Citation: 2013 TCC 318
Date: 20131022
Docket: 2011-137(IT)G
BETWEEN:
D & D LIVESTOCK LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Graham J.
[1]
This Appeal involves
the application of subsection 55(2) of the Income Tax Act (the “Act”)
to a complex series of transactions that the Appellant and a number of other
companies entered into in 2005. The Minister of National Revenue (the
“Minister”) reassessed the Appellant to re-characterize a $517,427 stock dividend
as a capital gain.
Agreed Facts:
[2]
Both parties agreed to
have this Appeal decided based on a Statement of Agreed Facts. The Statement of
Agreed Facts is reproduced below. The only changes that I have made to the Statement
filed by the parties are to remove the cross-references to the Joint Book of
Documents and the headings.
1.
At all material times to this appeal, the Appellant was
a taxable Canadian corporation as defined in s. 89(1) of the Income Tax Act (the
“Act”).
2.
Prior to May 27, 2005, the Appellant held 300 of 600
Class A Common Shares in Roberge Transport Inc. (“RTI”) with an adjusted cost
base (“ACB”) of $501,231.
3.
Prior to May 27, 2005:
a)
Hetherington Livestock Ltd. (“HLL”) owned 2,250,000 Class D Preferred
Shares in the Appellant;
b)
Hetherington Family Trust (“Trust”) owned 750 Class A Common Shares in
the Appellant;
c)
Robert Dougall (“Dougall”) owned 250 Class A Common Shares in the
Appellant;
d)
Douglas Hetherington (“Douglas”) owned 100% of the Preferred Shares in
HLL; and
e)
Douglas was the trustee of the
Trust.
4.
On May 27, 2005, Hetherington Livestock (Alberta) Ltd. (“HLAL”) was
incorporated, with the result that:
a)
HLL owned all of the 100 Common
Shares in HLAL;
b)
the ACB of the 100 Common Shares
was $1; and
c)
the PUC of the 100 Common Shares
was $1.
5.
On May 29, 2005 at 9:00 a.m., Dougall sold his 250 Class
A shares in the Appellant to HLL for $1,250,000, and:
a)
HLL paid Dougall the $1,250,000 by
a promissory note;
b)
the 250 Class A shares purchased by HLL had an ACB of $1,250,000 and PUC
of $25; and
c)
the Trust’s 750 Class A shares in the Appellant had an ACB of $75 and
PUC of $75.
6.
On May 29, 2005 at 10:00 a.m., the Trust disposed of its
750 Class A shares in the Appellant to HLL for $3,750,000, paid for by the
issuance of 3,750,000 Class D Preferred Shares. A joint election was filed
pursuant to s. 85(1) of the Income Tax Act in respect of this
transaction, with an elected amount equal to the Trust’s ACB of $75.00. As a
result of this transaction:
a)
HLL now owned 1000 Class A shares in the Appellant with an ACB of
$1,250,075.
b)
The PUC of the 1000 Class A shares
in the Appellant was $100.
7.
On May 29, 2005 at 11:00 a.m., the Appellant declared
and paid a stock dividend in the stated amount of $1,465,465 and resolved to
pay the dividend by issuing 1,000 Class A shares to HLL (“Stock Dividend 1”).
As a result of this transaction:
a)
HLL now owned 2000 Class A shares and 2,250,000 Class D Preferred Shares
in the Appellant;
b)
the ACB of the newly acquired 1,000 Class A shares was $1,465,465;
c)
the PUC of the newly acquired
1,000 Class A shares was $1,465,465;
d)
the total ACB of the 2000 Class A
shares was $2,715,540; and
e)
the total PUC of the 2000 Class A
shares was $1,465,565.
8.
For the purposes of subsection 55(2) of the Income
Tax Act, the portion of a capital gain that would have been realized on a
disposition of the Appellant’s capital stock owned by HLL that could reasonably
be considered to be attributable to income earned or realized by any
corporation after 1971 and immediately before payment of the First Dividend (“safe
income”) was $1,493,364. This safe income balance included the following
amounts:
a)
safe income earned or realized by the Appellant in the amount of $975,876;
and
b)
safe income in the amount of $517,488 earned or realized by RTI.
9.
On May 29, 2005 at 12:00 noon, HLL transferred all of
its shares in the Appellant, being the 2000 Class A common and 2,250,000 Class
D Preferred Shares, to 1138278 Alberta Ltd (“Newco”) for combined proceeds of
$7,050,000.
a)
The total ACB to HLL of the 2000
Class A shares was $2,715,540;
b)
the total PUC of the 2000 Class A
shares was $1,465,565;
c)
the ACB to HLL of the 2,250,000 Class D Preferred Shares in the
Appellant was $750,000;
d)
the PUC of the 2,250,000 Class D Preferred Shares in the Appellant was
$2;
e)
as consideration for all of the shares in the Appellant, Newco issued
3,465,000 Class D Preferred Shares and 99 Class A Common Shares to HLL; and
f)
the parties filed a joint election pursuant to s. 85(1) of the Income
Tax Act in respect of this transaction, with a total elected amount of
$3,465,465.
10.
On May 29, 2005 at 1:00 p.m., HLL disposed of 3,465,000
Newco Class D Preferred Shares to 1138313 Alberta Ltd. (“Newco 2”) for proceeds
of $3,465,000, paid for by the issuance of 100 Class A Common Shares. The
parties filed a joint election pursuant to s. 85(1) of the Income Tax Act
in respect of this transaction, with an elected amount equal to HLL’s ACB of
$3,465,000.
11.
On May 29, 2005 at 2:00 p.m., Newco 2 declared and paid
a dividend in kind on its Class A Common Shares to HLL in the amount of
$3,465,000. The dividend in kind was comprised of the 3,465,000 Class D
Preferred Shares of Newco.
12.
On May 30, 2005 at 3:00 p.m., the Appellant disposed of
its 300 Class A Common Shares in RTI to Hetherington Holdings Alberta Ltd.
(“Newco 3”) for $7,050,000, paid for by the issuance of 100 Class A Common
Shares by Newco 3, after which the Appellant became the sole shareholder of
Newco 3. The parties filed a joint election pursuant to s. 85(1) of the Income
Tax Act in respect of this transaction with an elected amount equal to the
Appellant’s ACB of $501,231.
13.
On May 30, 2005 at 4:00 p.m., Newco 3 paid a stock
dividend to the Appellant in the amount of $517,427, paid by issuing 900 Class
A Common Shares (“Stock Dividend 2”). A designation under paragraph 55(5)(f) of
the Income Tax Act was made in respect of this transaction.
14.
The Appellant filed a designation in respect of Stock
Dividend 2 under paragraph 55(5)(f) of the Act, pursuant to which the Stock
Dividend 2 was deemed by the Appellant to be ten separate taxable dividends in
the following amounts:
a)
$150,000
b)
$100,000
c)
$100,000
d)
$75,000
e)
$50,000
f)
$25,000
g)
$10,000
h)
$5,000
i)
$2,000
j)
$427
15.
On May 31, 2005 at 8:00 a.m. and 9:00 a.m. respectively,
Newco and the Appellant were wound up.
16.
On May 31, 2005 at 10:00 a.m., HLL disposed of 1000
Class A Common Shares in Newco 3 to Newco 2 for $7,050,000, paid for by the
issuance of 1000 Class A Common Shares by Newco 2.
a)
HLL’s ACB of the 1000 Class A Common Shares in Newco 3 was reported to
be $1,018,658;
b)
the PUC of the 1000 Class A Common Shares in Newco 3 was reported to be
$517,727; and
c)
the parties filed a joint election pursuant to s.85(1) of the Income
Tax Act in respect of this transaction with an elected amount equal to
HLL’s reported ACB of $1,018,658.
17.
On May 31, 2005 at 11:00 a.m., Newco 3 was wound up and
its assets were transferred in the course of the wind-up at that time. Newco 3
was dissolved on September 16, 2005.
18.
On May 31, 2005 at 12:00 noon, HLL disposed of 1,100
Class A Common Shares of Newco 2 to HLAL for $7,050,000, paid for by the
issuance of 9,900 Class A Common Shares by HLAL.
a)
HLL’s ACB of the 1,100 Class A Common Shares of Newco 2 was reported to
be $4,483,658;
b)
the PUC of the shares was reported
to be $1,983,293; and
c)
the parties filed a joint election pursuant to s. 85(1) of the Income
Tax Act in respect of this transaction with an elected amount equal to
HLAL’s reported ACB of $4,483,658.
19.
On June 1, 2005 at 9:00 a.m., Newco 2’s only asset was
the 300 RTI Class A Common Shares originally held by the Appellant.
20.
On June 1, 2005 at 9:00 a.m., HLAL sold Newco 2 to RBTL for
$7,050,000. HLAL reported its disposition of Newco 2 as follows:
Proceeds: $7,050,000
ACB: $4,483,658
Capital Gain $2,566,342
[3]
With the exception of
the term “safe income”, I will use the defined terms from the Statement of Agreed
Facts in these Reasons for Judgment.
Concessions:
[4]
At the beginning of the
trial, the Appellant conceded that the transactions described in the Statement
of Agreed Facts were a series of transactions and that subsection 55(2) would
apply to turn Stock Dividend 2 into a capital gain to the extent that the
Appellant had insufficient safe income on hand in its shares of Newco 3.
[5]
During the trial, the
Respondent conceded that if the Appellant did not have sufficient safe income
on hand in its shares of Newco 3 to cover Stock Dividend 2, then pursuant to paragraph
55(5)(f) the resulting capital gain already assessed by the Minister should
be reduced by $27,427 and the Appellant should be entitled to a deduction under
section 112 in the same amount.
Issue:
[6]
As a result of the
above concessions, the sole issue in this Appeal is whether the capital gain
that would have been realized had the Appellant disposed of its shares in Newco
3 immediately prior to Stock Dividend 2 could reasonably be considered to be
attributable to anything other than income earned or realized by RTI in excess
of $27,427.
[7]
Stated in more general
terms, the issue is whether the safe income on hand of shares in a subsidiary
is reduced by the amount of a stock dividend paid on the shares of the
subsidiary’s parent.
Safe Income and Safe Income On Hand:
[8]
The terms “safe income”
and “safe income on hand” are commonly used to describe the concepts found in
paragraph 55(5)(c) and subsection 55(2) of the Act.
[9]
Subsection 55(2) reads
as follows:
Where
a corporation resident in Canada has received a taxable dividend in respect of
which it is entitled to a deduction under subsection 112(1) or (2) or 138(6) as
part of a transaction or event or a series of transactions or events, one of
the purposes of which (or, in the case of a dividend under subsection 84(3),
one of the results of which) was to effect a significant reduction in the
portion of the capital gain that, but for the dividend, would have been
realized on a disposition at fair market value of any share of capital stock
immediately before the dividend and that could reasonably be considered to
be attributable to anything other than income earned or realized by any
corporation after 1971 and before the safe-income determination time for
the transaction, event or series, notwithstanding any other section of this
Act, the amount of the dividend …
(a)
shall be deemed not to be a dividend
received by the corporation;
(b)
where a corporation has disposed of the
share, shall be deemed to be proceeds of disposition of the share except to the
extent that it is otherwise included in computing such proceeds; …
[emphasis added.]
[10]
Paragraphs 55(5)(b),
(c) and (d) set out the method by which “income earned or
realized” is to be calculated for the purposes of section 55. The term “safe
income” is generally used to describe the income defined in paragraphs 55(5)(b),
(c) and (d). Paragraph 55(5)(c) applies to private
corporations. It states that for the purposes of section 55:
the
income earned or realized by a corporation for a period throughout which it was
a private corporation is deemed to be its income for the period otherwise
determined …
[11]
The Federal Court of
Appeal made it clear in Kruco Inc. v. The Queen, 2003 FCA 284 that
paragraph 55(5)(c) is a complete code for the calculation of safe
income. No adjustments are permitted to the safe income otherwise determined
under that paragraph.
[12]
The term “safe income
on hand” is generally used to describe the portion of the increase in value of
shares held by a given shareholder that can reasonably be considered to be
attributable to safe income. While no adjustments are permitted to be made as
part of the calculation of safe income, the courts have recognized that
reductions are permitted when calculating safe income on hand. The Federal
Court of Appeal described the concept as follows in Kruco:
…
37 The starting point for the subsection
55(2) apportionment was thus fixed by way of a deeming provision, leaving as
the only other exercise the determination of that part of the notional capital
gain which can “reasonably be considered to be attributable to anything other
than” this income.
38 There can be no doubt that this
exercise calls for an inquiry as to whether “the income earned or realized” was
kept on hand or remained disposable to fund the payment of the dividend. It follows,
for instance, that taxes or dividends paid out of this income must be extracted
from safe income (see Deuce Holdings Ltd., supra and Gestion
Jean-Paul Champagne Inc., supra ).
Summary of the Positions of the Parties:
[13]
The parties agree that the
safe income on hand of HLL’s shares in the Appellant immediately before the
declaration of Stock Dividend 1 was $1,493,364 calculated as follows:
|
safe income earned or realized by the Appellant
|
$975,876
|
|
plus: safe income earned or realized by RTI
|
$517,488
|
|
Consolidated Safe Income of HLL’s shares in the
Appellant
|
$1,493,364
|
[14]
In calculating the safe
income on hand of HLL’s shares in the Appellant immediately before the
declaration of Stock Dividend 1, the parties have accepted the principle that
when calculating the safe income on hand of the shares of a parent company, one
should include both the safe income of the parent and the safe income of its
subsidiary provided that both of those amounts can reasonably be considered to
be attributable to the gain on the shares of the parent. This principle of
consolidation arises from the word “any” in the phrase “income earned or
realized by any corporation” in subsection 55(2) and has been accepted by the
courts (Trico Industries Ltd. v. MNR, 94 DTC 1740 (TCC)). Thus, to
calculate the safe income on hand of HLL’s shares in the Appellant, the parties
have added the safe income of the Appellant to the safe income of RTI.
[15]
The parties also agree
that the safe income on hand of HLL’s shares in the Appellant immediately after
the declaration of Stock Dividend 1 was $27,427, calculated as follows:
|
safe income earned or realized by the Appellant
|
|
$975,876
|
|
plus: safe income earned or realized by RTI
|
|
$517,488
|
|
less: safe income earned or realized by the Appellant “used up” in Stock
Dividend 1
|
($975,876)
|
|
|
less: safe income earned or realized by RTI “used up” in Stock Dividend
1
|
($489,589)
|
|
|
total deduction of safe income converted to paid up
capital in Stock Dividend 1
|
|
($1,465,465)
|
|
less: immaterial unexplained difference
|
|
($472)
|
|
Safe Income on Hand of HLL’s shares in the Appellant
|
|
$27,427
|
[16]
In other words, both
parties agree that Stock Dividend 1 had the effect of reducing HLL’s safe
income on hand in its shares of the Appellant. The parties agree that, having
used the Appellant’s safe income to declare Stock Dividend 1, that safe income
is no longer available for future dividends declared by the Appellant. The
parties also agree that, having used the consolidated safe income of RTI to
declare Stock Dividend 1, that safe income is no longer available for future
dividends declared by the Appellant. This is because the gains that HLL had in
its shares in the Appellant could no longer reasonably be considered to be
attributable to the safe income earned by the Appellant and RTI since that safe
income had already been used up in the stock dividend. This principle, which I
will call the “dividend reduction principle”, has been accepted by the courts
(see Kruco at para. 38).
[17]
The parties also agree
that the safe income on hand that the Appellant had in the shares of RTI became
the safe income on hand that the Appellant had in the shares of Newco 3 when
the shares of RTI were rolled from the Appellant to Newco 3 pursuant to
subsection 85(1) of the Act.
[18]
Where the parties
disagree is on what the amount of that safe income on hand in the Appellant’s
shares in Newco 3 was immediately before the declaration of Stock Dividend 2. The
Appellant says that it had $517,488 in safe income on hand in its shares in
Newco 3 immediately before the declaration of Stock Dividend 2 calculated
as follows:
|
safe income earned or realized by RTI
|
$517,488
|
|
less: safe income earned or realized by RTI that was used up in Stock
Dividend 1
|
$0
|
|
Appellant’s safe income on hand immediately before
Stock Dividend 2
|
$517,488
|
[19]
The Respondent says
that the Appellant had only $27,427 of safe income on hand on its shares in
Newco 3 immediately before the declaration of Stock Dividend 2 calculated as
follows:
|
safe income earned or realized by RTI
|
$517,488
|
|
less: safe income used up in Stock Dividend 1
|
($489,589)
|
|
less: immaterial unexplained difference
|
($472)
|
|
Appellant’s safe income on hand immediately before
Stock Dividend 2
|
$27,427
|
[20]
In essence, the
Respondent says that the safe income on hand of the Appellant’s shares in Newco
3 was reduced by the amount of safe income that had been used up in Stock
Dividend 1. By contrast, the Appellant says that it was the safe income on hand
of HLL’s shares in the Appellant that was reduced by Stock Dividend 1, not the
safe income on hand of the Appellant’s shares in Newco 3. The Appellant admits
that the same safe income is being used twice, but says there is nothing in the
Act that prevents that double use.
[21]
The parties agree that
there is no case law directly on point.
Analysis:
[22]
The Appellant takes the
position that the dividend reduction principle only applies to reduce the safe
income on hand of the shares of the company that declared a stock dividend, not
the shares of any subsidiary company even if the safe income of that subsidiary
company contributed to the safe income on hand that covered the stock dividend.
The Appellant submits that the gain on the Appellant’s shares in Newco 3 can
reasonably be considered to be attributable to the income earned by RTI after
1971 because RTI has not done anything to distribute that income. The
declaration of Stock Dividend 1 reduced the Appellant’s assets. It did nothing
to reduce RTI’s assets. In the Appellant’s view, there is nothing else to which
that portion of the gain on the Appellant’s shares in Newco 3 could be
attributed. The gain in the shares of RTI was attributable to its income earned
after 1971 before Stock Dividend 1 was declared. That same gain remained after
Stock Dividend 1 was declared and was still attributable to RTI’s income earned
after 1971. The Appellant acknowledges that by taking this position it is
arguing that it should have the benefit of using the same safe income twice,
but it submits that that is the only interpretation that subsection 55(2)
allows in the circumstances.
[23]
The Appellant further
submits that the Federal Court of Appeal had the opportunity to interpret
subsection 55(2) in a purposive manner in order to prevent perceived abuses of
the subsection (Lamont Management Ltd. v. The Queen, 2000 DTC
6256 and VIH Logging Ltd. v. The Queen, 2005 DTC 5095) and chose instead
to interpret the subsection based on its explicit wording. The Appellant
submits that I should do the same.
[24]
The Respondent takes
the position that using the same safe income twice goes against the purpose of
subsection 55(2) and thus that it should be prevented. The capital gain
reported by the Appellant was $489,589 lower than it would have been had the
Appellant not used the same safe income twice.
[25]
The Respondent referred
me to paragraph 10 of Canada Trustco Mortgage Co. v. The Queen, 2005 SCC
54:
… The interpretation of a statutory
provision must be made according to a textual, contextual and purposive
analysis to find a meaning that is harmonious with the Act as a whole. When the
words of a provision are precise and unequivocal, the ordinary meaning of the
words play a dominant role in the interpretive process. On the other hand,
where the words can support more than one reasonable meaning, the ordinary meaning
of the words plays a lesser role. The relative effects of ordinary meaning,
context and purpose on the interpretive process may vary, but in all cases the
court must seek to read the provisions of an Act as a harmonious whole.
[26]
The Respondent argues
that the Courts had found portions of subsection 55(2) to be ambiguous (The
Queen v. Brelco Drilling Ltd., 99 DTC 5253 (FCA) and 729658 Alberta Ltd.
v. The Queen, 2004 TCC 474). I agree.
[27]
Based on that finding
of ambiguity, the Respondent urges me to conduct a textual, contextual and
purposive analysis of subsection 55(2). The Respondent submits that subsection
55(2) is a specific anti-avoidance provision that was designed to prevent
capital gains stripping while, at the same time, avoiding double taxation (Kruco,
Brelco; 729658 Alberta). I agree and I accept that what the
Appellant has done amounts to capital gains stripping.
[28]
Since the series of
transactions entered into by the Appellant have resulted in capital gains
stripping, the Respondent submits that I should interpret subsection 55(2)
in a manner consistent with its purpose in order to prevent the capital gains
stripping.
[29]
Finally, the Respondent
submits that in 729658 Alberta Justice Woods found the phrase “could
reasonably be considered to be attributable” to be ambiguous and used a
textual, contextual and purposive analysis to determine how it should be
interpreted and that I should do the same in this case. I agree that that is
what Justice Woods did and I agree with both her decision to do so in the circumstances
of the case before her and with the conclusion that she reached in that case. However,
729658 Alberta can be distinguished from the case at bar. Justice Woods
was dealing with a factual situation that caused the phrase “could reasonably
be considered to be attributable” to have ambiguity. The shares in question in
that case were transferred to holding companies on a partial rollover under subsection
85(1) at an elected amount that caused a portion of the capital gain on the
shares to be realized by the transferers and the balance to remain in the hands
of the holding companies. Dividends were then declared on the transferred
shares in an amount equal to what the taxpayer asserted was their safe income
on hand. Finally, the shares were then sold to an arm’s length purchaser for a
price equal to their adjusted cost base. As a result, no gain arose on the
sale. Justice Woods was faced with two possible interpretations of the phrase
“could reasonably be considered to be attributable”. Either the entire safe
income on hand could be attributed to the gain that had been realized on the
sale of the shares to the arm’s length purchaser or the safe income on hand could
be allocated on a pro-rata basis across the entire original gain on the shares
(i.e. allocated between the gain realized on the subsection 85(1) partial rollover
and the gain on the sale of shares to the arm’s length purchaser) such that
only a portion of it was left available on the sale by the holding companies.
Both interpretations could be supported by the wording of subsection 55(2). Justice Woods
considered the wording and stated at paragraph 18:
… In my view, the word “reasonably” in
the context of this anti-avoidance provision implies that the accrued gain
should be allocated based on the particular circumstances of the case to
counter the mischief that was sought to be addressed. …
[30]
Justice Woods went on
to review the purpose of subsection 55(2) and concluded that attributing the entire
safe income to the gain that had been realized on the sale to the third party was
consistent with that purpose.
[31]
The problem with the
Respondent’s position is that, while there was ambiguity in 729658 Alberta,
the Respondent is unable to identify any ambiguity in subsection 55(2) as that
subsection relates to the facts of the Appellant’s case. I am not being asked,
as Justice Woods was, to consider two possible interpretations and determine
which one is more in line with the purpose of the subsection. There is only one
way to attribute the Appellant’s gain. The first $517,488 of the gain in the
Appellant’s shares in Newco 3 is entirely attributable to income that RTI
earned after 1971. There is nothing else to which that gain could be
attributed. The shares in RTI had value because of the income earned by that
company after 1971. That income had not been removed from RTI by way of
dividend. The fact that a stock dividend (i.e. Stock Dividend 1) was declared
by the Appellant did nothing to change the fact that the shares in RTI obtained
their value from the income earned by RTI after 1971.
[32]
The Respondent is
asking me to interpret subsection 55(2) in a way that prevents the Appellant
from using the same safe income twice, but the Respondent has failed to show me
how I should do so. What word or phrase should I interpret differently in order
to achieve the result that the Respondent desires? The Respondent is, in
essence, asking me to give effect to the purpose of the subsection in spite of
its wording rather than interpreting its wording in a manner which gives effect
to its purpose.
[33]
Canada Trustco requires me to use a textual, contextual
and purposive analysis, but it also says that “[w]hen the words of a provision
are precise and unequivocal, the ordinary meaning of the words play a dominant
role in the interpretive process.” Applying the facts of this case to the
phrase, “could reasonably be considered to be attributable”, I am unable to
discern any imprecision or equivocation. In the absence of any ambiguity in, or
alternative interpretation of, the phrase “could reasonably be considered to be
attributable”, despite the fact that I recognize that the Appellant’s actions
have defeated the purpose of subsection 55(2), I do not believe that Canada
Trustco gives me the authority to simply re-write the subsection to give
effect to its purpose. As stated at paragraph 12 of that decision:
The provisions of the Income Tax Act
must be interpreted in order to achieve consistency, predictability and
fairness so that taxpayers may manage their affairs intelligently. As stated at
para. 45 of Shell Canada Ltd. v. R., [1999] 3 S.C.R. 622 (S.C.C.):
[A]bsent a specific
provision to the contrary, it is not the courts’ role to prevent taxpayers from relying on the
sophisticated structure of their transactions, arranged in such a way that the
particular provisions of the Act are met, on the basis that it would be
inequitable to those taxpayers who have not chosen to structure their
transactions that way. [Emphasis added.]
See also 65302 British Columbia,
at para. 51, per Iacobucci J. citing P.W. Hogg and J.E. Magee, Principles
of Canadian Income Tax Law (2nd ed. 1997), at pp. 475-76:
It would introduce intolerable
uncertainty into the Income Tax Act if clear language in a detailed
provision of the Act were to be qualified by unexpressed exceptions
derived from a court’s view of the object and purpose of the provision.
[34]
If the Minister finds
transactions such as the Appellant’s to be abusive, she can always attack them
using the general anti-avoidance rule or recommend that Parliament amend the Act.
Conclusion:
[35]
Based on all of the
foregoing, the appeal is allowed and the matter is referred back to the
Minister of National Revenue for reassessment on the basis that subsection
55(2) does not apply to the $517,427 stock dividend received by the Appellant
on May 30, 2005.
[36]
Costs
are awarded to the Appellant.
Signed at Ottawa,
Canada, this 22nd day of October 2013.
“David E. Graham”
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