Baribeau v. R. – TCC: CRA cannot open statute-barred year to tax appellant on valueless shares

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Baribeau v. The Queen
(February 28, 2011 – 2011 TCC 125, McArthur J.).

Précis: Mr. Baribeau worked as an agent for a company (9098) on the sale of a mining property to another company (Mirabel) in 2003 for $140,000. In 2008 he received 100,000 shares of Mirabel from 9098 for his services. CRA took the position that the shares were receivable in 2003 and worth $40,000 at that time. They then proceeded to open up the 2003 taxation year which was otherwise statute-barred. The Tax Court accepted the taxpayer’s evidence that the shares had no value in 2003 and allowed his appeal with costs.

Decision: The facts of this case were quite simple:

[1] This is an appeal from an assessment made in respect of the appellant for the 2003 taxation year and from the penalty imposed on the appellant for failure to report $40,000 in income. The reassessment was issued four days after the normal assessment period. The respondent consented to judgment for the penalties.

[2] The issue is whether the Minister of National Revenue was justified in adding $40,000 to the appellant’s income for 2003.

[3] On December 2, 2003, (the company) 9098-3016 Québec Inc. (9098) sold the Courville-Maruska mining property to Ressources Mirabel Inc. (Mirabel) for $140,000 through the appellant. In 2004, Mirabel issued 350,000 shares of its capital stock to 9098. In 2008, 9098 transferred 100,000 Mirabel shares[2] to the appellant for his services with respect to the sale. The Minister calculated that the sale price for the mining property was $140,000 and that the number of shares issued by Mirabel in consideration for that sale was 350,000. The value of each share was thus $0.40 on December 2, 2003. Therefore, the value of 100,000 Mirabel shares was $40,000 on December 2, 2003. The Appellant did not report the commission income of $40,000 for services rendered in his tax return for the 2003 taxation year because he had concluded that the 100,000 shares had no value.

[Footnote omitted]

The taxpayer, who was self-represented, took the position that the shares were worthless in 2003:

[10] Naturally, his approach is one of common sense. He facilitated the sale of a mineral property from 9098 to Mirabel (now named Rocmec Mining Inc.). The transaction closed on December 2, 2003. 9098 received 350,000 Mirabel shares in 2004. The shares were not marketable until mid-2004. Litigation over the shares followed and the appellant did not receive 100,000 shares for services rendered until January 2008 when he sold them for approximately $13,000. He reported this amount in his income tax return for 2008. There was a refusal from 9098 to give him the shares.

The Tax Court agreed with him:

[22] I believe that a “reasonable man” would have come to the same common sense conclusion that the appellant came to. Why include in income an amount that did not exist in reality during his 2003 taxation year? It is not reasonable to assume that he would be aware of the deeming provisions in 12(1).

For these reasons, the appeal is allowed with costs to the appellant.