Steeves v. The Queen, 77 DTC 5230 (FCA)

At the same time as the taxpayer and his brother purchased the remaining 50% of the common shares of a road-paving company in financial difficulty ("Paving"), they purchased book debts owing to shareholders controlled by the vending shareholders for $70,000, which was approximately 1/9 of their face amount.

Urie J.A. affirmed the finding of the trial judge that the purchase of these book debts had the desired purpose of reaping over $600,000, perhaps tax free, if the Paving venture went well. Accordingly, the book debts were purchased as an adventure in the nature of trade rather than as an investment.

After a corporation ("Paving") that was 50% owned by the taxpayers began experiencing financial difficulty, the taxpayers agreed with the other shareholders (the "Newfoundland group") to purchase the shares of the Newfoundland group for a nominal amount and to purchase book debts owing by Paving to companies controlled by the Newfoundland group (having a face amount of $620,633) for the sum of $70,000. The gains subsequently realized by them on repayment of the book debts were received on income account given that the purchase of the book debts occurred as an essential part of the overall plan to save Paving and given the potential rewards of the transaction.