At a time that James Aitchison owed $2.1 million in taxes, he transferred his law practice to a newly-incorporated professional corporation (the appellant) and thereafter worked for it as an unpaid volunteer or employee. His two daughters (also lawyers) worked for the appellant at market salaries and in the first three years received over $1 million in dividends as a result of “an improbable share structure and a complete disregard for dividend rights.”
In finding that James had not transferred property to the appellant by virtue of choosing not to negotiate a salary for his valuable professional services, Graham J stated (at paras. 16, 19):
An employee negotiates the terms of his or her employment with the firm. Nothing that the employee provides to the firm could be described as
“property”. An employee provides services, not property. The same is true for a volunteer.By definition, volunteers are not compensated for their work. While employees should, of course, be fairly compensated for their work, their right to compensation flows from the employment contracts that they negotiate. The right to negotiate is a right that everyone possesses and that is enforceable against no one. It is not
“property”. If an employee negotiates a poor contract, the potential salary that he or she leaves on the table is not“property”that he or she has transferred to his or her employer. It is simply a lost opportunity. An employee does not have an enforceable right to the salary that he or she never negotiated. This is true even if an employee agrees to work for free.
He went on to state (at paras. 32, 35):
This case demonstrates that there is clearly a gap in section 160 … [but s]imply amending section 160 to cause it to cover the non-arm’s length provision of services may have undesired consequences. …
If a tax debtor spent all of his or her free time caring for his or her aging parents, would the Minister assess the parents for the fair market value of that care?