D
E
Taylor:—This
is
an
appeal
heard
in
Winnipeg
on
February
11,
1980,
against
an
income
tax
assessment
in
which
the
Minister
of
National
Revenue
assessed
to
tax
in
the
year
1977
the
entire
amount
of
$90,836
as
a
deemed
dividend
received
by
the
appellant
following
his
retirement.
The
facts
are
that
the
appellant
was
a
major
shareholder
in
Gaulco
Limited
(the
company)
and
in
1977
he
sold
his
common
shareholdings
to
that
company,
receiving
as
part
of
the
settlement
the
above
amount
in
the
form
of
preferred
shares
redeemable
over
a
period
of
ten
years.
The
respondent
relied,
inter
alia,
upon
section
3
and
paragraph
18(1)(e)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended.
The
appellant
contended
that:
...
there
is
no
justification
in
the
act
or
regulations
stating
that
the
Deemed
Dividend
being
paid
over
a
10
year
period
should
be
taxed
in
one
year.
Assessors
I
interviewed
failed
to
establish
this
to
my
satisfaction.
On
the
contrary
the
guides
state
the
common
position
in
paragraph
16G
(1977).
This
applies
to
Capital
Gains
but
is
stated
as
a
Principle.
There
is,
of
course,
a
large
body
of
law
stating
taking
security
for
payment
to
be
made
over
a
period
does
not
extinguish
the
debt
or
the
terms
of
repayment.
(A)
Possible
Alternatives
Allow
full
Deemed
Dividend
to
be
taxed
in
one
year
but
allow
a
reserve
similar
to
the
Capital
Gain
procedure.
There
is
nothing
allowing
a
reserve
of
this
nature
but
also
nothing
that
says
such
a
reserve
would
be
disallowed.
(b)
Assume
paid
and
received
have
known
and
common
meanings
actually
“Paid”
or
“Received”,
accepting
payment,
inclusion
in
income
in
each
of
the
10
years.
The
position
of
the
respondent
was
that:
—a
portion
of
the
proceeds
of
disposition
of
the
shares
represented
a
taxable
deemed
dividend
under
subsection
84(3)
of
the
Income
Tax
Act’,
—the
appellant
included
in
his
1977
income
tax
return
an
amount
of
$9,084
in
respect
of
the
taxable
deemed
dividend
on
the
sale
of
shares;
—
he
received
a
taxable
deemed
dividend
of
$90,836
in
accordance
with
subsection
84(3)
of
the
Income
Tax
Act;
—the
appellant
is
not
entitled
to
claim
any
reserve
with
respect
to
the
taxable
deemed
dividend.
The
basic
position
of
the
appellant
is
that
since
he
will
receive
in
cash
the
proceeds
on
a
prorated
basis
over
a
period
of
10
years,
he
should
pay
tax
accordingly—as
the
funds
are
received.
Unfortunately
for
the
appellant,
that
position
cannot
be
supported.
The
taxpayer
did
receive
an
amount
(the
total
of
$90,836)
which
can
only
be
claimed
as
a
“deemed
dividend”
and,
in
effect,
he
left
the
funds
invested
in
the
company.
It
could
be
argued
he
reinvested
such
funds
since
he
was
to
receive
an
annual
dividend
of
7%
on
the
new
preferred
shares.
It
is
evident
that
some
other
form
of
settlement
might
have
been
arranged
between
the
taxpayer
and
the
company,
but
that
to
which
the
appellant
agreed,
and
which
forms
the
basis
of
this
appeal,
clearly
makes
the
amount
in
dispute
taxable
all
in
the
taxation
year
1977.
The
appeal
is
dismissed.
Appeal
dismissed.
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