Bondar v. The Queen, 97 DTC 517 (TCC)

The taxpayer, who was the general manager of a corporation ("HSS"), acquired debt of another corporation ("LTM") for consideration that was found by the Court to be nominal. Following the acquisition of LTM by HSS and the subsequent amalgamation of HSS and LTM, the debt owing by the amalgamated corporation ("Amalco") that the taxpayer had so acquired was set-off by book entry against debt owing by the taxpayer to Amalco.

Beaubier TCJ. found that because one of the purposes of the carefully-planned transactions was for HSS to cause LTM to become profitable, and because the taxpayer reasonably foresaw (and intended) that he would realize a profit on the loans, the gain realized by the taxpayer on the subsequent set-off of the loans was on income account.

In connection with the acquisition of the shares of a corporation ("LTM") by another corporation ("HSS") of which the taxpayer was the general manager, the taxpayer used the proceeds of a daylight loan to advance money to LTM, LTM loaned the same sum to its shareholders, the shareholders loaned the same sum to the taxpayer on a non-interest bearing basis with the principal not being due for approximately 100 years, and the taxpayer used the sum to pay off the daylight loan. Beaubier TCJ. found that there was no evidence to rebut the assumption made by the Minister that the cost to the taxpayer of the loan made by him to LTM was nil. Accordingly, the repayment of such loan by way of set-off against amounts subsequently becoming owing by the taxpayer to the successor of LTM gave rise to taxable proceeds to the taxpayer.