The taxpayer acquired and was granted an option by a corporation holding 50% of its shares, (“Amcan”) to acquire a property with a fair market value of $344,770 and an exercise price of $245,575. The taxpayer exercised the option and sold the property for its fair market value, thereby realizing a gain of $83.014.
The Minister taxed the entire gain of Amcan (over its cost of $95,275) as income in the hands of Amcan pursuant to s. 17(2) of the pre-1972 Act, on the basis that Amcan was not dealing at arm's length with the taxpayer. In finding that the gain of the taxpayer should be excluded from its income, Mr. Frost stated:
There is a general presumption in law against taxing the same income dollars twice. Double taxation can only be considered to exist where it is equitable and/or the language of the taxing Act is clear and unequivocable. In this case we are dealing with a “deemed” transaction under subsection 17(2) of the Income Tax Act. The Minister of National Revenue “deemed” that the profit of $83,014.83 was income in the hands of Amcan and when Amcan did not contest this deemed allocation, that amount of income for tax purposes was proven to be income of Amcan and not that of the appellant and was no longer merely “deemed”. Further the substance of the transaction as opposed to the form leaves no doubt whatsoever in my mind that the dollars in question were the income dollars of Amcan and not those of the appellant.