Garon,
J.T.C.C.
[Translation]:
—This
is
an
appeal
from
an
income
tax
assessment
of
the
Minister
of
National
Revenue
for
the
1980
taxation
year
relating
to
the
nature
of
a
payment
of
a
sum
of
$75,000
made
to
the
appellant
by
Les
Pétroles
Dupont
Inc.
The
respondent
argued
that
this
was
a
retiring
allowance
within
the
meaning
of
subsection
248(1)
of
the
Income
Tax
Act
and
that
the
whole
sum
should
consequently
be
included
in
income
for
1980
under
subparagraph
56(1)(a)(ii)
of
the
Act,
which
reads
as
follows:
56.
(1)
Without
restricting
the
generality
of
section
3,
there
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year,
(a)
any
amount
received
by
the
taxpayer
in
the
year
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of
(ii)
a
retiring
allowance,
other
than
an
amount
received
out
of
or
under
an
employee
benefit
plan.
The
definition
of
“retiring
allowance”
as
it
applied
to
the
1980
taxation
year
read
as
follows:
.
.
.
an
amount
received
upon
or
after
retirement
from
an
office
or
employment
in
recognition
of
long
service
or
in
respect
of
a
loss
of
office
or
employment
(other
than
a
superannuation
or
pension
benefit)
whether
the
recipient
is
the
officer
or
employee
of
a
dependant,
relation
or
legal
representative.
The
appellant,
on
the
other
hand,
maintained
that
this
sum
was
a
termination
payment
referred
to
in
subparagraph
56(1)(a)(viii)
of
the
Act,
which
reads
as
follows:
56.
(1)
Without
restricting
the
generality
of
section
3,
there
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year,
(a)
any
amount
received
by
the
taxpayer
in
the
year
as,
on
account
or
in
lieu
of,
or
in
satisfaction
of
(viii)
a
termination
payment.
The
expression
"termination
payment"
is
defined
in
part
as
follows
in
subsection
248(1)
of
the
Act:
“termination
payment”,
for
a
taxation
year,
means
an
amount
equal
to
the
lesser
of
(a)
the
aggregate
of
all
amounts
each
of
which
is
an
amount
received
in
the
year
in
respect
of
a
termination
of
an
office
or
employment,
whether
or
not
received
pursuant
to
an
order
or
judgment
of
a
competent
tribunal,
other
than
(i)
an
amount
required
by
any
provision
of
this
Act
(other
than
subparagraph
56(1)(a)(viii))
to
be
included
in
computing
the
income
of
a
taxpayer
for
à
year.
The
facts
may
be
summarized
as
follows:
The
appellant
did
everything
necessary
to
incorporate
Les
Pétroles
Dupont
Inc.
on
September
20,
1965
under
Quebec
law.
The
company's
business
involved
essentially
the
distribution
and
sale
of
petroleum
products
in
the
Bedford
region
of
Quebec.
The
appellant
was
originally
the
president
of
this
company.
His
brother-in-
law
Michel
Lamothe
also
became
a
full-time
employee
of
the
company
from
the
time
it
was
incorporated.
Another
brother-in-law
of
the
appellant
and
Michel
Lamothe,
Jean
Chevalier,
also
joined
the
ranks
of
the
company
as
an
employee
some
three
years
later.
The
appellant
and
Messrs.
Michel
Lamothe
and
Jean
Chevalier
were
also
directors
and
shareholders
of
the
company.
Each
of
them
held
300
ordinary
shares.
In
fact,
they
were
the
only
holders
of
the
900
shares
issued
by
the
corporation.
During
1980
disputes
occurred
between
the
appellant,
on
the
one
hand,
and
Messrs.
Lamothe
and
Chevalier,
on
the
other
hand,
concerning
the
management
of
the
company's
business
and
intensified
to
a
point
where
the
company
had
to
consider
terminating
its
business
relationship
with
the
appellant.
In
late
June
1980
the
appellant
received
a
notice
dated
June
25,
1980
summoning
him
to
a
general
meeting
of
the
company's
shareholders.
He
was
also
invited
in
this
notice
to
a
meeting
of
the
board
of
directors
to
be
held
on
the
same
day.
The
date
of
these
two
meetings
was
amended
at
the
request
of
Mr.
Nivoix,
counsel
for
the
appellant
at
that
time,
and
they
were
held
on
July
7,
1980.
These
notices
explained
that,
in
addition
to
receiving
and
approving
the
financial
statements
and
appointing
the
auditors,
these
meetings
would
consider
the
transfer
of
one
ordinary
share
from
Messrs.
Lamothe
and
Chevalier
to
Mesdames
Lamothe
and
Chevalier
and
directors
would
be
elected.
At
the
meetings
of
shareholders
and
directors,
both
held
on
July
7,
1980,
Mr.
Prevost
from
a
law
firm
in
Sherbrooke,
who
was
acting
for
the
company,
was
present.
This
lawyer
had
with
him
drafts
of
resolutions
he
wished
to
have
signed
at
the
meeting.
On
reading
these
draft
resolutions,
Mr.
Nivoix
noted
that
their
purpose
was
to
change
the
membership
of
the
board
and
to
"remove
Mr.
Dupont
from
the
board
of
directors".
In
addition,
another
resolution
provided
for
Mr.
Dupont's
dismissal.
After
much
discussion
the
other
two
shareholders
and
directors
reviewed
their
decision
and
the
paragraphs
in
the
proposed
resolutions
relating
to
the
addition
of
two
new
directors
and
the
dismissal
of
the
appellant
were
struck
out.
Mr.
Nivoix
described
the
appellant's
reactions
during
this
meeting
in
part
as
follows:
[Translation]
So
it
is
pointless
to
say
that
once
Mr.
Dupont
was
aware
of
that,
that
even
if,
in
effect,
I
mean,
after
the
difficult
negotiations
that
occurred
on
the
spot,
he
waste
use
a
word—flabbergasted
and
completely
surprised
since
he
never
thought
that
the
intention
of
his
partners
was
to
go
as
far
as
that,
especially
since
he
had
founded
this
company.
And,
as
I
have
also
said,
one
of
his
two
(2)
partners
was
.
.
.
was
related,
so
really
he
had
a
great
surprise
and
a
shock
at
that
time.
And
there
was
much
aggression
that
was
displayed
at
that
meeting.
However,
following
the
signature
of
the
said
documents
and
the
renunciation
by
the
two
(2)
partners
of
this
manner
of
proceeding,
Mr.
Dupont
was
assured,
on
the
basis
of
the
discussions
that
had
taken
place,
that
he
could
continue
to
work
for
Pétroles
Dupont,
that
he
would
still
hold
his
position
as
director
and
that
everything
seemed
to
return
to
normal.
A
few
weeks
later
the
appellant
received
a
further
summons,
dated
August
14,
1980,
to
a
meeting
of
the
board
of
directors,
on
this
occasion
"for
the
purposes
of
examining
the
possibility
of
proceeding,
or
proceeding
where
appropriate,
to
wind
up
the
company".
The
said
meeting
was
in
fact
held
on
August
20,
1980.
After
returning
to
Canada
in
early
September
1980
and
after
examining
the
notice
of
meeting
dated
August
14,
1980,
mentioned
above,
Mr.
Nivoix
stated
the
following
in
his
testimony:
[Translation]
After
examining
these
documents,
I
immediately
contacted
Mr.
Dupont
on
my
return
and
that
is
when
I
learned
that,
in
effect,
there
had
been
absolutely
no
compliance
with
the
agreements
concluded
at
the
first
meeting
in
July
1980
and
that,
on
the
contrary,
the
necessary
action
had
been
taken
not
only
not
to
comply
with
them
but
also
to
circumvent
completely
these
agreements
that
had
been
concluded
between
Mr.
Prevost,
myself
and
the
three
parties
who
were
present
so
that
Mr.—as
I
said
earlier—so
that
Mr.
Dupont
could
continue
to
work
in
the
company.
He
later
added
the
following:
[Translation]
So,
immediately
after
talking
with
Mr.
Dupont,
who
told
me
no
more
and
no
less
than
that
this
meeting
on
August
20.
.
.
that
he
had
been
out
of
the
company
since
August
20
.
.
.
1,
I
went
in
early
September
and
he
informed
me
then
that,
well,
there
had
been
a
meeting
which
he
had
had
to
attend
where
he
had
quite
simply
been
dismissed
from
his
position
and
he
had
been
asked
to
hand
in
his
keys
and,
above
all,
to
avoid
contacting
the
customers
in
any
way
or
the
suppliers
or
any
other
persons
related
to
the
company.
The
appellant
had
been
dismissed
from
the
company
as
an
employee.
This
news
of
the
appellant's
dismissal
was
followed
by
a
letter
from
counsel
for
the
appellant,
Mr.
Nivoix,
dated
September
12,
1980,
which
was
sent
to
counsel
for
the
company
and
to
Messrs.
Lamothe
and
Chevalier.
It
contains
the
following
passage
in
particular:
[Translation]
.
.
.
We
accordingly
wish
to
inform
you
at
once
that
the
dismissal
of
Mr.
Dupont
is
unlawful
in
light
of
the
agreement
signed
by
you
on
July
7,
1980.
August
20,
1980
was
confirmed
as
the
date
of
the
appellant's
dismissal
in
a
letter
dated
September
4,
1980
sent
to
Mr.
Nivoix
by
Mr.
Monty.
As
of
the
former
date
the
appellant
was
also
relieved
of
his
duties
as
a
member
of
the
company's
board
of
directors.
During
his
testimony
Mr.
Nivoix
explained
the
type
of
remedy
that
was
contemplated
at
that
time:
[Translation]
During
this
period,
in
early
September
1980,
I
had
an
opportunity
on
several
occasions
to
go
directly
to
the
site
and
meet
with
Mr.
and
Mrs.
Dupont
to
discuss
the
situation
and
examine
the
possible
remedies
with
respect
to—specifically—
with
respect
to
the
dismissal.
I
also
had
negotiations
with
Mr.
Coulombe
to
assert
our
rights
under
the
agreement
concluded
in
July
1980,
failing
which
I
had
no
alternative
at
the
time
but
to
bring
an
action
for
unjust
dismissal.
This
was
the
position
we
adopted.
In
his
testimony
Mr.
Nivoix
also
summarized
the
factors
that
should,
in
his
view,
be
taken
into
account
in
a
possible
compensation
payment
to
the
appellant
as
follows:
[Translation]
So,
following
these
discussions
with
Mr.
Coulombe,
at
first
I
asked
him
about
the
attitude
his
clients
intended
to
adopt
to
Mr.
Dupont's
dismissal.
And
we
began
to
discuss
a
possible
amount
of
compensation.
Then,
naturally,
at
first
it
was
a
question
for
us
of
evaluating
the
damages
sustained
by
Mr.
Dupont
as
a
result
of
his
dismissal
and,
naturally,
I
then
proposed
to
Mr.
Coulombe
several
criteria
that
it
seemed
important
to
consider.
One
of
the
first
criteria
was
the
fact
that
Mr.
Dupont
was
the
founding
member
of
that
company
in
which
he
had
worked
for
more
than
fifteen
years.
Naturally,
this
company
bore
his
name
as
its
founding
member.
The
fact
that
he
was
dismissed
from
it
had
serious
consequences
both
for
him
personally
and
for
his
family,
naturally,
since,
listen,
he
was
known
as
Mr.
Dupont
of
Pétroles
Dupont,
he
lived
on
Dupont
Street
in
Bedford
and
he
was
driven
out
of
the
Dupont
company
with
all
the
stories
that
went
around,
naturally.
In
the
Bedford
area
this
gave
rise
to
certain
doubts
in
people
who
knew
Mr.
Dupont
well.
He
was
a
person
who
had
never
done
anything
else
but
sell
heating
oil
and
repair
furnaces,
who
had
devoted
part
of
his
life
to
this
activity
and
who
found
himself,
overnight
he
was
told
very
unceremoniously:
you
no
longer
have
a
job.
So,
there
were
all
these
criteria,
naturally,
there
was
also
the
criterion
that
it
would
be
impossible
for
Mr.
Dupont
to
start
up.
I
mean,
a
business
in
the
same
field,
it
is
certain
that
this
was
one
of
the
factors
that
were
also
discussed
at
that
time.
So,
we
also
attempted
to
establish,
well,
there
were
nevertheless,
as
I
said,
at
least
fifteen
years
of
service
in
the
past.
Nevertheless,
Mr.
Dupont
was
not
at
that
time,
was
not
close
to
normal
retirement,
he
had
not
reached
65,
I
think
he
was
perhaps
about
fifty
at
the
time.
However,
for
a
person
of
that
age,
in
that
environment,
who
had
never
done
anything
else,
to
change
career,
naturally,
that
was
also
a
handicap.
So,
with
Mr.
Coulombe
we
went
over
all
these
factors
which
could,
let
us
say,
disturb,
if
you
will,
in
the
future,
Mr.
Dupont
in
future,
and
we
tried
to
place
a
value
on
them.
It
was
also
established
that
from
the
beginning
of
September
1980
until
the
agreement
on
this
subject
was
concluded
on
October
8,
1980
negotiations
took
place
primarily
between
counsel
for
the
appellant
and
the
company,
although
Messrs.
Dupont,
Lamothe
and
Chevalier
were
present
at
some
meetings.
The
evidence
showed
that
over
the
years
the
appellant,
Mr.
Lamothe
and
Mr.
Chevalier
each
received
an
annual
salary
of
about
$20,000.
In
the
last
few
years,
at
least,
they
also
received
a
sum
of
about
$50,000
overall
in
dividends
that
they
reinvested
the
company
in
the
form
of
loans
to
the
company.
The
current
president
of
the
company,
Mr.
Michel
Lamothe,
stated
in
his
testimony
that
he
and
Mr.
Jean
Chevalier
had
a
number
of
complaints
against
the
appellant's
conduct
and
that
discussions
had
gone
on
for
approximately
six
months
with
the
parties
concerned,
including
the
appellant.
In
July
1980
the
situation
was
so
serious
that
Messrs.
Lamothe
and
Chevalier
consulted
their
accountant
and
then
their
lawyer,
and
it
was
at
this
time
that
it
was
suggested
to
them
that
they
dismiss
the
appellant.
Mr.
Lamothe
stated
categorically:
[Translation]
.
.
we
could
no
longer
rely
on
that
man
at
all,
at
all,
because,
in
any
event,
.
.
.
because
of
a
family
matter,
but
a
major
drinking
situation
was
involved,
and
then
the
fact
remained
that
we
could
no
longer
rely
on
him.
Concerning
the
payment
of
a
sum
of
$75,000,
Mr.
Lamothe
gave
the
following
explanation
in
reply
to
a
question
of
counsel
for
the
respondent,
and
I
quote:
[Translation]
Q.
Then,
following
August
20,
1980,
I
should
like
you
to
explain
to
the
Judge
your
involvement
in
Mr.
Dupont's
severance
agreement
and
also
what
you
understood
by
this
document,
which
was
filed
as
Exhibit
A-6.
Do
you
need
to
look
at
it
again
or
.
.
.?
A.
No.
I
remember
very
well.
Following
that
date,
we,
we
agreed,
since
there
had
been
a
dismissal,
to
give
Mr.
Dupont
a
severance
allowance
for
all
the
service
he
had
rendered
previously,
over
the
fifteen
years
that
he
spent
with
us
because,
in
any
event,
we
did
not
want
any
more
squabbles
since
we
wanted
to
buy
a
little
peace.
This
means
that
we
agreed
to
give
him
this
severance
allowance
for
everything
he
had
done
for
us
in
the
past.
Later,
in
reply
to
another
question
from
counsel
for
the
respondent,
which
was
worded
as
follows:
[Translation]
Q.
But
was
it
the
company's
intention
when
it
paid
the
severance
allowance
to
provide
compensation
for
the
unjust
dismissal
or
was
it
in
connection
with
previous
services?”
he
added
the
following
explanations
of
the
payment
of
this
sum
of
$75,000:
[Translation]
A.
No.
We
saw
it
as
being
for
services
he
had
rendered
in
the
last
15
years.
Our
experience
was
not
all
as
at
the
end,
there
had
all
the
same
been
some
good
years
and
then
it
was,
nevertheless
.
.
.
we
wanted
to
compensate
him
for
that
in
any
event.
In
reply
to
the
following
question
from
counsel
for
the
respondent
concerning
the
tax
treatment
of
this
payment
by
the
company:
[Translation]
.
.
.
the
company
claimed
the
payment
of
the
sum
of
$75,000
as
an
operating
expense
in
the
form
of
a
severance
allowance.
Could
you
confirm
this
fact
to
the
Judge
or
do
you
deny
it?
Mr.
Lamothe
stated
the
following:
[Translation]
A.
Yes,
we
claimed
that
deduction.
Mr.
Lamothe
explained
in
his
testimony
what
he
understood
by
severance
allowance:
[Translation]
A.
It
was
thanks
for
all
that
Mr.
Dupont
might
have
done
for
us
because
from
the
outset,
in
fifteen
years
of
service,
it
was
certain
that
he
worked
many
hours
since
he
did
.
.
.
he
had
perhaps
more
experience
than
we
two,
Jean
and
I,
had
and
in
the
final
analysis
that
deserved
compensation.
We
had
thought
that
by
giving
him
a
severance
allowance,
he
would
be
pleased.
Q.
It
was
to
please
him?
A.
Well,
we
paid
him,
we
gave
him
that
to
thank
him
for
all
those
services.
Mr.
Jean
Chevalier
confirmed
the
substance
of
Michel
Lamothe's
testimony
concerning
the
company's
payment
of
$75,000.
Mr.
Jean
Chevalier
stated
the
following:
[Translation]
No,
no.
That
was
strictly
for
services
rendered,
the
time
he
had
spent
with
the
company.
He
spent
his
time,
all
the
time,
telling
us:
it
was
I
who
did
everything,
it
was
I
who
did
the
work
and
it
was
I
who
built
it
up.
Then
I
said
:
you
were
not
all
on
your
own.
There
were
the
three
of
us.
That
meant
that
.
.
.
he
worked,
it
is
true.
But
it
was
in
gratitude
for
the
time
he
had
devoted
to
it
and
then
for
services
rendered.
The
office
was
at
his
residence,
we
repaired
our
trucks
in
his
garage,
and
the
$75.000
was
given
for
that.
Later
the
witness
added:
[Translation]
It
is
certain
that
we
told
each
other
so.
In
the
family
they
were
saying:
You
are
heartless,
you
are
kicking
Mr.
Dupont
out
and
he's
leaving
without
any
money.
I
said:
that's
not
so,
we're
giving
him
$75,000
for
leaving
and
since
he's
leaving
us
his
shares,
that
means
absolutely
nothing
to
us.
The
decision
to
sell
his
shares
he
made
himself.
On
cross-examination
Mr.
Chevalier
explained
the
reason
for
this
payment
by
the
company
of
the
sum
of
$75,000
in
the
circumstances
as
follows.
The
questions
and
answers
reproduced
below
illustrate
certain
difficulties
experienced
by
the
witness
in
rationalizing
the
company's
decision
in
this
regard:
[Translation]
Q.
You
say
.
.
.
well,
since
the
situation
was
tenuous,
how
is
that
today
you
say
that
the
sum
of
$75,000
was
given
to
Mr.
Dupont
for
his
past
services
whereas
it
was
the
big
quarrel
there
in
1980?
A.
Well,
I
can
tell
you
that
the
day
when
Mr.
Dupont
was
dismissed,
he
was
at
the
company
that
day.
That
is
to
say
that
we
talked
to
one
another
but
no
more
than
was
necessary.
Q.
A
little
while
ago
you
said
that
it
was
a
gift
that
you
gave
him.
A.
It
was
not
a
gift,
it
was
for
the
past
that
we
gave
him
his
$75,000.
On
October
8,
1980
the
appellant
sold
his
300
ordinary
shares
to
1648-207-7
Québec
Inc.,
represented
by
Messrs.
Lamothe
and
Chevalier,
for
a
sum
of
$200,000.
In
this
agreement
he
also
gave
a
receipt
in
full
to
Les
Pétroles
Dupont
Inc.
and
to
Messrs.
Michel
Lamothe
and
Jean
Chevalier.
The
contract
also
contained
clauses
concerning
the
transfer
of
goodwill
and
an
undertaking
by
the
appellant
and
his
wife
not
to
compete.
It
will
be
recalled
that
it
was
on
the
same
day
in
another
contract
bearing
the
same
date
that
the
company
agreed
to
pay
the
appellant
$75,000
at
the
time
of
the
contract
that
is
at
issue
in
this
appeal.
Analysis
It
is
accordingly
necessary
to
determine
the
true
nature
of
the
payment
of
$75,000
made
to
the
appellant
under
an
agreement
dated
October
8,
1980
between
the
appellant
and
Les
Pétroles
Dupont
Inc.
First
of
all
the
oral
evidence
was
contradictory
with
respect
to
the
reason
for
and
purpose
of
this
payment
of
$75,000.
There
was,
on
the
one
hand,
the
testimony
of
Regis
Nivoix,
counsel
for
the
appellant,
concerning
the
discussions
and
negotiations
that
led
to
the
agreement
dated
October
8,
1980
and,
on
the
other
hand,
the
testimony
of
Messrs.
Michel
Lamothe
and
Jean
Chevalier,
the
spokesmen
for
the
company
at
these
discussions
and
negotiations.
In
effect,
Mr.
Nivoix,
who
participated
directly
in
all
the
discussions
with
counsel
for
the
company
in
1980,
stated
categorically
that
the
payment
represented
damages
for
unjust
dismissal.
Mr.
Nivoix’s
letter
dated
September
12,
1980
to
counsel
for
the
company
is
absolutely
clear
in
the
following
passage,
part
of
which
was
quoted
earlier:
[Translation]
.
.
.
We
accordingly
wish
to
inform
you
at
once
that
the
dismissal
of
Mr.
Dupont
is
unlawful
in
light
of
the
agreement
signed
by
you
on
July
7,
1980.
We
wish
to
inform
you
that
Mr.
Ambroise
Dupont
is
still
prepared
to
resume
his
employment
under
the
same
terms
and
conditions
and
that,
if
this
is
not
done
within
five
(5)
days
following
receipt
of
this
letter,
we
shall
take
all
necessary
legal
action
to
assert
our
client's
rights
with
respect
to
his
salary.
On
the
other
hand,
the
testimony
of
Messrs.
Lamothe
and
Chevalier
was
generally
to
the
effect
that
the
payment
was
compensation
for
the
appellant's
earlier
services.
It
should
not
be
forgotten,
however,
that
Mr.
Lamothe,
as
was
noted
earlier,
also
said
that
the
payment
was
made
"to
buy
a
little
peace".
As
was
mentioned
above,
the
evidence
also
showed
that,
in
computing
its
income,
the
company
treated
the
payment
as
a
retiring
allowance
and
thus
as
a
deductible
expense
in
its
entirety.
In
the
overall
assessment
of
the
evidence
it
is
important
to
note
that
no
amount
had
been
offered
by
the
company
for
appellant's
past
services
prior
to
or
at
the
meetings
of
the
board
of
directors
and
shareholders
on
July
7,
1980.
I
also
conclude
from
the
evidence
that
this
question
had
also
not
been
raised
at
the
time
the
appellant
was
dismissed
on
August
20,
1980
or
later
in
the
weeks
preceding
Mr.
Nivoix's
letter
dated
September
12,
1980.
Nor
is
it
superfluous
to
note
that
the
payment
of
a
sum
for
the
appellant's
past
service
could
not,
according
to
the
evidence,
arise
under
a
legal
obligation.
No
legal
action
could
be
brought
to
request
such
compensation.
It
is
significant
that
in
Mr.
Nivoix's
letter
dated
September
12,
1980,
in
which
counsel
for
the
appellant
suggested
all
manner
of
remedies,
there
was
not
even
any
question
of
this.
Nor
did
Messrs.
Lamothe
and
Chevalier
claim
that
this
payment
could
have
been
made
pursuant
to
a
shareholders'
agreement
or
under
any
pre-existing
contractual
obligation
or
other.
In
short,
if
the
payment
of
$75,000
by
the
company
was
made
for
the
appellant's
past
services,
it
cannot
be
connected
with
any
obligation
or
claim
of
a
legal
nature.
When
all
is
said
and
done,
it
seems
unlikely
to
me
that,
given
the
climate
of
hostility
that
prevailed
between
the
appellant
and
Messrs.
Lamothe
and
Chevalier
for
at
least
the
last
six
months
prior
to
the
date
of
signature
of
the
agreement,
October
8,
1980,
the
company
should
have
agreed
to
pay
the
appellant
$75,000
primarily
for
the
purpose
of
compensating
him
for
his
past
services.
As
I
explained
earlier,
there
would
have
been
no
legal
basis
for
such
a
payment
for
such
a
purpose.
On
the
other
hand,
it
seems
more
realistic
to
me
to
believe
that
the
appellant's
dismissal
without
any
advance
notice
and
despite
an
agreement
concluded
by
all
the
parties
concerned
on
July
7,
1980
might
very
likely
give
rise
to
an
action
for
damages
by
the
appellant
against
the
company,
specifically
for
unjust
dismissal.
Mention
was
made
of
this
in
Mr.
Nivoix's
letter
dated
September
12,
1980,
as
I
noted
earlier.
In
my
judgment,
it
was
normal
and
foreseeable
that
the
parties
concerned,
who
wished
to
put
an
end
to
these
disputes,
to
the
possibility
of
legal
actions
against
the
company
and
generally
to
their
business
relationship,
should
agree
to
compensate
the
appellant
following
his
dismissal
without
prior
notice.
I
cannot
believe
that,
in
making
this
payment,
the
company
had
as
its
deciding
reason
the
recognition
of
the
appellant's
past
services
or
compensation
for
such
services.
Must
this
conclusion
as
to
the
nature
or
purpose
of
the
payment
of
$75,000
made
to
the
appellant
by
the
company
be
accepted
in
light
of
the
wording
of
the
agreement
dated
October
8,
1980
providing
for
the
said
payment?
In
this
agreement,
in
both
the
whereases
and
the
clauses
appearing
in
the
body
of
the
agreement,
mention
is
made
of
a
"severance
allowance
for
past
services".
Counsel
for
the
appellant
stressed
the
fact
that
the
expression
"severance
allowance”
should
not
be
confused
with
the
expression
“retirin
allowance”.
This
seems
fair
to
me,
since
the
words
"severance
allowance”
do
not
necessarily
imply
that
the
allowance
is
geared
to
retirement,
but
in
the
case
of
the
agreement
in
question
mention
is
made
of
an
allowance
for
past
services.
The
relevant
clause
reads
as
follows:
[Translation]
Whereas
the
company
wishes
to
stress
his
past
services
by
offering
him
a
severance
allowance;
Furthermore,
clause
1
provides
in
part
that:
[Translation]
1.
Mr.
Dupont
declares
that
he
is
leaving
the
company
and
will
no
longer
be
involved
in
no
further
activities
in
the
field
of
these
areas
of
activity,
.
.
.
and
agrees
that
the
company
shall
pay
him
a
severance
allowance.
Clause
2
is
to
the
same
effect
and
reads
in
part
as
follows:
[Translation]
2.
The
company
agrees
hereby,
in
consideration
of
Mr.
Dupont's
past
services
for
the
company,
to
pay
him
a
sum
of
seventy-five
thousand
dollars
($75,000)
as
a
severance
allowance
and
this
sum
shall
be
paid
to
him
on
signature
hereof.
lf
we
consider
only
the
terms
of
the
agreement
dated
October
8,
1980,
it
is
very
clear
that
the
first
part
of
the
definition
of
“retiring
allowance”
quoted
above
applies
to
the
instant
case
since
we
are
dealing
here
with
the
payment
of
a
sum
received
by
the
appellant
in
recognition
of
long
years
of
service.
It
should
be
noted,
however,
that
the
second
part
of
this
definition
requires
that
the
sum
received
for
the
purposes
indicated
there
be
received
"upon
or
after
retirement
from
an
office
or
employment".
If
we
considered
only
the
wording
of
the
agreement,
we
should
probably
conclude
that
the
payment
of
the
sum
of
$75,000
was
in
the
nature
of
a
retiring
allowance
within
the
meaning
of
subsection
248(1)
of
the
Act.
I
do
not
believe,
however,
that
I
must
give
precedence
to
the
agreement
dated
October
8,
1980
over
what
seems
to
me
to
be
otherwise
the
weight
of
the
evidence.
In
passing,
I
should
perhaps
stress
the
fact
that
the
second
whereas
of
this
agreement
is
erroneous.
It
reads
as
follows:
Whereas
Mr.
Ambroise
Dupont
is
today
leaving
the
service
of
the
company;
This
whereas
is
contrary
to
the
evidence,
which
clearly
shows
that
the
appellant
was
dismissed
on
August
20,
1980.
The
parties
were
not
able
to
provide
me
with
explanations
when
I
indicated
to
them
the
discrepancy
between
the
oral
and
the
documentary
evidence,
on
the
one
hand,
and
the
above-mentioned
whereas
of
the
agreement
in
question,
on
the
other.
The
possibility
of
applying
article
1234
of
the
Civil
Code
was
not
raised
before
me.
It
reads
as
follows:
"Testimony
cannot
in
any
case,
be
received
to
contradict
or
vary
the
terms
of
a
valid
written
instrument.”
It
is
fully
understood
that,
since
the
Minister
of
National
Revenue
was
not
a
party
to
the
contract,
he
was
not
bound
thereby,
but
in
the
instant
case
it
was
a
party
to
the
contract,
the
appellant,
that
attempted
to
contradict
it.
In
this
context
it
is
interesting
to
note
the
comments
made
by
Léo
Ducharme
in
his
Précis
de
la
preuve,
3d
edition,
at
page
207,
where
we
find
the
following:
[Translation]
Can
the
parties
to
a
contract
in
their
relations
with
third
parties
contradict
their
own
document
by
witnesses?
The
solution
of
the
Quebec
courts
seems
to
have
been
to
refuse
reliance
on
testimonial
evidence
but
different
precedents
apply
in
tax
cases
before
the
federal
courts.
This
question
as
to
the
true
nature
of
a
payment
made
to
a
person
when
he
leaves
a
business
in
which
he
has
a
major
financial
interest
was
considered
by
the
chief
judge
of
this
Court
in
Brodeur
v.
M.N.R.,
[1987]
2
C.T.C.
2049;
87
D.T.C.
351.
In
that
case,
as
in
the
instant
case,
the
contract
described
the
payment
in
question
in
a
manner
that
was
favorable
to
the
person
agreeing
to
make
it.
In
Brodeur,
supra,
the
taxpayer
was
a
chartered
accountant
and
it
was
necessary
to
determine
whether
a
sum
of
$24,000
that
had
been
paid
to
him
by
a
firm
of
accountants,
which
he
had
left
voluntarily,
was
fees
or
rather
the
proceeds
of
disposition
of
goodwill.
The
chief
judge
commented
as
follows
at
page
2052
(D.T.C.
353):
In
the
agreement,
the
term
"fees"
is
used
to
describe
the
payments
received
by
the
appellant
in
1983.
It
is
undeniable
that
such
a
description
offers
an
indication
of
how
the
transaction
should
be
classified.
Nonetheless,
this
indication
is
certainly
not
conclusive.
The
substance
of
the
transaction
must
be
analysed
and
not
its
form,
as
Walsh,
J.
held
in
M.N.R.
v.
Ouellette
&
Brett
(supra).
Later,
he
concluded
as
follows
at
page
2054
(D.T.C.
354):
Accordingly,
I
find
that
the
point
at
issue,
as
in
In
re
Spiral
et
al.
v.
M.N.R.,
[1975]
C.T.C.
2158;
75
D.T.C.
83,
is
one
of
form
and
substance
wherein
the
Court
is
obliged
to
have
regard
for
the
real
intent
of
the
parties.
For
all
these
reasons,
I
am
therefore
of
the
opinion
that
the
said
$24,000
is
a
gain
arising
from
the
disposition
of
a
clientele.
Given
all
the
circumstances
shown
by
the
evidence
on
the
hearing
of
this
appeal,
I
find
that
the
payment
in
question
was
made
primarily
for
the
purpose
of
preventing
any
action
in
damages
that
might
have
been
brought
by
the
appellant
as
a
result
of
his
dismissal
without
notice
on
August
20,
1980.
The
payment
of
$75,000
is
indeed
an
amount
received
by
the
appellant
in
1980
with
respect
to
the
termination
of
his
employment
within
the
meaning
of
paragraph
(a)
of
the
definition
of
“termination
payment"
in
subsection
248(1)
of
the
Act.
The
payment
in
question
is
not
accordingly
a
retiring
allowance
provided
for
in
subparagraph
56(1)(a)(ii)
of
the
Act
but
rather
a
termination
payment
covered
by
subparagraph
56(1)(a)(viii)
and
to
the
extent
stated
in
subsection
248(1)
of
this
Act
in
the
definition
of
“termination
payment".
The
tax
treatment
of
the
excess,
that
is,
the
part
of
the
payment
of
$75,000
that
is
not,
according
to
this
definition,
a
"termination
payment"
is
not
at
issue
in
this
appeal.
For
these
reasons
the
appeal
is
allowed
with
costs
against
the
respondent
and
the
assessment
is
referred
back
to
the
Minister
for
reconsideration
and
reassessment
on
the
basis
that
the
payment
of
$75,000
made
to
the
appellant
pursuant
to
the
agreement
dated
October
8,
1980
between
the
latter
and
the
company
was
a
termination
payment
referred
to
in
subparagraph
56(1)(a)(viii)
and
to
the
extent
stated,
as
has
just
been
noted,
in
subsection
248(1)
of
the
Income
Tax
Act.
Appeal
allowed.
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