Roland
St-Onge
[TRANSLATION]:—The
appeal
of
Mr
Albert
Pageau
came
before
me
on
March
17,
1983
in
the
city
of
Montreal,
province
of
Quebec.
It
concerns
the
redemption
by
a
company
of
350
shares
held
by
the
appellant,
a
shareholder
of
the
said
company,
and
the
application
of
subsection
84(3)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended,
so
that
the
company
is
deemed
to
have
paid
the
appellant
a
dividend
for
the
taxation
years
1976,
1977
and
1978.
At
the
hearing,
the
appellant
admitted
the
facts
set
forth
in
subparagraphs
(a)
to
(h)
of
paragraph
3
of
the
reply
to
the
notice
of
appeal.
This
paragraph
reads
as
follows:
(TRANSLATION)
3.
In
assessing
the
appellant
for
his
taxation
years
1976,
1977
and
1978
the
respondent
proceeded
on
the
basis
of
the
following
facts,
inter
alia:
(a)
by
an
agreement
signed
on
December
15,
1975,
the
appellant
joined
the
partners
in
the
partnership
of
Arsenault,
Garneau,
Villeneuve
&
Associés
(hereinafter
referred
to
as
“the
partnership”)
to
practise
his
profession
of
engineer
and
consulting
engineer;
(b)
by
an
agreement
having
the
same
date
of
December
15,
1975,
concluded
between
the
appellant
and
the
other
partners
on
hand,
and
the
company
Arsenault,
Garneau,
Villeneuve
et
Associés
Ltée
(hereinafter
referred
to
as
“the
company”)
on
the
other,
the
partnership
retained
the
services
of
the
company
“in
connection
with
contracts
which
have
been
or
shall
be
obtained
by
the
partnership
for
engineering
work”;
(c)
on
December
15,
1975,
the
appellant
purchased
350
shares
in
the
company
for
$56,794.00,
and
by
agreement
on
the
same
date
the
appellant
and
the
other
members
of
the
partnership
stated
that
they
controlled
and
held
between
them
all
the
issued
shares
in
the
capital
stock
of
the
company,
distributed
as
follows:
|
Pierre
Arsenault
|
350
|
|
Gilles
Garneau
|
350
|
|
Claude
Villeneuve
|
350
|
|
Peter
Coombes
|
150
|
|
H
Albert
Pageau
|
350
|
|
Hubert
Pilon
|
150
|
|
Emilien
Roy
|
150
|
|
Jean-Luc
Durocher
|
150
|
|
Michel
Moreau
|
150
|
|
Réal
d’Anjou
|
150
|
|
2,300
|
(d)
clause
5
of
the
agreement
of
December
15,
1975,
mentioned
in
the
foregoing
paragraph,
provides
inter
alia
that
if
a
party
ceases
to
be
a
member
of
the
partnership
for
any
reason,
“the
shares
of
the
company
held
or
to
be
held
by
such
party
shall
be
offered
for
sale
in
accordance
with
the
provisions
hereof,
and
the
other
parties
shall
either
buy
them
or
cause
them
to
be
bought
by
the
company”;
(e)
clause
6
of
the
said
agreement
provides
that
the
price
per
share
shall
be
the
book
value
of
the
share,
and
that
“the
shares
offered
for
sale
may
be
redeemed
by
the
company
if
the
board
of
directors
so
decides”;
(f)
on
August
31,
1976,
the
appellant
ceased
to
be
a
member
of
the
partnership,
and
on
December
20,
1976
the
board
of
directors
authorized
redemption
by
the
company
of
the
350
shares
held
by
the
appellant
in
the
company;
(g)
the
redemption
of
the
said
shares
by
the
company
took
place
before
March
31,
1977
for
the
sum
of
$77,010.36,
$12,835.36
of
which
was
paid
to
the
appellant
in
1977
and
the
balance
was
payable
in
five
equal
consecutive
annual
instalments,
beginning
one
year
after
the
first
payment;
(h)
before
the
redemption
mentioned
in
the
foregoing
paragraph,
the
PAID-
UP
CAPITAL
of
the
company
pursuant
to
s
89(1
)(c)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63
(hereinafter
referred
to
as
the
ITA),
and
its
PAID-UP
CAPITAL
LIMIT
pursuant
to
s
89(1
)(e)
of
the
ITA,
amounted
to
$166,903.00,
while
the
PAID-UP
CAPITAL
of
the
shares
purchased
was
$25,398.28:
(166,903
x
350):
2,300
At
the
hearing,
counsel
for
the
appellant
did
not
challenge
the
transaction,
he
merely
sought
to
interpret
it
so
that
subsection
84(3)
of
the
Act
did
not
apply.
He
argued
that
this
was
a
sale
subject
to
a
suspensory
condition,
as
the
350
shares
of
the
appellant
remained
in
the
possession
of
a
trustee
to
guarantee
payment
of
the
selling
price.
There
was
accordingly
no
transfer
of
shares
to
the
buyer,
and
therefore
no
complete
sale,
merely
a
suspended
sale
until
payment
in
full
and
the
physical
transfer
of
the
shares
were
made.
In
his
submission,
even
though
in
civil
law
mere
consent
of
the
party
is
sufficient
to
make
a
sale,
corporate
law
requires
that
there
be
a
transfer
of
shares.
Counsel
for
the
respondent
maintained
that
a
sale
took
place
on
March
31,
1977,
the
date
on
which
the
first
payment
of
$12,835
was
made,
and
not
in
1978
as
appellant
alleged,
since
on
that
date
the
share
certificate
had
been
cancelled
and
therefore
could
not
be
transferred.
He
further
referred
the
Board
to
the
text
La
Compagnie
au
Québec
—
des
aspects
juridiques,
ed
Theleme,
published
in
1982,
at
the
bottom
of
p
12.2:
A
very
common
error
is
to
confuse
certificate
and
share.
A
share
exists
once
the
company
has
decided
to
issue
it,
and
it
has
been
entered
in
the
books
as
subscribed
and
issued,
regardless
of
whether
the
certificate
has
been
issued.
The
share
of
a
company
is
an
intangible
asset
which
the
law
has
expressly
characterized
as
personal
property.
The
certificate
is
only
proof
of
possession
of
this
asset,
and
secondary
proof
at
that.
I
do
not
think
it
is
necessary
to
make
a
distinction
between
civil
law
and
corporate
law
in
order
to
determine
whether
there
was
a
sale.
The
Civil
Code
clearly
states
that
mere
consent
of
the
parties
is
sufficient
to
constitute
a
sale.
The
documentary
evidence
established
that
there
was
a
sale;
that
a
payment
was
made
by
the
company
on
March
31,
1977;
that
the
350
shares
of
the
appellant
were
returned
to
the
company’s
treasury
and
the
certificate
representing
them
cancelled.
The
Board
sees
nothing
in
the
evidence
that
could
make
this
transaction
“a
sale
subject
to
a
suspensory
condition”.
First,
the
appellant
admitted
all
the
facts
stated
in
paragraph
3
of
the
reply
to
the
notice
of
appeal,
and
subparagraphs
(f)
and
(g)
clearly
state
that
there
was
redemption
by
the
company
of
the
350
shares
held
by
the
appellant
in
the
said
company,
for
the
sum
of
$77,010.36,
$12,835.36
of
which
was
paid
to
the
appellant
in
1977,
and
the
balance
was
payable
in
five
equal
consecutive
annual
instalments,
beginning
one
year
after
the
first
payment.
The
evidence
also
showed
that
the
350
shares
were
returned
to
the
company’s
treasury
and
the
certificate
representing
them
cancelled.
How
can
it
be
said
that
this
was
a
sale
subject
to
a
suspensory
condition,
when
there
was:
(1)
a
sale;
(2)
an
initial
payment
by
the
company;
(3)
a
transfer
of
shares
to
the
company’s
treasury;
(4)
cancellation
of
the
share
certificate?
This
sale
is
complete.
No
suspensory
condition
exists,
and
the
clause
which
appeared
to
complicate
the
transaction
only
applies
in
the
case
of
a
sale
of
shares
by
one
shareholder
to
another,
and
not
to
the
company.
The
clause
only
exists
to
guarantee
payment
for
the
shares,
it
does
not
suspend
the
sale.
After
payment
in
full
for
the
shares,
the
buying
shareholder
could
require
the
trustee
to
issue
him
the
certificate,
which
was
only
proof
of
possession
of
the
shares.
Accordingly,
the
fact
that
the
certificate
might
have
been
in
the
possession
of
a
trustee
to
guarantee
payment
in
full
for
the
shares
by
the
buying
shareholder
or
buying
company
in
no
way
alters
the
nature
of
the
transaction.
This
sale
is
a
sale
pure
and
simple
and
not
a
sale
subject
to
a
suspensory
condition.
Subsection
84(3)
of
the
Act
accordingly
applies
and
the
appeal
is
dismissed.
Appeal
dismissed.
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