Delmer
E
Taylor:—This
is
the
appeal
of
Mr
A
W
Peterson
with
respect
to
an
income
tax
assessment
for
the
year
1974
in
which
the
Minister
of
National
Revenue
altered
the
“per-share
value’’
assigned
by
the
appellant
to
certain
shares
of
a
company
called
Financial
Life
Assurance
Company.
The
Minister
adjusted
that
value
to
$5
per
share.
The
taxpayer’s
contention
is
that
when
he
sold
the
shares
in
1974,
the
fair
market
value
was
$11.12
per
share.
There
were
total
shareholdings
of
some
104,038
shares
of
common
stock
in
the
company
Financial
Life;
the
taxpayer
had
accumulated
some
375
shares
over
a
period
of
time,
at
prices
which
may
have
ranged
as
high
as
$20
or
$25
per
share.
In
the
year
1974,
he
disposed
of
these
at
$5
per
share.
The
taxpayer’s
basic
contention
(it
would
appear)
is
that
on
December
31,
1971,
the
shares
had
a
value
somewhat
closer
to
the
“per
share
value’’
which
he
had
paid
for
them,
as
contrasted
with
the
“per
share
value’’
for
which
he
was
finally
required
to
sell
them
in
1974.
The
major
part
of
the
taxpayer’s
case
is
based
on
a
calculation
using
figures
which
have
been
derived
apparently
from
Financial
Life.
The
total
net
capital
of
the
company
at
December
31,
1971,
was
$668,570.
To
this
the
taxpayer
has
added
an
amount
of
$564,000
described
as
‘‘as
per
accounting
principles
permitted
by
the
Superintendent
of
Insurance;
estimated
value
of
business
in
force,
Note
1.”
And
a
second
amount
of
$100,000,
described
as
“Estimated
value
of
business
as
a
going
concern,
Note
2.”
He
deducted
therefrom
the
value
of
the
preferred
shares
in
the
amount
of
$195,000
and
arrived
at
a
total
“book
value”
(we
shall
call
it)
of
$1,157,570
which,
when
divided
by
the
aforementioned
104,038
shares,
produced
$11.12.
The
taxpayer
presented
no
new
information
to
the
Board
with
regard
to
the
basis
for
his
contention,
although
he
did
lean
very
strongly
on
a
distinction
which
he
believes
should
be
made
between
the
terminology
‘fair
market
value”
and
“market
value”.
I
confess
that
I
am
unable
to
see
very
clearly
the
fine
distinction
which
he
proposes.
An
evaluator
for
the
Minister
of
National
Revenue
provided
evidence
which
has
been
entered
as
Exhibit
R-1,
indicating
the
basis
on
which
the
value
of
$5
per
share
was
assigned
to
the
shares
sold
by
the
taxpayer.
Fundamentally,
the
evaluator
put
forward
that
a
minority
shareholder,
holding
something
like
.4
of
the
total
issued
shares,
as
was
the
case
of
the
appellant,
would
have
little,
if
any,
effect
on
company
decisions
and
have
little,
if
any,
access
to
any
potential
of
the
intangible
assets
of
the
business,
apparently
described
as
“estimated
value
of
business
$564,000
and
estimated
value
of
the
business
as
a
going
concern
of
$100,000
included
by
the
appellant
in
the
appellant’s
mathematical
calculations”.
Also,
the
Minister’s
witness
indicated
that
the
past
“Profit
and
Loss”
record
of
the
company
in
question
did
not
indicate
any
basis
for
assigning
to
its
minority
shareholders
any
capitalization
of
earnings
value
at
all.
Therefore,
based
on
the
net
capital
value
acknowledged
by
the
taxpayer,
simple
division
would
indicate
a
value
of
something
less
than
$5
per
share.
This
witness
also
noted
that
information
provided
to
the
Minister
by
certain
stockbrokers
and
investment
dealers
showed
that
shares
of
the
company
traded
from
July
5,
1971,
through
to
November
5,
1972
(part
of
which
it
is
recognized
may
be
regarded
as
hindsight
or
historical
data)
ranged
from
$5.50
to
$4.25
each.
These
were
in
odd
lots
of
60,
500,
100
and
100
shares,
thereby
indicating
also
minority
shareholding
positions
which
were
sold.
There
was
no
information
provided
by
the
appellant
to
support
the
figure
of
$11.12,
nor
evidence
provided
which
would
dislodge
in
any
way
the
Minister’s
$5
valuation.
Indeed,
the
Minister
has
supported
that
valuation
of
$5
very
appropriately.
The
appeal
is
dismissed.
Appeal
dismissed.
Email this Content