On September 18, 1998, the two taxpayers agreed that they would incorporate a company (the “Company” – to be owned equally by them) to purchase land from a third party (Desjardins Trust) and that the Company would accord them the right (the “Options”), to transfer ½ of the lands to each of them at the Company’s cost. The Company then made Desjardins Trust an offer to purchase the entire lands, which was accepted on December 22, 1998. On March 23, 1999, the purchase closed, and on November 21, 1999, the taxpayers exercised their option. at a price that was substantially lower than what would have been their fair market value in the absence of the Options.
In finding that no benefit was conferred on the taxpayers by virtue of their exercise of the Options in November 1999, Bédard, J. found that there was a taxable benefit to the taxpayers in December 1998 when the Company acquired a right to the property (so that there was a corresponding right arising to the taxpayers under the Options at that time) but that there was no taxable benefit under subsection 15(1) in 1999 (the only years assessed in this regard by the Minister). He stated (at para. 40):
[T]he Appellants should have determined the pecuniary value of the benefit, if any, as at December 22, 1998 (when Desjardins Trust accepted the Company's offer) and should have included the subsection 15(1) benefit in computing their income for the 1998 taxation year. Indeed, the Company acquired a right as soon as its offer was accepted by Desjardins Trust, and, consequently, at the same moment, the Appellants acquired rights from the Company — rights that they could therefore assign to third parties, since no provision of the Agreement prohibited them from assigning their rights. In addition, it is my view that no benefit was conferred on the Appellants on November 21, 1999, when they became the owners of their parcels as contemplated in the Agreement, since the Company merely gave the Appellants what they were entitled to. … No benefit is conferred if a company merely complies with an undertaking that it made earlier under a genuine commercial transaction (in this instance, the Agreement).