Principal Issues: With respect to the Tax Court of Canada decision in Ghislain Poulin v. The Queen (Poulin) and Herman Turgeon v. The Queen (Turgeon), 2016 TCC 154: a) Could CRA comment on what it regards as the differentiating factors identified by the Court in this decision? b) Does this decision impact CRA's view of employee buyco arrangements? c) What is CRA's view of a share sale identical to Mr. Turgeon's except the holding corporation, an employee buyco, benefits from its involvement via dividends on the shares it purchased? The benefit is real in that such dividends are in addition to subsequent share redemption amounts received by the holding corporation and used to pay off debt owed to the original vendor of shares. Would CRA’s view differ if the holding corporation was compensated for its involvement otherwise than by dividend?
Position: General comments provided.
Reasons: The question as to whether an employee and an employee buyco are, upon the sale of the shares of the capital stock of a particular corporation, dealing with each other at arm’s length is a question of fact. Such determination can only be made following a review of all facts and circumstances relating to a particular situation. However, in a particular situation, it could be concluded that an employee and an employee buyco are acting in concert without separate interests. For example, the particular facts and circumstances could establish that the employee buyco assumes no risks associated with the purchase of the shares of the capital stock of the particular operating corporation, does not benefit from buying such shares, has no interest other than to enable the employee to realize a capital gain and claim the capital gains deduction, and has no role independent of the employee or the operating corporation. In other words, the facts of a particular situation could support the position that the employee buyco is only involved in the transaction as an accommodating party for the benefit of the employee.