Perrault v. The Queen, 76 DTC 6021, [1976] CTC 65 (FCTD), aff'd 78 DTC 6272, [1978] CTC 395 (FCA)

Walsh, J:—This is an appeal against an assessment by defendant whereby the sum of $350,005.50 was added to plaintiff’s income for the taxation year 1965 as a benefit allegedly paid to him under the provisions of the Income Tax Act in effect at that time (RSC 1952, c 148, as amended) by a company, Montreal Terra Cotta Limited, of which he was the principal and controlling shareholder. At the time of the declaration of the dividend on November 15, 1965 he owned 273 common shares of the said company, one Oskar Nômm was the owner of 24 such shares, and Central Motor Sales Ltd, a company controlled by the Estate of A H Rocheleau in which the plaintiff had no interest whatsoever owned the remaining 193 shares making a total of 490 shares. Actually on November 11, 1965 Oskar Nômm had agreed to sell to plaintiff Charles Perrault his 24 shares for a price of $50,000 payable with interest over a period of three years, commencing as of January 1, 1966, which sum was actually paid in full by a cheque of Montreal Terra Cotta Limited dated December 30, 1965 which was allegedly charged to Mr Perrault’s account. The transfer of the said shares had apparently not been recorded in the books of the company as of November 11, 1965 since the said Oskar Nômm was present at a meeting of the directors of the company on that date, as appears in the minutes of that meeting. At that meeting, a dividend of $1,813.50 a share was declared and entered in the minutes together with letters from Messrs Perrault and Nômm renouncing to the said dividend with the result that only Central Motor Sales Ltd received the dividend on its 193 shares, and the total amount of the dividend so received was $350,005.50. Peculiarly there was a second meeting of directors on the same date at the same time in which it was recorded that Mr Nômm having sold his shares to Mr Perrault was no longer a shareholder so was replaced as a director. Again the dividend was declared and Perrault renounced to same. If the minutes of this meeting apply then his renunciation would cover both his own shares and those. bought from Mr Nômm. In any event, it is evident that it was never intended that Nômm should receive any dividend and that Perrault renounced to any that he would otherwise be entitled to.

Nearly four months previously, on July 28, 1965 an agreement had. been entered into in the form of an offer made by Mr Perrault to acquire the 193 common shares of Montreal Terra Cotta Limited held by Central Motor Sales Ltd which offer read as follows (translated):

I, the undersigned, offer to become the purchaser of the 193 shares of Montreal Terra Cotta Limited held by Central Motor Sales Co Ltd for $1.00 and other valuable considerations.

As a consideration, if my offer is accepted, I undertake to have paid to Central Motor Sales Co Ltd the sum of $350,000 after which the 193 shares of Montreal Terra Cotta Limited shall be delivered to me duly endorsed. -.

This offer is in effect until August 15, 1965, at noon, being the final date for the succession to accept by counter-signing the present letter. Following that date, the sum of $350,000 shall be paid within the delay of 90 days.

As proof of my good faith, I enclose a cheque of $10,000 to the order of the succession. This cheque shall be returned to me at the time of the finalization of the transfer.

This offer was accepted on August 12 by the Estate A H Rocheleau, signed by Mme Bernadette Rocheleau and Lucien H Bélair, testamentary executors, and countersigned and accepted by all the heirs of the estate, but it is legally significant that it was not signed by anyone on behalf of Central Motor Sales Ltd whose shares were being sold, nor was there ever apparently any meeting of the directors of that company nor any resolution approving the sale. Mr Lucien Bélair, CA, who has been the auditor of Montreal Terra Cotta Limited and its predecessor company since 1932 and who was also executor of the Rocheleau Estate, for all practical purposes ignored the existence of Central Motor Sales Ltd which had been dormant for some time. The dividend cheque was properly made payable to Central Motor Sales Ltd however, but was. then simply endorsed by Mr Bélair as president for deposit to the account of the estate. Central Motor Sales Ltd showed the receipt of the dividend of $350,000 in its tax return for the year end December 31, 1965 which reduced its deficit which was for a greater amount. This return was not questioned by the Minister.

Mr Bélair testified that demands for the products of Montreal Terra Cotta Limited, which had plants in both Pointe-Claire and Deschaillons in the Province of Quebec, began to diminish about 1958 or 1959 and efforts were made to sell the company. Mr Rocheleau transferred his shares to Central Motor Sales Ltd, a company wholly-owned by him in 1959. He died in January 1962 after having been ill for a year. By 1964 it was decided to close the Pointe-Claire operations of Montreal Terra Cotta Limited and sell the property there. The company was not in a liquid position as appears by the statement as of February 28, 1965 showing, in round figures, cash $4,500; accounts receivable of $77,000; finished products and supplies $382,000; against which there was an outstanding guaranteed bank loan of $271,000 and accounts payable of some $60,000. In the autumn of 1964 they began negotiating for the sale of the land in Pointe-Claire which was eventually sold on September 23, 1965 for a total of $900,000 of which $450,000 was received in cash. This was done through two deeds negotiated with Elysee Realties Limited involving the sale of approximately half of the property by it to the Town of Pointe-Claire. The details of these deeds do not concern us in this case. They had been under negotiation for some time, however, and at the time the plaintiff made his offer to purchase shares of Montreal Terra Cotta Limited in July he was undoubtedly aware that Montreal Terra Cotta Limited anticipated selling its property, and hence would obtain a substantial amount of cash in the near future.

Mr Belair testified that he did not explain to Mr Perrault how he was planning to arrange for him to pay for the shares which he had agreed to buy. He had considered the possibility of using the provisions of the Winding-Up Act, which would have required the consent of the creditors, or of reducing the capital of Montreal Terra Cotta Limited by supplementary letters patent. Following the sale of the real estate and some of the stock in trade, the bank loan was reduced considerably and no problem was encountered with the bank in connection with the declaration of the dividend. He consulted legal counsel who approved the plan which was adopted. He testified that the Rocheleau Estate needed the money as it was in a difficult financial position. He realized that, if a dividend in a smaller amount had been declared and accepted by all the shareholders, the plaintiff, Mr Perrault, would then have been taxable on the amount so received by him. He would, of course, have received the dividend tax credit on same. He pointed out that Mr Perrault did not need cash at the time and that the primary object of the manner in which they proceeded was to provide funds for the Estate Rocheleau.

Charles Perrault, the plaintiff, testified, corroborating Mr Bélair’s evidence and stating that he had no interest in acquiring the shares of the other shareholders in Montreal Terra Cotta Limited. He was aware that money to pay for the shares which he was buying would come from Montreal Terra Cotta Limited, however, but he had complete confidence in Mr Bélair and understood what was being done.

In 1966 Montreal Terra Cotta Limited was liquidated, being converted into a new company, and some evidence was adduced as to what Mr Perrault received at this time and on the subsequent liquidation of the shares of the new company but I do not consider that the subsequent transactions are relevant in establishing whether the company conferred a benefit on him as a result of the dividend declaration to Central Motor Sales Ltd which constituted the consideration for the purchase by him of the shares of that company in Montreal Terra Cotta Limited.

The defendant, in making the assessment, relies upon subsections 6(1), 8(1), 16(1) and 137(2) of the Income Tax Act (supra). More specifically, it appears that it is subparagraphs 6(1)(a)(i), 8(1 )(b) together with the exception thereto (i), subsection 16(1) and paragraph 137(2)(a) which are in issue. These sections read as follows:

6. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year

(a) amounts received in the year as, on account or in lieu of payment of, or in satisfaction of

(i) dividends.

8. (1) Where, in a taxation year,

(b) funds or property of a corporation have been appropriated in any manner whatsoever to, or for the benefit of, a shareholder, or

otherwise than

(i) on the reduction of capital, the redemption of shares or the winding- up, discontinuance or reorganization of its business,

the amount or value thereof shall be included in computing the income of the shareholder for the year.

16. (1) A payment or transfer of property made pursuant to the direction of or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person shall be included in computing the taxpayer’s income to the extent that it would be if the payment or transfer had been made to him.

137. . . .

(2) Where the result of one or more sales, exchanges, declarations of trust, or other transactions of any kind whatsoever is that a person confers a benefit on a taxpayer, that person shall be deemed to have made a payment to the taxpayer equal to the amount of the benefit conferred notwithstanding the form or legal effect of the transactions or that one or more other persons were also parties thereto; and, whether or not there was an intention to avoid or evade taxes under this Act, the payment shall, depending upon the circumstances, be

(a) included in computing the taxpayer’s income for the purpose of Part I.

The subsidiary argument of defendant based on subparagraph 6(1)(a){i) to the effect that plaintiff received a dividend in the amount of $350,005.50 which should have been included in computing his income for his 1965 taxation year can be quickly disposed of as it is based on the premise that plaintiff was owner of the shares acquired from Central Motor Sales Ltd at the time the dividend was declared. Reference was made to article 1472 of the Quebec Civil Code which reads as follows:

1472. Sale is a contract by which one party gives a thing to the other for a price in money which the latter obliges himself to pay for it.

it is perfected by the consent alone of the parties, although the thing sold be not then delivered; subject nevertheless to the provisions contained in article 1027 and to the special rules concerning the transfer of registered vessels.

This article requires the consent of the parties and it is evident that, despite all the signatures on the document dated July 28, 1965 consent of Central Motor Sales Ltd as owner of the shares was never legally given. The existence of that company cannot be ignored so the agreement was merely binding between the Rocheleau Estate and the plaintiff and constitutes an undertaking by the Estate Rocheleau to have Central Motor Sales Ltd sell its shares in Montreal Terra Cotta Limited for $350,000, which plaintiff Perrault agrees to have paid to it “after which” (to use the wording of the agreement itself) the shares are to be delivered to him*. [1]

Moreover subsection 68(1) of the Quebec Companies Act, RSQ 1964, c 271, reads as follows:

68. (1) No transfer of shares, unless made by sale under execution or under the decree, order or judgment of a court of competent jurisdiction, shall be valid for any purpose until entry thereof is duly made in the register of transfers, except for the purpose of exhibiting the rights of the parties thereto towards each other and of rendering the transferee liable in the meantime, jointly and severally with the transferor, to the company and its creditors.

There is no proof as to when the entry of transfer of the shares was made in the register of transfers of the company but this would certainly have been after the declaration of the dividend. Moreover, if it were to be seriously contended that the plaintiff had acquired ownership of the Central Motor Sales Ltd shares before the declaration of the dividend, then his renunciation of the dividend would also have been effective with respect to these shares. It is not disputed that the dividend was in fact paid to Central Motor Sales Ltd declared by it in its tax return for 1965, and that the plaintiff did not receive any dividend whatsoever. Finally, even if by some deeming process this were considered to be a dividend paid to the plaintiff then, if the assessment were to be consistent, he should have been given the dividend tax credit on same, which was not done in the assessment.

Neither can plaintiff's assessment have been based on his waiver of the dividend. In fact, the total amount of the dividend which he waived on the 273 common shares which he already owned, plus possibly the additional 24 shares acquired from Oskar Nômm, depending on whether this transfer had been entered in the books of the company prior to the declaration of the dividend, would at $1,813.50 a share have amounted to a great deal more than the amount of $350,005.50 which is assessed. The jurisprudence as well as departmental practice relating to waiver of dividend has established a clear distinction between the acceptance of a dividend together with the assigning it to somebody else, in which event the dividend is taxable in the hands of the initial recipient, and the simple unconditional waiver of same whether before or after its declaration. (See, for example, Simon's Taxes 01.111, Robwaral Limited v MNR, [1960] CTC 16; 70 DTC 1025, and Department of National Revenue Interpretation Bulletin IT-208, which latter is admittedly not binding on defendant.)

With respect to plaintiffs argument that, since the purpose of the dividend declaration was to benefit the Estate Rocheleau which was sorely in need of funds and that, since the plaintiff himself had no desire to acquire the additional shares of the company owned by Central Motor Sales Ltd, there was not any advantage to him in doing so and that he therefore should not be taxed on it, I cannot accept this reasoning. The motive which induced the plaintiff to complete the agreement of July 28, 1965 and cause Montreal Terra Cotta Limited to declare the dividend of $1,813.50 a share on November 15, 1965 which he renounced, is irrelevant if in fact he received a benefit as a result of these series of transactions. Even if the primary motive of the series of transactions may have been to benefit the Estate Rocheleau, the plaintiff must abide by whatever consequences result from what was done, nor can he plead ignorance of the method adopted. Mr Bélair who devised it primarily on behalf of the Estate Rocheleau and drew up the agreement of July 28, 1965 had also been for many years the auditor of Montreal Terra Cotta Limited and was in fact temporarily a director of the company at the time the dividend was declared at the directors’ meeting on November 15, 1965 after Mr Nômm’s replacement as a director. Mr Perrault in his evidence expressed complete confidence in Mr Bélair. In the case MNR v Estate of Thomas Rodman Merritt, [1969] CTC 207; 69 DTC 5159, my brother Cattanach, J stated at 217 [5165]:

in my view, the basic premise on which this analysis is based is that, where the “mind” by which the bargaining is directed on behalf of one party to a contract is the same “mind” that directs the bargaining on behalf of the other party, it cannot be said that the parties are dealing at arm's length. In other words where the evidence reveals that the same person was “dictating” the “terms of the bargain” on behalf of both parties it cannot be said that the parties were dealing at arm's length.

and again at 217 [5166]:

In my view, it is immaterial that the whole arrangement was the "brain child” of the professional advisers. It would have been of no effect if the deceased had not accepted their advice, made the scheme his own and given instructions that it be carried out. It is also immaterial whether he ever completely absorbed the details of the plan. He stipulated the result that he required from the scheme and, in effect, he instructed the carrying out of a scheme so devised as to accomplish that result.

I fully share these views which are equally applicable to the present

It was suggested by counsel for defendant that, since the company only had approximately $350,000 cash with which to pay dividends, instead of declaring the dividend of $1,813.50 a share on the understanding that all of this would be paid to Central Motor Sales Ltd as a result of its holding of 193 shares, a dividend of approximately $715 a share could have been declared which all shareholders could have accepted and the plaintiff, as owner of 273 common shares plus 24 acquired from Oskar Nômm (if in fact he was the registered shareholder of these shares before the dividend declaration), would have received $212,355 and Central Motor Sales Ltd would have received $137,995. Mr Perrault could then have used the dividend he received to complete the payment for the shares he had agreed to purchase, and the Estate Rocheleau would have ultimately received approximately the same amount as it did by virtue of the method adopted. Whether, in this event, the Minister would ever have attempted to assess the plaintiff on the basis that the sum $137,995 paid as a dividend to Central Motor Sales Ltd was considered by the parties to be part payment for the shares he was buying and therefore constituted a benefit pro tanto to plaintiff is very doubtful, since certainly the declaration of a dividend to one shareholder would normally not be considered as conferring a benefit on another shareholder even if, in fact, the proceeds of the dividend are to be used to pay in whole or in part for the purchase by the latter of the former shareholder’s shares. It was the waiver of the dividend by the plaintiff, enabling a much larger dividend to be paid to Central Motor Sales Ltd constituting the entire payment for the shares he was purchasing, which led to defendant’s contention that a benefit was conferred on him, even though the unconditional waiver of a dividend by itself does not normally lead to an assessment of the amount of the dividend waived by the taxpayer. There is no doubt, however, that both Mr Bélair and Mr Perrault were aware that, had a smaller dividend been declared, enabling him as well as Central Motor Sales Ltd to accept it, he would have been taxable on the dividend so received. The Minister cannot base an assessment, however, on what might have been done; both he and the court must deal with what actually was done and consider the consequences of same on the tax liability of the various parties involved. It is well established law that a taxpayer is entitled to so arrange his affairs as not to attract taxation if he can, within the framework of the Act and regulations, adopt a different manner of proceeding so as to minimize his tax liability.

Plaintiff argued that in any event, if a benefit had been conferred upon him as a shareholder, the exception of subparagraph 8(1)(i) would be applicable as this was done in connection with the “winding- up, discontinuance or reorganization” of the company’s business. I cannot accept this argument as Montreal Terra Cotta Limited, although it had disposed of its Pointe-Claire property, still owned its property in Deschaillons and was actively operating. It was eventually converted into another company, Montreal Terra Cotta (1966) Ltd at the end of 1966 and, in due course, that company may have been wound up, and certainly Mr Perrault was trying to dispose of its assets with a view to eventually winding it up, but there was no winding-up, discontinuance or reorganization of the business at the time the dividend was declared and paid. This exception is therefore not applicable to the facts of the present case.

If defendant is to succeed in having the assessment maintained it must be on the basis of either subsection 16(1) or 137(2) of the Act. Subsection 16(1) is drawn in very broad terms .lt would apply whether the dividend payment were made “pursuant to the direction of” or “with the concurrence of” the taxpayer. This, I believe, answers the argument of plaintiff’s counsel arising from the fact that it is the directors of a company which declare a dividend and not the shareholders. This question was raised in the case of MNR v Allan Bronfman, [1965] CTC 378; 65 DTC 5235, dealing with gifts made by a company to relatives of the directors, including substantial cash wedding presents to their children and grandchildren. The five directors did ‘not own the controlling shares, however, and Dumoulin, J in holding that all the shareholders, and not just the directors, should share in the tax liability resulting from the application of subsection 16(1), said at 385 [5239]:

Shareholders possessing voting rights could have, had they so wished, objected to and voted down at annual or specially convened meetings their directors’ generosities. And, of course, they also might have resorted to the radical remedy of voting out of office the entire Board and elected a more thrifty slate of directors. Their abstention or indifference, unbrokenly maintained, becomes tantamount to an approval of their administrator’s gift distributing policies, and they should, with the latter, have shared proportionately to their individual holdings, the burden of taxation decreed by Section 16(1).

The facts in the present case are quite different however. The plaintiff, Charles Perrault, was the controlling shareholder, with or without the shares acquired from Oskar Nômm. The only other shareholder aside from Central Motor Sales Ltd was Mr Raymond Corriveau who held a qualifying share only and, after Mr Nômm’s resignation, apparently Mr Lucien Bélair who was at the second meeting of directors on November 15, 1965, stated to be a shareholder and qualified to be a director to replace him, although there is no proof of any transfer of a share to him as of any resolution of Central Motor Sales Ltd designating him to represent them as a director. In any event it is abundantly clear that Mr Perrault controlled the company and was in a position to give “direction” to the directors to declare the dividend which they did. Certainly it was done with his “concurrence”.

To continue the analysis of subsection 16(1), it applies whether payment is made ‘to some other person for the benefit of the tax- payer” or “as a benefit that the taxpayer desired to have conferred on the other person”. It makes no difference therefore whether the benefit (if in fact there was a benefit) was for the plaintiff himself or for the Estate Rocheleau which, as sole shareholder of Central Motor Sales Ltd, stood to benefit by the declaration of the dividend received by that company, as appears from the fact that the entire dividend cheque was then immediately endorsed over to the Estate.

A somewhat similar situation was dealt with by Pratte, J in the case of MNR v Louis Bisson, [1972] CTC 446; 72 DTC 6374 in which Louis Bisson, one of two equal shareholders of a bus company, acquired the shares of the other shareholder, W T Thorn, which had been deposited with him as security for a loan. A dispute about this was settled when Bisson in addition to relinquishing payment of the loan caused the company to undertake to employ his former associate Thorn and pay him for past and future advice to the company. Praite, J found that these payments by the company had the effect of conferring a benefit on Bisson by virtue of subsection 16(1) of the Act, having been made with his consent and for his benefit. At 453 [6379] Pratte, J stated:

In my opinion only one inference can be drawn from these facts; it is that, as the price of waiving his claim against Bisson, Thorn required that he be paid a sum of money which Hull City Transport Ltd in fact paid him. In paying Thorn the sum of $60,000 stipulated in the contract of May 13, 1953, Hull City Transport Ltd thus paid part of the price Thorn was asking for waiving his claim against Bisson. By so doing the company made payments for respondent’s benefit within the meaning of subsection 16(1), and as these payments were made with respondent’s consent, and would have formed part of his income if they had been made to him directly, ! cannot but conclude that they should have been included in computing respondent’s income for the years in question.

One other case might be referred to, namely, that of MNR v Didace Dufresne, [1967] CTC 153; 67 DTC 5105, in which a family company of which the respondent was the controlling shareholder on two occasions granted its shareholders the right to subscribe for additional shares at $100 par value when they had a book value of $1,421 each. Respondent and his wife refrained from subscribing but their five children exercised their rights in full. The Minister invoked subsection 137(2), assessing the respondent for gift tax as a result of having conferred benefits on his children. Respondent argued that the benefit had been conferred by the company and not by him, and that in any event it was exempt by subparagraph 8(1)(c)(iii) which provides that no benefit or advantage is conferred on a shareholder by a corporation by the conferring on all holders of common shares in the capital of the corporation a right to buy additional shares therein. Jackett, P as he then was held however:

The provisions of section 137(2) had been correctly applied by the Minister in assessing the respondent to gift tax. It seemed clear that there was a mutual assumption that a benefit had been conferred on the children by the transactions in question; in any event, the respondent did not challenge the correctness of such assumption. The benefit conferred was an increase in the proportions of the shareholdings of the children at the expense of a decrease in the proportion of the shareholding of the respondent. Such benefit was the. “result” of a "transaction”, and the benefit was conferred on the children by the respondent. The respondent, as the owner of practically all the shares of the company and the head of the family, had the controlling influence in the determination of the course of events with which the appeal was concerned. The sequence of events bore all the earmarks of a series of company transactions that had been arranged in advance by the respondent with a view to increasing the children’s proportions in the ownership of the stock of the company. Section 8(1)(c)(iii) did not have the effect of exempting the respondent from liability to pay gift tax, even though such liability arise from a series of transactions or other events of which the company’s granting of rights to its shareholders was one.

The renunciation to the dividend by plaintiff in the present case is somewhat analogous to the failure of Dufresne and his wife to subscribe to the stock offered by his company at less than book value. If we look at the result in the present case, Montreal Terra Cotta Limited conferred a benefit on plaintiff (if in fact the acquisition of the additional shares constituted a benefit) in the same manner as payments by a company to third persons were found to have conferred a benefit on a shareholder who caused the company to make these payments for his benefit in the Bronfman case (supra).

While subsection 137(2) might perhaps be applied and, if it were, the exception of subsection 137(3)* [2] would not be applicable in view of the part played by Mr Bélair, acting for all parties, as previously indicated, and that it was made to effect payment of an obligation of plaintiff and not of the company. I prefer to base the tax liability of plaintiff in the present case on subsection 16(1), as it would involve a very wide interpretation of subsection 137(2) to consider the declaration of a dividend as a “transaction” benefiting plaintiff even though the dividend was received by Central Motor Sales Ltd.

The only question remaining to be decided is one of fact, namely, “Did the series of transactions which resulted in plaintiff obtaining the 193 shares of Montreal Terra Cotta Limited owned by Central Motor Sales Ltd without paying any of his own money for same result in a ‘benefit’ to him or, alternatively, to the Estate Rocheleau at the desire of the plaintiff?”

At first sight it would appear that the acquisition of additional shares ‘In a solvent and viable company without the taxpayer himself paying anything for them must be considered as a benefit to him. This is perhaps an over-simplification however. After the dividend payment and transfer of the shares to him he now owned all 490 shares as against 273, plus 24 acquired from Oskar Nômm previously. However the company’s assets had now been reduced by $350,005.50, the amount of the dividend. It can readily be seen that, had the $350,005.50 represented the entire assets, plaintiff would have been worse off instead of having received a benefit, for the ownership of 273/490 or even 297/490 of the shares of a company with some $350,000 worth of assets would obviously be better than owning all the shares of a company with no assets. On the other hand, in this hypothetical case, plaintiff, in causing the company to declare such a dividend and renouncing same so that it all went to Central Motor Sales Lid, might still have been liable under subsection 16(1) for having caused a benefit to be conferred indirectly on the Estate Rocheleau. Some consideration must therefore be given to the question of whether, in fact, any benefit resulted which would render plaintiff taxable on same under subsection 16(1) of the Act. While some slight evidence was adduced attempting to show what plaintiff actually received on the conversion of the company to Montreal Terra Cotta (1966) Ltd and the eventual winding-up of same, on a present worth basis, this is going too far afield. We must look to the value of the shares he obtained at the date of the acquisition, without considering fiuctuations in the value of same resulting from subsequent operations of the company or future property dispositions.

The balance sheet of Montreal Terra Cotta Limited as of February 28, 1965 showed Shareholders Equity of $967,779.43 which included the paid up capital of $49,000 and capital surplus of $100,182.07. The 490 shares therefore had a book value of somewhat under $2,000 each. Oskar Nômm was paid $50,000 for the 24 shares which plaintiff bought from him—a generous payment to a long-time employee. The amount of $1,813.50 paid by way of a dividend declaration for acquisition by plaintiff of Central Motor Sales Ltd’s shares appears to be a fair and realistic price*. [3]

After the dividend declaration and payment the next balance sheet of the company as of February 28, 1966 shows Shareholders Equity of $1,122,912.14. The capital surplus figure has now been eliminated but accumulated earnings have gone up from $818,597.36 to $1,073,912.14. It is apparent that, with plaintiff now being the sole shareholder, the shareholders’ equity, far from being reduced, has increased.

There is nothing therefore to indicate that plaintiff did not in fact receive a benefit by acquiring the additional shares without paying for same personally.

Plaintiff was therefore properly assessed for his 1965 taxation year under the provisions of the Income Tax Act in effect at the time, and his action is dismissed with costs.