Jack Appleby (Appellant)
v.
Minister of National Revenue (Respondent)
Court of Appeal, Jackett C.J., Thurlow and
Cameron JJ.—Ottawa, June 19, 1972.
Income tax—Exemption of profit on shares received under
grub-stake arrangement—Shares received by controlling
shareholder of brokerage company—Shares sold in sales
campaign of brokerage company—Whether shareholder enti
tled to exemption—Income Tax Act, section 83(3) and (4).
A received shares of certain companies under a grub
stake arrangement and sold the shares at a profit which fell
within the exemption of section 83(3) of the Income Tax
Act. The shares were, however, sold in the course of a sales
campaign carried on by a brokerage company of which A
was sole beneficial shareholder, a director, president and
the person who dominated and directed its business.
Held, section 83(4) applied to disentitle A to the exemp
tion conferred by section 83(3). An officer or employee
who in the course of his duties carries on a campaign to sell
shares is in fact personally carrying on that campaign even
though he does so as part of his employer's business
activities.
INCOME tax appeal.
F. E. LaBrie for appellant.
J. Scollin, Q.C., and P. J. Crump for
respondent.
The judgment of the Court was delivered by
THURLOW J.—The issue in this appeal is
whether, on facts which are not in dispute, the
dispositions made by the appellant of certain
shares in three companies were made by him
while or after carrying on a campaign to sell
shares of these companies to the public within
the meaning of section 83(4) of the Income Tax
Act. If so, the effect of the subsection is to
deny the appellant the exemption from tax pro
vided by section 83(3) on the profits realized on
the sale of the shares.
It is common ground that the shares were
sold at a time when a campaign to sell shares of
the three companies to the public was in prog
ress and that in all three cases the campaign
was being carried on by J. Appleby Securities
Limited, a company engaged in business as a
broker dealer, distributor and underwriter of
which the appellant himself was, at all material
times, the sole beneficial shareholder, a direc
tor, the president and the person who dominat
ed and directed its business.
There seems to be no room to doubt that if
the appellant had carried out on his own
account and in his own name the campaign for
the sale of shares in the three companies to the
public, or if J. Appleby Securities Limited had
been the person who advanced the money for
prospecting and the recipient of the shares
referred to in section 83(3), section 83(4) would
apply to defeat the claim of either for exemp
tion of the profits from the sale of the shares
from tax. The question to be resolved is accord
ingly whether in the circumstances of this case
either (1) the fact that the campaign was carried
on by J. Appleby Securities Limited or (2) the
fact that the campaign was not carried out as a
business operation of the appellant himself
serves to render section 83(4) inapplicable.
It is, we think, to be observed that, while the
application of section 83(4) requires that the
campaign be carried on by the person who
would otherwise be entitled to exemption under
section 83(3), the question which arises on sec
tion 83(4) is not one of resolving which of two
persons involved in such a campaign carried it
on, or for whose account or in whose name it
was carried on or who was the principal and
who was agent for him. Rather it is a straight
forward question of whether the person seeking
exemption under section 83(3) carried on a
campaign for the sale of shares of the compa
nies to the public. In seeking an answer to this
question it could not, we think, be successfully
maintained that each of several persons
involved in jointly carrying on such a campaign
was not a person by whom the campaign was
carried on. It would, in our view, be equally
untenable to suggest that a father who directed
the carrying on of such a campaign by his minor
son and in so doing personally supervised and
directed the transactions, even to the signing of
his son's name to documents, was not himself
carrying on a campaign for the sale of shares of
the company to the public. The circumstance
that the father had shares of his own to sell and
sold them in the course of the campaign would
in our opinion make the suggestion even less
tenable.
There is, in our view, little to differentiate the
present from such a situation and in our opinion
it would be difficult to conceive of a less sub
stantial or more artificial reason for concluding
that the appellant himself did not carry on such
a campaign than to say that he did not do so
because it was a company that carried it on
when the company was owned and completely
dominated by the appellant himself.
In our view a distinction must be made
between cases where one person contracts or
carries on business on behalf of another and
certain other cases. Where the question is one
of which party is liable on the contract made by
the agent it is not difficult to conclude that the
principal is party to the contract and the agent
is not. Similarly where the agent carries on
business on behalf of a principal it is the princi
pal who carries on the business and is party to
its acts and the agent is not personally a con
tracting party. Where, however, an employee
does an act for his employer, such as, for exam
ple, driving his car, the employee is the doer
even though in the eyes of the law for some
purposes his driving is also the act of his
employer. So, in our view, if, as in the present
case, an officer or employee in the course of his
duties carries on a campaign to sell shares he is,
in fact, personally carrying on that campaign
even though he is doing it as part of the busi
ness activities of his employer. This distinction
is the basis for our conclusion that the appellant
falls within the terms of section 83(4) even
though he is not taxable under section 3 of the
Income Tax Act in respect of the profits from
the business that he carries on on behalf of his
employer.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.