Minister of National Revenue v. Tom D Mackenzie and Moore-McLean Corporate Insurance Agency Limited, Taxpayers., [1980] CTC 3025, 81 DTC 7

John B Goetz:—The Minister of National Revenue has made application for a determination of a question of law and fact with respect to money received by Tom D MacKenzie when separating from a company known as Moore-McLean Corporate Insurance Agency Limited, with which Mr MacKenzie was an employee and director at all times.

Mr McLean gave evidence that Mr MacKenzie paid $1.50 for shares turned over to him when he joined the company, which was incorporated on October 1, 1975. The resignation is dated about a year later, December 24, 1976. It seems an unfortunate time of year for business associates to fall out, but that is what happened.

The company filed a letter written by a solicitor known as E J E Alfred. This letter was addressed to Moore-McLean Company for and on behalf of Thomas D MacKenzie, and dated December 22, 1976. Mr Alfred received a reply to that letter, written by John B Casey, on January 21, 1977. In Mr Alfred’s letter, talking about the separation of Thomas MacKenzie from the company, he stated that he would be advising his client to sell his shares for $35,000 and that Mr MacKenzie would then be willing to sign over any releases to what he calls the two partners of the company, indicating that he had no further claim against them or the company. Casey’s letter simply says to Alfred that all shares were worth $1.50 and that the company would give his client a $2,000 bonus.

Now, Mr MacKenzie is an educated man, not unsophisticated in the business world. I am sure he can read Exhibit A-4, the financial statement of Moore-McLean, as of October 31, 1976. He apparently was told that in no way should he take any funds when he separated from the company, other than by way of reported sale of shares and that thereby he would reduce any tax implications by being able to declare a capital gain as opposed to Straight income.

The statement of facts, as agreed at the outset, reads as follows, and these are the relevant transactions:

3. The transaction or series of transactions is as follows:

(a) On December 24, 1976, Thomas D MacKenzie resigned from the Moore- McLean Corporate Insurance Agency Limited of which he was a Director and holder of 30 common shares, purchased October 15, 1975 for five cents each;

(b) on June 3, 1977, Thomas D Mackenzie assigned his 30 shares to George Carl Moore and Frederick John McLean, holders of the remaining issued common shares in the above-named company. The assignment reads:

“For Value Received I hereby assign and transfer unto G C Moor and F J Mclean 30 Common Shares represented by the within Certificate”.

(c) on June 3, 1977, a cheque in the amount of $4,640 was issued by the above- named company payable to Thomas D MacKenzie. The Stub attached to the cheque indicated the following:

Loss of Office (Directorship)
Gross	$5,800
Tax Deducted	1,160
Net cheque	4,640

In the the 1977 income tax return, Mr MacKenzie treated the sum of $5,800 as a straight capital gain and declared as taxable $2,900.

Mr McLean indicated that it was not until 1979 that they came out of a loss picture. I accept his evidence as Mr MacKenzie would have received or at least been apprised of the financial position of the company. It was in a deficit position. The shares were of zero value and the true consideration was payment in separation of his employment with the company and not in consideration for payment of shares. It was payment that, in fact, they may not have had to make other than to get him to resign. So he did in fact resign his directorship for which he was paid $5,800. Call it what you will, he was paid, but it was, however it was called, income in his hands in that year and I therefore so find.