Raimondo Savo, M Natalino Bazzotti, Alberto Bernardi v. Minister of National Revenue, [1983] CTC 2327, 83 DTC 287

Roland St-Onge [TRANSLATION]:—The appeals of Raimondo Savo, M Natalino Bazzotti and Alberto Bernardi were heard by me on joint evidence in the city of Montreal, province of Quebec on October 27, 1982.

The point at issue is as to how an amount of $25,000 paid by Blenda Construction Inc to appellant Savo, when he sold his shares in the said company to the other two appellant shareholders, should be treated in the taxation year 1976.

(1) Is the $25,000 a bonus and taxable in the hands of Mr Savo?

(2) Does it constitute a benefit conferred on the other two appellants as shareholders by Blenda Construction Inc, which should accordingly increase the income of each one by $12,500?

The facts of this appeal are set out in subparagraphs (a), (b) and (c) of paragraph 2 of the reply to the notice of appeal of Mr Bazzotti. This paragraph reads as follows:

2. In assessing the appellant for the taxation year 1976 the Minister of National Revenue relied, inter alia, on the following facts:

(a) by a contract dated November 12, 1976, to which Blenda Construction Inc was a party, Messrs Bazzotti and Alberto Bernardi bought eighty-five and one- third preferred shares and forty-four ordinary shares of Blenda Construction Inc from Mr Raimondo Savo;

(b) the said contract provided, inter alia:

“2. Whereas the VENDOR hereby sells to the PURCHASERS, hereto accepting, the eighty-five and one-third (85%) preferred shares and forty-four

(44) common shares for the-aggregate price and consideration of Twenty- Five Thousand Dollars ($25,000.00), payable at the date of the signing of these presents: and

3. WHEREAS the VENDOR hereby tenders his resignation as a shareholder, director and officer of the INTERVENANT-COMPANY, as of the date of these presents; and

4. WHEREAS the INTERVENANT-COMPANY shall furthermore, in consideration of the said sale and purchase herein mentioned, pay unto the VENDOR a bonus in the sum of Twenty-Five Thousand Dollard ($25,000.00) on the date of signing of these presents, and which said sum shall represent full and final payment of all outstanding claims, either past, present or future, by the VENDOR against the INTERVENANT-COMPANY and, without limiting the generality of the foregoing, including all sums of monies owed to the VENDOR by the INTERVENANT-COMPANY; save and except what is hereinafter contained in the addendum hereto annexed as Schedule “A”, forming part hereof;”

(c) on the instructions of the appellant, Blenda Construction Inc issued a cheque in the amount of $25,000 payable to Mr Raimondo Savo;

At the hearing, the respondent proved the said subparagraphs (a), (b) and (c) of paragraph 2 of the reply to the notice of appeal of Mr Bazzotti.

It was further established that the appellants Bazzotti and Bernardi personally paid Mr Savo $12,500 each to purchase the shares of Blenda Construction Inc.

In the case at bar, it is not really important to know either the book value or the market value of the company’s shares at the time of sale. A shareholder may always sell shares for whatever price he wants and can obtain. A contract of sale exists, it is clear and it cannot be contradicted by testimonial evidence.

Moreover, this contract is corroborated by a cheque for $25,000 issued by the company to the appellant Savo, with the notation “bonus”.

The contract is also corroborated by the two personal cheques for $12,500 which the appellants Bazzotti and Bernardi gave the appellant Savo to pay for the shares of Blenda Construction Inc.

It is clear that the sum of $25,000 received by the appellant Savo as a bonus, during the taxation year 1976, was received as income from an office or employment in accordance with sections 3, 6(1 )(a) and 6(3) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Mr Bernardi indeed explained that this amount was paid because he and Mr Savo had worked long hours in the evenings without receiving any pay for their overtime, while during the same period the other shareholder, Mr Arduini, had received a salary from the company from the outset for such overtime.

For these reasons, (1) Mr Savo’s appeal is dismissed and (2) the appeals of Messrs Bernardi and Bazzotti are allowed.

Appeals allowed.