In 1972, the taxpayer and other employees of a private company were offered convertible debentures of their employer which, in the case of the taxpayer, had a principal amount of $5,000. When in 1977 the taxpayer exercised the conversion rights under his debenture to acquire shares of his employer with a fair market value of $11,700, he was deemed by s. 7(1)(a) to receive a taxable benefit equal to the difference between such fair market value and the $5,125 price for which his convertible debenture had been issued to him. This benefit was not exempted from taxation by s. 51, which only dealt with the adjusted cost base of the shares and whether there had been a disposition, and did not deem the exchange to be non-taxable.
Mahoney, J. also stated (at p. 5138 DTC) that "'agree' and 'agreement' are not terms of art or technical expressions," so that the acquisition option embedded in the terms of the debenture represented an agreement with the employer.
The Court of Appeal rejected a submission that the $11,700 value of the debenture in 1977 constituted the "amount paid" for purposes of s. 7(1)(a), as this interpretation "would have the effect of rendering that subsection of no effect."