A-282-05
BETWEEN:
and
DUSTIN MORIN
Heard at Vancouver, British Columbia, on January 16, 2006.
Judgment delivered at Vancouver, British Columbia, on January 19, 2006.
REASONS FOR JUDGMENT BY: MALONE J.A.
CONCURRED IN BY: ROTHSTEIN, SHARLOW JJ.A.
Date: 20060119
Docket: A-283-05
A-282-05
Citation: 2006 FCA 25
CORAM: ROTHSTEIN J.A.
SHARLOW J.A.
MALONE J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
DUSTIN MORIN
Respondent
REASONS FOR JUDGMENT
Introduction
[1] This appeal canvasses the scope of subparagraph 7(1)(a)(iii) of the Income Tax Act R.S.C. 1985, c.1 (5th Suppl.) (the Act). The question on appeal is whether the amount of an employee's taxable stock option benefit under section 7 may be reduced by an amount paid by the employee
for employment consulting and counselling services where those services successfully directed the taxpayer to an employment opportunity which included the employee stock option benefit plan.
[2] Paragraph 7(1)(a) reads as follows:
| 7. (1) Subject to subsections (1.1) and 8 where a particular qualifying person has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm's length) to an employee of a particular qualifying person (or of a qualifying person with which it does not deal at arm's length),
(a) if the employee has acquired securities under the agreement, a benefit equal to the amount, if any, by which (i) the value of the securities at the time the employee acquired them exceeds the total of (ii) the amount paid or to be paid to the particular qualifying person by the employee for the securities, and (iii) the amount, if any, paid by the employee to acquire the right to acquire the securities is deemed to have been received, in the taxation year in which the employee acquired the securities, by the employee because of the employee's employment.
[emphasis added] |
7. (1) Sous réserve des paragraphes (1.1) et (8), lorsqu'une personne admissible donnée est convenue d'émettre ou de vendre de ses titres, ou des titres d'une personne admissible avec laquelle elle a un lien de dépendance, à l'un de ses employés ou à un employé d'une personne admissible avec laquelle elle a un lien de dépendance, les présomptions suivantes s'appliquent:
a) l'employé qui a acquis des titres en vertu de la convention est réputé avoir reçu, en raison de son emploi et au cours de l'année d'imposition où il a acquis les titres, un avantage égal à l'excédent éventuel de la valeur des titres au moment où il les a acquis sur le total de la somme qu'il a payée ou doit payer à la personne admissible donnée pour ces titres et de la somme qu'il a payée pour acquérir le droit d'acquérir les titres;
[soulignement est le mien]
|
Issue
[3] A judge of the Tax Court of Canada, in a decision reported at 2005 TCC 324, allowed the respondent to deduct the amount he paid for employment and counselling services under subparagraph 7(1)(a)(iii). The judge stated: "Both the plain meaning approach and the total context approach indicate that subparagraph 7(1)(a)(iii) should be broadly interpreted to include any expense that the [respondent] paid for the purpose of and as it related to obtaining the stock option." The Minister of National Revenue (Minister) asserts on appeal that the Tax Court judge erred in finding that the amounts paid to acquire an option under that subparagraph can include amounts paid to a third party for something other than title, or the incidents of title, to the option itself.
Facts
[4] The facts, briefly stated, are these:
(a) While attending school in 1993, the respondent met Robert Tordiffe, the father of one of his school friends and asked Mr. Tordiffe to help him pursue a career in the advanced technology industry, specifically with a company that would offer employee stock options. Mr. Morin and Mr. Tordiffe's consulting firm, Bobsan Investments Inc. (Bobsan), entered into a written agreement that called for the respondent to pay Bobsan 100% of the first $100,000 of the value of stock options received and 33% of the second $100,000 of the value of stock options received from any employment resulting from the recommendations of Bobsan.
(b) The service provided by Bobsan under this agreement was essentially giving Mr. Morin a list of potential employers that Mr. Tordiffe felt he should contact to explore employment opportunities. The respondent met with several of the potential employers from that list and accepted a position with Westport Research Inc. (Westport). His remuneration package with Westport included an employee stock option benefit plan, which he eventually exercised through a broker, instructing the broker to pay Bobsan the amounts due under the agreement.
(c) The respondent did not acquire any stock options from Bobsan and the payments to Bobsan were not in exchange for Bobsan transferring stock options to the respondent. The respondent paid Bobsan $82,710.05 in 2000 and $50,662.95 in 2001 pursuant to the agreement but the respondent did not pay any money for his options or upon the exercise of his options.
(d) Mr. Morin deducted from his income in 2000 and 2001 amounts in respect of the payments made to Bobsan. The Minister disallowed these deductions on the basis that subparagraph 7(1)(a)(iii) of the Act did not permit such a deduction. The respondent appealed the Minister's reassessment to the Tax Court.
Standard of Review
[5] The issue under appeal is the meaning of subparagraph 7(1)(a)(iii) of the Act. Statutory interpretation is a question of law; therefore the appropriate standard of review is one of correctness (see Housen v. Nikolaisen, [2002] 2 S.C.R. 235).
Analysis
[6] The Supreme Court of Canada has repeatedly held that where the income tax provision at issue is clear and unambiguous its terms must simply be applied (see Shell Canadav. The Queen, [1999] 3 S.C.R. 622 at paragraph 40; Continental Bank Leasing Corp. v. Canada, [1998] 2 S.C.R. 298 at paragraph 51; Tenant v. M.N.R., [1996] 1 S.C.R. 305 at paragraph 16; Canada v. Antosko, [1994] 2 S.C.R. 312 at pages 326-327 and 330; Friesen v. Canada, [1995] 3 S.C.R. 103 at paragraph 11).
[7] Furthermore, in applying the principles of interpretation to the Act, courts must be mindful of its complexities and should be reluctant to embrace unexpressed notions of policy or principle in the guise of statutory interpretation (see 65302 British Columbia Ltd. v. The Queen, [1999] 3 S.C.R. 804 at paragraph 51 per Iacobucci J.)
[8] In interpreting subparagraph 7(1)(a)(iii), the key inquiry is what is the ordinary meaning of the words "the amount, if any, paid by the employee to acquire the right to acquire the securities" and in particular the word 'acquire'.
[9] Standard dictionary definitions of the word 'acquire' make reference to the passing of title or the incidents of title, i.e.: "to gain control of; to get or obtain; gain by and for oneself; obtain". In essence, an element of beneficial interest or ownership must exist, a concept which also runs through the existing case law.
[10] In considering when the property is acquired for the purposes of the Act, our courts have held that property is acquired when title has passed or when the purchaser has all the incidents of title, such as possession, use and risk (see MNR v. Wardean Drilling Ltd., 69 D.T.C. 5194 (Ex CR) at pages 5197-5198; Kirsch Construction Ltd. v. MNR, 88 D.T.C. 6503 (FCTD) at paragraph 5). Therefore, an amount paid to acquire property is an amount paid in exchange for title to the property or in exchange for the incidents of title.
[11] In applying these definitions to the facts of this case, it is apparent that the payments made by Mr. Morin were not made to acquire the stock options. Bobsan did not transfer title or the incidents of title to the respondent in exchange for the payments. Mr. Morin did not purchase any of his stock options from Bobsan and the payments he made were not in exchange for stock options. He received the stock options directly from his employer, Westport, and was not required to pay any money to Westport for the options. Bobsan had no relationship with Westport and no rights over the options. The respondent would have received the options from Westport even if he had failed to pay Bobsan. On these facts, I am unable to conclude that the payments to Bobsan fall within the ordinary meaning of the words of subparagraph 7(1)(a)(iii).
[12] This conclusion is buttressed by a consideration of the broader statutory context. Expenses incurred in the course of searching for employment, including amounts paid to a consultant, are not deductible from employment income under section 8 of the Act. Subsection 8(2) limits such deductions to only those specifically enumerated in the section. By allowing a deduction under
subparagraph 7(1)(a)(iii) the Tax Court Judge permitted Mr. Morin to indirectly circumvent subsection 8(2).
[13] While I have great sympathy for Mr. Morin's predicament, he entered into a business arrangement and exposed himself to tax liability on his entire employment income despite using a large portion of his stock option benefit it to pay Bobsan for consulting services.
[14] I would allow the appeal, set aside the decision of the Tax Court of Canada and restore the reassessments of the Minister. In the circumstances, I would not award costs.
(Sgd.) "B. Malone"
J.A.
"I agree" (Sgd.) "Marshall E. Rothstein"
J.A.
"I agree" (Sgd.) "Karen R. Sharlow"
J.A.
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-282-05 and A-283-05
STYLE OF CAUSE: Her Majesty The Queen v. Dustin Morin
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: January 16, 2006
REASONS FOR JUDGMENT: ROTHSTEIN, SHARLOW, MALONE JJ.A
DATED: January 19, 2006
APPEARANCES:
|
Mr. Bruce Senkpiel |
FOR THE APPELLANT
|
| FOR THE RESPONDENT |
SOLICITORS OF RECORD:
|
Deputy Attorney General of Canada Vancouver, BC |
FOR THE APPELLANT |