Addy,
J
(orally:
September
30,
1976):—I
don’t
intend
to
file
any
written
reasons,
but
I
wish
to
deliver
my
judgment
orally.
I
will
therefore
request
the
reporter
to
keep
a
note
of
my
remarks
and
have
his
notes
available
for
transcription
should
either
party
request
them
or
should
there
be
an
appeal.
I
have
considered
the
jurisprudence
quoted
by
counsel.
As
to
the
facts,
both
counsel
agree
that
no
question
of
sham
arises.
It
is
also
clear
in
my
view
that
this
was
an
arm’s
length
transaction.
The
court
case
turns
mainly
on
the
interpretation
to
be
given
the
agreement,
which
was
filed
as
Exhibit
2,
and
also
on
the
Agreed
Statement
of
Facts
filed
as
Exhibit
1,
and
to
determine
what
the
true
nature
of
the
transaction
was.
It
is
abundantly
clear
in
my
view
that
the
plaintiff
was
not
carrying
on
the
practice
of
law
from
the
month
of
April
1968
in
conjunction
with
the
estate
but
was
the
sole
proprietor
thereof.
One
only
has
to
look
at
paragraphs
5
and
6
of
the
Agreed
Statement
of
Facts,
and
if
any
more
assurance
were
required
there
is
the
evidence
of
the
plaintiff
at
pages
22,
23,
24,
27
and
34
of
the
transcript
filed
as
Exhibit
3,
as
well
as
paragraphs
2
and
3
of
the
agreement.
The
taxpayer
undoubtedly
attempted
to
arrange
his
affairs
at
the
time
of
the
purchase
in
order
to
avoid
tax.
This,
of
course,
is
very
proper
practice.
The
question
is
whether
by
inserting
paragraph
7
in
the
agreement,
which
l
shall
not
bother
to
read
here
as
it
has
been
extensively
referred
to
by
counsel,
he
succeeded
in
doing
so.
One
must,
of
course,
read
this
paragraph
in
the
light
of
all
of
the
other
provisions
of
the
agreement
to
see
what
was
actually
the
true
State
of
the
affairs
or
the
true
effect
of
the
agreement.
Paragraph
5
provides
for
the
sale
of
all
of
the
assets
of
the
entire
practice,
including
goodwill;
a
$4,000
cash
consideration
is
declared
to
be
the
price.
However,
counsel
for
the
plaintiff
was
unable
to
show
or
to
indicate
what
consideration,
if
any,
flowed
from
the
vendor
estate
to
the
plaintiff
purchaser
for
the
reservation
made
in
favour
of
the
vendor
estate
of
25%
of
the
net
profits
for
four
years.
The
only
logical
conclusion,
and
the
only
conclusion,
can
be
that
it
was
for
part
of
the
purchase
price
of
the
total
assets
of
the
practice
which
passed
to
the
plaintiff.
One
cannot
by
any
stretch
of
the
imagination
consider
the
payment
as
an
expenditure
made
for
the
purpose
of
earning
income
made
during
those
years.
The
expenditure
was
therefore
made
solely
for
the
purpose
of
purchasing
capital
assets.
It
is
not
by
calling
it
another
name
that
its
nature
can
be
changed.
Furthermore,
even
under
paragraph
7
of
the
agreement,
the
estate
did
not
have
any
interest
in
the
income
but
was
merely
entitled
to
25%
of
the
net
profits
after
expenses
incurred
in
earning
those
profits
were
deducted.
The
income
was
entirely
that
of
the
plaintiff,
and
the
estate
had
no
right
in
it.
The
only
expenditures
which
the
plaintiff
can
lawfully
deduct
are
those
which
enable
him
to
earn
that
income,
and
the
net
profits
after
such
deductions
are
clearly
taxable
in
his
hands
in
their
entirety.
Without
going
into
the
details
of
the
authorities
cited,
I
would
like
to
state
here
that
in
my
view
the
case
of
MNR
v
Randolph
H
Gault,
[1965]
CTC
261;
65
DTC
5157,
quoted
by
counsel
for
the
plaintiff
does
not
apply,
and
the
other
cases
cited
by
him
are
clearly
distinguishable
on
the
grounds
of
either
vacancy,
continued
ownership
in
the
vendor,
trust,
or
other
such
principles
which
are
not
applicable
to
the
present
case.
The
principles
to
be
applied
to
the
present
case
are
those
to
be
found
in
the
following
cases,
namely,
Woodward’s
Pension
Society
v
MNR,
[1962]
SCR
224;
[1962]
CTC
11;
62
DTC
1002,
and
more
specifically
at
page
227;
Mersey
Docks
and
Harbour
Board
v
Lucas
(1883),
8
App
Cas
891
at
907
and
910;
Lagacé
v
MNR,
[1968]
2
Ex
CR
98
at
109
and
110;
[1968]
CTC
98;
68
DTC
5143;
Richardson
Terminals
Ltd
v
MNR,
[1971]
CTC
42
at
64;
71
DTC
5028
at
5040,
affirmed
by
the
Supreme
Court
of
Canada
in
1972,
[1972]
CTC
528;
72
DTC
6431.
In
conclusion,
I
would
like
to
state
that
I
agree
entirely
with
the
conclusion
arrived
at
by
Mr
Frost
of
the
Tax
Review
Board
in
this
case
where
he
stated
at
the
end
of
his
judgment,
and
I
quote
the
two
paragraphs
mentioned
by
counsel
for
the
defendant,
namely:
The
substance
in
this
case
is
that
the
future
earning
power
was
simply
used
as
the
measure
for
determining
the
value
of
the
business
and
payment
was
deferred
until
the
actual
profits
were
ascertained.
And
finally,
the
second
last
paragraph:
In
this
case
it
seems
clear
to
me
that
the
reservation
was
in
fact
part
of
the
purchase
consideration,
and
that
all
payments
pursuant
to
the
agreement
in
essence
relate
to
the
acquisition
of
the
business
as
a
capital
asset.
The
assessments
are
therefore
confirmed
and
the
action
is
dismissed
with
costs.
There
will
be
judgment
accordingly.
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