THORSON,
P.:—This
is
an
appeal
from
the
decision
of
the
Tax
Appeal
Board
(1962),
30
Tax
A.B.C.
1,
dated
September
19,
1962,
dismissing
the
appellant’s
appeal
against
his
income
tax
assessment
for
1956.
In
assessing
the
appellant
for
1956
the
Minister
added
the
sum
of
$33,200,
being
part
of
the
amount
which
the
appellant
had
received
in
1956
from
Prairie
Cereals
Ltd.,
to
the
amount
of
income
reported
by
him
on
his
income
tax
return
for
the
year.
The
appellant
objected
to
the
assessment
but
the
Minister
confirmed
it
on
the
ground
that
the
amount
received
by
the
appellant
from
Prairie
Cereals
Ltd.
had
been
properly
included
in
computing
his
income
in
accordance
with
the
provisions
of
Sections
3,
5
and
25
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148.
The
appellant
then
appealed
to
the
Tax
Appeal
Board
which
dismissed
his
appeal.
It
is
from
this
decision
that
the
appeal
to
this
Court
is
brought.
The
facts
from
which
the
appeal
arises
are
unusual.
They
appear
from
the
evidence
of
the
appellant
himself
and
from
the
agreements
and
other
documents
to
which
he
was
a
party.
The
appellant
was
the
only
witness
in
the
case.
The
appellant
is
a
food
broker
and
the
president
of
F,
Archi-
oald
Brokerage
Ltd.
and
resides
at
Winnipeg.
Prior
to
April
1,
1955,
he
had
been
with
W.
H.
Escott
Company
Ltd.
of
Winnipeg
for
15
years,
first
as
an
office
boy,
later
as
sales
branch
manager
at
Saskatoon
and
then
as
a
salesman
at
Winnipeg.
His
salary
with
this
company
had
never
exceeded
$5,000
per
year.
On
March
28,
1955,
he
entered
into
an
agreement
with
Prairie
Cereals
Limited,
a
company
that
had
its
head
office
at
Edmonton.
This
company,
frequently
referred
to
as
the
Company,
was
incorporated
on
January
21,
1941,
but
subsequently,
namely,
on
December
2,
1955,
changed
its
name
to
Prairie
Cereals
Ltd.
There
were
other
parties
to
the
agreement
referred
to,
namely,
Albert
Gaetz,
who
had
a
controlling
interest
in
the
Company,
Edith
Ryall,
Selma
Gaetz
and
Emma
Gaetz,
who
were
other
shareholders
in
the
Company,
and
The
Toronto
General
Trusts
Corporation
as
Trustee.
The
opening
recital
of
the
agreement
was
in
the
following
terms
:
‘“
WHEREAS
it
has
been
agreed
between
the
Company
and
Moss
that
the
Company
shall
employ
Moss
and
Moss
shall
work
for
the
Company
as
its
Sales
Manager
I
in
Canada,
on
terms
and
conditions
as
herein
set
out
;
’
’
and
the
appellant
stated
that
this
recital
was
correct.
In
view
of
the
importance
of
this
agreement
I
set
out
its
recitals
in
full
as
follows:
WHEREAS
it
has
been
agreed
between
the
Company
and
Moss
that
the
Company
shall
employ
Moss
and
Moss
shall
work
for
the
Company
as
its
Sales
Manager
in
Canada,
on
terms
and
conditions
as
herein
set
out;
AND
WHEREAS
Gaetz
has
a
controlling
interest
in
the
issued
capital
of
the
Company
and
has
agreed
to
cause
all
things
to
be
done
by
the
Company
which
may
be
required
to
carry
out
the
intent
of
this
agreement;
AND
WHEREAS
it
has
been
agreed
between
the
parties
hereto
that
in
the
event
of
the
termination
of
the
employment
of
the
said
Moss
as
herein
set
out,
then
Moss
and/or
his
estate
shall
receive
certain
benefits
pursuant
to
the
terms
of
this
agreement;
AND
WHEREAS
it
has
been
agreed
between
the
said
Moss,
the
said
Gaetz
and
the
other
shareholders,
that
in
the
event
of
the
death
of
Gaetz
prior
to
the
termination
of
this
agreement,
the
interest
of
the
said
Gaetz
and
the
Shareholders
in
the
capital
stock
of
the
Company
shall
be
sold
to
Moss
on
the
terms
and
conditions
as
herein
set
out;
AND
WHEREAS
by
a
policy
of
life
insurance
No.
1320759,
the
Manufacturers
Life
Insurance
Co.
has
insured
the
life
of
Gaetz
in
the
principal
sum
of
One
Hundred
Thousand
($100,000)
Dollars,
Moss
being
named
as
beneficiary
in
the
said
policy;
And
WHEREAS
it
has
been
agreed
that
in
the
event
of
the
death
of
Gaetz
the
proceeds
of
the
said
life
insurance
policy
shall
be
used
for
the
purchase
of
shares
of
the
Company
as
hereinafter
provided
;
And
WHEREAS
it
has
been
agreed
that
the
Trustee
shall
act
as
Trustee
in
connection
with
the
holding
of
the
said
insurance
policy
and
the
shares
of
the
capital
stock
of
the
Company
owned
by
Gaetz
and
the
Shareholders
for
the
purposes
of
this
agreement
;’’
and
I
also
set
out
paragraphs
1
and
2
of
the
agreement.
Paragraph
1
provided:
“1.
The
Company
hereby
agrees
to
engage
Moss
as
Sales
Manager
of
the
Company
in
charge
of
all
sales
in
Canada,
and
Moss
agrees
to
work
for
the
Company
in
such
capacity,
the
terms
of
employment
to
be
as
follows:
(a)
The
term
of
such
employment
shall
be
from
month
to
month
from
the
date
hereof;
Provided,
However,
that
either
the
Company
or
Moss
shall
have
the
right
to
terminate
such
employment
at
the
end
of
any
employment
month
by
giving
one
(1)
clear
month’s
notice
in
writing
of
intention
to
terminate.
(b)
Moss
shall
be
charged
with
the
responsibility
of
the
position
of
general
Sales
Manager
for
the
Company
in
Canada,
and
shall
do
or
cause
to
be
done,
or
take
or
cause
to
be
taken
all
such
steps
and
things
as
may
be
required
for
an
efficient
administration
of
the
sales
department
of
the
Company.
And
without
restricting
the
generality
of
this
clause,
he
shall
comply
with
all
instructions
of
the
Board
of
Directors
of
the
Company
or
anyone
to
whom
it
may
delegate
authority
in
that
behalf
for
the
purposes
of
this
agreement.
(c)
Moss
agrees
that
he
will
faithfully,
honestly
and
diligently
carry
out
the
duties
imposed
upon
him
by
this
agreement.
(d)
By
way
of
payment
for
the
services
of
Moss
under
this
agreement,
the
Company
shall
pay
the
following:
(1)
A
salary
of
Three
Hundred
and
Seventy-Five
($375)
Dollars
per
month
payable
on
the
last
of
each
month
;
and
(2)
The
annual
or
other
premiums
as
the
same
become
due
on
the
said
policy
of
life
insurance
No.
1320759
issued
by
the
Manufacturers
Life
Insurance
Co.
The
said
premium
shall
be
paid
direct
by
the
Company
to
the
Insurance
Company;
PROVIDED,
However,
that
if
the
Company
shall
fail
to
pay
the
same
as
they
become
due,
Moss
may
do
so,
and
any
monies
paid
by
him
therefor
shall
be
repayable
to
him
by
the
company
forthwith
without
demand
or
notice.
(3)
An
annual
amount
equal
to
Ten
(10%)
per
cent
of
the
annual
net
profits
of
the
Company
to
be
payable
to
Moss
at
the
close
of
the
fiscal
year
of
the
said
Company.
For
the
purposes
of
this
clause,
net
profits
shall
mean
and
include
all
gross
profits
of
the
Company
less
all
operating
expense,
income
and
all
other
taxes,
depreciation,
according
to
sound
accounting
and
business
practice,
directors’
fees
not
to
exceed
Two
Thousand
($2,000)
Dollars
per
annum,
and
the
salary
and
premiums
on
life
insurance
payable
as
hereinbefore
set
forth
in
this
sub-clause
(d).
(4)
The
Company
will
furnish
Moss
with
an
automobile
suitable
for
the
purposes
of
his
employment
and
will
pay
all
operating
expenses
of
such
automobile,
(5)
The
Company
will
pay
all
travelling
expenses
or
other
expenses
incurred
by
Moss
in
carrying
out
his
duties
under
this
agreement.
(e)
The
Company
will
co-operate
with
Moss
in
every
way
required
for
the
efficient
performance
by
him
of
his
duties
under
this
agreement,
and
in
particular
will
provide
him
with
adequate
staff,
and
where
necessary,
working
capital.
(f)
The
Company
shall
not
increase
the
remuneration
presently
payable
to
its
directors
or
other
officers
without
the
consent
of
Moss.
(g)
Moss
shall
have
the
right
to
two
(2)
weeks
holiday
with
pay
during
each
fiscal
year,
and
in
addition
the
right
to
be
absent
from
his
duties
when
incapacitated
by
illness
or
accident
for
a
continuous
period
of
three
(3)
months
without
deduction
from
salary.
(h)
In
the
event
that
either
the
Company
or
Moss
shall
be
in
default
in
the
observance
and
performance
of
any
of
the
terms
and
conditions
of
this
agreement
in
respect
to
the
said
employment,
then
the
other
party
may
give
notice
to
the
party
alleged
to
be
in
default
of
the
nature
of
such
default,
requiring
such
default
to
be
remedied
within
fifteen
(15)
days
after
the
receipt
of
such
notice.
In
the
event
that
the
party
in
default
shall
fail
to
remedy
such
default
within
such
period,
then
the
other
party
may
cancel
this
agreement
upon
thirty
(30)
days
notice
in
writing
to
the
other
party.”
and
paragraph
2
was
in
the
following
terms:
“2.
In
the
event
of
the
termination
of
the
employment
of
Moss,
then
(a)
If
the
said
employment
is
terminated
by
the
Company
at
any
time
within
five
(5)
years
from
the
date
of
this
agreement,
the
Company
shall
pay
Moss
the
sum
of
Ten
Thousand
($10,000)
Dollars,
and
Moss
shall
forthwith
assign
all
of
his
interest
in
the
said
life
insurance
policy
to
the
Company.
(b)
In
the
event
that
Gaetz
and/or
the
other
Shareholders
shall
cause
the
Company
to
sell
its
undertaking
and
entire
assets
or
if
they
shall
sell
the
shares
of
the
capital
stock
of
the
Company,
Gaetz
and
the
Shareholders
shall
be
jointly
and
severally
liable
to
pay
Moss
the
sum
of
Ten
Thousand
($10,000)
Dollars,
or
a
sum
equal
to
Five
(5%)
per
cent
of
the
sale
price
of
the
said
assets
and
undertaking
or
a
sum
equal
to
five
(5%)
per
cent
of
the
sale
price
of
the
said
shares
or
a
sum
equal
to
the
cash
surrender
value
of
the
said
life
insurance
policy
as
at
the
date
of
the
said
sale
as
the
case
may
be,
whichever
sum
is
the
greater,
such
payment
to
be
in
lieu
of
the
payments
provided
to
be
made
by
the
Company
to
Moss
under
the
provisions
of
sub-clauses
(a)
or
(c)
of
this
Clause
2,
and
upon
payment
of
the
said
sum
Moss
shall
forthwith
assign
all
of
his
interest
in
the
said
life
insurance
policy
to
the
Company;
Provided,
However,
that
the
Company
shall
not
sell
its
undertaking
and
entire
assets
and
Gaetz
and
the
Shareholders
shall
not
sell
their
said
shares
without
in
either
case
giving
to
Moss
Thirty
(30)
days
notice
of
their
intention
to
effect
such
sale,
such
notice
to
specify
the
sale
price
and
terms
of
payment,
and
thereupon
Moss
shall
have
the
first
prior
and
preemptive
right
for
the
said
period
of
thirty
(30)
days
to
purchase
the
said
assets
or
the
said
shares
at
Ninety
(90%)
per
cent
of
the
price
mentioned
in
such
notice
on
terms
no
less
favourable
than
those
set
out
in
the
said
notice.
If
Moss
shall
fail
to
complete
the
purchase
as
aforesaid
within
the
said
period
of
Thirty
(30)
days,
then
the
Company
and/or
Gaetz
and
the
Shareholders
may
complete
the
sale
within
but
not
after
a
further
period
of
Thirty
(30)
days
upon
the
terms
set
out
in
the
said
notice.
If
Moss
shall
fail
to
complete
the
purchase
as
aforesaid
within
the
said
period
of
Thirty
(30)
days,
then
the
Company
and/or
Gaetz
and
the
Shareholders
may
complete
the
sale
upon
the
terms
set
out
in
the
said
notice.
(c)
In
the
event
that
the
Company
shall
terminate
Moss’
employment
for
any
cause
whatsoever
after
the
First
day
of
of
April,
1960,
the
Company
shall
pay
Moss
the
cash
surrender
value
as
at
the
date
of
such
termination
of
the
said
insurance
policy
and
Moss
shall
forthwith
assign
all
his
interest
in
such
policy
to
the
Company.
(d)
In
the
event
that
Moss
shall
terminate
his
contract
of
employment
on
or
before
the
First
day
of
April,
1965,
the
Company
shall
forthwith
pay
to
Moss
one-half
of
the
cash
surrender
value
of
the
said
life
insurance
policy
as
at
the
date
of
such
termination
and
Moss
shall
thereupon
assign
all
his
interest
in
the
said
policy
to
the
Company.
(e)
In
the
event
that
Moss
shall
terminate
his
contract
of
employment
after
the
First
day
of
April,
1965,
the
Company
shall
pay
to
Moss
the
cash
surrender
value
of
the
said
policy
of
life
insurance
as
at
the
date
of
such
termination
and
Moss
shall
thereupon
assign
all
his
interest
in
such
policy
to
the
Company.
(f)
In
the
event
of
the
contract
of
employment
being
terminated
by
the
death
of
Moss
on
or
before
the
First
day
of
April,
1960,
the
Company
shall
pay
to
the
executors
or
administrators
of
the
Estate
of
Moss
the
sum
of
Ten
Thousand
Dollars
($10,000),
whereupon
the
said
executors
or
administrators
shall
forthwith
assign
to
the
Company
all
of
the
interest
of
Moss
in
such
life
insurance
policy.
(g)
In
the
event
of
the
contract
of
employment
being
terminated
by
the
death
of
Moss
after
the
First
day
of
April,
1960,
the
Company
shall
pay
to
the
executors
or
administrators
of
the
Estate
of
Moss
one-half
(12)
of
the
cash
surrender
value
of
such
life
insurance
policy
as
at
the
date
of
his
death
or
the
sum
of
Ten
thousand
Dollars
($10,000),
whichever
sum
is
greater
but
in
any
event
not
to
exceed
the
sum
of
Fifteen
thousand
dollars
($15,000)
and
thereupon
the
executors
or
administrators
of
the
Estate
of
Moss
shall
forthwith
assign
all
of
the
interest
of
Moss
in
the
said
life
insurance
policy
to
the
Company.”
Paragraph
2
is
subject
to
the
comment
that
while
it
commenced
with
the
words
‘‘In
the
event
of
the
termination
of
the
employment
of
Moss’’
there
was
the
proviso
referred
to.
Paragraph
3
of
the
agreement
provided
that
the
appellant
should
devote
his
entire
time,
labour
and
attention
to
his
employment
subject
to
the
right
to
attend
to
his
own
personal
affairs
and
by
paragraph
4
the
appellant
agreed
to
assign
the
policy
of
life
insurance
referred
to
in
the
agreement
to
the
Trustee
to
be
held
by
it
subject
to
the
terms
and
conditions
of
the
agreement.
Paragraph
5
provided
that
if
Gaetz
should
die
before
the
termination
of
the
agreement
his
executors
and
the
other
shareholders
should
sell
and
the
appellant
should
purchase
all
the
outstanding
shares
of
the
capital
stock
of
the
company
at
a
price
to
be
determined
as
set
out
in
the
paragraph.
It
was
under
the
terms
and
conditions
of
this
agreement
that
the
appellant
became
employed
by
Prairie
Cereals
Limited,
later
Prairie
Cereals
Ltd.,
as
its
sales
manager
in
Canada.
Under
the
agreement
he
was
entitled
to
the
specific
payments
set
out
in
paragraph
1
and
he
also
had
the
right
under
the
proviso
of
paragraph
2,
in
the
event
of
an
intended
sale
of
the
assets
or
shares
of
the
Company,
to
purchase
the
assets
or
shares
at
90
per
cent
of
the
intended
purchase
price,
subject
to
the
conditions
specified
in
the
proviso
and
he
also
had
the
right,
in
the
event
of
the
death
of
Albert
Gaetz
prior
to
the
determination
of
the
agreement,
to
purchase
all
the
outstanding
shares
of
the
capital
stock
of
the
Company
at
the
price
as
set
out
in
paragraph
5.
On
April
1,
1955,
the
appellant
commenced
his
employment
by
Prairie
Cereals
Limited
as
its
sales
manager
in
Canada
under
the
terms
and
conditions
set
out
in
the
agreement.
During
1955
he
received
his
salary
of
$375
per
month,
the
premium
on
the
policy
of
life
insurance
amounting
to
$4,371,
which
was
paid
on
his
behalf
by
the
Company,
10
per
cent
of
the
Company’s
profits,
the
use
of
an
automobile
and
its
operating
expenses
and
his
necessary
travelling
and
other
expenses.
He
included
all
these
amounts,
including
the
premium
of
$4,371,
in
his
income
tax
return
for
1955,
his
total
income
for
that
year
being
approximately
$11,000,
including
the
premium
which
had
been
paid
for
him.
The
appellant
had
never
had
as
high
an
income
as
that
in
any
previous
year.
Late
in
1955
or
early
in
1956,
Albert
Gaetz
entered
into
negotiations
for
the
sale
of
the
assets
of
the
Company
to
Martin
&
Robertson
Ltd.
The
appellant
was
quite
concerned
about
these
negotiations
for
he
had
an
option
to
purchase
the
assets,
he
was
the
beneficiary
of
a
policy
of
insurance
on
the
life
of
Albert
Gaetz
and
he
would
have
preferred
to
see
the
deal
not
made,
for
he
knew
that
ultimately
he
was
going
to
be
the
owner
of
the
business.
Being
an
interested
party
he
was
kept
posted
about
the
negotiations
and
was
present
when
they
were
being
discussed.
Mr.
Gaetz
and
Mr.
T.
Lacusta,
his
accountant,
asked
him
to
accompany
them
to
Vancouver.
While
he
was
at
Vancouver,
he
was
handed
a
letter,
dated
March
24,
1956,
signed
by
Prairie
Cereals
Limited
and
by
Albert
Gaetz,
which
read
as
follows:
“Dear
Mr.
Moss:
In
consideration
for
releasing
Prairie
Cereals
Limited,
and
Albert
Gaetz,
and
Edith
Ryall,
Selma
Gaetz
and
Emma
Gaetz
from
the
provisions
of
the
agreement
between
Prairie
Cereals
Limited,
and
Peter
Moss,
and
Albert
Gaetz
and
Edith
Ryall,
Selma
Gaetz,
and
The
Toronto
General
Trusts
Corporation,
dated
March
28,
1955
Prairie
Cereals
Limited
and
Albert
Gaetz
hereby
agree
to
pay
to
you
the
amount
of
Thirty
Four
Thousand
Six
Hundred
Dollars
($34,600.00).
This
offer
is
made
subject
to
the
successful
completion
of
the
sale
of
the
assets
of
Prairie
Cereals
Limited,
to
the
Canada
Rice
Mills
Ltd.
or
their
agents
of
Vancouver,
B.C.’’
The
appellant
set
out
the
circumstances
under
which
this
letter
was
delivered
to
him.
He
said
that
Mr.
Gaetz
and
Mr.
Lacusta
were
negotiating
the
sale
of
the
assets
of
the
Company,
that
they
were
concerned
with
the
fact
that
he
had
an
option
which
indicated
that
he
would
have
30
days
in
which
to
raise
funds
to
purchase
the
business,
that
they
felt
quite
confident
that
they
would
be
able
to
sell
the
business
but
that
if
they
waited
30
days
the
sale
might
be
lost
and
that,
consequently,
the
letter
was
sent
to
him,
the
offer
contained
in
it
being
made
subject
to
the
successful
completion
of
the
intended
sale.
The
appellant
accepted
the
offer
contained
in
the
letter
of
March
24,
1956
and
he
and
the
Company,
then
Prairie
Cereals
Ltd.,
entered
into
an
agreement,
dated
April
12,
1956.
In
view
of
its
importance
I
set
out
its
recitals
as
follows:
WHEREAS
by
Agreement
dated
the
28th
day
of
March,
1955,
made
between
the
Company
of
the
First
Part,
Moss
of
the
Second
Part,
Albert
Gaetz
of
the
Third
Part,
and
others,
it
was
agreed
inter
alia
that
the
Company
should
not
sell
its
undertaking
and
assets
without
first
giving
to
Moss
the
prior
and
pre-emptive
right
for
a
period
of
Thirty
(30)
days
to
purchase
the
said
assets
at
Ninety
per
cent
(90%)
of
the
proposed
purchase
price;
AND
WHEREAS
by
a
Policy
of
Life
Insurance
No.
1320759,
the
Manufacturers
Life
Insurance
Company
has
insured
the
life
of
Gaetz
in
the
principal
sum
of
One
hundred
thousand
dollars
($100,000),
Moss
being
the
owner
and
named
as
beneficiary
in
the
said
Policy;
AND
WHEREAS
the
Company
desires
to
sell
its
undertaking
and
assets
to
Martin
&
Robertson
Ltd.,
and/or
Prairie
Maid
Cereals
Ltd.,
for
the
price
and
on
the
terms
and
conditions
set
forth
in
a
proposed
agreement
to
be
dated
May
1956
and
to
be
made
between
the
Company,
the
said
Martin
&
Robertson
Ltd.,
Gaetz,
Moss
and
the
said
Prairie
Maid
Cereals
Ltd.;
AND
WHEREAS
the
Company
has
requested
Moss
to
consent
to
the
said
sale
and
to
waive
his
pre-emptive
right
to
purchase
the
said
assets
;”’
and
paragraphs
1,
2
and
3
which
contained
the
following
provisions
:
“1.
Moss
waives
any
and
all
rights
under
the
said
Agreement
dated
the
28th
day
of
March,
1955,
or
otherwise
to
purchase
the
assets
of
the
Company
and
expressly
consents
to
the
sale
of
the
said
undertaking
and
assets
by
the
Company
to
the
said
Martin
&
Robertson
Ltd.,
and/or
Prairie
Maid
Cereals
Ltd.
2.
Moss
hereby
transfers,
sells
and
assigns
to
the
Company
all
of
the
interest
of
Moss
as
owner
or
beneficiary
of
the
said
Policy
of
Life
Insurance
No.
1320759
issued
by
The
Manufacturers
Life
Insurance
Company
on
the
life
of
the
said
Gaetz.
3.
The
Company
shall
pay
to
Moss
on
or
before
the
First
day
of
June,
1956,
the
sum
of
Thirty-four
thousand,
six
hundred
dollars
($34,600.00)
or
a
sum
equal
to
Ten
per
cent
(10%)
of
the
total
purchase
price
paid
or
payable
to
the
Company
by
Martin
&
Robertson
Ltd.,
and/or
Prairie
Maid
Cereals
Ltd.,
for
the
undertaking
and
assets
of
the
Company,
whichever
sum
is
the
greater.”
Following
this
agreement
the
appellant
transferred
his
interest
in
the
life
insurance
policy
to
the
Company.
The
letter
of
March
24,
1956,
did
not
indicate
how
the
amount
of
$34,600
was
arrived
at.
There
were
no
negotiations
as
to
the
amount
between
the
appellant
and
the
Company
or
Mr.
Gaetz.
Mr.
Gaetz
and
Mr.
Lacusta
had
worked
on
the
figures
and
inserted
the
amount
in
the
letter
and
handed
it
to
the
appellant.
He
admitted
that
the
amount
might
possibly
represent
an
estimate
of
what
would
be
10
per
cent
of
the
gross
sale
price
of
the
assets
of
the
Company
and
there
is
support
for
this
in
the
agreement
of
April
12,
1956.
There
is
also
support
for
it
in
the
agreement
of
May
15,
1956.
The
appellant
also
thought
that
the
amount
included
the
value
of
the
life
insurance
policy.
Here
I
refer
to
the
fact
that
a
new
company,
namely,
Prairie
Maid
Cereals
Ltd.,
was
incorporated
in
British
Columbia
on
April
19,
1956,
and
registered
under
the
Alberta
Companies
Act
sometime
in
May,
1956.
The
Company
concluded
its
arrangements
for
the
sale
of
its
assets
to
Martin
&
Robertson
Ltd.
and
Prairie
Maid
Cereals
Ltd.
under
the
terms
and
conditions
set
out
in
an
agreement,
dated
May
15,
1956.
The
appellant
and
Arthur
Gaetz
joined
in
it.
The
sum
of
$34,600
referred
to
in
the
letter
of
March
24,
1956,
and
the
agreement
of
April
12,
1956,
was
paid
by
Prairie
Cereals
Ltd.
to
the
appellant
and
received
by
him
at
a
date
in
respect
of
which
the
evidence
is
not
clear.
It
was
alleged
in
the
notice
of
appeal
herein
that
the
appellant
received
the
sum
of
$34,600
in
or
about
the
month
of
May,
1956,
and
this
allegation
was
admitted
by
the
Minister.
The
appellant
on
his
direct
examination
said
that
he
received
the
amount
by
cheque
at
the
end
of
May
or
early
in
June
of
1956.
On
his
cross-examination
he
said
that
he
received
the
sum
just
before
or
after
June
1,
1956,
that
he
had
tried
to
find
an
entry
relating
to
the
date
but
could
not
find
any.
After
Prairie
Cereals
Ltd.
sold
its
assets
to
Martin
&
Robertson
Ltd.
and
Prairie
Maid
Cereals
Ltd.
the
appellant
became
the
general
manager
of
Prairie
Maid
Cereals
Ltd.
at
$500
per
month
and
2
per
cent
of
the
profits
together
with
car
allowances
and
travelling
expenses.
Before
this
time
he
had
in
fact
become
the
general
manager
of
Prairie
Cereals
Ltd.
although
his
official
title
remained
that
of
sales
manager.
There
is
conflicting
evidence
on
when
he
left
the
employment
of
Prairie
Cereals
Ltd.
On
his
direct
examination
he
said
that
he
worked
for
the
Company
until
approximately
the
month
of
May,
1956,
and
later
that
he
left
it
on
approximately
May
1,
1956.
On
his
cross-examination,
he
said
that
he
continued
to
work
for
Prairie
Cereals
Ltd.
up
to
April
1,
1956,
or
May
1,
1956,
and
that
he
ceased
to
have
anything
to
do
with
it
after
that
date.
This
statement
is
not
correct.
There
are
several
reasons
for
so
finding.
Prairie
Maid
Cereals
Ltd.
was
not
registered
in
Alberta
until
some
time
in
May
and
the
sale
of
the
assets
of
Prairie
Cereals
Ltd.
to
Martin
&
Robertson
Ltd.
and
Prairie
Maid
Cereals
Ltd.
was
not
concluded
until
May
15,
1956.
Moreover,
one
of
the
two
T.4
slips
which
the
appellant
attached
to
his
income
tax
return
for
1956
showed
that
his
salary
had
been
paid
by
Prairie
Cereals
Ltd.
of
9411
-
143rd
St.,
Edmonton,
Alta,
for
five
months
of
1956
and
that
he
had
been
employed
by
it
for
such
five
months.
There
is
the
further
important
fact
that
on
his
income
tax
return
for
1956
he
stated
that
he
was
‘‘
Employed
by
Prairie
Cereals
Ltd.,
Edmonton,
Alberta—till
September
30,
1956”
and
that
he
certified
that
the
information
given
in
the
return
was
true.
Indeed,
the
evidence
indicates
that
while
the
appellant
was
paid
by
Prairie
Maid
Cereals
Ltd.
for
the
four
months
of
June,
July,
August
and
September,
1956
at
$500
per
month
as
shown
by
his
other
T.4
slip
he
continued
to
carry
on
with
Prairie
Cereals
Ltd.,
which
continued
in
business.
In
his
opinion,
there
was
a
continuity
of
employment
but
in
a
different
capacity.
For
all
practical
purposes
he
continued
doing
the
same
things
as
he
did
before.
Indeed,
even
as
late
as
October
31,
1960,
at
the
hearing
before
the
Tax
Appeal
Board
he
stated
“I
was
still
employed
by
what
I
thought
was
the
same
company’’.
On
August
3,
1956,
he
sent
in
his
resignation
as
manager
of
Prairie
Maid
Cereals
Ltd.
but
agreed
to
continue
to
act
as
manager
until
suitable
arrangements
could
be
made.
There
is
no
evidence
of
when
he
resigned
from
Prairie
Cereals
Ltd.
and
it
is
not
unreasonable
to
assume
that
he
carried
on
with
it,
although
he
was
paid
by
Prairie
Maid
Cereals
Ltd.,
until
he
went
to
United
Brokers
in
Saskatoon
some
time
after
his
letter
of
August
3,
1956.
As
already
stated,
the
Minister
in
assessing
the
appellant
for
1956
added
$33,200
to
the
amount
of
income
reported
by
him
on
his
income
tax
return
for
the
year,
this
being
$1,400
less
than
the
amount
of
$34,600
which
he
had
received
from
Prairie
Cereals
Ltd.,
the
said
amount
of
$1,400
being
the
cash
surrender
value
of
the
life
insurance
policy
referred
to.
The
issue
in
the
appeal
is
whether
the
said
amount
of
$33,200
was
properly
included
in
the
assessment
under
appeal.
It
was
contended
on
behalf
of
the
Minister
that
the
amount
was
income
within
the
meaning
of
Sections
3,
5
and
25
of
the
Act.
Section
3
reads
as
follows:
“3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purposes
of
this
Part
is
his
income
for
the
year
from
all
sources
inside
or
outside
Canada
and,
without
restricting
the
generality
of
the
foregoing,
(a)
businesses,
(b)
property,
and
(c)
offices
and
employments.”
and
the
relevant
portion
of
Section
5
provides:
“5.
Income
for
a
taxation
year
from
an
office
or
employment
is
the
salary,
wages
and
other
remuneration,
including
gratuities,
received
by
the
taxpayer
in
the
year
..
.’’
and
Section
25
sets
out
the
circumstances
under
which
an
amount
received
by
one
person
from
another
shall
be
deemed,
for
the
purposes
of
Section
5,
to
be
remuneration
for
the
payee’s
services
rendered
as
an
officer
or
during
the
period
of
employment.
It
is
in
the
following
terms:
“25.
An
amount
received
by
one
person
from
another,
(a)
during
a
period
while
the
payee
was
an
officer
of,
or
in
the
employment
of,
the
payer,
or
(b)
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
an
obligation
arising
out
of
an
agreement
made
by
the
payer
with
the
payee
immediately
prior
to,
during
or
immediately
after
a
period
that
the
payee
was
an
officer
of,
or
in
the
employment
of,
the
payer,
shall
be
deemed,
for
the
purpose
of
section
5,
to
be
remuneration
for
the
payee’s
services
rendered
as
an
officer
or
during
the
period
of
employment,
unless
it
is
established
that,
irrespective
of
when
the
agreement,
if
any,
under
which
the
amount
was
received
was
made
or
the
form
or
legal
effect
thereof,
it
cannot
reasonably
be
regarded
as
having
been
received
(i)
as
consideration
or
partial
consideration
for
accepting
the
office
or
entering
into
the
contract
of
employment,
(ii)
as
remuneration
or
partial
remuneration
for
services
as
an
officer
or
under
the
contract
of
employment,
or
(iii)
in
consideration
or
partial
consideration
for
covenant
with
reference
to
what
the
officer
or
employee
is,
or
is
not,
to
do
before
or
after
the
termination
of
the
employment.”
In
my
opinion,
the
agreement
of
March
28,
1955,
was,
so
far
as
the
appellant
and
Prairie
Cereals
Limited
were
concerned,
a
contract
of
employment
of
the
appellant
by
Prairie
Cereals
Limited
as
its
sales
manager
in
Canada,
on
the
terms
and
conditions
set
out
in
the
agreement.
Under
this
contract
of
employment
the
appellant
was
entitled
to
the
remuneration
for
his
services
as
an
officer
of
and
in
the
employment
of
Prairie
Cereals
Limited
as
set
out
in
the
agreement.
Apart
from
the
specific
payments
to
which
the
appellant
was
entitled
that
were
specified
in
paragraph
1
he
also
had
the
right
specified
in
the
proviso
of
paragraph
2,
namely,
that
the
Company
should
not
sell
its
undertaking
and
entire
assets
without
first
giving
him
30
days
notice
of
its
intention
to
effect
such
sale,
the
notice
to
specify
the
sale
price
and
terms
of
payment
and
that
thereupon
he
should
have
the
first
prior
and
pre-emptive
right
for
the
said
30
days
to
purchase
the
said
assets
at
90
per
cent
of
the
price
mentioned
in
the
notice
on
terms
no
less
favourable
than
those
set
out
in
the
said
notice.
This
right
was
as
much
part
of
the
consideration
for
accepting
the
office
of
sales
manager
and
entering
into
the
contract
of
employment
and
as
much
remuneration
for
his
services
as
an
officer
or
under
the
contract
of
employment
as
any
of
the
payments
specified
in
paragraph
1
of
the
agreement.
I
now
come
to
the
contention
advanced
on
behalf
of
the
Minister
that
Section
25
of
the
Act
is
applicable
to
the
facts
of
the
case
and
that
the
amount
of
$34,600
received
by
the
appellant
from
Prairie
Cereals
Ltd.
should
be
deemed
for
the
purpose
of
Section
5
to
be
remuneration
for
the
appellant’s
services
rendered
as
an
officer
or
during
the
period
of
employment.
The
first
enquiry
is
whether
the
amount
was
received
during
a
period
while
the
appellant
was
an
officer
of,
or
in
the
employment
of
Prairie
Cereals
Ltd.
I
have
already
set
out
the
evidence
relating
to
the
date
when
the
amount
was
received
by
the
appellant
and
the
conflicting
evidence
on
when
he
left
the
employment
of
Prairie
Cereals
Ltd.
It
could,
in
my
opinion,
be
reasonably
found
on
the
evidence
that
the
amount
was
received
by
the
appellant
from
Prairie
Cereals
Ltd.
during
a
period
while
he
was
an
officer
of
and
in
its
employment
within
the
meaning
of
paragraph
(a)
of
Section
25.
Certainly,
the
appellant
has
failed
to
establish
that
the
amount
was
received
by
him
after
he
had
ceased
to
be
an
officer
of
or
in
the
employment
of
Prairie
Cereals
Ltd.
But,
in
any
event,
the
facts
bring
the
case
within
the
ambit
of
paragraph
(b)
of
Section
25.
The
amount
of
$34,600
was
in
satisfaction
of
the
obligation
arising
out
of
the
agreement
made
by
Prairie
Cereals
Ltd.
with
the
appellant,
dated
April
12,
1956,
which
implemented
the
offer
made
in
the
letter
of
March
1956,
and
its
acceptance.
The
agreement
was,
therefore,
made
during
the
period
that
the
appellant
was
an
officer
of
and
in
the
employment
of
Prairie
Cereals
Ltd.
under
the
circumstances,
the
amount
should
be
deemed,
for
the
purpose
of
Section
5,
to
be
remuneration
for
the
appellant’s
services
rendered
as
an
officer
or
during
the
period
of
employment
unless
the
conditions
specified
in
subparagraphs
(i),
(11)
or
(iii)
are
established.
In
my
opinion,
the
specified
conditions
cannot
be
established.
The
amount
paid
in
satisfaction
of
the
obligation
arising
out
of
the
agreement
of
April
12,
1956,
relates
back
to
the
appellant’s
prior
and
preemptive
right
under
the
agreement
of
March
28,
1955,
and
was
made
in
payment
of
it.
It
can,
therefore,
be
reasonably
regarded
as
having
been
received
by
the
appellant
as
partial
consideration
for
his
acceptance
of
the
office
of
sales
manager
of
Prairie
Cereals
Limited
and
entering
into
the
contract
of
employment
of
March
28,
1955,
or
as
partial
remuneration
for
his
services
as
an
officer
of
Prairie
Cereals
Limited
or
under
his
contract
of
employment.
Under
the
circumstances,
I
find
that
Section
25
is
applicable
in
the
present
case
and
that
the
amount
received
by
the
appellant
from
Prairie
Cereals
Ltd.
should
be
deemed,
for
the
purpose
of
Section
5,
to
be
remuneration
for
the
appellant’s
services
rendered
as
an
officer
of
Prairie
Cereals
Ltd.
or
during
his
period
of
employment
with
it,
and,
therefore,
taxable
under
the
Act.
It
was
contended
for
the
appellant
that
the
value
of
the
life
insurance
policy
was
greater
than
the
sum
of
$1,400
which
was
its
cash
surrender
value
and
he
put
it
at
$10,000.
There
is
no
support
for
this
valuation.
There
is
no
doubt
that
the
value
of
the
life
insurance
policy
which
the
appellant
agreed
to
surrender
was
taken
into
account
when
the
amount
of
$34,600
was
arrived
at
but
there
was
no
apportionment
of
it
between
the
life
insurance
policy
and
the
prior
and
preemptive
right
of
the
appellant
and
there
was
never
any
discussion
about
its
value.
There
is
no
reason
why
any
larger
amount
than
$1,400
should
be
deducted
from
the
$34,600
which
the
appellant
received
from
Prairie
Cereals
Ltd.
Only
one
other
item
remains.
It
was
contended
for
the
appellant
that
he
was
entitled
to
relief
under
Section
36(1)
(b)
of
the
Act
on
the
ground
that
the
payment
made
by
Prairie
Cereals
Ltd.
to
the
appellant
was
in
respect
of
loss
of
office
or
employment.
The
evidence
does
not
support
this
contention.
For
the
reasons
given
I
am
of
the
opinion
that
the
Minister
was
right
in
assessing
the
appellant
for
1956
as
he
did
and
I
so
find.
It
follows
that
the
appeal
herein
must
be
dismissed
with
costs.
Judgment
accordingly.
Email this Content