The taxpayer, who was employed as an investor advisor by a wealth management firm, had received over $1 million in interest-free loans (evidenced by promissory notes) from predecessors of his employer which, by their terms, were forgivable in the employer’s discretion as to 10% each year, and were required to be repaid as to the balance on termination of his employment. When he resigned, his employer sued him for the balance owing, and a settlement agreement was later reached pursuant to which the loans were discharged on payment of an agreed portion of their remaining balances (with part of such payments made by way of set-off against damages found to be owing by his employer to him.)
Ouimet J found that the difference between the amount so agreed to be paid and the balances owing constituted a taxable benefit to the taxpayer pursuant to ss. 6(15) and 6(1)(a).
In rejecting a submission that, based on Merchant, the “loan” advances to the taxpayer had, in fact, been advances on his salary (which had been received in taxation years that were now statute-barred), Ouimet J stated (at paras. 62-63):
An employee having to meet certain objectives to be granted loans by the employer in addition to the base salary, as in Mr. Matte’s case, is different from a situation where the employee’s only compensation for an entire year’s work takes the form of cheques entered into the accounting records as loans, as in Merchant.
Further, the employee in Merchant did not have to repay the amount from any source available to him.
Before finding (at para. 65) that there was “a lender‑borrower (creditor‑debtor) relationship, in accordance with the terminology used by the parties”, Ouimet J indicated (at para. 60) that the forgivability of the loans had “no impact on the legal effect of the documents”.
Regarding when the s. 6(15) inclusion occurred, he noted (at para. 68) that Richer had stated that “In the context of section 80, the word ‘settle’ connotes a final and legally binding resolution that terminates or reduces the debtor’s obligations”, found that “settle” in s. 6(15} should have the same meaning, and further found that there had been a settlement when the release had been signed.