Bonner
J.T.C.C.:—This
is
an
appeal
from
an
assessment
of
income
tax
for
the
appellant’s
1988
taxation
year.
The
issue
is
whether
shares
of
Pursuit
Fisheries
(1987)
Ltd.
("Pursuit")
which
were
sold
by
the
appellant
on
November
4,
1988
were,
at
the
time
of
disposition,
"qualified
small
business
corporation
shares"
as
defined
in
subsection
110.6(1)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
If
they
were
the
appellant
is
entitled,
under
subsection
110.6(2.1)
of
the
Act,
to
the
capital
gains
deduction
which
he
seeks.
The
subsection
110.6(1)
definition
of
"qualified
small
business
corporation
share"
reads
in
part:
"qualified
small
business
corporation
share"
of
an
individual...at
any
time
(in
this
definition
referred
to
as
the
"determination
time")
means
a
share
of
the
capital
stock
of
a
corporation
that
(c)
throughout
that
part
of
the
24
months
immediately
preceding
the
determination
time
while
it
was
owned
by
the
individual...was
a
share
of
the
capital
stock
of
a
Canadian-controlled
private
corporation....
In
this
case
the
"determination
time"
is
the
time
of
disposition
of
the
shares,
November
4,
1988.
Pursuit
was
incorporated
on
February
9,
1987
and
the
appellant’s
shares
were
issued
to
him
on
that
day
and
held
by
him
continuously
thereafter
until
the
time
of
sale.
Thus
it
is
necessary
to
determine
whether
Pursuit
was
a
"Canadian-
controlled
private
corporation"
throughout
the
period
from
February
9,
1987
to
November
4,
1988.
The
term
"Canadian-controlled
private
corporation"
is
defined
in
paragraph
125(7)(b)
of
the
Act
as
follows:
"Canadian-controlled
private
corporation"
means
a
private
corporation
that
is
a
Canadian
corporation
other
than
a
corporation
controlled,
directly
or
indirectly
in
any
manner
whatever,
by
one
or
more
non-resident
persons....
The
words
of
exception
are
of
particular
interest
here
because
the
assessment
under
appeal
rested
on
a
finding
made
by
the
Minister
of
National
Revenue
("Minister")
that
Pursuit
was
controlled
by
non-
resident
persons
named
Doody
and
Levine
from
February
9,
1987
to
March
16,
1987.
During
that
period
there
were
35
voting
shares
of
Pursuit
outstanding
which
were
held
as
follows:
Appellant:
10
John
Doody
(a
non-resident):
15
Lee
Levine
(a
non-resident):
10
The
Minister
found
as
well
that,
despite
the
issuance
on
March
16,
1987
of
65
shares
of
Pursuit
to
a
Canadian
resident,
Clearwater
Fine
Foods
Inc.,
(’’Clearwater"),
control
remained
in
the
hands
of
non-residents
because
on
the
same
day
Clearwater
granted
an
option
to
Doody
to
buy
26
of
the
shares.
In
this
regard,
the
Minister
relied
on
paragraph
251(5)(b)
of
the
Act
which
provided:
251(5)
For
the
purposes
of
paragraph
125(7)(b),
subsection
(2)
and
section
256,
(b)
a
person
who
had
a
right
under
a
contract,
in
equity
or
otherwise,
either
immediately
or
in
the
future
and
either
absolutely
or
contingently
to,
or
to
acquire
shares
in
a
corporation,
or
to
control
the
voting
rights
of
shares
in
a
corporation,
shall,
except
where
the
contract
provided
that
the
right
is
not
exercisable
until
the
death
of
an
individual
designated
therein,
be
deemed
to
have
had
the
same
position
in
relation
to
the
control
of
the
corporation
as
if
he
owned
the
shares;
and
The
position
with
respect
to
control
of
Pursuit
following
March
16,
1987
was:
Voting
shares
held
Appellant:
10
John
Doody:
15
Lee
Levine:
10
Clearwater
(not
subject
to
option):
39
Clearwater
(subject
to
Doody
option):
26
Total
voting
shares
issued:
100
The
appellant
testified
that
during
the
period
February
9
to
12,
1987
there
were
on-going
negotiations
regarding
the
question
who
would
hold
what
number
of
Pursuit
shares.
The
question
was
not
settled
until
February
13.
On
February
13,
an
agreement
was
reached
for
the
issuance
of
65
shares
to
Clearwater.
That
agreement
was
subject
to
an
escrow
arrangement
the
conditions
of
which
were
satisfied
on
March
16.
It
was
argued
that
the
uncertainty
during
the
period
February
9
to
12
negatived
the
existence
of
control
on
those
four
days.
It
was
argued
that
the
issuance
of
65
shares
on
March
16
related
back
to
February
13
once
the
escrow
was
satisfied.
Finally
it
was
argued
that
for
the
period
following
March
16,
1987,
the
day
on
which
the
option
was
granted,
control
did
not
change
because
the
option
rights
were
of
a
potential
nature
only.
I
reject
the
first
argument.
What
is
in
question
here
is
de
jure
control,
the
existence
of
which
is
in
no
way
dependent
upon
consciousness
on
the
part
of
the
shareholder
or
shareholders
of
the
existence
of
the
voting
power
held
by
him
or
them.
I
reject
the
second
argument
as
well.
Clearwater’s
65
shares
did
not
exist
until
March
16
and
could
not
be
voted
before
they
were
issued.
The
third
argument
fails.
The
March
16
agreement
whereby
the
option
was
granted
to
Doody
read
in
part:
Doody
is
hereby
granted
the
option
to
purchase
from
Clearwater
the
optioned
shares
for
the
option
price
and
otherwise
upon
the
terms
and
conditions
hereinafter
set
forth,
such
option
to
be
exercisable
by
Doody
by
notice
in
writing
given
to
Clearwater
at
any
time
after
(but
not
before)
the
first
(1st)
anniversary
of
the
date
of
this
agreement
and
before
(but
not
after)
the
tenth
anniversary
of
the
date
of
this
agreement,
provided
that
this
option
may
only
be
exercised
so
long
as
Doody
owns
any
shares
in
the
capital
stock
of
the
company
and
provided
further
that
if
this
option
is
not
exercised
in
the
manner
and
during
the
period
aforesaid
and,
in
any
event,
before
the
tenth
anniversary
of
the
date
of
this
agreement
this
option
shall
terminate.
In
my
view
Doody
was
a
person
who,
by
virtue
of
the
option,
fell
within
the
plain
language
of
paragraph
251(5)(b)
of
the
Act.
In
consequence
the
voting
power
of
the
shares
actually
held
by
Doody
and
Levine
combined
with
the
position
deemed
by
paragraph
251(5)(b)
to
exist
placed
de
jure
control
squarely
in
the
hands
of
the
two
non-resident
individuals.
The
appeal
fails
and
will
be
dismissed
with
costs.
Appeal
dismissed.
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