Teskey,
T.C.J.:—The
appellant
appeals
his
reassessment
dated
April
25,
1989
issued
for
1986,
wherein
his
income
was
increased
by
$132,000
as
a
result
of
a
stock
option
benefit
pursuant
to
paragraph
7(1)(a)
of
the
Income
Tax
Act,
R.S.C.
1952,c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
'Act").
Facts
In
determining
the
facts
of
this
case,
the
Court
has
kept
in
mind
the
decision
of
Associate
Chief
Judge
Christie
in
Pallan
v.
M.N.R.,
[1990]
1
C.T.C.
2257;
90
D.T.C.
1102
where
after
covering
the
judgment
of
the
Supreme
Court
of
Canada
in
some
detail
in
Continental
v.
Dalton,
[1982]
1
S.C.R.
164;
131
D.L.R.
(3d)
559;
he
said
at
page
2264
(D.T.C.
1107):
To
my
mind
where,
as
here,
appellants
seek
to
challenge
reassessments
of
their
liability
to
tax
by,
in
effect,
repudiating
what
they
and
others
have
said
in
an
agreement
reduced
to
writing
and
things
done
in
consequence
of
that
agreement
that
are
evidenced
by
documents
such
as
the
resolutions
whereby
Holdings
and
the
amalgamated
company
each
offered
to
purchase
its
shares
from
its
shareholders;
the
acceptance
or
those
offers
in
writing
by
the
appellants;
the
issuance
of
promissory
notes
regarding
the
shares
bought
and
sold
and
the
assignments
of
debts
arising
out
of
those
transactions,
they
must
adduce
evidence
establishing
a
high
degree
of
probability
that
their
attacks
on
the
reassessments
are
valid.
Only
that
would
constitute
proof
commensurate
with
the
gravity
of
the
allegations
being
made.
In
my
opinion
not
only
are
the
appellants
impugning
their
own
conduct,
but
also
that
of
the
other
parties
and
that
of
the
professional
advisers
who
obviously
played
a
significant
role
in
what
was
said
and
done.
They
are
alleging
that
what
was
done
to
realize
a
final
settlement
among
the
members
of
the
family
was
morally
blameworthy
in
that
in
large
part
it
was
a
sham.
Further
to
say
that
it
was
never
intended
that
Holdings
and
the
amalgamated
company
would
purchase
shares
from
their
shareholders
must
adversely
reflect
on
the
integrity
of
the
lawyers
and
accountants
involved
because
if
that
was
intended
the
wording
of
the
agreement
and
what
was
done
under
it
contradicts
that
and
could
not
have
occurred
by
mere
oversight.
Further
it
is
my
view
that
the
appellants
cannot
discharge
the
burden
resting
on
them
by
their
oral
testimony
alone
and
that
is
what
they
are
relying
on.
They
were
the
only
witnesses
called
in
support
of
the
appeal
and
through
them
the
only
documents
offered
in
evidence
were
copies
of
the
agreement
of
September
26,
1983,
the
statement
of
the
financial
position
of
Holdings
as
at
December
31,
1984
with
comparative
figures
for
1983
and
the
opening
balance
sheet
for
the
amalgamated
company
as
at
January
1,
1984,
and
they
disputed
the
correctness
of
these
documents.
It
must
be
understood
that
if
taxpayers
create
a
documented
record
of
things
said
and
done
by
them,
or
by
them
in
concert
with
others,
to
achieve
a
commercial
purpose
and
then
seek
to
repudiate
those
things
with
evidence
of
allegations
of
conduct
that
is
morally
blameworthy
in
order
to
avoid
an
unanticipated
assessment
to
tax,
they
face
a
formidable
task.
And
that
task
will
not
be
accomplished,
in
the
absence
of
some
special
circumstance,
an
example
of
which
does
not
occur
to
me,
by
their
oral
testimony
alone.
That
evidence
must
be
bolstered
by
some
other
evidence
that
has
significant
persuasive
force
of
its
own.
The
appellants
have
not
done
this.
The
appeals
are
dismissed.
In
the
case
at
bar,
the
Court
received
formal
written
documents
in
evidence
as
well
as
a
great
deal
of
oral
evidence
which
generally
refuted
the
written
documents.
To
accept
the
viva
voce
evidence
as
factual,
the
Court
would
be
forced
to
conclude
that
the
principals
of
the
companies
involved,
their
professional
advisors,
the
appellant
and
his
witnesses
were
all
involved
in
a
very
questionable
scheme.
The
Court
rejects
the
viva
voce
evidence
where
it
is
in
conflict
with
the
written
documents.
Under
all
the
circumstances,
the
Court
finds
as
fact
the
following:
(1)
The
appellant
entered
into
a
written
key
employer
incentive
option
agreement
dated
the
2nd
day
of
November
1985.
It
provided
that
he
could
purchase
82,500
common
treasury
shares
of
Echo
Mountain
Resources
Ltd.
(Echo)
at
a
price
of
40
cents
a
share
for
a
two-year
period.
The
option
was
personal
and
non
assignable
and
required
payment
by
certified
cheque,
bank
draft
or
money
order.
(2)
On
or
about
December
23,
1986,
the
appellant,
while
under
no
duress,
knowingly
exercised
the
option
and
purchased
from
Echo
82,500
shares
of
its
capital
stock.
(3)
Echo
received
$33,000
(being
the
option
price
of
40
cents
a
share
for
82,500
shares)
from
Cimarron
Corporation
Group
Ltd.
(Cimarron)
on
behalf
of
the
appellant.
(4)
Echo
issued
an
undated
share
certificate
00212
to
the
appellant
for
82,500
common
shares
on
or
about
December
23,
1986.
(5)
The
appellant
was
the
beneficial
owner
of
82,500
common
shares
of
Echo
for
at
least
a
moment
in
time
on
or
about
December
23,
1986.
(6)
The
appellant
immediately
after
receipt
of
share
certificate
00212
endorsed
it
and
had
his
signature
guaranteed
by
a
member
of
the
Vancouver
Stock
Exchange
so
that
the
certificate
became
what
is
known
as
a
"street
certificate”
(that
is
the
shares
represented
by
the
certificate
could
be
sold
by
any
holder
of
the
certificate).
(7)
Echo
re-purchased
the
82,500
shares
from
the
appellant
and
gave
him
a
promise
to
pay
the
sum
of
$33,000.
(8)
The
appellant
executed
a
demand
promissory
note
dated
September
16,
1987
in
favour
of
Cimarron
for
$33,000
as
evidence
of
the
loan
made
by
Cimarron
to
the
appellant
when
it
made
the
payment
set
forth
in
paragraph
3
above.
(9)
The
appellant
received
a
demand
promissory
note
from
Echo
dated
September
16,
1987
for
$33,000
to
evidence
the
promise
to
pay
referred
to
in
(8)
above.
(10)
By
a
multi-party
agreement
dated
October
22,
1987,
the
appellant
confirmed
that
he
had
exercised
his
stock
option,
purchased
82,500
shares
from
Echo
and
borrowed
the
$33,000
purchase
price
from
Cimarron.
(11)
The
Minister
of
National
Revenue
in
his
reply
made
the
following
assumption
of
facts
in
paragraph
7(d):
”.
.
.the
fair
market
value
of
the
82,500
Echo
shares
purchased
by
the
appellant
at
the
time
of
purchase
was
$2
per
share."
Appellant's
Position
The
appellant
argues
that:
(A)
he
exercised
his
option
as
agent
for
others
as
the
essence
of
the
transaction
(and
not
the
form)
was
an
assignment
of
the
option
for
no
consideration,
or
in
the
alternative,
(B)
on
the
authority
of
the
Beament
(A.W.)
Estate
v.
M.N.R.,
[1970]
S.C.R.
680;
[1970]
C.T.C.
193;
70
D.T.C.
6130
that
the
fair
market
value
of
these
particular
shares
was
40
cents
each
as
the
appellant
had
to
turn
the
shares
back
at
that
price
and
he
was
not
free
to
sell
them
on
the
open
market
for
his
own
benefit.
Respondent's
Position
The
respondent
argues
and
submits
that:
(1)
there
is
no
evidence
of
agency;
(2)
the
Court
should
look
at
the
written
documents
and
reject
the
oral
evidence;
(3)
he
relies
upon
his
assumption
of
facts,
and
in
particular,
the
assumption
that
at
the
time
the
option
was
exercised,
each
share
had
a
market
value
of
$2;
(4)
Beament
is
not
authority
to
lower
the
value
of
a
share
to
something
less
than
$2,
and
(5)
in
any
event
there
is
no
reliable
evidence
that
the
appellant
was
obliged
to
resell
back
to
Echo
the
82,500
shares.
Analysis
After
weighing
all
of
the
oral
evidence
as
against
the
written
evidence,
this
Court
is
not
satisfied
that
the
appellant,
on
the
balance
of
probabilities,
has
demonstrated
that
an
Echo
share
had
a
market
value
of
anything
less
than
$2
at
the
time
he
exercised
his
"employee
stock
option”.
The
sale
back
to
Echo
does
not
establish
a
40
cents
per
share
value
or
refute
the
Minister’s
assumption
that
the
shares
each
had
a
market
value
of
$2.
Therefore
the
appellant,
when
he
exercised
the
stock
option,
was
deemed
to
have
received
a
benefit
of
$132,000
being
the
difference
between
40
cents
and
$2
for
each
of
the
82,500
shares
(i.e.
$1.60
x
82,500
=
$132,000)
all
pursuant
to
paragraph
7(1)(a)
of
the
Act.
Decision
Based
on
the
above
finding
of
facts
and
reasons,
the
appeal
is
dismissed.
Appeal
dismissed.
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