 and September 2000. The Appellant also testified to the valuation methods
he used as an investment banker. He explained that a share warrant has an "intrinsic
value"[27] when it is "in the money"; that is to say,
when the share value on a particular day (assumed for the purpose, to be the
day upon which an option is exercised) is higher than the exercise price of
that warrant. In argument, counsel for the Appellant quoted from a publication[28] outlining the ways in which that valuation may be
made:
...
The value of
an option if it were to expire immediately [i.e., on the date evaluation is to
be made] with the underlying stock at its current price. The amount by which an
option is in the money. For call options the difference between the stock price
and the striking price, if that difference is a positive number or zero or
otherwise.[29]
[26] Indeed, the Canada
Revenue Agency is no stranger to such methods. Counsel for the Appellant cited Interpretation
Bulletin IT-96R6 which deals with, among other things, shareholder benefits.
Quoted below is the passage showing the department’s recommendation for determining
the value of the benefit conferred on an individual shareholder upon the
granting (as opposed to the exercise) of an option:
...
Shareholder
benefit
3. Unless
all owners of the common shares of a corporation's capital stock are granted
rights to acquire shares of the corporation's capital stock, the granting of an
option to a shareholder may give rise to a taxable benefit under subsection
15(1) (see the current version of IT-116, Rights to Buy Additional Shares).
For options granted after December 19, 1991, the corporation must grant
identical rights at the same time to all owners of common shares in respect of
each common share they own for subsection 15(1) not to apply.
For example,
when a corporation, for no consideration, grants on only some of its
common shareholders, rights to purchase any additional shares of the
corporation's capital stock, subsection 15(1) applies to those shareholders. A
taxable benefit under subsection 15(1) may also arise when a corporation grants
to a non‑shareholder an option to acquire shares in the corporation.
Normally, the amount of a benefit under subsection 15(1) is the greater of:
·
the trading value of the rights received; and
·
the amount by which the fair market value of the shares subject
to the option at the time of the option's distribution exceeds the exercise
price provided in the option.
The amount of
such a benefit is added to the cost of the rights under subsection 52(1) except
to the extent that the amount is otherwise added to the cost, or included in
calculating the adjusted cost base, of the rights to the shareholder.
[27] In Robertson,
the Court could not "… get around the fact that if the purchase of shares
for an amount less than their value is possible, it is only because of the
existence of a promise made by the employer to reward the services of
the employee." [Emphasis added.] In the present case, however, the
"promise made" by Canaccord was to remunerate the Appellant, in part,
with share warrants, a promise which was ultimately fulfilled with their issue on
September 28, 1998. The share warrants constituted a "right" and
were, therefore, "property"
which, as of that date, was unconditionally and irrevocably his. The Appellant
was free to exploit the share warrants as he chose; for example, by using them
(as was typical in the business) as collateral in other deals or by exercising
them for cash or other shares. The share warrants themselves were a valuable
component of his remuneration and as such, constituted a "flow of money's
worth" received by the Appellant's on September 28, 1998. In these
circumstances, I am satisfied that the value of the share warrants was
quantifiable in 1998 based on the number of allocated share warrants, and the
amount by which the fair market value of the UBS shares exceeded the exercise
price under the share warrants. On September 28, 1998, the value of the
UBS shares was 32 cents per share; the exercise price under the share warrants
was 31 cents per share. The Appellant received the share warrants as an
employment benefit in 1998 and thus, under subsection 5(1) and paragraph 6(1)(a)
of the Act, that value must be included in the computation of the
Appellant's income from employment for that year.
[28] In Robertson,
Marceau, J.A. held "[w]e certainly cannot have two benefits of a same
type, both taxable under paragraph 6(1)(a) of the Act." And
further that "… double-tier taxation should not be imposed on gains from a
single transaction, nor should the same benefit be taxed on two occasions"[31]. Having found that the benefit arising from
employment occurred upon the issuance of the share warrants to the Appellant in
1998, it follows that the proceeds of $967,480 received by the Appellant in
2000 upon the exercise of the share warrants and the disposition of the
acquired shares cannot also be attributable to that source. In my view, the
proceeds received in 2000 represent the fruits of the Appellant's prudent
management of his capital and ought to be taxed accordingly.
[29] The
appeal from the assessment made under the Income Tax Act for the
2000 taxation year is allowed, with
costs, and the assessment is referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that:
1.
the share warrants allocated to the
Appellant were a benefit in respect of, in the course of or by virtue of
employment within the meaning of paragraph 6(1)(a) of the Act;
2.
the value of that benefit was
quantifiable and received by the Appellant on September 28, 1998, the date the
share warrants were issued;
3.
the value of that benefit is to be
calculated according to the number of share warrants allocated as of September
28, 1998 based on the difference between the market value of the shares on that
date of 32 cents per share and the exercise price under the share warrants of
31 cents per share;
4.
the proceeds of $967,480 received
in 2000 following the exercise of the share warrants and disposition of the
shares acquired were not a benefit in respect of, in the course of or by
virtue of employment within the meaning of paragraph 6(1)(a) of the Act;
and
5.
the proceeds of $967,480
constitute a capital gain realized by the Appellant in 2000.
Signed at Ottawa, Canada, this 27th day of July, 2006.
"G. Sheridan"
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