The taxpayer, wished to sell land to the City of Calgary in consideration for two annual instalments in order to defer a portion of the gain to its second taxation year, but was informed that the City was precluded by statute from purchasing land over a period of years. As a result: the taxpayer sold the land to a trust company for the same purchase price, but payable in two instalments with the second instalment bearing interest at 7.5% per annum, and with a clause in the purchase agreement that the trust company could elect within 60 days of the date of the agreement of sale to void the agreement; and the trust company sold the land to the City for the same purchase price, paid in cash. Title was transferred directly from the taxpayer to the City.
Cattanach J. found that the transactions were not a sham as the intended legal rights of the three parties were exactly those described in the documents. For example, the Trust Company had the use of the money received on its sale to the City for a protracted period, which it could and did turn to profit on its own account.
Cattanach J., after noting that, in fact, the Trust Company did not pay interest until the time it received money on the sale to the City, rather than from the earlier date provided in the agreement, stated (at p. 6016):
"The delay in payment exceeded the estimated date and there is no impediment to the parties not to strictly comply with the agreement in this respect although the benefiting party is entitled to do so and the party detrimentally affected is bound by the agreement."
After noting that the trust company did not record a liability in its book of account to the taxpayer until the time it receiving payment from the City, Cattanach J. stated (at p. 6016):
"I do not think that bookkeeping entries or the lack of an entry can be accepted as contradicting the clear provisions of a written agreement."