The taxpayer (“Oldcastle”), which was a leading producer of concrete building products, entered into an employment contract in 2004, with a former shareholder and principal of the business (“Castonguay”) who now was no longer a “specified employee,” for Castonguay to direct a research centre (with a staff of over 25) for the development of new and improved building products. The contract stipulated a base salary, plus a “bonus” (which Archambault J stated he would instead term “variable pay”) calculated as a sliding percentage of the sales (net of shipping and insurance expenses) of new and modified products developed by the research centre. However, the base salary eroded based on the variable pay level, so that no base salary would be payable in any year in which Castonguay’s variable pay exceeded $1 million, which was the case in the taxation years in issue (2010 and 2011). Oldcastle took the variable pay into account under Reg. 2900(4) for purposes of computing its prescribed proxy amount having regard to s. 37(8)(a)(ii)(B)(IV).
Before finding that 55% and 40% of the variable pay of Castonguay for 2010 and 2011, respectively (being the respective percentages of Castonguay’s time conceded by the Crown to relate directly to his R&D activities), should be included in computing Oldcastle’s prescribed proxy amount under Reg. 2900(4), Archambault J turned first to the Reg. 2900(9)(c) exclusion of “bonuses,” and stated (TaxInterpretations translation, paras. 25, 27):
This variable pay is quite similar to the remuneration of employees working for intermediaries, such as sales persons, commercial representatives and brokers… .
Oldcastle had no discretion as to paying the variable pay. It was payable in accordance with the terms of the employment contract. … [T]he sole remuneration which was paid to Mr. Castonguay in 2010 or 2011 was not an “amount paid in addition that which is due.” We are not dealing here with a bonus for purposes of the Act and Regulation.