Roland
St-Onge:—The
appeals
of
Dr
Arthur
W
Nauss
and
Mrs
Doris
B
Nauss
came
before
me
on
July
13,
1978
at
the
City
of
Calgary,
Alberta,
and
the
issue
is
to
know
when
an
exchange
of
shares
took
place
in
order
to
find
out
the
amount
of
capital
gain.
Dr
Nauss
was
the
holder
of
380,000
common
shares
and
his
wife,
20,000
in
a
private
company
known
as
Polaris
Oil
Ltd
(hereinafter
referred
to
as
“Polaris”).
There
was
a
takeover
by
a
public
company
known
as
Peyto
Oil
Ltd
(hereinafter
referred
to
as
‘‘Peyto’’)
of
all
the
shares
of
Polaris
by
trading
six
shares
for
one
Peyto
share,
which
means
that
Dr
Nauss
received
some
63,333
shares
of
Peyto
and
his
wife,
3,333.
These
Peyto
shares
were
being
traded
on
the
Toronto
Stock
Exchange.
Naturally
there
was
a
taxable
capital
gain
involved
and
the
question
is
to
determine
when
the
disposition
of
the
shares
took
place
in
order
to
fix
the
fair
market
value
of
the
Peyto
shares.
In
his
Notice
of
Appeal,
Dr
Nauss
contended
the
following:
2.
On
or
about
October
19,
1972
discussions
between
Peyto
Oils
Ltd
(“Peyto”)
and
the
principal
shareholders
of
Polaris
(including
the
Appellant)
were
held
as
a
result
of
which
the
principal
shareholders
indicated
the
committment
of
their
shares
in
the
event
of
a
formal
take
over
bid
by
Peyto.
3.
On
or
about
November
20,
1972
Peyto
made
a
formal
take-over
bid
in
writing
to
all
of
“the
holders
of
common.
shares
without
nominal
or
par
value
of
Polaris
Oil
Limited
.
.
.
to
acquire
all
of
the
shares
of
Polaris
by
exchanging
such
shares
for
shares
without
nominal
or
par
value
in
the
capital
of
Peyto
on
the
basis
of
1
Peyto
share
for
6
Polaris
shares”
(the
“said
offer”).
4.
The
said
offer
was
made
subject
to
certain
terms
and/or
conditions
including,
inter
alia,
that:
(a)
the
offer
could
be
accepted
at
any
time
between
November
20,
1972
and
December
15,
1972
(or
at
such
later
time
as
Peyto
might
in
wrtiing
designate)
(referred
to
in
the
said
offer
as
the
“Offer
Period”).
(b)
acceptance
of
the
offer
by
the
Polaris
shareholders
was
to
be
by
completion
of
a
letter
of
transmittal
included
with
the
offer
which
was
to
be
forwarded
together
with
the
shareholder’s
Polaris
share
certificates
to
Peyto’s
transfer
agent,
Montreal
Trust
Company,
on
or
before
the
expiry
of
the
Offer
Period.
(c)
receipt
by
the
Montreal
Trust
Company
as
aforesaid
was
to
constitute
an
irrevocable
acceptance
of
the
offer
by
the
depositing
Polaris
shareholder,
except
that
those
shareholders
depositing
within
seven
days
of
the
date
of
the
offer
on
November
20,
1972
could
withdraw
those
same
shares
up
to
and
including
November
27,
1972
but
not
after.
(d)
the
obligation
of
Peyto
to
take
up
any
of
the
shares
deposited
was
subject
to
the
satisfaction
of
conditions
set
out
in
paragraph
6
of
the
said
offer,
including
inter
alia,
the
deposit
by
the
expiry
of
the
offer
of
100%
of
the
issued
and
outstanding
no
par
value
common
shares
of
Polaris;
no
material
change
in
the
business
or
affairs
of
Polaris
or
any
of
its
subsidiaries
between
October
1,
1972
and
the
expiry
of
the
Offer
Period;
no
funded
indebtedness
was
to
be
created
in
the
same
period;
no
changes
in
the
capitalization
of
Polaris
or
any
of
its
subsidiaries;
no
dividends
were
to
be
paid
or
material
contracts
entered
into
out
of
the
ordinary
course
of
business
providing
for
the
disposition
of
Pclaris
assets
or
otherwise;
no
unusual
executive
compensation
packages
were
to
be
contracted
for
or
entered
into;
no
material
actions
or
proceedings
were
to
be
pending
at
the
expiry
of
the
offer
period;
and
contemporaneously
with
Peyto
taking
up
the
Polaris
shares
tendered,
meetings
of
the
Directors
of
Polaris
and
its
subsidiaries
were
to
be
held
at
which
they
were
to
resign
to
be
replaced
by
Peyto
nominees,
provided,
however,
that
these
conditions
were
acknowledged
to
be
for
the
benefit
of
Peyto
only
and
could
be
waived
in
whole
or
in
part
at
any
time
and
further
provided,
however,
that
notwithstanding
the
provisions
of
the
said
paragraph
6
“Peyto
would
be
entitled
to
at
any
time
and
from
time
to
time,
after
the
expiration
of
seven
days
from
the
date
of
the
offer,
to
take
up
all
the
Polaris
shares
then
tendered
.
.
.
by
giving
notice
thereof
to
the
trust
company
at
its
office
in
Calgary
.
.
.
and
Peyto
shall
be
deemed
to
have
waived
all
of
the
conditions
contained
in
this
paragraph
6”.
(e)
If
Peyto’s
obligation
to
take
up
shares
did
not
become
binding
by
the
expiry
of
the
Offer
Period
pursuant
to
the
provisions
of
paragraph
6,
then
the
offer
would
terminate
automatically
and
Polaris
shareholders
would
be
entitled
to
the
return
of
their
shares:
(f)
If,
as
and
when
the
offer
became
binding
on
Peyto
in
accordance
with
the
provisions
of
paragraph
6,
each
offeree
was
to
be
entitled
to
receive
in
exchange
for
his
tendered
Polaris
shares,
and
within
fourteen
days
following
the
expiry
of
the
offer
period,
share
certificates
of
Peyto
and,
if
appropriate,
cash
(based
upon
a
Peyto
share
value
of
$2,75
per
share)
in
lieu
of
an
fractional
Peyto
shares.
5.
At
no
time
following
the
making
of
the
offer
on
November
20,
1972
did
Peyto
give
notice
of
its
intention
to
extend
the
Offer
Period
beyond
the
date
of
December
15,
1972
set
out
in
the
offer.
6.
On
or
about
November
20,
1972
it
was
resolved
by
all
of
the
Directors
of
Peyto
that
Peyto
should
take
up
those
shares
of
Polaris
Oil
Limited
deposited
in
accordance
with
the
provisions
of
the
offer
dated
November
20,
1972
and
that
there
should
be
issued
and
alloted
to
each
shareholder
of
Polaris
depositing
his
shares
in
accordance
with
the:
offer
1
share
of
the
capital
stock
of
Peyto
for
each
6
shares
of
Polaris
tendered
which
shares
would
be
issued
for
a
deemed
consideration
of
$2,75
per
share.
7.
On
or
about
November
28,
1972
the
appellant
irrevocably
accepted
Peyto’s
.offer
of
November
20,
1972
by
tendering
his
380,000
no
par
value
common
shares
of
Polaris
together
with
the
required
letter
of
transmittal
to
the
Montreal
Trust
Company.
8.
On
or
about
December
14,
1972,
the
appellant
filed
with
the
Minister,
pursuant
to
the
provisions
of
section
116
of
the
Income
Tax
Act,
Canada
(the
“Act”),
Form
T2062
disclosing
the
disposition
by
the
appellant,
a
non-resident,
of
taxable
Canadian
property
and
including
payment
in
the
amount
of
$14,249.50,
representing
tax
at
the
prescribed
rate
of
25%
on
the
appellant’s
net
capital
gain
based
upon
the
value
at
which
Peyto
shares
traded
on
the
Toronto
Stock
Exchange
on
November
28,
1972,
namely
$3.90
per
share.
9.
On
or
about
April
3,
1973
the
Minister
issued
to
the
appellant
his
Certificate,
No
819452,
on
Form
172068
certifying
that
the
provisions
of
subsection
116(4)
had
been
complied
with
as
regards
the
subject
transaction
and
that
there
would
be
no
liability
on
the
purchaser
of
the
property
described
(ie
Peyto)
to
pay
tax
under
the
provisions
of
subsection
116(5).
10.
By
Notice
of
Assessment
No
4413376
dated
March
21,
1975,
the
Minister
arbitrarily
assessed
the
proceeds
of
disposition
received
by
the
appellant
arising
on
the
exchange
of
the
Polaris
shares
for
Peyto
shares
at
the
value
of
Peyto
shares
on
January
11,
1973,
namely
$5.35
per
share,
for
total
proceeds
of
disposition
of
$338,832.46
and
included
in
the
taxpayer’s
1973
income
a
taxable
capital
gain
in
the
amount
of
$74,416.23
in
respect
of
which
the
Minister
claimed
tax
to
be
payable
in
the
amount
of
$37,128.82
including
a
late
filing
penalty
pursuant
to
paragraph
162(1)(b)
of
the
Act
in
the
amount
of
$500,
the
unpaid
balance
of
which
at
the
date
of
assessment,
including
interest
thereon
from
the.
due
date
of
the
balance
to
the
date
of
assessment
in
the
amount
of
$1,174.91,
was
in
the
amount
of
$24,054.23.
These
paragraphs
are
the
same
in
substance
as
those
mentioned
in
his
wife’s
notice
of
appeal.
At
the
hearing,
three
witnesses
were
heard:
1.
Mr
Vanderham,
President
of
Peyto
Oil
Ltd.
2.
Mr
Roger
Ball,
Chief
Accountant
of
Peyto
Oil
Ltd
and
former
Vice-President
of
Polaris;
3.
Dr
Arthur
W
Nauss,
geologist,
one
of
the
appellants.
Mr
Vanderham
explained
the
following.
In
the
Fall
of
1972,
he
negotiated
the
takeover
of
Polaris
by
Peyto
with
Messrs
John
Downing
and
Roger
Ball,
two
officers
of
Polaris.
Peyto
was
interested
in
acquiring
certain
assets
of
Polaris.
Mr
Downing,
as
Presiednt
of
Polaris,
was
authorized
to
speak
for
all
the
shareholders.
On
November
16,
1972
he
received
a
letter
of
confirmation
from
Mr
Downing
(Exhibit
A-1).
From
then
on,
in
his
estimation,
.
.
we
had
made
a
deal
with
all
the
shareholders
of
Polaris
Oil
Ltd
and
that
the
deal
was
made
and
it
was
only
waiting
for
more
paper
and
regulatory
approval
to
conclude
it.
On
the
same
day,
a
press
release
was
sent
out
so
that
the
oil
industry
in
England
would
know
that
Peyto
had
acquired
an
interest
in
Polaris
which
held
an
interest
in
the
UK.
Polaris
had
North
Sea
acreage.
On
November
20,
1972,
a
document
was
signed
which
stipulated,
among
other
things,
that:
1.
acceptance
of
the
offer
was
to
be
made
by
Polaris
shareholders
by
depositing
the
share
certificates
with
a
letter
of
transmittal
to
Montreal
Trust
Company
on
or
before
November
27,
1972
and
this
was
subject
to
the
right
to
withdraw
up
to
November
27,
1972;
2.
Peyto
was
not
to
make
any
material
changes
in
its
business
and
was
not
to
pay
any
dividends
to
its
shareholders;
3.
fourteen
days
later
(December
11,
1972)
Polaris
shareholders.
were
to
receive
share
certificates
of
Peyto
based
upon
Peyto
share
value
of
$2.75
per
share.
On
the
same
day,
a
resolution
of
the
Directors
of
Peyto
(Exhibit
A-4)
was
passed
which
reads
in
part
as
follows:
That
there
be
issued
and
allotted
to
the
shareholders
of
POLARIS
OIL
LIMITED
who
have
deposited
their
shares
in
accordance
with
the
pro-
visions
of
the
offer
dated
November
20,
1972,
one
share
in
the.
capital
stock
of
the
Company
for
each
six
shares
of
Polaris
Oil
Limited
deposited
in
accordance
with
the
terms
of
the
said
offer,
which
shares
of
the
Company
shall
be
issued
and
allotted
at
a
deemed
consideration
of
$3.
per
share.
That
the
Company’s
Registrar
and
Transfer
Agent,
Montreal
Trust
Company,
be
instructed
to
issue
share
certificates
to
the
shareholders
of
POLARIS
OIL
LIMITED
who
are
depositing
their
stock
in
accordance
with
the
said
offer
and
that
the
deposit
of
a
certified
copy
of
this
Resolution
with
the
Montreal
Trust
Company
be
sufficient
authority
for
that
company
to
issue
the
share
certificates
as
required
by
this
Resolution.
On
December
22,
1972
a
statement
on
Peyto’s
stationery
(Exhibit
A-5)
was
issued
which
said:
Further
to
our
share
exchange
offer
of
November
20,
1972,
we
wish
to
advise
that
the
Montreal
Trust
Company
has
received
the
Polaris
shares
from
all
but
one
shareholder.
We
have
not
as
yet
received
the
Toronto
Stock
Exchange
or
the
Ontario
Securities
Commission’s
approval
of
the
transaction.
The
Toronto
Stock
Exchange
did
advise
us
that
the
Peyto
shares
to
be
issued
to
the
Polaris
shareholders
would
be
free
shares,
tradeable
without
restrictions.
We
did
receive
the
consent
from
the
Alberta
Securities
Commission.
We
regret
the
delay
which
is
partly
caused
by
the
holiday
season
and
the
slowness
of
the
mail.
Please
rest
assured
that
the
transaction
will
be
concluded
at
the
earliest
possible
date.
On
being
asked
when
the
deal
took
place,
Mr
Vanderham
said:
A
Well
sir,
my
memory
is
a
little
bit
weak
in
this
respect,
I’m
afraid
it
is
eight
years
ago,
six
years
ago
but
there
is
no
doubt
in
my
mind
that
when
we
sent
out
the
press
release,
we
advised
the
Toronto
Stock
Exchange,
the
Ontario
Securities
Commission
and
the
Alberta
Securities
Commission
that
we
had
made
a
deal,
that
we
had
made
a
deal
[sic].
Q
The
press
release
was
November
—
A
November
20.
Q
November
20,
1972?
A
That’s
right.
There
is
a
letter
to
the
Toronto
Stock
Exchange
I
believe,
the
same
date.
Q
Excuse
me,
!
think
it
was
November
16.
A
November
16,
excuse
me.
Q
So
on
that
date,
you
thought
you
had
an
agreement?
A
That
is
correct.
Q
I
have
no
further
questions.
Upon
cross-examination,
the
witness
admitted:
1.
that
when
he
negotiated
the
agreement
with
Polaris,
he
made
sure
that
there
were
no
skeletons
in
the
closet;
2.
that
they
would
receive
100%
of
the
shares
but
also
that
there
would
be
a
more
formal
offer
to
purchase;
3.
that
when
the
press
release
was
sent
out
Peyto
would
issue
a
total
of
383,333
of
its
Treasury
shares
for
this
acquisition
subject
to
approval
of
regulatory
bodies.
Mr
Vanderham
went
on
to
say,
and
I
quote
from
the
transcript,
pages
17,
18
and
23:
Q
This
offer
seems
to
be
quite
an
elaborate
document,
is
that
correct?
A
Yes
sir.
Q
Would
it
be
your
testimony
today
that
this
document
really,
as
far
as
you
were
concerned,
has
no
weight
and
should
be
ignored?
A
I
could
hardly
say
that
sir,
it
is
a
four
page
document,
no,
we
would
not
ignore
it.
Q
I
would
like
to
refer
you
to
paragraph
six
of
that
agreement.
Could
you
read
paragraph
6(a).
A
On
the
expiry
of
the
offer
period,
certificates
which
represent
in
the
aggregate,
one
hundred
per
cent
of
the
total
then
issued
outstanding
Polaris
shares
shall
have
been
deposited
in
the
manner
herein
provided
.
.
.
pursuant
to
paragraph
nine
herewith.
Q
Am
I
correct
in
assuming
that
this
was
one
of
the
conditions
you
originally
discused
with
Mr
Downing,
the
fact
that
you
were
originally
interested
in
at
least
getting
one
hundred
per
cent
of
the
shares?
A
That’s
right.
Q
Did
you
indicate
to
Mr
Downing
either
verbally
or
in
writing
that
that
condition
was
to
be
waived
and
was
not
of
importance
to
you?
A
I
don’t
think
it
was
ever
discussed.
Right
from
the
beginning,
Mr
Downing
spoke
for
all
his
shareholders
and
his
assurance
was
that
all
the
shareholders
had
approved
the
exchange
and
his
word
was
good
enough
for
us.
Q
One
last
question,
Mr
Vanderham.
Would
you
agree
with
me
that
it
would
have
been
open
for
Peyto
to
not
proceed
with
this
deal
because
of
certain
clauses
put
in
here
for
the
benefit
of
Peyto?
I
refer
you
specifically
to
paragraph
6
after
sub-paragraph
(n)
if
you
wish
to
refer
to
that.
A
Well
sir,
you
know,
the
main
assets
of
Polaris
Oil
were,
I
believe,
about
$400,000
in
cash,
an
interest
in
Block
37
in
England
and
an
interest
in
about
two
hundred
thousand
acres
of
North
Atlantic
lease.
I
presume
you
want
to
go
on
this
hypothetical
thing,
if
the
$400,000
was
missing,
yes,
we
would
have
had
an
opportunity
to
not
proceed
with
the
deal.
That
would
have
been
fraudulent
and
that
is
the
reason
for
the
agreement.
.
Mr
Roger
Ball
testified
that
in
the
latter
part
of
October
1972
Mr
Downing
was
agent
for
all
the
shareholders
of
Polaris
and
received
confirmation
from
them
to
the
effect
that
they
agreed
to
the
takeover
of
their
company
by
Peyto.
Upon
cross-examination,
he
admitted
that
the
11th
of
January
1973
was
the
closing
date,
that
only
on
that
date
were
the
shares
of
Peyto
received
and
that
all
the
directors
of
Polaris
resigned.
Dr
Nauss
testified
that
Messrs
John
Downing
and
Roger
Ball
were
the
two
officers
who
were
actually
running
Polaris;
that
he
gave
Mr
Downing
complete
authority
to
act
on
his
behalf
with
regard
to
the
disposition
of
his
shares;
that
on
November
28,
1972
he
took
his
shares
out
of
the
safety
deposit
box,
delivered
them
to
the
Montreal
Trust
Company
and,
once
in
their
office,
endorsed
them.
Then,
within
ten
days,
he
signed
and
forwarded
a
form
pursuant
to
the
provisions
of
section
116
of
the
Income
Tax
Act.
Counsel
for
appellant
contended
that
in
common
law
there
was
a
binding
agreement
in
existence
prior
to
the
written
offer
of
November
20,
1972
to
know
by
November
16
because,
on
that
date,
all
the
shareholders
of
Polaris
had
already
accepted
verbally
to
tender
their
shares
on
a
six
to
one
basis
and
Peyto,
on
that
date,
had
accepted
this
agreement
in
writing.
He
mentioned
that
Dr
Nauss
delivered
his
shares
on
November
28,
1972
and
within
ten
days
thereafter,
he
filed
a
form
to
declare
that
he
had
disposed
of
his
shares.
According
to
counsel
for
appellant,
what
happened
thereafter
is
immaterial,
the
appellant
disposed
of
all
rights
which
he
had
in
the
Polaris
shares
and,
for
that
reason,
he
submitted
that
the
effective
date
of
disposition
under
paragraph
54(c)
is
the
date
that
the
appellant
disposed
of
his
shares.
He
referred
the
Board
to
the
following
cases:
1.
Ridge
Nominees,
Ltd
v
Inland
Revenue
Commissioners,
[1961]
2
All
ER
354;
2.
Wood
Preservation,
Ltd
v
Prior,
[1969]
1
All
ER
364.
Counsel
for
respondent
referred
the
Board
to
paragraph
54(c)
which
reads
as
follows:
(c)
“Disposition”
of
property.—“disposition”
of
any
property,
except
as
expressly
otherwise
provided
includes
(i)
any
transaction
or
event
entitling
a
taxpayer
to
proceeds
of
disposition
of
property,
(ii)
any
transaction
or
event
by
which
(A)
any
property
of
a
taxpayer
that
is
a
share,
bond,
debenture,
note,
certificate,
mortgage,
hypothec,
agreement
of
sale
or
similar
property,
or
an
interest
therein,
is
redeemed
in
whole
or
in
part
or
is
cancelled,
(B)
any
debt
owing
to
a
taxpayer
or
any
other
right
of
a
taxpayer
to
receive
an
amount
is
settled
or
cancelled,
(C)
any
share
owned
by
a
taxpayer
is
converted
by
virtue
of
an
amalgamation,
or
(D)
any
option
held
by
a
taxpayer
to
acquire
or
dispose
of
property
expires,
and
(iii)
any
transfer
of
property
to
a
trust,
or
any
transfer
of
property
of
a
trust
to
any
beneficiary
under
the
trust,
except
as
provided
in
subparagraph
(v),
but,
for
greater
certainty,
does
not
include
(iv)
any
transfer
of
property
for
the
purpose
only
of
securing
a
debt
or
a
loan,
or
any
transfer
by
a
creditor
for
the
purpose
only
of
returning
property
that
had
been
used
as
security
for
a
debt
or
a
loan,
(v)
any
transfer
of
property
by
virtue
of
which
there
is
a
change
in
the
legal
ownership
of
the
property
without
any
change
in
the
beneficial
ownership
thereof,
(vi)
any
issue
by
a
corporation
of
a
bond,
debenture,
note,
certificate,
mortgage
or
hypothec
of
the
corporation,
or
(vii)
any
issue
by
a
corporation
of
a
share
of
its
capital
stock,
or
any
other
transaction
that,
but
for
this
subparagraph,
would
be
a
disposition
by
a
corporation
of
a
share
of
its
capital
stock.
He
submitted
that,
according
to
this
definition,
disposition
of
property
does
not
mean
when
the
property
has
been
disposed
of
as
in
the
examples
given
by
the
appellant
but
when
the
latter
becomes
entitled
“to
proceeds
of
disposition
of
property’’
and
that
is
when
he
received
the
Peyto
shares.
He
agreed
that
there
might
have
been
a
meeting
Of
the
mind
prior
to
November
20,
1972
but
submitted
that
the
document
which
sets
down
the
terms
and
conditions
of
the
sale
was
prepared
for
some
purpose
and
must
be
given
some
weight.
According
to
counsel
for
respondent,
the
verbal
agreement
was
subject
to
a
more
formal
offer,
and
the
written
offer
of
November
20,
1972
stipulated
that
100%
of
the
shares
had
to
be
received
by
Montreal
Trust
and
approved
by
the
Stock
Exchange.
He
referred
the
Board
to
the
decision
of
Mr
Justice
Noel
in
Victory
Hotels
Ltd
v
MNR,
[1962]
CTC
614;
62
DTC
1378
in
which
the
Judge
had
to
deal
with
the
definition
of
disposition
of
property
in
section
20
of
the
former
Act.
It
reads
in
part
as
follows:
20(5)(b)
(b)
“disposition
of
property”
includes
any
transaction
or
event
entitling
a
taxpayer
to
proceeds
of
disposition
of
property.
In
that
case,
the
appellant
was
not
entitled
to
the
proceeds
of
disposition
until
January
3.,
1955
or
such
time
after
that
date
that
all
the
conditions
of
the
contract
had
been
fulfilled.
According
to
the
evidence
adduced,
it
is
obvious
that
the
agreement
was
subject
to
many
conditions,
one
of
the
main
being
the
transfer
of
100%
of
the
shares
by
the
shareholders
of
Polaris
to
Peyto.
Apparently,
this
was
not
done
until
January
11,
1973.
Furthermore,
Mr
Roger
Ball
testified
that
the
closing
date
of
the
transaction
was
on
January
11,
1973,
when
all
the
shares
were
delivered
and
the
Polaris
directors
had
resigned.
In
the
case
of
a
takeover,
the
disposition
of
property
occurs
only
when
the
shareholders
who
trade
their
shares
for
others
are
entitled
to
receive
the
shares
of
the
other
company.
In
the
case
at
bar,
it
is
obvious
that
the
appellants
were
entitled
to
receive
the
Peyto
shares
only
when
the
transaction
was
finalized
on
January
11,
1973.
The
Board
does
not
feel
that
a
distinction
should
be
made
between
disposition
of
property
in
section
20
of
the
former
Act
as
interpreted
by
Mr
Justice
Noël
and
that
under
paragraph
54(c)
of
the
new
Act.
This
decision
of
Mr
Justice
Noël
confirms
my
thinking
with
respect
to
the
case
at
bar.
Consequently,
the
appeals
are
dismissed.
Appeals
dismissed.
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