Date:
20090521
Docket: A-416-07
Citation: 2009 FCA 163
CORAM: DESJARDINS
J.A.
EVANS
J.A.
RYER
J.A.
BETWEEN:
COPTHORNE HOLDINGS LTD.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
RYER J.A.
[1]
This is an
appeal from a decision of Campbell J. (the “Tax Court Judge”) of the Tax Court
of Canada (2007 TCC 481), dated August 28, 2007, partially allowing an appeal by
Copthorne Holdings Ltd. (“the appellant”) from an assessment made by the
Minister of National Revenue (the “Minister”) against a predecessor of the
appellant as a result of the application of the general anti-avoidance rule
(the “GAAR”) in subsection 245(2) of the Income Tax Act, R.S.C. 1985, c.
1 (5th Supp.) (the “ITA”). In these reasons, a reference to the
appellant will be a reference to predecessors of the appellant as the context
may require. Unless otherwise indicated, all statutory references in these reasons
are to the corresponding provisions of the ITA.
[2]
The
assessment arose out of a 1996 redemption of preferred shares in the capital of
the appellant that were held by a related non-resident corporation. Because the
appellant believed that the paid-up capital (“PUC”), as defined in subsection
89(1), of the redeemed shares was equal to the proceeds that it paid to the
non-resident corporation, the appellant did not withhold any amount of income
tax in respect of the redemption proceeds. Applying the GAAR, the Minister
determined that the PUC of the redeemed shares was $87,487,834 less than the
amount of the redemption proceeds and as a result, the redemption gave rise to
a deemed dividend, pursuant to subsection 84(3), in the amount of $58,325,223, which
was subject to withholding tax pursuant to subsection 212(2). The Minister determined
that, pursuant to subsection 215(1), the appellant should have withheld and
remitted 15% of the amount of the deemed dividend to the Receiver General on
behalf of the non-resident corporation and issued an assessment, pursuant to
subsection 215(6), for an amount equal to the amount of tax that the appellant
failed to withhold and remit. In addition, the Minister assessed a penalty
against the appellant, pursuant to subsection 227(8), of 10% of the amount of
the assessment under subsection 215(6).
[3]
The Tax
Court Judge upheld the application of the GAAR and the resulting assessment of
the tax, pursuant to subsection 215(6), but refused to uphold the assessment of
the penalty, pursuant to subsection 227(8). The Crown has not appealed the
decision of the Tax Court Judge with respect to the penalty.
[4]
For the
reasons that follow, I would dismiss the appeal.
RELEVANT STATUTORY PROVISIONS
[5]
The relevant
statutory provisions are subsection 84(3), paragraph 87(3)(a),
subsection 89(1), section 245 and subsection 248(10). Those provisions are
reproduced in the appendix to these reasons.
SUMMARY OF FACTS
[6]
In the Tax
Court of Canada, the trial proceeded on the basis of a detailed joint statement
of facts and law (the “JSFL”) that was appended to the reasons of the Tax Court
Judge. A brief summary of the pertinent facts ensues.
[7]
This case
concerns a group of Canadian and non-resident corporations (the “Li Group”),
which are controlled by Mr. Li Ka-Shing and his son, Mr. Victor Li
(collectively, the “Li family”), one of which was VHHC Investments Inc. (“VHHC
Investments”), a Canadian incorporated corporation. Between 1985 and 1991, the
Li Group invested $96,736,845 in VHHC Investments. VHHC Investments used
$67,401,279 of those funds to purchase all the shares of another Canadian incorporated
corporation, VHHC Holdings Ltd. (“VHHC Holdings”). At the end of 1991, the
issued shares of VHHC Investments had PUC of $96,736,845 and the issued shares
of VHHC Holdings had PUC of $67,401,279, which was notionally “traceable” to
the original investment by the Li Group in VHHC Investments.
[8]
VHHC
Holdings held shares of Husky Oil Ltd. (“Husky”), a publicly traded Canadian
incorporated corporation, directly and through a Canadian incorporated subsidiary
corporation, VHSUB Holdings Inc. (“VHSUB”). By 1991, the fair market value of
the Husky shares had fallen, with the result that VHSUB had an unrealized
capital loss in respect of its Husky shares.
[9]
Big City
Project Corporation B.V. (“Big City”), a Netherlands incorporated member of the Li Group
owned all the shares of Copthorne Holdings Ltd. (“Copthorne I”), a Canadian
incorporated corporation and predecessor of the appellant. Copthorne I
purchased the Harbour Castle Hotel in Toronto
in 1981 and sold it in 1989 for a substantial capital gain.
[10]
Beginning
in December of 1991, the Li Group undertook a series of transactions that
included the acquisition of additional shares of Husky from an unrelated party.
This series included a number of intra-group loss consolidation transactions.
In particular, steps were taken to enable Copthorne I to realize the accrued
capital loss on the Husky shares that were owned by VHSUB and to carry back
that capital loss to offset the capital gain that Copthorne I realized on the
hotel sale. The Husky shares with the accrued capital loss were transferred to
VHSUB by VHHC Holdings and then transferred by VHSUB to Husky Oil Holdings
Ltd., a Barbados incorporated member of the Li
Group. At the end of 1991, VHHC Holdings owned all of the shares of VHSUB which
had a nominal fair market value and an adjusted cost base of approximately
$84.3 million, which represented the accrued capital loss on the Husky shares.
[11]
In 1992,
VHHC Investments sold its common shares of VHHC Holdings, the PUC of which was
approximately $67.4 million, to Copthorne I for a nominal price. VHHC Holdings
sold approximately 83% of its VHSUB shares to Copthorne I for a nominal sum.
Thereafter, VHHC Holdings and Copthorne I sold all of the shares of VHSUB to a
third party for a nominal consideration and realized the accrued capital loss.
Copthorne I was then in a position to carry back that capital loss to offset
its capital gain from the hotel sale.
[12]
After the
completion of these loss consolidation transactions, Copthorne I owned all of VHHC
Holdings, the shares of which had a nominal fair market value and a PUC of
approximately $67.4 million.
[13]
By 1993,
the Li family decided to amalgamate Copthorne I, VHHC Holdings, and two other
corporations. At this time, they considered how they might preserve the PUC of
the shares of VHHC Holdings. It was recognized that because VHHC Holdings was
wholly-owned by Copthorne I, without more, the amalgamation would result in the
elimination of the approximately $67.4 million of PUC of the shares of VHHC
Holdings. However, if VHHC Holdings and Copthorne I were sister corporations,
their amalgamation would result in the aggregation of the PUC of their
respective shares. To avoid the elimination of the PUC of the VHHC Holdings
shares, in early 1993, Copthorne I transferred its shares in VHHC Holdings to Big City, its parent corporation, for their
nominal fair market value (the “1993 Share Sale”).
[14]
As a
result of the 1993 Share Sale, Copthorne I and VHHC Holdings became sister
corporations. On January 1, 1994, Copthorne I, VHHC Holdings, and two other
corporations amalgamated under the name Copthorne Holdings Ltd. (“Copthorne II”).
All of the issued shares of Copthorne II were owned by Big City. The PUC of those shares was essentially
the PUC of the shares of VHHC Holdings (approximately $67.4 million), as the
PUC of the other amalgamating corporations was essentially nominal.
[15]
For the
purpose of the assessment, the Crown took the position that the 1993 Share Sale
was an avoidance transaction within the meaning of subsection 245(3). The loss
consolidation transactions, the Share Sale and the amalgamation that gave rise
to Copthorne II are agreed by the parties to constitute a series of
transactions without regard to subsection 248(10) (“the First Series”).
[16]
The
proceeds of the 1989 hotel sale were invested by Copthorne I in Copthorne
Overseas Investment Ltd. (“COIL”), a wholly-owned Barbados incorporated
corporation that established and carried on an active bond-trading business in Singapore. From the time of its
incorporation until June of 1994, the income generated by COIL was foreign
accrual property income (“FAPI”), as defined in subsection 95(1). In response
to the June 1994 announcement of proposals to amend the FAPI provisions of the ITA
(the “Proposed FAPI Amendments”), the Li family decided to dispose of the
business of COIL to another entity within the Li Group and to remove some or
all of the proceeds of disposition from Canada.
[17]
To achieve
this result, in late 1994, the Li family undertook a reorganization, which
included the formation of L.F. Investments (Barbados) Ltd. (“L.F. Investments”), a Barbados incorporated corporation.
L.F. Investments acquired all of the issued shares of Copthorne II and VHHC
Investments. Effective January 1, 1995, those two corporations, and two others
that were owned by Mr. Li Ka-Shing, amalgamated under the name Copthorne
Holdings Ltd. (“Copthorne III”). On this amalgamation, L.F. Investments
received 164,138,125 Class D preferred shares (the “Class D Shares”) having an
aggregate redemption amount, fair market value and PUC of $164,138,025 or
effectively $1.00 per share. In essence, the PUC of the Class D Shares is the
total of the PUC of the shares of VHHC Investments at the end of 1991 and the
PUC of VHHC Holdings that was derived from share subscriptions made by VHHC
Investments.
[18]
Immediately
following this amalgamation, Copthorne III redeemed 142,035,895 of its Class D
Shares that were held by L.F. Investments, a non-resident of Canada, for $142,035,895 (“the 1995
Redemption”). Since the redemption price of each share was equal to its PUC, the
redemption did not give rise to a deemed dividend under subsection 84(3).
Accordingly, Copthorne III did not withhold or remit any tax on behalf of L.F.
Investments, under subsection 215(1), in respect of the redemption proceeds.
[19]
The
transactions described in the preceding two paragraphs are agreed to be part of
a series of transactions (the “Second Series”).
[20]
The
Minister assessed Copthorne III, pursuant to subsection 215(6), for failing to
withhold and remit withholding tax on a deemed dividend that arose on the 1995
Redemption, as required by subsection 215(1). Underlying this assessment was
the application of the GAAR by the Minister to deny the addition to the PUC of
the Class D Shares to the extent that it included $67,401,280 of PUC that was
attributable to the shares of VHHC Holdings that were transferred by VHHC
Investments in the 1993 Share Sale.
[21]
In
applying the GAAR, the Minister determined that:
(a) L.F.
Investments received a tax benefit (a “tax benefit”), within the meaning of
subsection 245(1) in the form of avoided withholding tax on the 1995
Redemption;
(b) the tax
benefit arose out of the portion of the PUC of the Class D Shares that resulted
from a series of transactions that included an avoidance transaction (an
“avoidance transaction”), within the meaning of subsection 245(3);
(c) the
avoidance transaction, was the 1993 Share Sale;
(d) the
series of transactions that included the avoidance transaction resulted in
abuse of the ITA read as a whole, within the meaning of subsection 245(4); and
(e) to deny
the tax benefit, it would be reasonable to reduce the PUC of the Class D Shares
by the amount of the “inappropriate increase” that resulted from the series of
transactions that included the avoidance transaction.
[22]
In the
circumstances, the Minister determined that the deemed dividend that arose on
the 1995 Redemption was $58,325,223 and that 15% of that amount should have
been withheld by Copthorne III pursuant to subsection 215(1). Accordingly, the
Minister assessed Copthorne III Part XIII tax in the amount of $8,748,783.40 pursuant
to subsection 215(6). In addition, the Minister assessed a penalty of 10% of
that amount pursuant to subsection 227(8).
[23]
Copthorne
III objected to the assessment. The Minister confirmed it and Copthorne III
appealed to the Tax Court of Canada.
[24]
In an
unrelated transaction that occurred in 2002, Copthorne III was amalgamated with
five other corporations owned by the Li family and continued as Copthorne
Holdings Ltd., the appellant in this appeal
DECISION OF THE TAX COURT OF CANADA
[25]
In the Tax
Court of Canada, the issues were whether the Minister properly applied the GAAR
and if so, whether the penalty was validly imposed. No issue was taken with
respect to the calculation of the imposed tax and penalty.
[26]
The Tax
Court Judge quoted from paragraph 66 of the decision of the Supreme Court of
Canada in Canada Trustco Mortgage Co. v. Canada, [2005] 2 S.C.R. 601,
2005 D.T.C. 5523, which summarizes the approach that should be taken to
determine the validity of a GAAR assessment and reads as follows:
The approach to s. 245 of the Income Tax Act may be
summarized as follows:
1. Three requirements
must be established to permit application of the GAAR:
(1) A tax benefit
resulting from a transaction or part of a series of transactions (s. 245(1)
and (2));
(2) that the transaction
is an avoidance transaction in the sense that it cannot be said to have
been reasonably undertaken or arranged primarily for a bona fide purpose
other than to obtain a tax benefit; and
(3) that there was abusive
tax avoidance in the sense that it cannot be reasonably concluded that a
tax benefit would be consistent with the object, spirit or purpose of the
provisions relied upon by the taxpayer.
2. The burden is on the
taxpayer to refute (1) and (2), and on the Minister to establish (3).
3. If the existence of
abusive tax avoidance is unclear, the benefit of the doubt goes to the taxpayer.
4. The courts proceed by
conducting a unified textual, contextual and purposive analysis of the
provisions giving rise to the tax benefit in order to determine why they were
put in place and why the benefit was conferred. The goal is to arrive at a
purposive interpretation that is harmonious with the provisions of the Act that
confer the tax benefit, read in the context of the whole Act.
5. Whether the
transactions were motivated by any economic, commercial, family or other
non-tax purpose may form part of the factual context that the courts may
consider in the analysis of abusive tax avoidance allegations under s. 245(4).
However, any finding in this respect would form only one part of the underlying
facts of a case, and would be insufficient by itself to establish abusive tax
avoidance. The central issue is the proper interpretation of the relevant
provisions in light of their context and purpose.
[27]
In
addressing the series of transactions issue, the Tax Court Judge acknowledged
the agreement of the parties that there were two series of transactions. She
held that the avoidance transaction, the 1993 Share Sale, was in the First
Series and that the tax benefit flowed from the 1995 Redemption, which was a
part of the Second Series. She determined that the GAAR assessment could not be
sustained unless the tax benefit was realized as part of the same series of
transactions that included the avoidance transaction.
[28]
The Tax
Court Judge referred to the expression “series of transactions”, which appears
in subsections 245(2) and (3), and the interpretation that was given to that
expression in Canada Trustco and OSFC Holdings Ltd. v. Her Majesty
the Queen, 2001 FCA 260, [2002] 2 F.C. 288. In Canada Trustco, the
Court adopted the “pre-ordination” test that was laid down by Justice Rothstein
in OSFC with respect to the determination of whether there is a series
of transactions for the purposes of those provisions. Under this test, a series
of transactions will include those transactions that are pre-ordained to produce
a given result, with no practical likelihood that the planned steps will not
occur in the sequence that has been planned. This test is often referred to as
the common law test and a series of transactions that is found to exist as a
result of the application of this test is often referred to as the common law
series. No issue arose before the Tax Court Judge with respect to the existence
or extent of any common law series. However, the Tax Court Judge was required
to consider the extended meaning of series of transactions that is found in
subsection 248(10).
[29]
The Tax
Court Judge accepted the Minister’s argument that the First Series, which
included the avoidance transaction, was the common law series and that the
Second Series, which included the 1995 Redemption that gave rise to the tax
benefit, was part of the common law series by virtue of subsection 248(10). In
so holding, the Tax Court Judge reviewed paragraphs 36 of OSFC and 26 of
Canada Trustco, which analyze and interpret subsection 248(10), and
found that there was a “strong nexus” between the First Series and the Second
Series. In particular, she found that the 1995 Redemption was undertaken with
actual knowledge, and in contemplation, of the 1993 Share Sale and that the
1995 Redemption was exactly the type of transaction that was necessary to
exploit the PUC that had been preserved in the 1993 Share Sale. She further
held that the fact that the Li family did not have precise knowledge, at the
time of the 1993 Share Sale, that they would undertake the 1995 Redemption was
not determinative.
[30]
The Tax
Court Judge concluded on this point by essentially paraphrasing the test
enunciated by Rothstein J.A. (as he then was) in OSFC, as adopted in Canada
Trustco, stating at paragraph 42:
The First
Series of Transactions is related to the Second Series of Transactions because
the Second Series is completed in contemplation of the First Series, within the
meaning of subsection 248(10), in the sense that the Appellant had knowledge of
the prior preservation of PUC and took this into account when completing the
Redemption.
[31]
In
addressing the tax benefit issue, the Tax Court Judge held that it is
sufficient if the reduction, avoidance or deferral of tax results, directly or
indirectly, from a series of transactions which includes an avoidance
transaction. She found that a tax benefit occurred when withholding tax was
avoided on the 1995 Redemption as a result of the PUC that was preserved by
virtue of the 1993 Share Sale.
[32]
The Tax
Court Judge determined that the 1993 Share Sale was an avoidance transaction
that was undertaken to preserve the PUC associated with the shares of VHHC
Holdings and that it had no legitimate non-tax purpose. In particular, she
found that the 1993 Share Sale played no role in the simplification of the Li
family corporate holdings.
[33]
In
addressing the misuse or abuse requirement, the Tax Court Judge determined that
Canada Trustco required a unified textual, contextual and purposive
analysis of the relevant statutory provisions. In the circumstances, she found
those provisions to be the definition of PUC in subsection 89(1), subsection
84(3) and paragraph 87(3)(a).
[34]
After
analyzing these provisions, the Tax Court Judge determined that the underlying
principles respecting the calculation of PUC were offended. That conclusion is
apparent from the following excerpt from paragraph 74 of her reasons, which
reads:
When VHHC
Investments is later amalgamated with Copthorne II, the underlying
principles respecting the calculation of PUC are offended because approximately
$67 million of PUC is essentially double counted in the PUC of the newly
amalgamated corporation. It is this double counting that circumvents the
proper application of the relevant provisions in a manner that frustrates and
defeats the object, spirit and purpose of those provisions, which individually,
together and when read in conjunction with other provisions in the Act, are
meant to operate to prevent the artificial increase of PUC on amalgamation and
its subsequent return to shareholders on a tax-free basis…The resulting
artificial preservation and inflation in PUC allowed the stripping of surplus
without appropriate withholding tax. When the many transaction distilled down
to the essential core, it is clearly an abuse of the Act to which
section 245 should apply. [Emphasis added.]
ISSUES
[35]
The
parties are agreed that there are four issues on appeal:
- Did
the Tax Court Judge err in concluding that the 1995 Redemption formed part
of the First Series, within the meaning of subsection 248(10) of the Act?
- Did
the Tax Court Judge err in concluding that the 1993 Share Sale was an
avoidance transaction?
- Did the Tax Court Judge err in
concluding that Copthorne enjoyed a tax benefit?
- Did the Tax Court Judge err in
concluding that there was abusive tax avoidance?
ANALYSIS
Standard of Review
[36]
On an
appeal from a decision of the Tax Court of Canada, this Court will review
questions of law, including interpretations of provisions of the ITA, on a
standard of correctness. Questions of fact or mixed fact and law, where there
is no readily extricable legal principle, are not subject to appellate
intervention in the absence of a palpable and overriding error on the part of
the Tax Court Judge (see Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 2002
SCC 33).
General Approach to the Application of
the GAAR
[37]
The
requirements that underpin a valid GAAR assessment are summarized in the
excerpt from the reasons in Canada Trustco that is reproduced in paragraph
26 of these reasons. The issues raised by the parties must be considered in
light of these requirements.
Series of transactions
[38]
It is
common ground between the parties that the transactions in the First Series and
the Second Series are not part of a single series by virtue of the common law
test for a series of transactions. It is similarly uncontested that the
transactions in the First Series constitute a series of transactions under the
common law test. The matter in dispute is whether the First Series is deemed to
include the 1995 Redemption by virtue of subsection 248(10). Specifically, the
issue is whether the 1995 Redemption is related to, and completed in
contemplation of, the First Series. Subsection 245(2) specifies that a tax
benefit may only be denied under the GAAR if it results from an avoidance transaction
or from a series of transactions that includes an avoidance transaction. The
Minister relies on the 1993 Share Sale as an avoidance transaction, but acknowledges
the alleged tax benefit (the avoidance of withholding tax) did not arise until
the 1995 Redemption. Accordingly, if these two transactions are not part of the
same series, the GAAR cannot apply.
[39]
The proper
interpretation of subsection 248(10) is a question of law. If the Tax Court
Judge ascertained the correct interpretation of that provision, its application
to the facts is a question of mixed fact and law that is reviewable by this Court
on the standard of palpable and overriding error.
[40]
Subsection
248(10) was interpreted by Rothstein J.A. in OSFC (at paragraph 36).
There, he stated:
…Subsection 248(10) does
not require that the related transaction be pre-ordained. Nor does it say when
the related transaction must be completed. As long as the transaction has some
connection with the common law series, it will, if it was completed in contemplation
of the common law series, be included in the series by reason of the deeming
effect of subsection 248(10). Whether the related transaction is completed
in contemplation of the common law series requires an assessment of whether the
parties to the transaction knew of the common law series, such that it could be
said that they took it into account when deciding to complete the transaction.
If so, the transaction can be said to be completed in contemplation of the
common law series. [Emphasis added]
[41]
The
Supreme Court of Canada approved and elaborated upon Justice Rothstein’s interpretation
of subsection 248(10). At paragraph 26 of Canada Trustco, McLachlin C.J.
and Major J. stated:
26 Section
248(10) extends the meaning of “series of transactions” to include “related
transactions or events completed in contemplation of the series”. The Federal
Court of Appeal held, at para. 36 of OSFC, that this occurs where the
parties to the transaction “knew of the . . . series, such that it could be
said that they took it into account when deciding to complete the transaction”.
We would elaborate that “in contemplation” is read not in the sense of actual
knowledge but in the broader sense of “because of” or “in relation to” the
series. The phrase can be applied to events either before or after the basic
avoidance transaction found under s. 245(3). As has been noted:
It is highly
unlikely that Parliament could have intended to include in the statutory
definition of “series of transactions” related transactions completed in
contemplation of a subsequent series of transactions, but not related
transactions in the contemplation of which taxpayers completed a prior series
of transactions.
(D. G. Duff,
“Judicial Application of the General Anti‑Avoidance Rule in Canada: OSFC
Holdings Ltd. v. The Queen” (2003), 57 I.B.F.D. Bulletin 278, at p. 287)
[42]
The debate
between the parties focuses upon the degree or closeness of the connection that
must be shown between the series of transactions and the related transaction
for the purposes of subsection 248(10).
[43]
The
appellant contends that a close connection is required. To that end, the
appellant argues that the prior transaction must have caused the subsequent
transaction to have been completed before the requisite connection between them
can be demonstrated. On the facts, the appellant argues that there is no causal
connection between the First Series and the 1995 Redemption, in the sense that
the latter event was caused by the Proposed FAPI Amendments and therefore could
not have been caused by the First Series in which the PUC preservation
transaction occurred. In other words, any causal connection that might
otherwise have existed between the First Series and the 1995 Redemption was,
according to the appellant, broken by the Proposed FAPI Amendments.
[44]
In support
of this argument, the appellant cites a passage from the decision of the Tax
Court of Canada in MIL (Investments) S.A. v. The Queen, [2006] 5 C.T.C. 2252 (affirmed
on other grounds, 2007 FCA 236). At paragraph 62 of that decision, Bell J.
stated:
There must be a strong
nexus between transactions in order for them to be included in a series of
transactions. In broadening the word "contemplation" to be read in
the sense of "because of" or "in relation to the series",
the Supreme Court cannot have meant mere possibility, which would include an
extreme degree of remoteness. Otherwise, legitimate tax planning would be
jeopardized, thereby running afoul of that Court's clearly expressed goals of
achieving "consistency, predictability and fairness". [Emphasis
added]
[45]
I am
satisfied that Bell J. was correct in concluding that the language of the
Supreme Court of Canada in paragraph 26 of Canada Trustco that broadens
the meaning of “in contemplation”, as used in subsection 248(10), does not lead
to the conclusion that the “mere possibility” of a connection between a series
of transactions and a related translation is sufficient to include that
transaction in the series. On the other hand, I am not persuaded that the indicated
broadening of “in contemplation” could, as Bell J. suggests with his phrase
“strong nexus”, require an even closer connection between the transaction and
the series than was required under the interpretation offered by Rothstein J.A.
in OSFC.
[46]
In my
view, if a series is a motivating factor with respect to the completion of a
subsequent transaction, the transaction can be said to have been completed “in
contemplation of the series” and a direct causal relationship between the
series and the transaction, as argued by the appellant, need not be
established. In my opinion, this standard is reconcilable with the test as
stated in OSFC and as broadened in Canada Trustco.
[47]
The Tax
Court Judge reviewed and cited the relevant passages from OSFC and Canada
Trustco. It is clear that she did not misapprehend or misinterpret the
applicable legal test with respect to whether the 1995 Redemption and the 1993
Share Sale were within a single series of transactions.
[48]
In
applying the test to the facts that were before her, the Tax Court Judge
concluded that a strong nexus existed between the First Series and the 1995
Redemption. She found that the 1995 Redemption was exactly the type of
transaction that was necessary to utilize the PUC that had been preserved in
the First Series and that such redemption, in fact, became the mechanism for
returning a portion of the PUC of Copthorne III to its non-resident
shareholder. Thus, she concluded that even though the specifics of the 1995
Redemption were not planned at the time of the 1993 Share Sale, that redemption
was undertaken with the knowledge of the PUC preservation and taking that PUC
preservation into account. As such, she found that the 1995 Redemption was
completed in contemplation of the First Series.
[49]
In view of
my conclusion that a transaction completed after a series will be included in
the series, by virtue of subsection 248(10), if the series is a motivating
factor with respect to the completion of that transactions, it was unnecessary
for the Tax Court Judge to have found that there was a strong nexus between the
First Series and the 1995 Redemption. Nonetheless, that finding was open to the
Tax Court Judge based upon the record that was before her, and in making it,
the Tax Court Judge committed no palpable or overriding error.
[50]
While the
appellant argues, in paragraph 92 of its factum, that the preserved PUC could
have been useful in “many circumstances”, it is difficult for me to comprehend
that the prospect of utilizing the preserved PUC to avoid withholding tax on
the redemption of the Class D Shares was something that the appellant
discovered by accident at the time of that redemption. Indeed, the use of PUC
as a means of reducing or eliminating withholding tax on a distribution of
funds or property by a Canadian corporation to its non-resident shareholders is
an elementary form of income tax planning and the complexity of the tax loss
utilization transactions that were undertaken in the First Series belies any
suggestion that the PUC that was preserved in those transactions was not within
the contemplation of the appellant when it undertook the 1995 Redemption. Thus,
in my view, the conclusion that the PUC preservation that occurred in the First
Series was, to use my formulation, a motivating factor in relation to the
completion of the 1995 Redemption, is unassailable.
[51]
I would
also note the relatively close temporal connection between the 1993 Share Sale and
the 1995 Redemption. While approximately eighteen months elapsed between the
1993 Share Sale and the 1995 Redemption, the record indicates that the
redemption was contemplated shortly after the introduction of the Proposed FAPI
Amendments, indicating a time frame of something just over a year between the
first event and the commencement of planning for the second event. While I do
not wish to suggest that any particular length of time between a series and a
transaction will be determinative of whether there is a sufficient connection
between them so as to result in the application of subsection 248(10), in the
present circumstances, it is my view that an approximately one year gap between
the 1993 Share Sale and the contemplation of the 1995 Redemption militates
against accepting an assertion that there was an “extreme degree of remoteness”
that the 1995 Redemption would be undertaken, as was urged upon the Court.
[52]
In my
view, the Tax Court Judge properly interpreted subsection 248(10) and made no palpable
and overriding error in her application of that legal interpretation to the
facts of this case. I would therefore affirm her conclusion that the 1995
Redemption formed part of the First Series.
Avoidance transaction
[53]
In Canada
Trustco, the Supreme Court of Canada held that whether a transaction is an
avoidance transaction is a question of fact and that the taxpayer has the obligation
of disputing the Minister’s assumptions in that regard by showing that it may
reasonably be considered to have been undertaken for bona fide purposes
other than to obtain a tax benefit. The Tax Court Judge found that the 1993
Share Sale was an avoidance transaction. Accordingly, this Court must accept
that finding unless the appellant can show that, in making it, the Tax Court
Judge committed a palpable and overriding error. In my view, the appellant has
failed to do so.
[54]
The
appellant argues that the Tax Court Judge erred in failing to consider material
evidence which reveals that the “true purpose of the First Series of
Transactions” was to implement the loss consolidation and to simplify the
corporate structure. In addition, the appellant contends that where a series of
transactions may be characterized as having an overall non-tax purpose, that
purpose should, in effect, be attributed to each of the separate transactions
that form part of the series.
[55]
In my
view, it was open to the Tax Court Judge to find that the 1993 Share Sale was
not integral to the achievement of the purposes of the series that were
proffered by the appellant. Indeed, paragraphs 34 to 38 of the JSFL indicate
that the purpose of the 1993 Share Sale was to preserve the PUC of the shares
of VHHC Holdings. Indeed, one is hard pressed to understand how either of the appellant’s
stated purposes for the First Series would, in any way, be facilitated by a
transaction that merely transformed VHHC Holdings from a subsidiary to a sister
of Copthorne I. Thus, it was not an error on the part of the Tax Court Judge to
conclude that the purpose of the 1993 Share Sale was to preserve the PUC of the
shares of VHHC Holdings. Having reached that conclusion, it is my view that the
Tax Court Judge did not err in finding that the overall purpose of the First
Series should not be attributed to the 1993 Share Sale. Such a conclusion
would, in my view, run contrary to the plain wording of subsection 245(3) and
the appellant has not provided any authority that would be binding on this
Court that supports such a conclusion. Accordingly, I would affirm the finding
of the Tax Court Judge that the 1993 Share Sale was an avoidance transaction.
Tax benefit
[56]
The
existence of a tax benefit was also held in Canada Trustco to be a
factual matter. Accordingly, the finding of the Tax Court Judge that a tax
benefit resulted from the series of transactions must be accepted in absence of
a palpable and overriding error on her part in reaching that finding.
[57]
With
respect to this issue, the appellant reiterated its argument that the 1993
Share Sale and the 1995 Redemption were not part of a single series of
transactions. The appellant also argued that even if they were, the 1995
Redemption did not give rise to a tax benefit.
[58]
In fact,
the Tax Court Judge held that the tax benefit resulted from the series of
transactions, and not from any single transaction. Because this factual
conclusion is unchallenged, it cannot be said to have been based upon any
palpable and overriding error. Clearly, the series of transactions entailed the
preservation of the PUC of the shares of VHHC Holdings and the purported
utilization of a portion of that PUC to preclude the imposition of withholding
tax under Part XIII of the ITA. Accordingly, I would confirm the finding of the
Tax Court Judge that the series of transactions gave rise to a tax benefit.
Abuse or misuse of the provisions of the
Act
[59]
In Canada
Trustco, the Supreme Court of Canada laid down a two-step approach to the
determination of the presence or absence of abusive tax planning for the
purposes of subsection 245(4). Paragraphs 44 and 45 of Canada Trustco
read as follows:
44 The heart
of the analysis under s. 245(4) lies in a contextual and purposive
interpretation of the provisions of the Act that are relied on by the taxpayer,
and the application of the properly interpreted provisions to the facts of a
given case. The first task is to interpret the provisions giving rise to the
tax benefit to determine their object, spirit and purpose. The next task is to
determine whether the transaction falls within or frustrates that purpose. The
overall inquiry thus involves a mixed question of fact and law. The textual,
contextual and purposive interpretation of specific provisions of the Income
Tax Act is essentially a question of law but the application of these
provisions to the facts of a case is necessarily fact-intensive.
45 This
analysis will lead to a finding of abusive tax avoidance when a taxpayer relies
on specific provisions of the Income Tax Act in order to achieve an
outcome that those provisions seek to prevent. As well, abusive tax avoidance
will occur when a transaction defeats the underlying rationale of the provisions
that are relied upon. An abuse may also result from an arrangement that
circumvents the application of certain provisions, such as specific
anti-avoidance rules, in a manner that frustrates or defeats the object, spirit
or purpose of those provisions. By contrast, abuse is not established where it
is reasonable to conclude that an avoidance transaction under s. 245(3) was
within the object, spirit or purpose of the provisions that confer the tax
benefit.
[60]
As
indicated in these paragraphs, the question of whether an avoidance transaction
falls within or frustrates the purpose of the relevant provisions of the ITA is
one of mixed fact and law. As previously indicated, Housen instructs
that appellate intervention with respect to such a question is limited to
situations in which the lower court makes a palpable and overriding error,
except where the question entails a readily extricable legal issue. In that
case, the legal issue will be reviewed on a standard of correctness.
[61]
Canada Trustco informs that a finding of
abusive tax planning will be substantiated
(a) where the
taxpayer relies on specific provisions of the ITA to achieve an outcome that
those provisions seek to prevent;
(b) when a
transaction defeats the underlying rationale of the provisions relied upon by
the taxpayer; and
(c) where a
transaction circumvents the application of certain provisions of the ITA, such
as anti-avoidance provisions, in a manner that frustrates or defeats the
object, spirit or purpose of those provisions.
[62]
Against
this backdrop, the Minister asserted that the definition of PUC in subsection
89(1), subsection 84(3) and paragraph 87(3)(a) were misused and abused
by the appellant. The Tax Court Judge undertook a textual, contextual and
purposive interpretation of these provisions, in accordance with the Canada
Trustco approach. After completing that step, the Tax Court Judge
considered whether the avoidance transaction or the series that included it
frustrated the object, spirit and purpose of these provisions.
[63]
In
paragraph 74 of her reasons, the Tax Court Judge concluded that the principles
respecting the calculation of PUC were offended, thus indicating that it is the
provisions of paragraph 89(1) containing the definition of PUC, and not the
provisions of either of subsection 84(3) or paragraph 87(3)(a), that
have been abused in the circumstances of this case. I am in agreement with this
conclusion.
[64]
In the
instant circumstances, the relevant portion of the definition of PUC is
subparagraph (b)(iii) of the definition of PUC which bears repeating:
|
"paid-up capital"
«capital versé »
at
any particular time means,
. . .
|
«capital versé
»
"paid-up capital"
À
un moment donné :
[…]
|
|
(b) in respect of a class of
shares of the capital stock of a corporation,
. . .
|
b) à l’égard d’une
catégorie d’actions du capital-actions d’une société :
[…]
|
|
(iii) where the particular
time is after March 31, 1977, an amount equal to the paid-up capital in
respect of that class of shares at the particular time, computed without
reference to the provisions of this Act except subsections 51(3) and 66.3(2)
and (4), sections 84.1 and 84.2, subsections 85(2.1), 85.1(2.1), 86(2.1),
87(3) and (9), 128.1(2) and (3), 138(11.7), 192(4.1) and 194(4.1) and section
212.1,
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(iii) lorsque le
moment donné est postérieur au 31 mars 1977, somme égale au capital versé au
moment donné au titre de cette catégorie d’actions, calculée compte non tenu
des dispositions de la présente loi, à l’exception des paragraphes 51(3) et
66.3(2) et (4), des articles 84.1 et 84.2, des paragraphes 85(2.1),
85.1(2.1), 86(2.1), 87(3) et (9), 128.1(2) et (3), 138(11.7), 192(4.1) et
194(4.1) et de l’article 212.1;
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[65]
Under this
definition, the PUC of a class of shares is essentially the stated capital of
that class determined under the applicable corporate legislation, subject to
the adjustments specified in the provisions of the ITA that are enumerated at
the end of subparagraph (b)(iii) of the definition. In essence, this
portion of the definition of PUC incorporates by reference statutory provisions
outside the ITA that govern the computation of the stated capital of a
particular corporation. Thus, it may be said that the provision that is being
abused in the circumstances under consideration is not technically a provision
of the ITA. Nonetheless, by virtue of subparagraph 245(4)(a)(v), the
GAAR may apply in respect of an abuse of any other enactment that is relevant
in determining any amount that is relevant for the purpose of computing any tax
payable by a person under the ITA. In the circumstances, it is clear that the
determination of stated capital of the Class D Shares under the applicable
corporate legislation is relevant to the computation of the PUC of those shares
which, in turn, is relevant to the computation of the amount of Part XIII tax
that has been assessed against the appellant.
[66]
Against
this backdrop, it is necessary to consider the textual, contextual and
purposive interpretation of the principles governing the computation of the PUC
of Copthorne II and its successor Copthorne III.
[67]
In
paragraph 33 of its notice of appeal to the Tax Court of Canada, the appellant
stated that as a consequence of the amalgamation of Copthorne I, having a PUC
of $1.00, and VHHC Holdings, having a PUC of $67,401,279, the PUC of Copthorne
II, the amalgamated corporation, was $67,401,280. Because that amalgamation
occurred pursuant to the Alberta Business Corporations Act, R.S.A. 2000,
c. B-9 (the “ABCA”), it follows that the provisions of that legislation would
be relevant to the determination of the PUC of Copthorne II, the amalgamated
corporation.
[68]
The
applicable provisions of the ABCA were not put before this Court, and do not
appear to have been put before the Tax Court Judge. Instead, in this Court, as
in the Tax Court of Canada, the parties proceeded on the basis that the PUC of
an amalgamated corporation under the ABCA would be determined by aggregating
the PUC of each amalgamating corporation, except that for the purposes of this
determination, the PUC of any shares held by an amalgamating corporation in
another amalgamating corporation would be excluded.
[69]
In these
circumstances, it is readily apparent that a textual consideration of the
provisions of the ABCA that are applicable for the purposes of determining the
PUC of Copthorne II could not have been undertaken by the Tax Court Judge in
the traditional manner contemplated by the Canada Trustco approach.
[70]
The Tax
Court Judge referred to these provisions in the context of the provisions of
the ITA dealing with amalgamations, in particular subsections 87(2) and (3) and
paragraph 87(9)(b), which she held to be concerned with preserving the
continuity of PUC on amalgamations and ensuring that the PUC of an amalgamated
corporation does not exceed the aggregate PUC of the amalgamating corporations.
[71]
In
considering the purpose of the requirement that the PUC of intercorporate
shareholdings must be eliminated on an amalgamation, the Tax Court Judge, in my
view, determined that its purpose is to prevent double counting of PUC in the
sense that PUC that is essentially referable to property that disappears as a
consequence of the amalgamation (i.e. the shares that one amalgamating
corporation holds in another) should be similarly eliminated on the
amalgamation. In this regard, PUC may be considered as one means of financing
all or a portion of the acquisition of the property of a corporation. When that
corporation amalgamates with another corporation, the property of each
corporation generally becomes the property of the amalgamated corporation. In
those circumstances, it is logical that the PUC that financed the property of
the amalgamating corporations should become the PUC of the amalgamated
corporation which has succeeded to the property of each amalgamating
corporation. However, where the property of one amalgamating corporation is
shares of another amalgamating corporation, that property is eliminated on the
amalgamation and it logically follows that the PUC that has financed such
property should similarly be eliminated.
[72]
A simple
example is illustrative. If an individual incorporates a new corporation and
subscribes for a no par value share for $100, the PUC attributable to that
share would be $100. If that corporation incorporates a new subsidiary and
subscribes for a no par value share of that subsidiary for $100, the PUC of
that share would also be $100. In the case of the parent, its property would be
the shares of the subsidiary that cost $100. In the case of the subsidiary, its
property would be cash of $100. If the two corporations were to amalgamate, the
share of the parent would remain outstanding, the intercorporate share would be
eliminated and the amalgamated corporation would be left with cash of $100 as
its only asset. Unless the PUC attributable to the intercorporate share that is
eliminated is similarly eliminated, the PUC of the amalgamated corporation
would be $200 but its property would consist of only $100 of cash. In such
circumstances, it is logical to eliminate the PUC of the intercorporate share,
rather than permit it to be included in the computation of the PUC of the
amalgamated corporation.
[73]
This
example illustrates, in my view, the appropriateness of the Tax Court Judge’s
determination that the purpose of the requirement for the elimination of the
PUC of intercorporate shareholdings on an amalgamation is to avoid duplicative
increases in computing the PUC of the amalgamated corporation.
[74]
Having
determined that the purpose of the requirement to eliminate the PUC of
intercorporate shareholdings on an amalgamation is to avoid duplicative
additions to the PUC of the amalgamated corporation, the Tax Court Judge found
that the elimination of the intercorporate shareholdings between Copthorne I
and VHHC Holdings by virtue of the 1993 Share Sale, resulted in the
circumvention of that requirement in an abusive manner. In my view, this
largely factual determination was open to the Tax Court Judge and has not been
demonstrated to have been based upon any palpable and overriding error on her
part.
DISPOSITION
[75]
For the
foregoing reasons, I would dismiss this appeal, with costs.
“C. Michael Ryer”
“I
concur.
Alice
Desjardins J.A.”
“I
agree
John
M. Evans J.A.”
APPENDIX
Subsection 84(3), paragraph 87(3)(a), subsection
89(1), section 245 and subsection 248(10) of the Income Tax Act are as
follows:
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84.
(3) Where at any time after December 31, 1977 a corporation
resident in Canada has redeemed, acquired or cancelled in any manner whatever
(otherwise than by way of a transaction described in subsection 84(2)) any of
the shares of any class of its capital stock,
(a)
the corporation shall be deemed to have paid at that time a dividend on a
separate class of shares comprising the shares so redeemed, acquired or
cancelled equal to the amount, if any, by which the amount paid by the
corporation on the redemption, acquisition or cancellation, as the case may
be, of those shares exceeds the paid-up capital in respect of those shares
immediately before that time; and
(b)
a dividend shall be deemed to have been received at that time by each person
who held any of the shares of that separate class at that time equal to that
portion of the amount of the excess determined under paragraph 84(3)(a) that the number
of those shares held by the person immediately before that time is of the
total number of shares of that separate class that the corporation has
redeemed, acquired or cancelled, at that time.
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84. (3)
Lorsque, à un moment donné après le 31 décembre 1977, une société résidant au
Canada a racheté acquis ou annulé de quelque façon que ce soit (autrement que
par une opération visée au paragraphe (2)) toute action d’une catégorie
quelconque de son capital-actions :
a) la société est réputée avoir versé
au moment donné un dividende sur une catégorie distincte d’actions constituée
des actions ainsi rachetées, acquises ou annulées, égal à l’excédent éventuel
de la somme payée par la société lors du rachat, de l’acquisition ou de
l’annulation, selon le cas, de ces actions sur le capital versé relatif à ces
actions, existant immédiatement avant ce moment;
b) chacune des personnes qui détenaient
au moment donné une ou plusieurs actions de cette catégorie distincte est
réputée avoir reçu à ce moment un dividende égal à la fraction de l’excédent
déterminé en vertu de l’alinéa a) représentée par le
rapport existant entre le nombre de ces actions que détenait cette personne
immédiatement avant ce moment et le nombre total des actions de cette
catégorie distincte que la société a rachetées, acquises ou annulées, à ce
moment.
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|
87. (3) Subject to subsection 87(3.1), where
there is an amalgamation or a merger of 2 or more Canadian corporations, in
computing at any particular time the paid-up capital in respect of any
particular class of shares of the capital stock of the new corporation,
(a) there shall be deducted that
proportion of the amount, if any, by which the paid-up capital, determined
without reference to this subsection, in respect of all the shares of the
capital stock of the new corporation immediately after the amalgamation or
merger exceeds the total of all amounts each of which is the paid-up capital
in respect of a share (except a share held by any other predecessor
corporation) of the capital stock of a predecessor corporation immediately
before the amalgamation or merger, that
(i) the paid-up capital,
determined without reference to this subsection, of the particular class of
shares of the capital stock of the new corporation immediately after the
amalgamation or merger
is of
(ii) the paid-up capital,
determined without reference to this subsection, in respect of all of the
issued and outstanding shares of the capital stock of the new corporation
immediately after the amalgamation or merger; and …
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87. 3) Sous réserve du paragraphe (3.1), en cas de fusion ou
d’unification de plusieurs sociétés canadiennes, il faut, dans le calcul à un
moment donné du capital versé au titre d’une catégorie donnée d’actions du
capital-actions de la nouvelle société :
a) déduire
la fraction de l’excédent éventuel du capital versé, calculé compte non tenu
du présent paragraphe, à l’égard de toutes les actions du capital-actions de
la nouvelle société immédiatement après la fusion ou l’unification sur le
total des montants dont chacun représente le capital versé à l’égard d’une
action (exception faite d’une action détenue par toute autre société remplacée)
du capital-actions d’une société remplacée, immédiatement avant la fusion ou
l’unification, qui est représentée par le rapport entre :
(i) d’une
part, le capital versé, calculé compte non tenu du présent paragraphe, à
l’égard de la catégorie d’actions donnée du capital-actions de la nouvelle
société immédiatement après la fusion ou l’unification,
(ii)
d’autre part, le capital versé, calculé compte non tenu du présent
paragraphe, à l’égard de toutes les actions émises et en circulation du
capital-actions de la nouvelle société immédiatement après la fusion ou
l’unification; […]
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|
89. (1) In this
subdivision…
"paid-up capital"
«capital versé »
at any particular time means,
(a)
in respect of a share of any class of the capital stock of a corporation, an
amount equal to the paid-up capital at that time, in respect of the class of
shares of the capital stock of the corporation to which that share belongs,
divided by the number of issued shares of that class outstanding at that
time,
(b)
in respect of a class of shares of the capital stock of a corporation,
(i) where the particular time is before May 7, 1974, an
amount equal to the paid-up capital in respect of that class of shares at the
particular time, computed without reference to the provisions of this Act,
(ii) where the particular time is after May 6, 1974, and
before April 1, 1977, an amount equal to the paid-up capital in respect of
that class of shares at the particular time, computed in accordance with the Income
Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read
on March 31, 1977, and
(iii) where the particular time is after March 31, 1977,
an amount equal to the paid-up capital in respect of that class of shares at
the particular time, computed without reference to the provisions of this Act
except subsections 51(3) and 66.3(2) and (4), sections 84.1 and 84.2,
subsections 85(2.1), 85.1(2.1), 86(2.1), 87(3) and (9), 128.1(2) and (3),
138(11.7), 192(4.1) and 194(4.1) and section 212.1,
except that, where the corporation is a cooperative
corporation (within the meaning assigned by subsection 136(2)) or a credit
union and the statute by or under which it was incorporated does not provide
for paid-up capital in respect of a class of shares, the paid-up capital in
respect of that class of shares at the particular time, computed without
reference to the provisions of this Act, shall be deemed to be the amount, if
any, by which
(iv) the total of the amounts received by the
corporation in respect of shares of that class issued and outstanding at that
time
Exceeds
(v) the total of all amounts each of which is an amount
or part thereof described in subparagraph (iv) repaid by the corporation to
persons who held any of the issued shares of that class before that time, and
(c)
in respect of all the shares of the capital stock of a corporation, an amount
equal to the total of all amounts each of which is an amount equal to the
paid-up capital in respect of any class of shares of the capital stock of the
corporation at the particular time;
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89. (1)
Les définitions qui suivent s’appliquent à la présente sous-section […]
«capital versé »
"paid-up capital"
«capital versé » À un moment donné :
a) à l’égard d’une action d’une
catégorie quelconque du capital-actions d’une société, somme égale au capital
versé à ce moment, relativement à la catégorie d’actions du capital-actions
de la société à laquelle appartient cette action et divisé par le nombre des
actions émises de cette catégorie qui sont en circulation à ce moment;
b) à l’égard d’une catégorie d’actions
du capital-actions d’une société :
(i) lorsque le moment donné est
antérieur au 7 mai 1974, somme égale au capital versé au moment donné à
l’égard de cette catégorie d’actions, calculée compte non tenu de la présente
loi,
(ii) lorsque le moment donné est
postérieur au 6 mai 1974 et antérieur au 1er avril 1977, somme
égale au capital versé au moment donné à l’égard de cette catégorie
d’actions, calculée conformément à la Loi de l’impôt sur le revenu,
chapitre 148 des Statuts revisés du Canada de 1952, dans sa version
applicable au 31 mars 1977,
(iii) lorsque le moment donné est
postérieur au 31 mars 1977, somme égale au capital versé au moment donné au
titre de cette catégorie d’actions, calculée compte non tenu des dispositions
de la présente loi, à l’exception des paragraphes 51(3) et 66.3(2) et (4),
des articles 84.1 et 84.2, des paragraphes 85(2.1), 85.1(2.1), 86(2.1), 87(3)
et (9), 128.1(2) et (3), 138(11.7), 192(4.1) et 194(4.1) et de l’article
212.1;
toutefois dans le cas d’une société
coopérative, au sens du paragraphe 136(2), ou d’une caisse de crédit dont la
loi constitutive ne prévoit pas de capital versé au titre d’une catégorie
d’actions, le capital versé au titre de cette catégorie d’actions au moment
donné, calculé compte non tenu de la présente loi, est réputé égal à
l’excédent éventuel du total visé au sous-alinéa (iv) sur le total visé au
sous-alinéa (v):
(iv) le total des montants que la
société a reçus relativement aux actions de cette catégorie, émises et en
circulation à ce moment,
(v) le total des montants dont chacun
représente tout ou partie d’un montant visé au sous-alinéa (iv) que la
société a remboursé aux détenteurs des actions émises de cette catégorie
avant ce moment;
c) à l’égard de toutes les actions du capital-actions d’une
société, somme égale au total des montants dont chacun est une somme égale au
capital versé à l’égard d’une catégorie quelconque d’actions du
capital-actions de la société au moment donné.
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|
245. (1) In this
section,
"tax benefit"
«avantage fiscal »
"tax benefit" means a reduction, avoidance or
deferral of tax or other amount payable under this Act or an increase in a
refund of tax or other amount under this Act, and includes a reduction,
avoidance or deferral of tax or other amount that would be payable under this
Act but for a tax treaty or an increase in a refund of tax or other amount
under this Act as a result of a tax treaty;
"tax consequences"
«attribut fiscal »
"tax consequences" to a person means the
amount of income, taxable income, or taxable income earned in Canada of, tax
or other amount payable by or refundable to the person under this Act, or any
other amount that is relevant for the purposes of computing that amount;
"transaction"
«opération »
"transaction" includes an arrangement or
event.
General anti-avoidance
provision
(2) Where a transaction
is an avoidance transaction, the tax consequences to a person shall be
determined as is reasonable in the circumstances in order to deny a tax
benefit that, but for this section, would result, directly or indirectly,
from that transaction or from a series of transactions that includes that
transaction.
Avoidance transaction
(3) An avoidance
transaction means any transaction
(a)
that, but for this section, would result, directly or indirectly, in a tax
benefit, unless the transaction may reasonably be considered to have been
undertaken or arranged primarily for bona fide purposes other than to
obtain the tax benefit; or
(b)
that is part of a series of transactions, which series, but for this section,
would result, directly or indirectly, in a tax benefit, unless the
transaction may reasonably be considered to have been undertaken or arranged
primarily for bona fide purposes other than to obtain the tax benefit.
Application of subsection (2)
(4) Subsection (2)
applies to a transaction only if it may reasonably be considered that the
transaction
(a)
would, if this Act were read without reference to this section, result
directly or indirectly in a misuse of the provisions of any one or more of
(i) this Act,
(ii) the Income Tax
Regulations,
(iii) the Income Tax
Application Rules,
(iv) a tax treaty, or
(v) any other enactment that
is relevant in computing tax or any other amount payable by or refundable to
a person under this Act or in determining any amount that is relevant for the
purposes of that computation; or
(b) would result directly or
indirectly in an abuse having regard to those provisions, other than this
section, read as a whole.
Determination of tax
consequences
(5) Without restricting
the generality of subsection (2), and notwithstanding any other enactment,
(a) any deduction, exemption
or exclusion in computing income, taxable income, taxable income earned in
Canada or tax payable or any part thereof may be allowed or disallowed in
whole or in part,
(b) any such deduction,
exemption or exclusion, any income, loss or other amount or part thereof may
be allocated to any person,
(c) the nature of any payment
or other amount may be recharacterized, and
(d) the tax effects that
would otherwise result from the application of other provisions of this Act
may be ignored,
in determining the tax consequences to a person as is
reasonable in the circumstances in order to deny a tax benefit that would,
but for this section, result, directly or indirectly, from an avoidance
transaction.
Request for adjustments
(6) Where with respect
to a transaction
(a) a notice of assessment,
reassessment or additional assessment involving the application of subsection
245(2) with respect to the transaction has been sent to a person, or
(b) a notice of determination
pursuant to subsection 152(1.11) has been sent to a person with respect to
the transaction,
any person (other than a person referred to in paragraph
245(6)(a) or 245(6)(b))
shall be entitled, within 180 days after the day of mailing of the notice, to
request in writing that the Minister make an assessment, reassessment or
additional assessment applying subsection 245(2) or make a determination
applying subsection 152(1.11) with respect to that transaction.
Exception
(7) Notwithstanding any
other provision of this Act, the tax consequences to any person, following
the application of this section, shall only be determined through a notice of
assessment, reassessment, additional assessment or determination pursuant to
subsection 152(1.11) involving the application of this section.
Duties of Minister
(8) On receipt
of a request by a person under subsection 245(6), the Minister shall, with
all due dispatch, consider the request and, notwithstanding subsection
152(4), assess, reassess or make an additional assessment or determination
pursuant to subsection 152(1.11) with respect to that person, except that an assessment,
reassessment, additional assessment or determination may be made under this
subsection only to the extent that it may reasonably be regarded as relating
to the transaction referred to in subsection 245(6).
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245. (1) Les définitions qui
suivent s’appliquent au présent article.
«avantage fiscal »
"tax benefit"
«avantage fiscal » Réduction, évitement
ou report d’impôt ou d’un autre montant exigible en application de la
présente loi ou augmentation d’un remboursement d’impôt ou d’un autre montant
visé par la présente loi. Y sont assimilés la réduction, l’évitement ou le
report d’impôt ou d’un autre montant qui serait exigible en application de la
présente loi en l’absence d’un traité fiscal ainsi que l’augmentation d’un
remboursement d’impôt ou d’un autre montant visé par la présente loi qui
découle d’un traité fiscal.
«attribut fiscal »
"tax consequences"
«attribut fiscal » S’agissant des
attributs fiscaux d’une personne, revenu, revenu imposable ou revenu
imposable gagné au Canada de cette personne, impôt ou autre montant payable
par cette personne, ou montant qui lui est remboursable, en application de la
présente loi, ainsi que tout montant à prendre en compte pour calculer, en
application de la présente loi, le revenu, le revenu imposable, le revenu
imposable gagné au Canada de cette personne ou l’impôt ou l’autre montant
payable par cette personne ou le montant qui lui est remboursable.
«opération »
"transaction"
«opération » Sont assimilés à une
opération une convention, un mécanisme ou un événement.
Disposition générale anti-évitement
(2) En cas d’opération d’évitement, les attributs fiscaux d’une
personne doivent être déterminés de façon raisonnable dans les circonstances
de façon à supprimer un avantage fiscal qui, sans le présent article,
découlerait, directement ou indirectement, de cette opération ou d’une série
d’opérations dont cette opération fait partie.
Opération d’évitement
(3) L’opération d’évitement s’entend :
a) soit de l’opération dont, sans
le présent article, découlerait, directement ou indirectement, un avantage
fiscal, sauf s’il est raisonnable de considérer que l’opération est
principalement effectuée pour des objets véritables — l’obtention de
l’avantage fiscal n’étant pas considérée comme un objet véritable;
b) soit de l’opération qui fait
partie d’une série d’opérations dont, sans le présent article, découlerait,
directement ou indirectement, un avantage fiscal, sauf s’il est raisonnable
de considérer que l’opération est principalement effectuée pour des objets
véritables — l’obtention de l’avantage fiscal n’étant pas considérée comme un
objet véritable.
Application du par. (2)
(4) Le paragraphe (2) ne s’applique qu’à l’opération dont il est
raisonnable de considérer, selon le cas :
a) qu’elle entraînerait, directement ou indirectement, s’il n’était
pas tenu compte du présent article, un abus dans l’application des
dispositions d’un ou de plusieurs des textes suivants :
(i) la présente loi,
(ii) le Règlement de l’impôt sur le
revenu,
(iii) les Règles concernant
l’application de l’impôt sur le revenu,
(iv) un traité fiscal,
(v) tout autre texte législatif qui est
utile soit pour le calcul d’un impôt ou de toute autre somme exigible ou
remboursable sous le régime de la présente loi, soit pour la détermination de
toute somme à prendre en compte dans ce calcul;
b) qu’elle entraînerait, directement ou indirectement, un abus dans
l’application de ces dispositions compte non tenu du présent article lues
dans leur ensemble.
Attributs fiscaux à déterminer
(5) Sans préjudice de la portée générale du paragraphe (2) et malgré
tout autre texte législatif, dans le cadre de la détermination des attributs
fiscaux d’une personne de façon raisonnable dans les circonstances de façon à
supprimer l’avantage fiscal qui, sans le présent article, découlerait,
directement ou indirectement, d’une opération d’évitement :
a) toute déduction, exemption ou exclusion dans le calcul de tout
ou partie du revenu, du revenu imposable, du revenu imposable gagné au Canada
ou de l’impôt payable peut être en totalité ou en partie admise ou refusée;
b) tout ou partie de cette déduction, exemption ou exclusion ainsi
que tout ou partie d’un revenu, d’une perte ou d’un autre montant peuvent
être attribués à une personne;
c) la nature d’un paiement ou d’un autre montant peut être
qualifiée autrement;
d) les effets fiscaux qui découleraient par ailleurs de
l’application des autres dispositions de la présente loi peuvent ne pas être
pris en compte.
Demande en vue de déterminer les attributs
fiscaux
(6) Dans les 180 jours suivant la mise à la poste d’un avis de
cotisation, de nouvelle cotisation ou de cotisation supplémentaire, envoyé à
une personne, qui tient compte du paragraphe (2) en ce qui concerne une
opération, ou d’un avis concernant un montant déterminé en application du
paragraphe 152(1.11) envoyé à une personne en ce qui concerne une opération,
toute autre personne qu’une personne à laquelle un de ces avis a été envoyé a
le droit de demander par écrit au ministre d’établir à son égard une
cotisation, une nouvelle cotisation ou une cotisation supplémentaire en
application du paragraphe (2) ou de déterminer un montant en application du
paragraphe 152(1.11) en ce qui concerne l’opération.
Exception
(7) Malgré les autres dispositions de la présente loi, les attributs
fiscaux d’une personne, par suite de l’application du présent article, ne
peuvent être déterminés que par avis de cotisation, de nouvelle cotisation ou
de cotisation supplémentaire ou que par avis d’un montant déterminé en
application du paragraphe 152(1.11), compte tenu du présent article.
Obligations du ministre
(8) Sur
réception d’une demande présentée par une personne conformément au paragraphe
(6), le ministre doit, dès que possible, après avoir examiné la demande et
malgré le paragraphe 152(4), établir une cotisation, une nouvelle cotisation
ou une cotisation supplémentaire ou déterminer un montant en application du
paragraphe 152(1.11), en se fondant sur la demande. Toutefois, une
cotisation, une nouvelle cotisation ou une cotisation supplémentaire ne peut
être établie, ni un montant déterminé, en application du présent paragraphe
que s’il est raisonnable de considérer qu’ils concernent l’opération visée au
paragraphe (6).
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248. (10) For the
purposes of this Act, where there is a reference to a series of transactions
or events, the series shall be deemed to include any related transactions or
events completed in contemplation of the series.
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248. (10) Pour
l’application de la présente loi, la mention d’une série d’opérations ou
d’événements vaut mention des opérations et événements liés terminés en vue
de réaliser la série.
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