Ann Ruth Levitt v. Minister of National Revenue, [1976] CTC 2307, 76 DTC 1047

A W Prociuk (orally):—The appellant appeals from the Minister’s assessment with respect to the taxation years 1967, 1968 and 1969 when the Minister added to her declared income the sums of $5,440, $5,436 and $5,436 for each year respectively representing the difference between the par value of Class B non-cumulative preferred shares and the actual price paid therefor by the appellant purchasing said shares from the trustees of a deferred profit sharing plan of Canadian Bonded Credits Limited of Toronto, Ontario, a private corporation of which the appellant is the controlling shareholder.

The parties hereto at the outset of the hearing agreed to the following Statement of Facts:

PARTIAL AGREED STATEMENT OF FACTS

WHEREAS the parties have agreed on some of the facts in the abovenoted appeal and will dispense with proof thereof;

The following facts are hereby agreed upon:

1. The appellant is the controlling shareholder of Canadian Bonded Credits Limited (the “Corporation”).

2. At the commencement of the 1967 taxation year, the appellant owned or controlled all the issued common shares of the Corporation (which shares are fully voting); 66 of the 102 issued. Class A non-voting preference shares; 268 of the 570 Class B non-voting preference shares of the Corporation and all of the 1,265 issued Class C non-voting preference shares. On September 15, 1967, the appellant subscribed for and was allotted an additional 214 Class B non-voting preference shares. In November, 1967 the Corporation redeemed 18 of the said Class A preference shares held by Arthur McDermott, thereby leaving the appellant owning 66 of the 84 issued and outstanding Class A preference shares.

3. In November, 1968 the Corporation further redeemed 18 of the said Class A preference shares held by Arthur McDermott, thereby leaving the appellant the sole shareholder of all of the issued and outstanding Class A preference shares of the Corporation.

4. On December 15, 1969 the appellant transferred 126 of the said Class C preferences shares and 1 of the said common shares held by her to Mr Ronald J Watters.

5. The appellant had established a deferred profit-sharing plan which was accepted for registration by the Department of National Revenue as of April 30, 1965.

6. Prior to 1967, the trustees of the deferred profit-sharing plan, Adrian Levitt, Ann Ruth Levitt and. Eric Levitt, had purchased for the trust which governed the said plan 302 Class B 6% non-cumulative, non-voting, nonparticipating redeemable preference shares of the Corporation with a par value of $100. The amount paid for each such share was the par value— $100.

7. On each of November 15, 1967, and November 30, 1968, and December 15, 1969 the trustees of the deferred profit-sharing plan disposed of 60 4/10ths of their Class B preference shares to the appellant. The appellant paid the trustees $600 in 1967 and $604 in each of 1968 and 1969.

DATED at Toronto this 15th day of February, 1973.

The respondent’s position is that the price paid, that is $10 per share, is not the fair market value of the shares as same should be $100— that being the par value; and that a benefit of $90 per share was conferred on the appellant. Learned counsel for the appellant led evidence by calling the secretary of the corporation, Mr Adrian Levitt, husband of the appellant, and Donald I Beech, CA. The evidence establishes that the trustees offered said shares for sale to two other people who refused to purchase them. Advice and assistance was then sought from Mr Beech, aforesaid, who is, having regard to his qualifications as recorded in the evidence, in my opinion, eminently qualified as an expert witness in the matter of valuation of corporate stock; and, having regard to the structure of the company and the nature of the shares in question, I have no hesitation in accepting the opinion of Mr Beech that the fair market value of the shares could not possibly have been more than $10 each at the material times.

The respondent called no evidence. Learned counsel for the respondent urged me to find that in view of the fact that the appellant controlled the corporation, these shares represented a greater value to her than to anyone else and since she is in a position to direct redemption at par, I should find that the fair market value of the said shares was, at the material time, the par value thereof, namely, $100 per share at which price these shares were originally sold.

I am not prepared to go along with this contention for the following reasons. Firstly, the fair market value has been defined by our courts on numerous occasions more or less in these general terms—“It Is, generally speaking, the highest price available in an open and unrestricted market between a willing buyer and a willing seller dealing at arm’s length, both of whom are fully informed as to the qualities of the property concerned, neither of whom is under any compulsion or haste to transact.” While there may be minor variations from time to time in the terminology used, the crux or the pit and substance thereof have remained unchanged.

Secondly, Parliament has not seen fit to set up varying criteria contingent on the various circumstances in each case. I believe it is not within my office to legislate in its place. Accordingly, I find that the consideration for the said shares was the fair market value thereof at the material time and therefore adequate.

I further find that there was no benefit conferred on the appellant in these transaction. The appeal is allowed and the matter referred to the Minister for reassessment in accordance with my findings.

Appeal allowed.