Tax Court of Canada Judgments

Date: 19991108

Docket: 98-1355-IT-G

BETWEEN:

PAVEL BURE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

McArthur J.T.C.C.

[1] In the 1996 taxation year, the Minister of National Revenue added the sum of $339,375 as a taxable benefit to the income of Pavel Bure. This amount had been paid by the Vancouver Hockey Club Ltd. (the Canucks) to an agent, Ronald Salcer. The issue is whether that amount was a benefit received or enjoyed by the Appellant pursuant to paragraph 6(1)(a) of the Income Tax Act. The question boils down to whether Ronald Salcer was the agent for the Appellant.

[2] The Appellant came to North America from the Soviet Union in 1991 to play hockey in the National Hockey League (NHL). He contacted a family friend, Serge Lavin, and Mr. Lavin's partner, Ronald Salcer, who were agents for NHL players. Through these agents, he signed a three-year $600,000 contract with the Canucks but he was never happy with that contract. The Canucks held the upper hand because they defended, on the Appellant's behalf, an action by the Russian Hockey Federation to prevent the Appellant from playing in the NHL and also because the Appellant was somewhat of an unknown. The Appellant did not personally pay anything to Lavin and Salcer for their services. After his first year, he won the rookie of the year award and was upset that the Cancuks would not renegotiate his contract. In 1993, he informed Mr. Salcer and Pat Quinn, the general manager and coach of the Canucks, that he wished to be traded.

[3] In April 1994, the Appellant read in the local newspaper that Mr. Griffiths, an owner of the Canucks, stated that because Mr. Bure was a player who would attract fans to the game, the Canucks were under pressure to re-sign him and that they would have to open their cheque book to him. Mr. Salcer called the Appellant and asked him if he would stay for a five-year contract worth US$25 million. The Appellant asked Mr. Salcer if he could get him that figure somewhere else and he was told that it was unlikely. Therefore, the Appellant agreed to stay in Vancouver under those terms, but advised Mr. Salcer that the US$25 million was to be his and his alone.

[4] On June 6, 1994, Pavel Bure and Pat Quinn, acting for the Canucks, signed the NHL Standard Player's Contract for US$25 million which also consisted of a special addendum negotiated in favour of the Appellant. A second contract was signed at the same time by Mr. Quinn and Mr. Salcer, in the presence of Mr. Bure. This second contract stipulated that the Canucks would pay US$250,000 per year for five years in agent's fees to Mr. Salcer on the Appellant's behalf. These fees amount to 5% of the Appellant's contract. It was submitted at trial that the average for agent fees for similar services is 1% to 3% of the player's contract. The Appellant claims that he was not aware of this second contract until he received his 1996 T4 slip. According to Mr. Bure, not a word had been mentioned until the Canucks added the C$339,325 as a taxable benefit in his 1996 T4 slip.

[5] The Appellant had not included the amount paid to Mr. Salcer by the Canucks in his income tax return. He was not challenged for the 1994 and 1995 taxation years but, on June 19, 1997, by Notice of Assessment, the Minister included the 1996 amount as a taxable benefit. The Appellant claims that there was no provision in his contract for the Canucks to pay his agent fees. Furthermore, paragraph 21 of his contract read in part as follows:

It is severally and mutually agreed ... that this agreement contains the entire agreement between the parties and there are no oral or written inducements, promises or agreements except as provided herein.

[6] Pat Quinn testified on behalf of the Minister and stated that he was coaching the Canucks in 1994 and had little to do with the negotiating of the US$25 million contract. He signed this contract with the Appellant together with the contract with Mr. Salcer upon direction from Mr. Griffiths, an owner of the Canucks. Mr. Quinn, who was an impressive witness, believed Mr. Salcer to be the Appellant's agent. The demands on behalf of the Appellant were made by Mr. Salcer. In 1998, the Appellant left the Canucks and is now playing for the Florida Panthers. It is unfortunate that Mr. McPhee of the Canucks who apparently negotiated with Mr. Salcer, as well as Mr. Salcer were not called to testify.

Submissions of the Appellant

[7] The Appellant submits that he gained no benefit from Mr. Salcer's efforts and that if Mr. Salcer was an agent for anyone, he was an agent for the Canucks. He states that the payment made by the Canucks to Mr. Salcer was not made pursuant to any term or implied term of the contract of employment between the Appellant and the Canucks, but rather was made pursuant to a contract between the Canucks and Ron Salcer, of which the Appellant was unaware. The Appellant further states that in order for the amount in issue to be taxed in his hands, that amount must have been made pursuant to his contract of employment.

Submissions of the Respondent

[8] Obviously, the Canucks viewed Mr. Salcer as the Appellant's agent when they provided the Appellant with a 1996 T4 which is the subject of this appeal. The contract with Mr. Salcer[1] reads as follows:

This letter will acknowledge the Club's agreement in consideration for consulting and business services currently rendered in connection with negotiating Pavel Bure's contract to pay Talent Management Enterprises – Ronald Salcer, the sum of One Million Two Hundred and Fifty Thousand (U.S. $1,250,000.00) U.S. dollars (the "Fee") which is equal to approximately five percent (5%) base salary payable under Pavel Bure's contract, such amount being paid on player's behalf. Any amounts paid to Talent Management Enterprises – Ronald Salcer under this Agreement shall not be deducted from, or offset against, any amounts due to Pavel Bure under his contract with the Vancouver Hockey Club Ltd. The fee shall be payable in five (5) equal instalments of Two Hundred Fifty Thousand (U.S. $250,000.00) U.S. dollars each on or before the fifteenth (15th) day of October in each of the years 1994-1998, inclusive and shall be owing, due and payable even in the event Pavel Bure and/or his contract have been traded or assigned to another club prior to the full payment of the sums due Talent Management Enterprises – Ronald Salcer.

Analysis

[9] I have no difficulty concluding that Mr. Salcer was the agent for the Appellant for the following reasons:

(i) It is common ground that Mr. Salcer was the Appellant's agent in 1991;

(ii) The Appellant held out Mr. Salcer as his agent giving him instructions to get him US$25 million together with other benefits;

(iii) The 1994 contract did not happen in a vacuum. He left negotiations with the Canucks to Mr. Salcer;

(iv) It is far fetched and against accepted practice to believe that Mr. Salcer was the agent for the Canucks;

(v) From the evidence of Pat Quinn, he believed Mr. Salcer to be the Appellant's agent;

(vi) The contract between Mr. Salcer and the Canucks, signed in the Appellant's presence states: " ... such amount being paid on player's behalf";

(vii) The fact that a 1996 T4 was issued to the Appellant supports the position that the Canucks considered that the Appellant was receiving a benefit from Mr. Salcer's efforts;

(viii) There were no discussions directly between the Appellant and the Canucks about his salary; and finally,

(ix) The following excerpts from the Appellant's cross-examination make it clear that he knew Mr. Salcer was his agent:

Q. Now, Mr. Salcer, in 1994, when he acted for you in 1994 in discussing the new contract with the Vancouver hockey club, you're saying that you have no formal written agreement with Mr. Salcer; is that right?

A. Yes.

Q. And you're saying that the verbal arrangement that you had with Mr. Salcer is that he was to be your agent for the purpose of negotiating the terms of the contract for services with the Vancouver hockey club; is that correct?

A. Yes.[2]

...

Q. Did you at any time tell Mr. Salcer that you weren't going to pay him one cent for his services?

A. No.

Q. What instructions did you give to Mr. Salcer concerning the contract that you wanted for Pavel Bure?

A. I was telling him the way he should talk to management.[3]

...

Q. Mr. Salcer never advised you at any time that he had made arrangements for his fees to be paid by the Vancouver hockey club?

A. He did mention.

Q. He did mention. So you were aware at some time before Mr. Salcer commenced negotiations, or sometime between 1991 and 1993, that Salcer's fees for negotiating your contract in 1991 had been paid by the Vancouver hockey club?

A. That's what I had been told.[4]

[10] In addition to being a great hockey player, the Appellant is an intelligent person. He gave instructions to Mr. Salcer who had previously represented him in 1991. He knew personal agents were paid. I find as a fact that the Appellant knew that Mr. Salcer was his agent and was being paid by the Canucks because he wanted the US $25 million for himself without any deduction to pay Mr. Salcer. What he probably did not realize was that the Canucks would issue a T4 slip and that the Minister would add the amount to his taxable income. To say that he did not know Mr. Salcer was negotiating on his behalf is more than I can accept. The Appellant did admit that he knew that the Canucks were paying Mr. Salcer's fees prior to his signing the contract. Why else would both contracts be signed at the same time in the presence of both the Appellant and Mr. Salcer?

[11] As mentioned above, clause 21 of the Appellant's contract which states:

It is severally and mutually agreed ... that this agreement contains the entire agreement between the parties and there are no oral or written inducements, promises or agreements except as provided herein.

may create a presumption against the existence of collateral contracts. This presumption was clearly rebutted. There was a collateral agreement. The Appellant knew it and was present when Mr. Salcer and Mr. Quinn signed it. This reality cannot be ignored.

[12] The Appellant submitted that to include an amount under paragraph 6(1)(a) of the Act, the amount must be "other remuneration" pursuant to subsection 5(1) of the Act. He stated there must be a contract of employment between the Canucks and himself. Paragraph 6(1)(a) reads in part 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 received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit ...    Emphasis added

The question narrows down to whether the fees paid by the Canucks to the Appellant's agent, Ron Salcer, are benefits. It is clear from paragraph 6(1)(a) that "an amount" shall include the value of "other benefits of any kind whatsoever". The Appellant did not make the payment himself, but he received or enjoyed the benefit of the Canucks having made it for him. Mr. Salcer was not working pro bono and he was working for the Appellant. The contract between the Appellant and the Canucks was entered into as a result of negotiations by Mr. Salcer on the Appellant's behalf. The Appellant knew Mr. Salcer had to be paid and that is why he stipulated he wanted US$25 million clear for himself. I cannot agree with the Appellant that the Minister should have called Mr. Salcer to give evidence. The Appellant bears the onus of proof.

[13] The Appellant cited several cases in support of his position that the payment by the Canucks to Mr. Salcer was not a benefit to him within the meaning of paragraph 6(1)(a) of the Act. These cases include: McNeill v. The Queen,[5] Ransom v. M.N.R.,[6]and Phaneuf Estate v. M.N.R.[7] The McNeill and Ransom cases are easily distinguished from the present facts. In those cases, the Court found that the taxpayers did not receive a benefit because a payment to them restored them to the same situation as they were before they were transferred. In the Phaneuf Estate case, the Court found that the payment at issue was a testamentary disposition. Had the Canucks not paid Mr. Salcer, the Appellant would have had to pay his agent with after-tax dollars. The parties agree that such payment would not be tax deductible by the Appellant.

[14] The Supreme Court of Canada had the opportunity to interpret the meaning of "benefit" in The Queen v. Savage.[8] The Court adopted a very broad interpretation and Dickson J. on behalf of the majority, stated:

... Our Act contains the stipulation, not found in the English statutes referred to, "benefits of any kind whatever ... in respect of, in the course of, or by virtue of an office or employment". The meaning of "benefit of whatever kind" is clearly quite broad; ...

Furthermore, Dickson J., along with the majority, adopted the view of the Court in R v. Poynton,[9] where the Court said :

I do not believe the language to be restricted to benefits that are related to the office or employment in the sense that they represent a form of remuneration for services rendered. If it is a material acquisition which confers an economic benefit on the taxpayer and does not constitute an exemption, e.g., loan or gift, then it is within the all-embracing definition of s. 3. ...

While Interpretation Bulletins are not binding on this Court and must be viewed carefully, Interpretation Bulletin IT-168R3[10] makes the following persuasive statement:

1. For tax purposes, a player's income from employment includes any of the following items received in respect of employment:

...

(j) payments made by a club on a player's behalf that would otherwise be a non-deductible expense to the player, such as agents' fees, legal fees, income taxes, fines, etc.,

[15] I cannot accept the submission of counsel for the Appellant that I must accept the Appellant's uncontradicted evidence. Firstly, I conclude that Mr. Quinn contradicted the Appellant's evidence that Mr. Salcer did not represent him but represented the Canucks. Mr. Quinn stated that he signed the contract with Mr. Salcer understanding that the Canucks were paying the fees. Secondly, in Gupta v. The Queen,[11] Strayer J. stated that the Court was not obliged to accept the evidence of a witness as long as that witness was cross-examined. The Court can reject evidence based on the credibility of the witness.

[16] Having found that the Appellant is required to include the benefit of his agent's fees in his 1996 income, I will deal with the question of whether all of the amount is to be considered a benefit. I do not accept the Appellant's evidence that he did not know anything about fees being paid to Mr. Salcer. Given all of the evidence, this defies reality and common sense. Mr. Quinn stated that the going rate for the services rendered by an agent in similar circumstances would be between 2% and 3% of the contract which in the present instance was US$25 million. He added that a fee of 5% was not unheard of and he believed that Alan Eagleson received 5% for similar services. The Appellant stated that for a player of his calibre, the fee would be closer to 1% and Mr. Salcer could have been working without compensation because of the publicity value in negotiating a contract for such a high profile player. There was no corroboration for this self-serving statement.

[17] The question is was the benefit received something less than 5%. I think not. Mr. Salcer was the Appellant's agent and the Appellant knew that his agent would be paid, not by him, but by the Canucks. He may not have cared how much his agent was paid. He may have been wilfully blind as to the consequences of the agency agreement. He was not aware of subsection 6(1) of the Income Tax Act. His concern was US$25 million in his pocket and he knew his agent had to be paid. He cannot hide from the logical conclusion arising from his own actions, and that is that Mr. Salcer is going to seek payment from the Canucks as he did in 1991. Surely, he cannot avoid taxes by lack of concern. I find as a fact that he knew Mr. Salcer was being paid by the Canucks and he was present when Mr. Quinn and Mr. Salcer executed the payment contract. It is uncertain that he was aware of how much Mr. Salcer was being paid although I find on a balance of probabilities, given all of the circumstances, that he knew how much Mr. Salcer was being paid for acting on his behalf.[12]

[18] In any event, not knowing exactly how much his agent was receiving is no defence. He ought to have known how much was being paid on his own behalf. Had the Canucks not paid Mr. Salcer, the Appellant would have been liable to pay him and it is too late for the Appellant to say that the Canucks paid his agent too much.

[19] In conclusion, in computing the Appellant's income for the 1996 taxation year, the Minister properly included the amount of $339,375 as a benefit received or enjoyed by the Appellant during that taxation year pursuant to paragraph 6(1)(a) of the Act. The appeal is dismissed, with costs.

Signed at Ottawa, Canada, this 8th day of November, 1999.

"C.H. McArthur"

J.T.C.C.

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