Strayer,
].:
—
Relief
Sought
This
is
an
appeal
from
the
assessments
by
the
Minister
of
National
Revenue
in
respect
of
the
plaintiff's
1980
and
1981
taxation
years
by
which
the
Minister
added
to
the
plaintiff's
income
the
amounts
of
$31,395
in
respect
of
1980,
and
$154,000
in
respect
of
1981.
Counsel
for
the
defendant
indicated
during
the
hearing
that
if
the
assessments
were
upheld
the
correct
amount
in
respect
of
1981
should
be
$142,800,
a
reduction
based
on
a
change
of
date
for
determination
of
the
value
of
certain
shares
in
question.
Facts
The
plaintiff
taxpayer
was
born
in
Germany
and
educated
there
in
graphic
arts.
He
lived
in
Ireland
during
much
of
the
1960's
and
there
became
a
good
friend
of
Patrick
Hickey.
He
came
to
Canada
in
1970
but
continued
his
friendship
with
Mr.
Hickey
with
whom
he
also
had
close
family
associations.
Mr.
Hickey,
whose
address
is
later
shown
as
in
England,
was
associated
with
James
G.
McQuillan
of
Northern
Ireland
and
Francis
A.
McCrossan
of
England
as
major
shareholders
in
Crannog
Holdings
Limited
("Crannog"),
a
company
with
head
office
in
the
Isle
of
Man
in
the
United
Kingdom.
The
plaintiff
after
some
years
in
Vancouver
aroused
the
interest
of
Mr.
Hickey,
who
apparently
is
an
accomplished
speculator,
in
the
possible
promotion
of
companies
listed
on
the
Vancouver
Stock
Exchange.
He
had
particular
reference
to
the
possibilities
of
acquiring
the
majority
of
shares
and
control
of
some
dormant
company
without
many
assets
but
already
listed
on
the
exchange;
of
assembling
enough
money
to
commence
some
oil
exploration
and,
if
able
to
obtain
some
favourable
appraisals
based
on
the
work
done,
of
thereby
enhancing
the
value
of
the
shares
and
reaping
a
substantial
profit
for
the
promoters.
He
had
an
opportunity
to
observe
this
process
in
the
course
of
designing
and
producing
promotional
literature
at
his
graphics
company
in
Vancouver.
Mr.
Hickey
came
to
Vancouver
in
the
summer
of
1979
and
they
identified
a
company,
Arex
Resources
Inc.
("Arex")
as
their
chosen
instrument.
It
is
clear
from
what
followed
that
the
money
and
property
required
for
this
venture
were
essentially
provided
by
Mr.
Hickey
and
his
United
Kingdom
associates
and
that
the
plaintiff
and
his
brother-in-law
Christopher
Pritchard,
both
of
Vancouver,
provided
a
local
presence
and
some
ongoing
supervision
of
affairs
there.
The
collaboration
of
Mr.
John
McLoughlin,
also
of
Vancouver,
was
acquired
in
the
initial
stages
as
he
controlled
Arex.
At
an
extraordinary
general
meeting
of
Arex
on
January
15,
1980
the
name
of
the
company
was
changed
to
Ohio
Resources
Corporation
(“Ohio”).
Shares
in
the
new
corporation
were
issued
to
shareholders
or
creditors
of
Arex,
the
most
significant
block
being
233,587
shares
issued
to
John
McLoughlin.
It
was
also
decided
at
this
meeting
to
acquire
all
the
outstanding
shares
of
Gordon
Energy
Corp.
("Gordon"),
an
Ohio
company
actually
engaged
in
oil
and
gas
exploration.
Gordon
had
been
wholly
owned
by
Crannog
which,
in
return
for
the
sale
of
Gordon
to
Ohio,
received
a
large
block
of
shares
in
Ohio.
It
was
further
decided
at
this
meeting
that
there
would
be
a
private
placement
of
400,000
shares
of
the
company
to
such
persons
as
the
directors
might
determine,
and
thereafter
there
would
be
a
rights
offering
entitling
shareholders
of
the
company
resident
in
British
Columbia
to
acquire
two
shares
of
the
company
for
each
one
already
held
by
them,
at
the
price
of
25
cents
per
share.
The
plaintiff
and
Messrs.
McCrossan,
McQuillan,
and
Pritchard
were
elected
to
the
Board
of
Directors
and
Mr.
McLoughlin
continued
as
a
director.
Shortly
thereafter
the
plaintiff
was
elected
president
of
Ohio.
Later
the
private
placement
of
shares
was
made
to
those
persons
chosen
by
the
Board
of
Directors.
The
plaintiff
and
Mr.
Pritchard
each
acquired
10,000
shares.
265,000
shares
were
sold
to
1691
Investments
Ltd.
(the
major
shareholder
of
which
was
Crannog),
100,000
shares
went
to
Hy-Brasil
Resources
Ltd.
("Hy-Brasil")
(owned
by
Hickey,
McQuillan,
and
McCrossan,
in
equal
shares),
10,000
shares
went
to
McLoughlin,
and
5,000
shares
to
Laurie
Lohn,
the
office
manager
of
Ohio.
These
shares
were
made
available
at
a
price
of
25
cents
per
share.
Mr.
Hickey
provided
the
money
to
pay
for
the
plaintiff's
10,000
shares.
This
money
was,
according
to
the
plaintiff,
provided
as
a
loan
although
it
has
never
been
repaid.
In
a
filing
statement
filed
with
the
Vancouver
Stock
Exchange
on
March
18,
1980,
Ohio
confirmed
its
intention
to
make
the
rights
offering
and
announced
in
association
with
it
a
standby
agreement
or
arrangement
as
follows:
In
the
event
that
not
all
of
the
offered
shares
are
subscribed
for
the
following
persons
have
agreed
to
take
down
the
unsubscribed
for
shares
for
the
proportion
set
opposite
their
names:
|
Hy-Brasil
Resources
Ltd.
|
60%
|
|
Frithjof
Grohne
|
20%
|
|
Christopher
B.
Pritchard
|
20%
|
According
to
the
plaintiff’s
evidence,
the
“standby
agreement”
was
included
as
a
further
inducement
to
shareholders
to
take
advantage
of
the
rights
offering,
because
it
would
assure
those
who
did
so
that
the
full
amount
of
$425,000
(the
sale
price
of
the
shares
potentially
available
at
25
cents
per
share)
would
be
available
to
the
company.
In
a
further
filing
statement
filed
with
the
Vancouver
Stock
Exchange
on
May
27,
1980
Ohio
repeated
this
commitment
and
specified
that
the
rights
to
acquire
shares
covered
by
the
rights
offering
would
be
exercisable
by
shareholders
from
June
27
to
July
18,
1980.
A
circular
to
shareholders
describing
the
rights
offering
also
set
out
this
"Stand-by
Provision”
and
named
the
above
persons
who
had
"agreed"
to
subscribe
for
the
remaining
shares.
The
plaintiff
exercised
the
rights
of
an
ordinary
shareholder
under
the
rights
offering
on
or
about
July
4,
1980,
acquiring
20,000
shares
for
which
Mr.
Hickey
also
paid
under
an
arrangement
similar
to
that
in
respect
of
the
plaintiffs
first
acquisition
of
shares.
After
the
expiry
of
the
rights
offering,
and
after
the
settlement
of
a
legal
dispute
between
Ohio
and
Mr.
McLoughlin,
there
were
ultimately
some
490,000
shares
to
be
taken
up
pursuant
to
the
standby
agreement.
Of
these
the
plaintiff
acquired
26,164
in
1980
and
another
56,000
in
August
of
1981,
all
purchased
at
the
price
of
25
cents
per
share
in
accordance
with
the
standby
arrangement.
When
he
actually
purchased
these
shares
their
market
value
was
a
great
deal
more
than
25
cents
and
it
is
this
difference
between
the
purchase
price
paid
and
the
market
value
at
time
of
purchase
which
the
Minister
has
assessed
as
income
in
the
total
amount
of
$185,395
(now
revised
to
$174,195).
The
plaintiff
in
fact
later
sold
the
shares
(personally
or
through
a
family
holding
company)
over
several
years
up
to
and
including
1984,
receiving
for
them
a
total
of
only
$93,000.
The
original
pleadings
of
the
Minister
stated
his
assumption
that
the
amounts
assessed
as
income
were
received
by
the
plaintiff
“by
virtue
of
his
employment
with
the
company”
and
sections
6
and
7
of
the
Income
Tax
Act
were
relied
on,
inter
alia.
Subsequently,
on
January
24,
1989
some
six
weeks
before
trial,
the
statement
of
defence
was
amended
by
consent
to
allege
in
the
alternative
that
these
were
amounts
conferred
on
the
plaintiff
as
a
shareholder
of
Ohio
and
thus
taxable
as
income
under
subsection
15(1)
of
the
Act.
A
further
alternative
was
added
to
the
effect
that
these
amounts
were
profits
resulting
from
an
adventure
in
the
nature
of
trade
and
thus
taxable
in
accordance
with
section
9
and
the
definitions
in
subsection
248(1).
Issues
Are
the
amounts
of
$31,395
in
respect
of
1980,
and
$142,800
(revised
at
trial
from
$154,000)
in
respect
of
1981,
representing
the
difference
between
the
purchase
price
of
26,164
shares
acquired
by
the
plaintiff
in
1980,
and
56,000
shares
acquired
by
him
in
1981,
both
acquired
under
the
standby
arrangement
at
25
cents
per
share,
and
their
market
value
on
the
date
of
purchase,
income
of
the
plaintiff
because
they
were
received
by
him
(1)
in
respect
of,
in
the
course
of,
or
by
virtue
of
his
“office
or
employment",
thus
bringing
them
within
paragraph
6(l)(a)
of
the
Income
Tax
Act
and
excluding
them
from
the
protection
of
subsection
7(5)
of
the
Act
so
that
they
would
also
be
considered
income
Within
paragraph
7(1)(a);
(2)
as
a
"benefit
or
advantage
.
.
.
conferred
on
a
shareholder"
by
the
corporation,
thus
bringing
them
within
paragraph
15(1)(c)
of
the
Act;
or
(3)
as
profit
from
a
"business"
(within
subsection
9(1))
as
defined
by
subsection
248(l)
to
include
“an
adventure
or
concern
in
the
nature
of
trade”.
Conclusions
Income
from
employment—The
relevant
provisions
of
the
Income
Tax
Act
are
as
follows:
6(1)
There
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
as
income
from
an
office
or
employment
such
of
the
following
amounts
as
are
applicable:
(a)
the
value
of
board,
lodging
and
other
benefits
of
any
kind
whatever.
.
.
that
was
received
or
enjoyed
by
him
in
the
year
in
respect
of,
in
the
course
of,
or
by
virtue
of
an
office
or
employment.
.
.
7(1)
.
.
.where
a
corporation
has
agreed
to
sell
or
issue
shares
of
the
capital
stock
of
the
corporation
.
.
.
to
an
employee
of
the
corporation
.
.
.
(a)
if
the
employee
has
acquired
shares
under
the
agreement,
a
benefit
equal
to
the
amount
by
which
the
value
of
the
shares
at
the
time
he
acquired
them
exceeds
the
amount
paid
or
to
be
paid
to
the
corporation
therefor
by
him
shall
be
deemed
to
have
been
received
by
the
employee
by
virtue
of
his
employment
in
the
taxation
year
in
which
he
acquired
the
shares;
..
.
.
(5)
This
section
does
not
apply
if
the
benefit
conferred
by
the
agreement
was
not
received
in
respect
of,
in
the
course
of,
or
by
virtue
of
the
employment.
[Emphasis
added.]
I
accept
that
in
accordance
with
the
definitions
in
the
Income
Tax
Act
the
plaintiff,
as
a
director
of
Ohio,
was
"an
employee"
of
that
company.
By
section
248(1)
it
is
provided
that
"employee"
includes
“officer”.
That
section
defines
"office"
to
include
the
position
of
a
corporation
director
and
provides
that
the
term
"officer"
means
a
person
holding
such
an
office.
Therefore
for
certain
purposes
a
director
of
a
corporation
is
an
"employee"
of
the
corporation
even
though
he
may
not
receive
remuneration
nor
perform
services
in
ways
typical
of
ordinary
employment.
This
does
not
mean,
however,
that
every
benefit
flowing
to
a
president,
director,
or
other
officer
of
the
corporation
flows
to
him
“in
respect
of,
in
the
course
of,
or
by
virtue,
of”
such
"employment".
The
test
used
in
paragraph
6(1)(a)
and
subsection
7(5),
as
quoted
above,
by
implication
recognizes
that
the
benefit
may
be
conferred
because
of
some
relationship
other
than
that
of
employment.
I
respectfully
adopt
the
phraseology
employed
by
the
Supreme
Court
of
Canada
in
The
Queen
v.
Savage,
[1983]
C.T.C.
393;
83
D.T.C.
5409.
While
in
that
case
the
Court
found
the
money
to
have
been
paid
to
the
taxpayer
as
an
employee,
that
being
the
only
relationship
she
had
with
the
company
in
question,
Dickson,
J.
on
behalf
of
the
majority
distinguished
that
case
from
others
on
the
basis
that
[page
400,
D.T.C.
5414]:
.
.
.
there
was
no
element
of
gift,
personal
bounty
or
of
considerations
extraneous
to
Mrs.
Savage's
employment.
I
am
satisfied
from
the
evidence
in
the
present
case
that
the
plaintiff
participated
in
the
standby
arrangement,
and
thus
enjoyed
the
advantage
of
buying
shares
at
a
fraction
of
their
market
value,
because
he
had
been
a
promoter
of
the
company
from
the
beginning
and
continued
to
advance
the
interests
of
the
major
shareholders
in
encouraging
the
purchase
and
holding
of
shares
by
members
of
the
public.
I
find
it
significant
that,
by
the
terms
of
the
standby
arrangement
quoted
above,
entitlement
to
purchase
the
shares
not
taken
up
in
the
rights
offering
was
in
effect
divided
equally
among
five
persons,
each
to
have
the
right
to
ownership
or
the
benefits
of
ownership
of
20
per
cent
of
the
shares
available.
That
is,
60
per
cent
were
to
go
to
Hy-Brasil,
a
company
owned
in
equal
shares
by
Hickey,
McQuillan,
and
McCrossan.
These
people
were
clearly
promoters
and
not
employees
and
for
the
purposes
of
this
arrangement
the
plaintiff
and
Pritchard
were
treated
the
same
as
them.
There
were
"employees"
of
the
company
in
the
normal
sense
and
they
were
treated
differently.
They
were
paid
salaries.
Also,
Mr.
Lohn,
the
office
manager
at
the
time
of
the
reorganization,
was
given
an
option
to
purchase
up
to
20,000
shares
at
various
prices
depending
on
when
he
purchased
them.
It
will
be
noted
that
this
was
an
option
to
buy
which
did
not
contain
the
obligation
imposed
on
the
plaintiff
by
the
standby
arrangement.
The
plaintiff
received
no
salary
in
the
normal
fashion.
He
did
receive
travelling
expenses
and
he
said
that
in
later
stages
he
occasionally
invoiced
the
company
for
some
of
the
work
he
undertook.
The
plaintiff
also
testified
that
he
did
not
perform
day-to-day
work
for
the
company
in
the
sense
of
managing
its
operations.
He
signed
documents
as
president
and
he
spent
considerable
time
promoting
sales
of
shares.
His
version
of
his
activities
was
corroborated
by
another
witness,
Mr.
Culter
who
became
general
manager
in
August
of
1980,
succeeding
Mr.
Lohn.
I
believe
the
facts
distinguish
this
case
from
the
recent
decision
of
the
Tax
Court
of
Canada
in
Taylor
v.
M.N.RA
where
a
director
who
had
received
stock
options
was
held
to
have
received
them
as
income
within
the
provisions
of
subsection
7(1)
of
the
Act.
In
that
case
there
is
nothing
to
suggest
that
the
taxpayer
had
been
involved
in
the
development
or
promotion
of
the
companies
in
question.
I
therefore
conclude
that
any
advantage
the
plaintiff
gained
by
the
acquisition
of
the
shares
in
question
was
not
gained
by
him
“in
respect
of,
in
the
course
of,
or
by
virtue
of”
his
employment
with
the
company.
Thus
the
advantage
is
not
taxable
as
income
pursuant
to
paragraph
6(1)(a)
or
paragraph
7(1)(a)
of
the
Income
Tax
Act.
Income
as
shareholder—By
its
amendment
to
the
statement
of
defence
the
defendant
now
invokes
in
the
alternative
subsection
15(1)
which
during
the
time
in
question
provided
as
follows:
15(1)
Where
in
a
taxation
year
(c)
a
benefit
or
advantage
has
been
conferred
on
a
shareholder
by
a
corporation,
otherwise
than
(f)
by
conferring
on
all
holders
of
common
shares
of
the
capital
stock
of
the
corporation
a
right
to
buy
additional
common
shares
thereof.
.
.
the
amount
or
value
thereof
shall
.
.
.
be
included
in
computing
the
income
of
the
shareholder
.
.
.
Counsel
for
the
plaintiff
submitted,
and
counsel
for
the
defendant
concurred,
that
because
this
basis
for
the
Minister’s
reassessment
was
not
among
the
assumptions
of
the
Minister
at
the
time
of
reassessment—this
being
apparent
from
the
statement
of
defence—the
onus
is
on
the
defendant
at
trial
to
establish
the
plaintiff's
tax
liability
on
this
basis.
The
most
important
question
here
is
whether
the
standby
arrangement
conferred
upon
the
plaintiff
is
a
"benefit
or
advantage”
within
the
meaning
of
paragraph
15(1)(c).
The
defendant
contends
that
it
did
confer
an
advantage
because
in
fact
the
plaintiff
was
enabled
to
acquire
shares
at
a
fraction
of
their
market
price.
The
plaintiff
contends
instead
that
the
standby
arrangement
amounted
to
a
contractually
binding
obligation
on
the
part
of
the
plaintiff
and
the
other
promoters
included
in
it
to
buy
the
shares
at
25
cents
each
whether
their
market
value
at
the
time
of
entitlement
to
buy
was
above
or
below
that
figure,
and
whether
there
was
any
advantage
in
acquiring
the
shares
at
any
price.
He
distinguishes
this
from
stock
option
arrangements
where
the
beneficiary
has
a
choice
as
to
whether
he
will
buy
or
not,
depending
on
market
conditions.
I
believe
there
is
sufficient
evidence
for
me
to
find
that
there
was
a
binding
obligation
on
the
part
of
the
plaintiff
and
his
colleagues
to
buy
the
shares
regardless
of
current
market
value
or
demand.
I
believe
that
such
an
agreement
involved
consideration
on
both
sides,
there
being
an
advantage
given
to
the
company
in
the
sale
of
its
shares
to
members
of
the
public
by
the
assurance
that
the
shares
would
all
be
taken
up
and
that
a
useful
amount
of
money
would
be
realized
for
the
operations
of
the
company.
The
plaintiff
and
his
colleagues
gained
the
advantage
of
being
able
to
buy
at
a
fixed
price
shares
that
would
probably
have
a
higher
market
value
then
or
in
the
near
future.
Admittedly
there
was
no
written
agreement
proven
between
the
company
and
the
five
members
of
the
“control
group"
who
were
entitled
under
the
standby
arrangement,
but
there
was
considerable
evidence
of
their
obligation.
It
is
referred
to
in
the
filing
statements
filed
with
the
Vancouver
Stock
Exchange
on
March
18,
1980
and
May
27,
1980.
It
is
also
set
out
in
the
circular
distributed
to
the
holders
of
common
shares
of
Ohio
inviting
them
to
exercise
their
rights
under
the
rights
offering.
Each
of
these
documents
bears
the
signature
of
the
plaintiff
and
I
have
difficulty
believing
that
he
could
have
escaped
the
obligation
to
buy
his
portion
of
the
shares
not
taken
up
in
the
rights
offering,
had
a
situation
developed
where
there
was
little
or
no
market
for
the
shares.
If
the
plaintiff
had
that
obligation
binding
him,
I
believe
this
precludes
the
ultimate,
potential,
gain
flowing
to
him
through
his
acquisition
of
these
shares
being
a
"benefit
or
advantage
.
.
.
conferred
.
.
."
on
him
whether
as
a
shareholder
or
otherwise.
It
is
more
analogous
to
a
trading
contract
which
a
customer
of
a
company,
who
is
also
incidentally
one
of
its
shareholders,
might
make
and
from
which
he
would
ultimately
profit.
In
respecting
such
a
contract
and
giving
the
customershareholder
his
due
under
the
contract,
the
corporation
is
not
conferring
on
him
a
benefit
or
advantage
but
simply
fulfilling
its
contractual
obligations.
In
reaching
these
conclusions
I
have
recognized
that
the
onus
of
proving
that
this
was
a
“benefit
or
advantage"
is
on
the
defendant.
That
onus
has
not
been
discharged.
Therefore
I
find
that
the
amounts
in
question
should
not
be
treated
as
income
under
subsection
15(1)
of
the
Act.
Adventure
in
the
nature
of
trade—This
alternative
ground
for
tax
liability
was
also
not
included
in
the
original
assumptions
upon
which
the
reassessment
was
based.
It
too
was
added
by
way
of
an
amendment
to
the
statement
of
defence.
For
the
same
reasons
as
those
explained
in
respect
of
the
previous
ground,
the
onus
is
on
the
defendant
to
demonstrate
that
the
amounts
in
question
represent
profit
from
a
business,
rendered
taxable
by
subsection
9(1)
with
"business"
being
defined
in
subsection
248(1)
as
including
"an
adventure
or
concern
in
the
nature
of
trade".
The
defendant
has
really
produced
no
evidence
to
establish
any
pattern
of
conduct,
or
intent
on
the
part
of
the
plaintiff
when
he
entered
into
the
standby
arrangement,
of
engaging
in
the
business
of
buying
and
selling
shares.
I
am
not
persuaded
that
this
was
other
than
an
isolated
speculation
and
I
conclude
that
any
gains,
if
realized,
were
of
a
capital
nature
only.
According
to
the
evidence,
of
the
total
of
112,000
shares
of
Ohio
acquired
by
the
plaintiff,
he
sold
some
13,800
in
1980
and
1981.
He
transferred
the
remainder
to
a
family
holding
company
in
1981
and
these
were
sold
over
the
period
1982
to
1984.
I
see
in
this
no
pattern
supporting
the
contention
that
this
was
an
adventure
in
the
nature
of
trade.
The
appeal
will
therefore
be
allowed
with
costs
and
the
reassessments
of
the
plaintiff's
income
for
taxation
years
1980
and
1981
will
be
referred
back
to
the
M.N.R.
for
reconsideration
and
reassessment
on
the
basis
that
the
amounts
of
$31,395
in
1980
and
$
154,000
in
1981
were
not
income.
Appeal
allowed.
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