Bowie
7.C.J.:
These
appeals
are
from
reassessments
of
the
Appellant
(OSFC)
for
income
tax
for
its
1993
and
1994
taxation
years.
They
result
from
the
disallowance
by
the
Minister
of
National
Revenue
(the
Minister)
of
the
Appellant’s
claim
to
be
entitled
to
deduct
a
non-capital,
loss
of
$12,572,274
in
computing
its
income
for
1993.
This
amount
is,
or
is
claimed
to
be,
the
Appellant’s
share
of
a
loss
of
$52,384,474
suffered
by
SRMP
Realty
and
Mortgage
Partnership
(SRMP)
in
its
fiscal
period
which
ended
on
September
30,
1993.
Of
this
loss
of
SRMP,
$52,147,632
results
from
its
99%
interest
in
a
partnership
known
as
STIL
Partnership
II
(STIL
II).
The
appeals
raise
issues
of
partnership
law,
and
issues
as
to
the
application
of
section
245
of
the
Income
Tax
Act
(the
Act)
as
re-enacted
in
1988.
facts
Standard
Trust
Company
(Standard)
carried
on
a
business
which
included
the
lending
of
money
on
the
security
of
mortgages
on
real
property.
For
a
number
of
reasons,
one
of
which
was
the
economic
climate
of
the
times,
it
became
insolvent,
and
on
May
2,
1991,
Mr.
Justice
Houlden,
sitting
as
a
judge
of
the
Ontario
Court
of
Justice
(General
Division),
made
an
Order
that
it
be
wound
up,
pursuant
to
the
Winding-up
Act.
Ernst
&
Young
Inc.
(E&Y,
or
the
liquidator)
was
appointed
liquidator.
Its
task,
as
liquidator,
was
to
obtain
the
maximum
realization
possible
on
the
assets
of
Standard,
and
to
that
end
it
was
empowered,
both
by
the
Winding-up
Act
and
by
the
Order
of
Houlden
J.,
to
carry
on
the
business
of
Standard,
so
far
as
was
necessary
for
the
beneficial
winding-up
of
the
company.
References
to
Standard
hereafter
are
references
to
Standard
Trust
Company
in
liquidation,
the
directing
mind
of
which
was
at
all
relevant
times
the
liquidator’s.
The
liquidator’s
directing
minds,
in
respect
of
the
matters
in
issue
here,
were
those
of
Mr.
Bradeen
and
Mr.
Drake.
It
was
soon
apparent
to
the
liquidator
that
of
the
total
mortgage
loan
portfolio,
some
$1.6
billion,
approximately
one-half
was
comprised
of
nonperforming
loans,
which
is
to
say
loans
upon
which
the
payments
of
principal
and
interest
were
90
days
or
more
in
arrears.
Liquidation
of
this
portfolio
of
non-performing
loans
was
a
major
challenge
for
E&Y.
Standard’s
original
interest
in
these
properties
was
simply
as
mortgagee,
but
by
this
time
it
was
in
possession
of
many
of
them,
pursuant
to
its
rights
under
the
mortgages,
and
the
probability
was
that
it
would
realize
on
them
only
through
the
exercise
of
its
rights
as
mortgagee
in
possession,
or
under
its
power
of
sale,
or
both.
The
real
estate
market
was
weak,
and
the
quality
of
the
loans
was
poor.
In
the
opinion
of
the
liquidator,
potential
buyers
of
the
properties
were
anticipating,
or
at
least
hoping,
that
it
would
be
forced
to
dispose
of
Standard’s
non-performing
loans,
or
the
properties
securing
them,
at
fire
sale
prices.
This
option,
was
not
an
attractive
one
to
E&Y.
These
non-performing
loans
included
17
loans
on
9
properties,
which
were
referred
to
in
the
evidence
collectively
as
the
STIL
II
portfolio.
The
historic
cost
to
Standard
of
these
loans
totalled
$85,368,872.
To
further
the
liquidation
of
this
group,
and
another
similar
group
(the
STIL
I
portfolio),
as
advantageously
as
possible,
the
liquidator,
with
the
help
of
its
lawyers,
formulated
a
plan
designed
to
sell
the
properties
to
investors
in
a
way
that
would
make
available
to
those
investors
for
tax
purposes
the
substantial
losses
that
Standard
had
suffered
as
a
result
of
the
drastic
decrease
in
the
value
of
the
portfolios’
mortgages
which
had
been
brought
about
by
the
recent
sudden
and
severe
decline
in
real
estate
values.
The
key
elements
of
the
plan
were
that
Standard
would
incorporate
a
wholly-owned
subsidiary,
and
they
would
then
form
a
partnership
in
which
Standard
would
have
a
99%
interest,
and
the
subsidiary
a
1%
interest.
Standard
would
transfer
nonperforming
mortgages
to
the
partnership
as
its
contribution
to
the
partnership
capital,
and
it
would
lend
to
the
subsidiary
sufficient
cash
to
make
its
capital
contribution.
By
reason
of
subsection
18(13)
of
the
Act,
the
mortgages
would
be
acquired
by
the
partnership,
for
income
tax
purposes,
at
their
cost
to
Standard,
notwithstanding
that
their
then
current
value
was
much
less.
The
liquidator
would
then
sell
Standard’s
99%
interest
in
the
partnership
to
an
arm’s
length
purchaser,
to
whom,
at
the
first
partnership
year-end,
the
tax
losses
would
accrue,
to
the
extent
of
99%.
To
execute
this
plan,
E&Y
applied
to
the
Court
for,
and
obtained,
authorization
to
incorporate
a
wholly-owned
subsidiary
of
Standard,
and
to
create
two
general
partnerships,
STIL
I
and
STIL
II,
which
would
acquire
these
two
portfolios,
with
Standard
and
its
subsidiary
owning
interests
of
99%
and
1%
respectively
in
each
partnership.
Pursuant
to
this
authorization,
E&Y
then
carried
out
the
following
series
of
transactions.
On
October
16,
1992,
1004568
Ontario
Inc.
(1004568)
was
incorporated
as
a
wholly-
owned
subsidiary
of
Standard.
On
October
23,
1992,
two
partnership
agreements
were
entered
into
between
Standard
and
1004568,
to
create
the
STIL
I
and
the
STIL
II
partnerships.
On
the
same
day,
1004568
borrowed
$730,220
from
Standard,
and
used
it
to
make
its
capital
contribution
for
its
1%
ownership
interest
in
each
partnership.
Standard
then
contributed
one
mortgage
portfolio
to
STIL
I,
and
another
to
STIL
II,
being
its
capital
contribution
to
each
partnership.
Standard’s
contribution
of
the
STIL
IT
portfolio
to
the
STIL
IT
partnership
was
governed
by
the
terms
of
a
document
called
the
Asset
Contribution
Agreement.
That
agreement
provided
that
the
purchase
price
to
be
paid
for
the
portfolio
by
STIL
II
was
$41,314,434,
which
was
the
net
book
value
of
the
STIL
II
portfolio
in
the
accounts
of
Standard
at
that
time.
It
also
provided
that
the
purchase
price
would
be
satisfied
by
crediting
Standard’s
capital
account
in
the
partnership
with
that
amount.
1004568
made
its
contribution
to
the
capital
of
the
partnership
by
a
cash
payment
of
$417,318,
an
amount
which
was
established
by
dividing
$41,314,434
by
99.
The
parties
are
in
agreement
that
the
mortgages
which
made
up
the
STIL
II
portfolio
had,
at
that
time,
an
aggregate
fair
market
value
of
$33,262,000.
Their
aggregate
cost
to
Standard
was
$85,368,872.
The
partnership
agreement
entered
into
by
Standard
and
1004568
is
some
15
pages
in
length.
It
contains
all
the
provisions
that
one
would
expect
to
find
in
a
commercial
partnership
agreement.
The
purpose
of
the
partnership
is
stated
in
the
following
terms:
Article
3
Purpose
of
Partnership
Commencing
upon
the
Asset
Contribution
Date
the
Partners,
through
the
Partnership,
will
carry
on
the
business
of
administering
the
Mortgage
Portfolio,
rearing
on
the
security
of
the
mortgages
included
in
the
Mortgage
Portfolio
and
enforcing
such
other
rights
of
the
Partnership,
as
mortgagee,
as
from
time
to
time
may
be
appropriate,
selling
some
or
all
of
the
underlying
real
property,
or
selling
some
or
all
of
the
mortgages
forming
part
of
the
Mortgage
Portfolio,
all
with
a
view
to
maximizing
the
value
and
marketability
of
the
Mortgage
Portfolio.
The
Partners
acknowledge
that
Standard
is
being
wound
up
pursuant
to
the
provisions
of
the
Winding-Up
Act
(Canada),
and
pursuant
to
Orders
of
the
Honourable
Mr.
Justice
Houlden
of
the
Ontario
Court
of
Justice
(General
Division)
made
on
May
2,
1991
and
on
July
19,
1991,
respectively.
The
Partners
further
acknowledge
that
to
the
extent
any
actions
of
the
Partnership
relative
to
the
Mortgage
Portfolio
would
have
required
the
approval
of
the
Court
if
such
actions
had
been
taken
by
Standard
had
it
continued
to
own
the
Mortgage
Portfolio,
such
actions
shall
continue
to
be
subject
to
the
approval
of
the
Court.
There
is
no
doubt,
and
indeed
it
is
not
disputed
by
the
Appellant,
that
an
important
integral
part
of
E&Y’s
plan
to
maximize
the
realization
of
the
two
portfolios
was
to
make
their
substantial
declines
in
value
available
to
the
ultimate
purchasers
of
the
99%
partnership
interests
as
losses
for
income
tax
purposes.
Had
the
mortgages
simply
been
sold
by
the
liquidator
to
a
party
dealing
at
arm’s
length,
then
the
losses
would
have
been
realized
by
Standard
at
the
time
of
the
sale.
It
did
not
appear,
in
the
fall
of
1992,
that
Standard
would
be
in
a
position
to
utilize
these
losses.
It
was
essential
to
the
realization
plan,
therefore,
that
Standard
not
sell
the
mortgages
directly
to
a
third
party,
but
instead
sell
its
99%
partnership
interest,
and
that
it
do
so
before
the
first
year-end
of
the
partnership,
at
which
time
the
partnership
would
be
required
by
section
10
of
the
Act
to
write
the
portfolio
assets
down
to
market
value.
The
selection
of
the
mortgages
making
up
the
portfolios
of
both
STIL
I
and
STIL
II
was
structured
by
E&Y
in
such
a
way
as
to
ensure
that
Standard’s
99%
interest
in
the
partnerships
would
be
readily
marketable.
Low
environmental
risks
associated
with
the
properties,
substantial
decreases
in
value,
a
positive
net
operating
income,
and
the
potential
for
asset
appreciation
were
all
factors
which
the
liquidator
took
into
consideration.
Included
were
mortgages
which,
for
a
variety
of
reasons,
would
prove
difficult
to
sell
individually.
Soon
after
October
23,
1992,
E&Y
began
an
intensive
campaign
to
market
its
99%
interest
in
the
partnerships.
A
list
of
potential
buyers
was
created,
and
an
initial
approach
was
made
to
a
number
of
them.
Indeed,
it
appears
that
discussions
with
potential
purchasers
were
underway
that
summer.
The
Appellant
is
a
private
corporation
owned
by
Mr.
Peter
Thomas.
It
specializes
in
purchasing
and
improving
distressed
real
properties.
Negotiations
between
E&Y
and
the
Appellant
began
in
January
1993,
with
E&Y
offering
the
Appellant
the
opportunity
to
purchase
the
mortgages
comprising
the
STIL
II
portfolio,
together
with
the
potential
tax
losses
in
the
order
of
$50
million,
as
a
package
deal.
The
Appellant
was
given
no
opportunity
to
purchase
these
mortgages
on
any
basis
other
than
as
a
package,
through
the
acquisition
of
Standard’s
99%
interest
in
the
STIL
II
partnership.
Much
evidence
was
led
as
to
the
exact
progress
of
the
negotiations
between
the
Appellant
and
E&Y
leading
up
to
the
sale
of
Standard’s
partnership
interest.
There
is
no
doubt
that
the
negotiation
was
a
difficult
one.
As
it
progressed,
the
Appellant
formed
the
belief
that
the
liquidator
had
been
less
than
candid
about
the
condition
of
some
of
the
properties
comprising
the
portfolio.
For
its
part,
E&Y
was
of
the
opinion
that
the
Appellant
was
unwilling
to
pay
a
fair
price,
and
that
it
was
unfairly
introducing
new
issues
into
the
negotiation
at
the
last
moment.
A
particularly
difficult
issue
was
the
terms
of
the
partnership
agreement
under
which
the
rehabilitation
and
sale
of
the
properties
would
be
carried
out.
It
was
important
to
the
Appellant
that
it
have
some
measure
of
control
over
the
management
of
the
operations,
because
it
had
confidence
in
its
own
expertise,
and
it
recognized
that
E&Y
had
little
or
no
experience
in
the
field
of
real
estate
development,
and
in
particular,
dealing:
with
distressed
properties.
What
was
not
in
dispute,
however,
was
the
amount
to
be
paid
for
the
potential
tax
losses.
From
the
outset,
and
throughout,
both
sides
were
agreed
that
the
final
price
for
the
portfolio
would
include
an
amount
of
$5,000,000,
approximately
10¢
on
the
dollar,
for
these.
These
negotiations
resulted
in
the
execution
of
an
Agreement
of
Purchase
and
Sale
between
Standard
and
the
Appellant,
with
the
transaction
effective
as
of
May
31,
1993.
The
Appellant
purchased
Standard’s
99%
interest
in
the
STIL
IT
partnership
for
a
consideration
made
up
of
three
elements:
1.
$17,500,000,
of
which
$14,500,000
was
in
the
form
of
a
promissory
note,
and
the
balance
was
cash
payable
on
closing;
2.
An
additional
amount,
described
as
the
earnout,
which
was
to
be
determined
by
a
formula
whereby
the
Appellant
and
Standard
would
share
any
proceeds
from
the
disposition
of
the
STIL
II
portfolio
in
excess
of
$17,500,000,
with
the
Appellant’s
proportionate
share
increasing
as
the
proceeds
increased.
3.
An
amount,
up
to
a
maximum
of
$5,000,000,
for
the
tax
losses
to
be
generated
within
the
partnership
from
the
portfolio,
contingent
on
the
partners
being
successful
in
deducting
them
from
their
other
income.
One
of
the
most
contentious
elements
in
the
negotiation
concerned
the
Appellant’s
insistence
that
if
it
was
to
buy
a
99%
share
of
STIL
II,
then
it
must
have
at
least
an
equal
voice
in
the
management
of
the
operations
of
the
partnership.
Other
issues
in
connection
with
the
terms
of
the
original
Partnership
Agreement
arose
too,
and
so
the
Agreement
of
Purchase
and
Sale
had
annexed
to
it
an
Amended
and
Restated
Partnership
Agreement
to
be
executed
by
the
original
partners
prior
to
closing.
This
was
done
on
June
22,
1993.
One
of
the
terms
that
OSFC
insisted
on
having
added
to
the
partnership
agreement
permitted
it
to
assign
its
partnership
interest
to
a
general
partnership,
conditional
upon
it
retaining
at
least
a
20%
interest
in
that
partnership.
The
Appellant
did
in
fact,
immediately
after
closing,
take
advantage
of
this
provision
to
syndicate
its
interest
in
STIL
IT
through
a
general
partnership,
SRMP.
Interests
in
SRMP
were
purchased
by
several
members
of
a
firm
of
tax
lawyers.
It
is
the
Appellant’s
share
of
the
losses,
distributed
to
it
through
SRMP,
which
gives
rise
to
these
appeals.
issues
The
Respondent
assessed
the
Appellant
on
two
alternative
bases.
The
first
is
that,
as
a
matter
of
law,
the
STIL
IT
partnership
was
not
a
partnership
at
all,
or
if
it
was
a
partnership
in
October
1992,
it
had
ceased
to
be
one
by
the
time
the
Appellant
purchased
its
interest
in
1993.
The
second
is
that
the
transactions
in
issue
are
avoidance
transactions
within
the
meaning
of
section
245
of
the
Act,
(sometimes
known
as
the
general
anti-avoidance
rule,
or
GAAR),
and
they
are
not
saved
by
subsection
245(4).
These
issues
require
that
I
answer
the
following
questions:
1.
Did
a
valid
partnership
come
into
existence
with
the
execution
of
the
STIL
IT
Partnership
Agreement
in
October
1992?
2.
If
so,
did
that
partnership
come
to
an
end
as
a
result
of
the
amendments
made
to
the
Partnership
Agreement
in
June
1993?
3.
If
the
STIL
IT
partnership
was
validly
created,
and
if
it
survived
the
1993
amendments
so
that
the
Appellant
was
able
to
purchase
the
99%
interest
of
Standard,
does
GAAR?
the
partnership
issue
The
Respondent
attacks
the
existence
of
a
partnership
on
several
grounds.
They
may
be
summarized
in
this
way.
1.
STIL
II
did
not
exist
as
a
partnership
from
the
outset
in
October
1992,
because
Standard
and
1004568
did
not
intend
to
carry
on
business
together
for
profit.
2.
STILL
IT
did
not
exist
in
the
period
between
October
1992
and
June
1993,
because
Standard
and
1004568
did
not
hold
themselves
out
to
be
partners
during
that
period.
3.
STILL
IT
did
not
exist
in
the
period
between
October
1992
and
June
1993
because
Standard
and
1004568
had
no
reasonable
expectation
of
running
the
business
at
a
profit
during
this
period.
4.
If
there
was
a
partnership
during
the
period
between
October
1992
and
June
1993,
then
it
came
to
an
end
before
the
sale
of
Standard’s
interest
to
the
Appellant.
The
effect
of
the
Amended
and
Restated
Partnership
Agreement
of
June
23,
1993,
it
is
argued,
was
not
simply
to
amend
the
existing
agreement.
The
changes
that
it
made
were
so
extensive
as
to
amount
to
the
formation
of
an
entirely
new
partnership
at
that
time
between
the
Appellant
and
1004568.
analysis
The
requirements
to
create
a
partnership
were
recently
considered
by
the
Supreme
Court
of
Canada
in
the
Continental
Bank
case.?
Bastarache
J..
with
whom
all
the
other
members
of
the
Court
agreed
on
this
point,
set
out
there
the
proper
approach
to
be
taken
to
ascertain
if
a
partnership
has
been
created.
!9
21.
After
it
has
been
found
that
the
sham
doctrine
does
not
apply,
it
is
necessary
to
examine
the
documents
outlining
the
transaction
to
determine
whether
the
parties
have
satisfied
the
requirements
of
creating
the
legal
entity
that
it
sought
to
create.
The
proper
approach
is
that
outlined
in
Orion
Finance
Ltd.
v.
Crown
Financial
Management
Ltd.,
[1996]
2
B.C.L.C.
78
(C.A.),
at
p.
84:
The
first
task
is
to
determine
whether
the
documents
are
a
sham
intended
to
mask
the
true
agreement
between
the
parties.
If
so,
the
court
must
disregard
the
deceptive
language
by
which
the
parties
have
attempted
to
conceal
the
true
nature
of
the
transaction
into
which
they
have
entered
and
must
attempt
by
extrinsic
evidence
to
discover
what
the
real
transaction
was.
There
is
no
suggestion
in
the
present
case
that
any
of
the
documents
was
a
sham.
Nor
is
it
suggested
that
the
parties
departed
from
what
they
had
agreed
in
the
documents,
so
that
they
should
be
treated
as
having
by
their
conduct
replaced
it
by
some
other
agreement.
Once
the
documents
are
accepted
as
genuinely
representing
the
transaction
into
which
the
parties
have
entered,
its
proper
legal
categorisation
is
a
matter
of
construction
of
the
documents.
This
does
not
mean
that
the
terms
which
the
parties
have
adopted
are
necessarily
determinative.
The
substance
of
the
parties’
agreement
must
be
found
in
the
language
they
have
used;
but
the
categorisation
of
a
document
is
determined
by
the
legal
effect
which
it
is
intended
to
have,
and
if
when
properly
construed
the
effect
of
the
document
as
a
whole
is
inconsistent
with
the
terminology
which
the
parties
have
used,
then
their
ill-chosen
language
must
yield
to
the
substance.
22.
Section
2
of
the
Partnerships
Act
defines
partnership
as
“the
relation
that
subsists
between
persons
carrying
on
a
business
in
common
with
a
view
to
profit”.
This
wording,
which
is
common
to
the
majority
of
partnership
statutes
in
the
common
law
world,
discloses
three
essential
ingredients:
(1)
a
business,
(2)
carried
on
in
common,
(3)
with
a
view
to
profit.
I
will
examine
each
of
the
ingredients
in
turn.
23.
The
existence
of
a
partnership
is
dependent
on
the
facts
and
circumstances
of
each
particular
case.
It
is
also
determined
by
what
the
parties
actually
intended.
As
stated
in
Lindley
&
Banks
on
Partnership
(17th
ed.
1995),
at
p.
73:
“in
determining
the
existence
of
a
partnership
...
regard
must
be
paid
to
the
true
contract
and
intention
of
the
parties
as
appearing
from
the
whole
facts
of
the
case”.
24.
The
Partnerships
Act
does
not
set
out
the
criteria
for
determining
when
a
partnership
exists.
But
since
most
of
the
case
law
dealing
with
partnerships
results
from
disputes
where
one
of
the
parties
claims
that
a
partnership
does
not
exist,
a
number
of
criteria
that
indicate
the
existence
of
a
partnership
have
been
judicially
recognized.
The
indicia
of
a
partnership
include
the
contribution
by
the
parties
of
money,
property,
effort,
knowledge,
skill
or
other
assets
to
a
common
undertaking,
a
joint
property
interest
in
the
subject-matter
of
the
adventure,
the
sharing
of
profits
and
losses,
a
mutual
right
of
control
or
management
of
the
enterprise,
the
filing
of
income
tax
returns
as
a
partnership
and
joint
bank
accounts.
(See
A.
R.
Manzer,
A
Practical
Guide
to
Canadian
Partnership
Law
(1994
(loose-leaf)),
at
pp.
2-4
et
seq.
and
the
cases
cited
therein.)
25.
In
cases
such
as
this,
where
the
parties
have
entered
into
a
formal
written
agreement
to
govern
their
relationship
and
hold
themselves
out
as
partners,
the
courts
should
determine
whether
the
agreement
contains
the
type
of
provisions
typically
found
in
a
partnership
agreement,
whether
the
agreement
was
acted
upon
and
whether
it
actually
governed
the
affairs
of
the
parties
(Mahon
v.
Minister
of
National
Revenue,
91
D.T.C.
878
(T.C.C.)).
On
the
face
of
the
agreements
entered
into
by
the
parties,
I
have
found
that
the
parties
created
a
valid
partnership
within
the
meaning
of
s.
2
of
the
Partnerships
Act.
I
have
also
found
that
the
parties
acted
upon
the
agreements
and
that
the
agreements
governed
their
affairs.
In
the
present
case,
a
partnership
agreement
was
executed
on
behalf
of
both
Standard
and
its
subsidiary
in
October
1992.
It
contained
all
the
usual
provisions
of
the
kind
referred
to
by
Bastarache
J.
In
particular,
it
contained
clauses
governing
the
formation
of
the
partnership,
its
continued
existence
for
a
term
of
five
years,
the
purpose
for
which
it
was
formed,
the
contributions
of
the
partners
to
its
capital,
the
management
of
the
partnership
business,
the
manner
of
keeping
the
partnership
accounts,
and
the
allocation
of
profit
and
loss
to
the
partners.
In
Continental
Bank
it
was
said
at
paragraph
26:
...
he
main
dispute
between
the
parties
concerns
whether
Leasing
intended
to
carry
on
business
in
common
with
Central’s
subsidiaries
with
a
view
to
profit.
The
same
question
is
central
to
the
first
issue
in
the
present
case.
It
may
be
framed
this
way:
Did
Standard,
when
the
original
Partnership
Agreement
was
signed
in
October
1992,
intend
to
carry
on
business
in
common
with
1004568,
with
a
view
to
profit?
As
Bastarache
J.
pointed
out
in
the
passage
that
I
have
quoted
above,
this
question
can
only
be
answered
by
examining
all
the
facts
and
circumstances
of
the
particular
case.
These
are:
1.
Standard
was
insolvent,
and
in
liquidation,
and
was
the
owner
of
the
assets
making
up
the
STIL
IT
portfolio,
among
others.
2.
Those
assets
had
a
historical
value
on
the
books
of
Standard
far
in
excess
of
their
current
realizable
market
value
at
the
time
Standard
was
ordered
to
be
wound
up.
In
October
1992,
the
net
book
value
of
the
portfolio
to
Standard
was
$41,314,434,
and
its
fair
market
value
was
approximately
$33,000,000.
3.
E&Y,
as
the
liquidator,
was
charged
with
obtaining
the
maximum
possible
realization
on
the
assets.
4.
It
is
abundantly
clear
from
exhibits
R-3,
5,
6,
7,
8,
9,
10,
11,
12,
13
and
14,
and
from
the
evidence
of
Mr.
Bradeen,
that
the
liquidator,
and
therefore
Standard,
had
the
intention
of
selling
a
partnership
interest
to
investors
prior
to
the
application
to
Mr.
Justice
Houlden
for
authority
to
create
the
partnership.
The
price
that
the
liquidator
expected
to
be
paid
on
the
sale
of
that
interest
included
some
amount
based
upon
the
losses,
for
the
purpose
of
computing
income
under
the
Act,
which
would
be
generated
in
the
partnership
during
its
first
fiscal
year,
and
made
available
to
the
investors
at
the
first
fiscal
year-
end,
to
set
off
against
their
incomes
from
other
sources.
5.
E&Y
well
understood,
throughout,
that
marketing
the
losses
required
that
they
be
realized
by
the
partnership,
and
not
by
Standard,
and
that
this
required
that
Standard’s
interest
in
the
partnership
be
sold
within
13
months
following
the
creation
of
the
partnership.
6.
The
only
business
activity
that
could
be
carried
on
by
the
liquidator
was
to
realize
on
the
assets
of
Standard.
That
was
therefore
the
only
business
that
could
be
carried
on
by
the
STIL
II
partnership.
7.
From
the
outset
in
October
1992,
STIL
IT
had
a
business
plan
for
the
management
and
sale
of
the
properties,
and
it
sold
one
property
prior
to
the
closing
of
the
sale
of
Standard’s
99%
interest.
Standard’s
intention
in
entering
into
the
partnership
arrangement
was
to
improve
the
properties
making
up
the
portfolio,
to
lease
them
and
collect
rents,
and
eventually
to
sell
them
at
prices
which
would
be
enhanced
both
by
the
improvements
made
to
the
properties,
and
by
improved
market
conditions.
8.
The
partnership
made
substantial
profits
between
October
1992
and
the
date
of
trial.
It
is
established
by
the
judgment
in
Continental
Bank
that
a
partnership
may
be
validly
created,
even
though
its
intended
duration
is
as
short
as
three
days,
and
its
principal
purpose
is
to
effect
a
sale
of
assets
in
a
way
which
will
minimize
the
incidence
of
taxation,
so
long
as
an
incidental
purpose
is
to
do
some
business
and
to
earn
some
profit.
Counsel
for
the
Respondent
argued
that
E&Y,
in
its
capacity
as
the
liquidator,
was
limited
to
winding-up
the
business
of
Standard,
and
that
it
therefore
did
not
have
the
capacity
to
enter
into
any
new
business
ventures
on
its
behalf,
and
so
could
not
enter
into
a
partnership
with
the
intention
of
carrying
on
business
for
profit.
This
submission
ignores
the
fact
that
at
the
time
it
became
insolvent,
Standard
had
an
ongoing
business
which
included
lending
money
on
the
security
of
mortgages.
This
necessarily
included
dealing
with
those
mortgages,
and,
in
cases
of
default,
dealing
with
the
mortgaged
properties
as
well.
It
is
this
business
that
was
to
be
continued,
at
least
for
several
weeks
or
months,
by
STIL
IT,
following
its
creation
in
October
1992.
The
Respondent’s
argument
that
STIL
II
did
not
hold
itself
out
as
a
partnership
during
the
period
between
October
1992
and
June
1993
cannot
be
sustained
on
the
facts.
It
filed
registrations
in
four
provinces,
it
opened
bank
accounts,
and
it
sent
correspondence
to
prospective
purchasers,
and
to
those
third
parties
from
whom
the
Appellant
required
information
during
the
course
of
its
due
diligence.
In
all
of
these
communications
the
partners
held
themselves
out
to
be
carrying
on
business
in
partnership.
Counsel
for
the
Respondent
also
argued
that
STIL
II
was
not
a
partnership
from
the
outset
in
October
1992,
because
it
had
no
reasonable
expectation
of
profit
at
that
time,
and
moreover
the
sale
to
it
of
the
STIL
II
portfolio
at
the
net
book
value
of
$41,314,434,
when
it
had
a
fair
market
value
of
about
$33,000,000,
ensured
that
it
could
not
make
a
profit,
or
at
least
not
prior
to
the
sale
of
Standard’s
interest.
As
to
the
latter
point,
Mr.
Bradeen
testified
that
when
the
liquidator
transferred
the
portfolio
assets
to
STIL
II
the
net
book
value
was
used
as
the
selling
price
as
a
matter
of
convenience,
and
that
it
was
not
considered
to
be
of
any
importance.
What
was
important
was
that,
for
income
tax
purposes,
subsection
18(13)
of
the
Act
would
govern
the
value
of
the
assets
in
the
hands
of
the
partnership.
It
is
clear,
however,
from
the
evidence
of
Mr.
Bradeen,
and
from
a
succession
of
business
plans
that
were
produced
and
modified
between
the
summer
of
1992
and
March
1993,
that
the
intention
of
the
liquidator,
and
therefore
of
both
Standard
and
1004568,
was
that
during
whatever
period
Standard
remained
a
partner,
the
portfolio
assets
would
be
managed
in
a
way
that
would
see
them
produce
income,
to
the
extent
possible,
and
at
the
same
time
be
enhanced
in
value
with
a
view
to
their
ultimate
sale
at
the
best
possible
price.
In
my
view
the
documents,
and
the
actions
of
both
the
liquidator
and
the
Appellant,
establish
that
profit
making
and
profit
sharing
were
motivating
factors
driving
the
business
arrangement.
As
Bastarache
J.
put
it
in
Continental
Bank:
…
This
is
sufficient
to
satisfy
the
definition
in
s.
2
of
the
Partnerships
Act
in
the
circumstances
of
this
case.
The
Supreme
Court
in
that
case
placed
great
emphasis
on
the
terms
of
the
partnership
agreement,
and
in
particular
on
those
terms
relating
to
partnership
profits.
Similar
provisions
are
to
be
found
in
the
partnership
agreement
here,
both
before
and
after
the
amendments
made
in
1993.
The
actual
financial
results
are
also
significant.
For
the
fiscal
year
ended
October
31,
1993,
STIL
II
showed
a
net
loss,
for
income
tax
purposes,
of
$52,674,376,
resulting
from
the
sale
of
three
of
the
properties
and
the
writedown
at
year-end
of
those
remaining.
This
loss
for
tax
purposes
does
not
represent
commercial
reality,
however.
STIL
H’s
Statement
of
Operations
for
the
twelve-month
period
ending
October
31,
1993
shows
net
income
from
operations
of
$1,051,459,
which
is
$568,539
greater
than
was
budgeted.
Overall,
it
suffered
a
net
loss
for
the
12
months
of
$8,242,113,
as
a
result
of
non-operational
expenses,
which
were
not
budgeted,
totalling
$8,725,033.
The
results
for
the
next
four
fiscal
periods
showed
net
profits
in
the
following
amounts:
01-10-93
to
30-09-94
|
$2,607,762
|
(Exhibit
R-54)
|
01-10-94
to
30-09-95
|
$
681,636
|
(Exhibit
R-54)
|
01-10-95
to
31-12-95
|
$
157,695
|
(Exhibit
R-55)
|
01-01-96
to
31-12-96
|
$
835,697
|
(Exhibit
R-56)
|
The
Appellant
calculated
the
net
operating
income
of
STIL
II
to
be
$5,912,297
for
the
period
between
1993
and
1997
(Exhibit
A-168).
It
calculated
SRMP’s
share
of
the
net
profits
and
the
cash
flow
from
the
sale
of
properties
between
1993
and
1998
to
be
$6,317,192,
an
annual
rate
of
return
of
32.82%
on
the
$3,850,000
cash
payment
which
it
invested
to
purchase
its
99%
share.
While
the
computation
of
the
rate
of
profit
on
only
the
cash
portion
of
the
purchase
price
may
have
the
effect
of
inflating
the
rate
of
return,
as
argued
by
counsel
for
the
Respondent,
these
results
demonstrate
that
the
partnership
business
certainly
had
the
potential
for
profit
from
the
outset.
Counsel
for
the
Respondent
also
argued
forcefully
that
STILL
II
could
not
be
a
partnership,
because
it
was
inhibited
by
both
the
Order
of
Houlden
J.
and
the
provisions
of
the
Winding-up
Act
from
conducting
new
business.
This
argument
also
cannot
succeed
in
the
light
of
the
Continental
Bank
decision.
The
Supreme
Court
held
there
that
the
requirement
that
partners
carry
on
business
in
common
was
satisfied,
although
the
partners
did
no
more
than
continue
an
existing
business
during
a
three-day
period,
entering
into
no
new
transactions,
and
making
no
operational
decisions.
STIL
II,
both
before
and
after
the
sale
of
Standard’s
99%
interest,
carried
on
a
much
more
active
business
than
that.
Counsel
for
the
Respondent
made
two
arguments
by
way
of
attack
on
the
continuing
existence
of
STIL
II
as
a
partnership
following
the
amendments
made
to
the
partnership
agreement
in
June
1992.
First,
he
argued
that
the
amendments
were
negotiated
and
signed
by
Standard
as
the
agent
of
the
Appellant,
because
it
was
intended
throughout
these
negotiations
that
it
would
be
the
Appellant
and
not
Standard
that
would
hold
the
99%
interest
under
the
amended
agreement.
The
result
then,
it
is
said,
was
not
the
amendment
of
the
terms
of
a
partnership
and
the
sale
of
an
interest
in
it,
but
the
transfer
from
the
partnership
to
the
Appellant
of
a
99%
interest
in
the
portfolio
assets.
Counsel
then
argued,
in
the
alternative,
that
the
changes
made
to
the
terms
of
the
partnership
agreement
were
so
extensive
that
their
effect
was
to
create
a
new
and
different
partnership
as
of
that
time,
with
the
result
that
the
original
STIL
IT
partnership
was,
as
a
matter
of
law,
dissolved.
It
was
argued
that
the
result,
for
purposes
of
the
Act,
was
that
the
portfolio
assets
were
either
distributed
to
the
partners
on
dissolution
of
STIL
Il,
or
else
transferred
to
a
new
and
different
partnership.
In
either
event,
the
transfer
of
the
assets
would
not
carry
with
it
the
benefit
of
subsection
18(13)
of
the
Act,
and
so
the
transfer
would
take
place
at
the
then
current
market
value,
with
the
losses
being
realized
in
the
old
partnership
upon
its
dissolution
as
of
May
31,
1993,
and
attributed
to
Standard
and
1004568
as
of
that
date,
by
reason
of
section
96
of
the
Act.
In
my
view,
these
arguments
cannot
succeed.
There
is
no
doubt
that
by
the
time
the
liquidator
and
the
Appellant
negotiated
the
changes
to
the
partnership
agreement,
which
were
incorporated
into
the
Amended
and
Restated
Partnership
Agreement,
it
was
contemplated
by
both
of
them
that
it
would
be
the
Appellant,
or
its
assignee,
that
would
hold
the
99%
interest.
Nevertheless,
it
was
the
intention
of
both
parties
that
what
would
pass
would
be
a
partnership
interest,
and
not
simply
an
interest
in
the
portfolio
assets.
The
negotiation
clearly
proceeded
throughout
on
that
basis,
and
the
document
that
they
ultimately
executed
reflects
that
intention.
The
test
to
be
applied
in
these
circumstances
is
that
set
out
in
the
following
three
paragraphs
from
the
judgment
of
Millett
L.J.
in
the
Orion
Finance^
case,
and
adopted
by
the
Supreme
Court
of
Canada
in
Continental
Bank.
The
proper
approach
which
the
court
adopts
in
order
to
determine
the
legal
category
into
which
a
transaction
falls
is
well
established.
The
most
recent
case
on
the
subject
is
Welsh
Development
Agency
v.
Export
Finance
Co.
Ltd.
[1992]
BCLC
148.
The
first
task
is
to
determine
whether
the
documents
are
a
sham
intended
to
mask
the
true
agreement
between
the
parties.
If
so,
the
court
must
disregard
the
deceptive
language
by
which
the
parties
have
attempted
to
conceal
the
true
nature
of
the
transaction
into
which
they
have
entered
and
must
attempt
by
extrinsic
evidence
to
discover
what
the
real
transaction
was.
There
is
no
suggestion
in
the
present
case
that
any
of
the
documents
was
a
sham.
Nor
is
it
suggested
that
the
parties
departed
from
what
they
had
agreed
in
the
documents,
so
that
they
should
be
treated
as
having
by
their
conduct
replaced
it
by
some
other
agreement.
Once
the
documents
are
accepted
as
genuinely
representing
the
transaction
into
which
the
parties
have
entered,
its
proper
legal
categorisation
is
a
matter
of
construction
of
the
documents.
This
does
not
mean
that
the
terms
which
the
parties
have
adopted
are
necessarily
determinative.
The
substance
of
the
parties’
agreement
must
be
found
in
the
language
they
have
used;
but
the
categorisation
of
a
document
is
determined
by
the
legal
effect
which
it
is
intended
to
have,
and
if
when
properly
construed
the
effect
of
the
document
as
a
whole
in
inconsistent
with
the
terminology
which
the
parties
have
used
then
their
ill-chosen
language
must
yield
to
the
substance.
The
legal
classification
of
a
transaction
is
not,
therefore,
approached
by
the
court
in
vacuo.
The
question
is
not
what
the
transaction
is
but
whether
it
is
in
truth
what
it
purports
to
be.
Unless
the
documents
taken
as
a
whole
compel
a
different
conclusion,
the
transaction
which
they
embody
should
be
categorised
in
conformity
with
the
intention
which
the
parties
have
expressed
in
them.
Applying
this
test,
I
conclude
that
both
the
creation
of
STIL
II,
and
the
subsequent
sale
of
Standard’s
interest
in
it
to
the
Appellant,
were
legally
effective
to
accomplish
what
the
parties
intended
to
bring
about.
I
find
no
merit
in
the
argument
that
the
changes
made
to
the
terms
of
the
partnership
agreement
were
so
extensive
as
to
amount
to
the
creation
of
a
new
partnership,
and
the
dissolution
of
the
old
one.
Counsel
catalogued
some
13
different
amendments
to
the
agreement
in
three
pages
of
his
written
argument,
which
he
said
made
the
Amended
and
Restated
Partnership
Agreement
not
simply
an
amended
agreement,
but
a
new
and
different
one.
No
authority
was
cited
in
support
of
this
proposition.
A
partnership
is
the
relationship
among
persons
who
carry
on
a
business
together
with
a
view
to
profit;
its
essence
is
the
business
itself.
Here
it
is
clear
that
the
same
business
was
to
be
carried
on
after
the
sale
to
the
Appellant
as
had
been
carried
on
before.
I
find
that
the
partnership
survived
the
amendment
of
the
agreement
and
the
sale
of
Standard’s
interest.
The
Appellant
therefore
succeeds
on
the
partnership
issues.
I
wish
to
make
two
observations
before
leaving
this
aspect
of
the
matter,
however.
The
first
is
that
the
Respondent
did
not
raise
any
issue
of
a
sham
in
this
case,
nor
does
the
evidence
indicate
to
me
that
there
was
any
basis
upon
which
to
do
so.
The
second
is
that
it
was
not
argued
for
the
Respondent
that
the
withdrawal
of
Standard
as
a
partner
in
STIL
II,
and
the
entry
into
the
partnership
of
the
Appellant,
as
opposed
to
the
amendments
made
to
the
partnership
agreement,
had
the
effect,
as
a
matter
of
law,
of
terminat
ing
the
original
partnership
and
creating
a
new
one.
So
far
as
I
am
aware,
this
point
was
not
argued
in
Continental
Bank.
One
might
question
how
a
partnership,
which
is,
after
all,
simply
a
relationship
among
persons,
can
survive
the
withdrawal
of
one
of
those
persons
from
the
relationship,
or
the
introduction
of
another.
However,
the
point
not
having
been
raised,
I
have
not
considered
it
in
arriving
at
my
conclusion
on
the
partnership
issue.
the
GAAR
issue
With
respect
to
the
application
of
GAAR,
the
Respondent
has
pleaded
the
following
in
the
Reply:
6.
y)
the
following
transactions
were
avoidance
transactions
(“the
Avoidance
Transactions”)
i)
the
incorporation
of
1004568;
ii)
the
formation
of
STIL
II
by
STC
and
1004568;
iii)
STC’s
sale
of
its
99%
interest
in
STIL
II
to
OSFC;
iv)
STIL
H’s
reclassification
of
the
mortgages
to
trading
inventory;
v)
the
write-down
of
those
mortgages
to
the
estimated
fair
market
value;
vi)
the
formation
of
SRMP
and
the
purchase
of
interests
in
SRMP
by
the
various
investors,
including
the
Appellant.
z)
none
of
the
Avoidance
Transactions
were
undertaken
or
arranged,
or
were
a
part
of
a
series
of
transactions
undertaken
or
arranged,
primarily
for
bona
fide
purposes
other
than
to
obtain
the
tax
benefit;
aa)
the
Appellant
received
a
tax
benefit
as
a
result
of
the
Avoidance
Transactions,
which
constituted
a
direct
benefit
to
the
Appellant,
by
applying
its
shares
of
the
losses
of
SRMP
in
the
amount
of
$12,572,274;
bb)
it
is
reasonable
to
consider
that
the
Avoidance
Transactions
resulted
either
directly
or
indirectly
in
a
misuse
of
subsection
18(13)
of
the
Act
as
well
as
an
abuse
of
the
provisions
of
the
Act
read
as
a
whole;
and
CC)
as
a
result
of
the
disallowance
of
the
Appellant’s
share
of
the
1993
SRMP
loss,
the
Appellant
had
no
amount
to
deduct
as
a
non-capital
loss
in
1994.
the
transactions
The
first
three
of
the
transactions
alleged
by
the
Respondent
to
be
avoidance
transactions
are
certainly
part
of
a
series
of
pre-ordained
steps
carried
out
by
the
liquidator
as
part
of
a
deliberate
plan.
The
fourth
and
fifth
are
matters
of
accounting,
and
their
appropriateness
depends
on
the
view
taken
of
the
facts,
and
on
the
application
of
legal
principles
to
those
facts.
I
agree
with
counsel
for
the
Appellant,
who
asserted
in
argument
that
if
the
preceding
transactions
are
not
avoidance
transactions,
then
it
is
of
no
consequence
to
this
Appellant
whether
the
sixth
is
found
to
be
one.
To
vitiate
the
formation
of
SRMP
and
the
sale
of
interests
in
it
to
the
other
investors
would,
if
the
previous
transactions
survive,
simply
leave
all
of
the
losses
in
the
Appellant’s
hands,
and
so
it
would
be
entitled
to
the
amounts
it
has
claimed
for
the
years
under
appeal.
I
must
answer
the
following
questions
in
relation
to
the
application
of
GAAR:
1.
But
for
the
application
of
section
245,
would
the
incorporation
of
1004568,
the
formation
of
STIL
II,
and
the
sale
by
Standard
of
its
interest
in
STIL
IT
to
the
Appellant,
or
any
of
those
transactions,
have
resulted
in
a
tax
benefit?
2.
If
the
answer
to
the
first
question
is
yes,
may
the
transaction,
or
transactions,
reasonably
be
considered
to
have
been
undertaken
or
arranged
primarily
for
bona
fide
purposes
other
than
to
obtain
the
tax
benefit?
3.
If
the
answer
to
the
first
question
is
yes,
and
the
answer
to
the
second
question
is
no,
did
the
transaction,
or
transactions,
result,
directly
or
indirectly
in
a
misuse
of
the
provisions
of
the
Act,
or
an
abuse
of
the
provisions
of
the
Act
read
as
a
whole?
4.
If
the
first
question
is
answered
yes,
the
second
no,
and
the
third
yes,
then
which
of
the
remedies
set
out
in
subsection
245(5)
is
appropriate?
question
1
-
was
there
a
tax
benefit?
There
is
no
room
for
doubt
about
this
question;
indeed,
counsel
for
the
Appellant
did
not
argue
otherwise.
Subsection
(2)
is
carefully
worded
to
make
it
clear
that
the
recipient
of
the
tax
benefit
need
not
be
the
same
person
who
enters
into,
or
orchestrates,
the
transaction
or
series
of
transactions.
The
incorporation
of
1004568,
the
formation
of
STIL
II,
and
the
sale
of
Standard’s
99%
interest
in
it
to
an
arm’s
length
buyer
were
all
part
of
a
series
of
transactions
which
resulted
in
the
claimed
loss
on
the
part
of
the
Appellant.
The
answer
to
the
first
question
is
“yes”.
question
2
-
primary
purpose
Mr.
Bradeen,
in
giving
his
evidence,
did
not
pretend
that
this
claim
for
loss
was
not
one
of
the
intended
results;
his
position
simply
was
that
the
revenue
to
be
obtained
by
the
liquidator
through
the
transfer
of
Standard’s
tax
loss
to
a
purchaser
of
the
partnership
interest
was
not
the
primary
purpose
behind
the
series
of
transactions,
but
a
subsidiary
one.
Whether
it
was
a
primary
purpose
is
to
be
judged
by
an
objective
standard,
however.
In
Wu
v.
/?.,
Strayer
J.A.,
the
context
of
subsection
15(1.1)
of
the
Act,
said:
In
this
connection
we
refer
to
the
decision
of
this
Court
in
H.M.
v.
Placer
Dome
Inc.,
decided
after
the
trial
judgment
in
the
present
case.
The
provision
in
question
in
that
case,
subsection
55(2)
of
the
Income
Tax
Act,
required
for
its
application
that
“one
of
the
purposes”
be
to
support
a
significant
reduction
in
capital
gain
realized.
It
did
not
contain
the
words
“may
reasonably
be
considered
that
...”
This
Court,
for
purposes
of
decision,
assumed,
without
finding,
that
the
test
was
subjective.
But
it
was
held
that
in
the
face
of
the
Minister’s
presumption
that
this
was
one
of
the
purposes:
the
taxpayer
must
offer
an
explanation
which
reveals
the
purposes
underlying
the
transaction.
That
explanation
must
be
neither
improbable
nor
unreasonable
...
the
taxpayer
must
offer
a
persuasive
explanation
that
establishes
that
none
of
the
purposes
was
to
effect
a
significant
reduction
in
capital
gain.
In
our
view,
with
the
additional
words
in
subsection
15(1.1)
allowing
for
its
application
where
“it
may
reasonably
be
considered”
that
one
of
the
purposes
of
payment
is
alteration
of
the
value
of
the
interest
of
a
shareholder,
the
onus
is
even
greater
on
a
taxpayer
to
produce
some
explanation
which
is
objectively
reasonable
that
none
of
the
purposes
was
to
alter
the
value
of
a
shareholder’s
interest.
In
the
present
context,
then,
the
onus
on
the
Appellant
is
to
produce
an
explanation
which
is
objectively
reasonable
that
the
primary
purpose
for
the
series
of
transactions
was
something
other
than
to
obtain
the
tax
benefit.
This
requires
that
I
examine
the
subjective
evidence
of
Mr.
Bradeen
against
the
more
objective
backdrop
of
the
documents
from
the
liquidator’s
files,
and
common
sense.
The
following
exchange
took
place
between
Mr.
Bradeen
and
counsel
for
the
Appellant:
Q.
...was
this
whole,
all
the
events
that
we’ve
been
discussing,
formation
of
the
partnership,
transfer
of
mortgages,
and
the
introduction
of
OSFC
in
the
Management
Committee,
all
the
transactions
we’re
talking
about,
as
far
as
Standard
Trust
is
concerned
or
you
are
concerned,
was
that
simply
a
tax
deal?
A.
No,
we
were
trying
to
maximize
the
proceeds
to
the
estate
from
the
sale
of
the
underlying
assets.
And
the
tax,
as
far
as
Standard
was
concerned,
was
an
enhancement,
if
you
will,
but
a
fairly
small
part
of
the
deal
in
terms
of
realization
of
proceeds,
we
were
more
concerned
about
an
effective
way
to
realize
on
the
underlying
security,
the
real
estate.
(Transcript
Vol.
I,
page
190-191)
Neither
the
question
nor
the
answer
was
very
precise,
but
the
intention
was
certainly
to
convey
the
impression
that
the
creation
of
the
non-arm’s
length
partnership,
and
the
subsequent
sale
of
a
99%
interest
in
it
before
its
first
year-end,
was
not
primarily
motivated
by
the
potential
tax
benefit
for
which
a
purchaser
might
pay
a
significant
price.
A
careful
review
of
Mr.
Bradeen’s
evidence
on
cross-examination,
and
of
the
documents,
leads
me
to
conclude
that
this
answer
was
less
than
candid.
Exhibits
R-6
and
R-7
are
two
drafts
prepared
by,
or
for,
the
liquidator,
on
July
24
and
July
28,
1992
respectively,
of
an
analysis
of
the
proposal
to
use
the
non-arm’s
length
partnership
to
dispose
of
the
properties
which
later
became
identified
as
the
STIL
I
and
STIL
II
portfolios.
Exhibit
R-14
is
a
similar
document,
apparently
created
on
September
11,
1992.
The
income
tax
advantages
of
the
proposal
feature
prominently
in
all
of
these
documents,
and
yet
they
contain
no
mention
of
any
other
motivation
for
the
use
of
this
business
structure.
Exhibits
R-9
and
R-10
are
cash
flow
charts
which
apparently
were
prepared
to
show
the
tax
benefit
which
might
be
had
by
using
the
structure
which
ultimately
was
used
to
move
Standard’s
incipient
losses
on
the
portfolio
assets
to
a
purchaser
who
could
put
them
to
use.
Exhibits
R-l
1
and
R-13
apparently
record
discussions
between
the
liquidator’s
staff
and
potential
purchasers
in
which
the
tax
aspects
of
the
deal
were
a
major
topic.
The
second
page
of
Exhibit
R-13
is
a
schematic
and
cash
flow
chart,
which
also
shows
the
tax
benefit
to
be
realized.
In
none
of
these
documents
is
there
any
reference
to
the
factors
of
obtaining
the
assistance
of
real
estate
experts,
maintaining
flexibility
in
the
manner
of
dealing
with
the
assets,
or
protecting
the
estate
assets,
which
were
put
forward
by
the
liquidator
as
being
the
principal
motivation
for
electing
to
use
the
rather
unusual
structure
of
a
partnership
in
which
the
liquidator
and
its
wholly-
owned
subsidiary,
incorporated
for
the
purpose,
would
hold
interests
of
99%
and
1%
respectively.
Exhibit
R-15
is
a
letter
dated
September
14,
1992
to
the
liquidator,
from
the
president
of
CanWest
Global
Communications
Corp.,
in
which
he
expressed
interest
in
purchasing
Standard’s
interest
in
a
non-arm’s
length
partnership
more
or
less
identical
to
the
ones
later
formed
as
STIL
I
and
STIL
II.
Much
of
the
letter
is
devoted
to
the
income
tax
losses
which
would
accrue
to
CanWest
Global,
and
it
is
clear
that
the
letter
was
preceded
by
some
discussions
of
such
a
deal.
Nothing
in
the
letter
suggests
that
CanWest
Global
could
bring
any
expertise
in
the
marketing
of
real
estate
to
the
partnership.
Much
of
this
evidence
is
summed
up
in
the
following
exchange
between
Mr.
Bradeen
and
counsel
for
the
Respondent:
Q.
So
it’s
fairly
clear
then,
Mr.
Bradeen,
you
would
agree,
would
you
not,
sir,
that
throughout
the
spring
and
summer,
[of
1992]
Ernst
&
Young
were
figuring
out
how
to
transfer
Standard
Trust
Company’s
losses
to
outsiders
in
an
effort
to
get
more
for
the
mortgages?
A.
Yes.
(Transcript
Vol.
I,
page
244)
On
October
21,
1992,
the
liquidator
applied
to
Mr.
Justice
Houlden
for
the
Order
that
would
permit
it
to
incorporate
1004568,
create
the
STIL
partnerships,
and
convey
the
portfolio
assets
to
them.
Although
the
realization
of
something
in
the
order
of
$10,000,000
from
the
sale
of
the
tax
losses
amounting
to
some
$99,000,000
had
been
in
the
minds
of
Mr.
Bradeen
and
his
colleagues
and
advisors
for
some
weeks,
and
featured
prominently
in
the
CanWest
Global
letter
five
weeks
before,
no
mention
of
that
is
to
be
found
in
Liquidator’s
Report
No.
13,
which
was
the
document
put
before
Mr.
Justice
Houlden
as
the
basis
for
the
application
for
the
Court’s
approval
of
the
transactions.
Significantly,
an
earlier
draft
of
Liquidator’s
Report
No.
13,
Exhibit
R-46,
did
refer
to
the
potential
for
sale
of
the
tax
losses
in
the
following
terms:
Part
III
—
Assessment
of
the
Proposal
The
Liquidator
considers
that
the
marketing
of
the
proposal
will
benefit
Standard
Trust
and
Standard
Loan
in
the
following
respects:
iii)
the
Liquidator
believes
that
the
sale
price
attainable
if
the
Mortgages
are
sold
under
the
Proposal
will
be
$10
million
to
$20
million
higher
than
their
present
market
value,
partially
reflecting
the
possible
tax
benefits
to
purchasers
from
the
realization
of
the
potential
losses
associated
with
the
Mortgages.
The
final
version
of
Liquidator’s
Report
No.
13
which
was
filed
with
the
Court,
and
on
the
strength
of
which
the
Liquidator
obtained
leave
to
incorporate
1004568
and
enter
into
the
STIL
partnerships
with
it,
had
only
this
to
say
about
the
motivation
for
these
transactions:
Part
III
—
Strategic
Objectives
The
following
objectives
of
the
Liquidator
can
be
accomplished
by
the
transfer
of
the
Mortgages
to
the
Partnership:
(a)
Enhanced
Marketability
The
proposed
transfer
of
Mortgages
to
the
Partnerships
has
the
potential
to
enhance
the
value
and
marketability
of
the
Mortgages
and
the
underlying
real
property,
and
may
also
enhance
the
marketability
and
value
of
Standard
Trust’s
assets
generally.
To
some
extent,
the
enhanced
marketability
of
the
Mortgages
may
arise
simply
from
the
separation
of
the
Mortgages
and
underlying
real
property
from
the
other
assets
of
Standard
Trust.
The
Liquidator
intends
to
dispose
of
the
assets
of
Standard
Trust
in
an
orderly
manner
and
is
prepared
to
wait
out
the
market
where
appropriate.
In
spite
of
clearly
stating
this
approach
to
potential
purchasers
of
Standard
Trust’s
assets,
a
perception
persists
in
the
marketplace
that
properties
may
be
acquired
on
“fire
sale”
terms.
Under
the
arrangements
the
Liquidator
is
proposing
the
Partnerships
will
become
responsible
for
realizing
on
the
Mortgages
and
the
underlying
real
property,
and
this
may
emphasize
to
the
market
the
nature
of
the
realization
process
which
is
contemplated,
and
produce
better
recoveries.
(b)
Additional
Flexibility
for
Liquidator
The
proposed
transaction
will
also
give
the
Liquidator
greater
flexibility
in
the
realization
process
for
Standard
Trust’s
assets
generally.
In
addition
to
being
able
to
sell
mortgage
assets
or
parcels
of
real
estate
directly,
the
Liquidator
would
also
have
the
option
of
selling
some
or
all
of
Standard
Trust’s
interest
in
the
Partnerships.
Accordingly,
the
range
of
realization
methods
at
the
Liquidator’s
disposal
and
the
potential
for
maximizing
the
overall
value
of
Standard
Trust’s
assets
would
be
increased
under
the
proposed
transaction.
If
the
Liquidator
wishes
to
sell
any
of
Standard
Trust’s
interest
in
the
Partnerships,
such
sale
would
be
subject
to
this
Court’s
approval.
In
addition,
since
the
Liquidator’s
objective
is
to
enhance
the
marketability
of
Standard
Trust’s
assets
and
not
to
isolate
them
from
the
supervision
of
the
Court,
the
Liquidator
will
cause
the
Partnerships
to
seek
this
Court’s
approval
of
any
proposed
transaction
in
respect
of
the
Mortgages
or
the
underlying
real
property
in
any
circumstances
where
such
approval
would
have
been
required
had
the
Mortgages
not
been
transferred
to
the
Partnerships.
(c)
Protection
of
Standard
Trust’s
Estate
The
Liquidator,
through
Standard
Trust’s
ownership
of
the
Subsidiary,
will
cause
the
Partnerships
to
continue
the
process
of
realizing
maximum
value
from
the
Mortgages.
To
this
end,
the
Partnerships
may
sell
Mortgages
or
foreclose,
commence
power
of
sale
proceedings,
or
obtain
quit
claims
in
respect
of
the
underlying
real
property
from
mortgagors
in
such
a
manner
as
is
deemed
appropriate
by
the
Subsidiary.
All
of
the
foregoing
realization
procedures
are
of
course
presently
at
the
disposal
of
the
Liquidator.
No
flexibility
in
the
realization
process
will
be
sacrificed
by
the
transfer
of
the
Mortgages
to
the
Partnerships.
The
recoveries
from
the
Mortgages
will
continue
to
be
available
to
Standard
Trust
and
its
creditors
through
distributions
from
the
Partnerships
and
dividends
from
the
Subsidiary,
both
of
which
will
be
controlled
by
Standard
Trust.
However,
to
ensure
that
any
claims
relating
to
the
Mortgages
are
subject
to
the
Court’s
supervision
to
the
same
extent
as
at
present,
the
Liquidator
requests
that
the
Order
of
this
Court
dated
July
19,
1991
requiring
leave
of
this
Court
in
any
proceedings
against
Standard
Trust
or
the
Liquidator
be
varied
so
that
such
leave
would
also
be
required
on
the
same
terms,
so
long
as
Standard
Trust
retains
its
ownership
interest
in
the
Partnerships,
for
any
proceedings
against
the
Partnerships.
In
the
event
that
the
Liquidator
subsequently
determines
that
the
marketability
of
the
Mortgages
and
the
underlying
real
property
is
not
enhanced
by
the
separation
of
these
assets
from
Standard
Trust’s
other
assets,
the
Liquidator
could
cause
the
Partnerships
to
be
dissolved,
and
the
Mortgages
returned
to
Standard
Trust
without
cost
(apart
from
the
costs
of
the
transfer
itself).
Accordingly,
apart
from
the
transaction
costs
involved,
Standard
Trust
would
not
put
any
funds
at
risk
by
engaging
in
the
proposed
transaction,
and
would
have
the
option
of
undoing
the
transaction
in
its
entirety
if
we
subsequently
determine
that
this
is
appropriate.
The
Liquidator
does
not
anticipate
that
overall
expenses
will
be
higher
by
engaging
in
the
proposed
transaction.
Mr.
Bradeen
could
only
offer
hearsay
evidence
that
he
believed
that
some
disclosure
of
the
tax
motivation
was
revealed
orally
to
Houlden
J.
during
the
hearing
of
the
Liquidator’s
motion.
I
do
not
find
Mr.
Bradeen’s
position,
either
as
it
was
expressed
in
Liquidator’s
Report
No.
13
or
at
the
trial,
to
be
convincing.
The
suggestion
that
by
creating
a
non-arm’s
length
partnership
to
hold
the
portfolio
assets
the
liquidator
would
somehow
show
the
market
that
it
was
unwilling
to
sell
them
at
“fire
sale”
prices
goes
unexplained.
Any
potential
buyer
of
even
minimal
sophistication
would
realize
that
the
directing
mind
remained
unchanged
when
the
liquidator
created
the
partnership
to
take
over
the
assets.
Nor
did
Mr.
Bradeen
explain
in
any
convincing
way
how
the
partnership
medium
would
lead
to
greater
flexibility
in
dealing
with
the
assets
of
Standard.
Without
the
interposition
of
STIL
II,
the
liquidator
could
have
sold
interests
in
any
or
all
of
the
assets
to
one
or
more
purchasers,
or
could
have
sold
any
or
all
of
them
outright.
The
logical
conclusion
is
that
flexibility
was
not
enhanced,
but
may
even
have
been
diminished,
by
the
introduction
of
STIL
II.
A
careful
reading
of
the
paragraphs
in
Liquidator’s
Report
No.
13
which
follow
the
heading
“Protection
of
Standard
Trust’s
Estate”
does
not
reveal
anything
which
could
be
described
as
a
positive
aspect
arising
out
of
the
creation
of
STIL
IT.
At
its
highest,
this
part
of
the
Report
says
nothing
more
than
that
the
realization
process
will
not
suffer
from
the
proposed
partnership
arrangement.
It
seems
to
me
unlikely
that
the
omission
from
Liquidator’s
Report
No.
13
of
any
direct
reference
to
the
potential
for
selling
Standard’s
incipient
losses
to
an
investor
who
could
put
them
to
good
use
was
due
to
an
oversight.
It
was
clearly
an
important
component
of
the
liquidator’s
thinking
over
the
preceding
weeks
and
months.
It
was
in
an
earlier
draft.
It
is
perhaps
hinted
at
in
the
statement
that
the
proposed
sale
of
the
assets
to
the
proposed
partnerships
...has
the
potential
to
enhance
the
value
and
marketablity
of
the
Mortgages
and
the
underlying
real
property,
and
may
also
enhance
the
marketability
and
value
of
Standard
Trust’s
assets
generally.
It
is
far
more
likely
that
Mr.
Bradeen
and
his
superior
in
E&Y,
Mr.
Drake,
who
were
after
all
accountants
operating
with
the
benefit
of
advice
from
lawyers,
deliberately
omitted
from
the
report
any
mention
of
the
potential
to
turn
the
losses
to
account,
because
they
did
not
want
to
create
any
evidence
to
suggest
that
the
implementation
of
the
partnership
arrangement
was
motivated
by
its
potential
to
produce
a
tax
benefit.
The
proffered
explanation,
in
my
view,
is
not
an
objectively
reasonable
one.
I
find
that
the
primary
purpose
for
which
E&Y
entered
into
the
series
of
transactions
whereby
1004568
was
incorporated,
STIL
II
was
formed,
and
the
portfolio
was
transferred
to
it
by
the
liquidator,
was
to
obtain
the
tax
benefit.
The
answer
to
the
second
question
is
“no”.
question
3
-
misuse
or
abuse
Subsection
(4)
of
section
245
saves
from
the
operation
of
subsection
(2)
those
transactions
which
do
not
result
in
“...
a
misuse
of
the
provisions
of
this
Act
or
an
abuse
having
regard
to
the
provisions
of
this
Act
...
read
as
a
whole.”
Counsel
for
the
Appellant
placed
great
reliance
on
this
provision.
His
arguments
to
that
end,
in
summary,
were
this
following:
1.
The
transactions
attacked
by
the
Minister
were
specifically
approved
by
the
Courts.
2.
The
purpose
of
the
transactions
was
to
maximize
the
realization
on
the
portfolio
assets.
3.
The
Appellant
was
not
a
party
to
the
avoidance
transactions,
or
a
participant
in
them.
It
simply
purchased
a
partnership
interest
on
what
it
considered
to
be,
and
ultimately
proved
to
be,
commercially
advantageous
terms.
4.
Subsection
18(13)
was
not
misused
in
these
transactions,
as
it
mandates
exactly
the
result
that
the
Minister
now
attacks.
5.
No
provisions
of
the
Act,
read
as
a
whole,
have
been
misused
or
abused.
The
first
two
of
these
arguments
may
be
dealt
with
together,
as
neither
is
relevant
to
the
matter
before
me.
The
question
of
the
application
of
the
Act,
and
in
particular
GAAR,
was
not
before
Mr.
Justice
Houlden
when
he
made
his
Order
on
October
21,
1992
authorizing
the
transactions.
From
the
paper
record,
it
does
not
even
appear
that
he
was
made
aware
of
the
tax
avoidance
purpose
driving
the
proposed
series
of
transactions,
although
he
may
have
been
told
of
it.
In
either
event,
he
had
no
jurisdiction
to
rule
upon
the
questions
now
before
me,
and
of
course
he
did
not
purport
to
do
so.
Nor
does
it
assist
the
Appellant
to
argue
that
the
purpose
of
the
transactions
was
to
maximize
the
realization
on
the
portfolio
assets.
Primary
purpose
is
a
subject
of
inquiry
under
subsection
(2);
under
subsection
(4)
the
inquiry
is
directed
only
to
results.
It
is
not
relevant,
either,
that
the
transactions
prior
to
the
sale
of
Standard’s
interest
to
the
Appellant
took
place
without
the
complicity
of
the
Appellant.
As
I
have
already
said,
subsection
245(3)
is
carefully
worded
to
ensure
that
it
does
not
only
apply
to
those
situations
in
which
the
tax
benefit
is
enjoyed
by
the
author
of
the
transactions.
It
is
true
that
the
incorporation
of
the
subsidiary
company,
the
creation
of
STIL
IT
and
the
transfer
to
it
of
the
portfolio
assets
were
all
accomplished
prior
to
the
Appellant’s
arrival
on
the
scene.
However
the
Appellant
was
well
aware
of
the
provenance
of
the
deal
it
bought
into,
and
of
the
way
in
which
it
hoped
to
secure
a
tax
benefit.
All
that
is
relevant
to
the
operation
of
subsection
245(4)
is
whether
the
scheme
would,
but
for
section
245,
result
in
a
misuse
of
subsection
18(13),
or
in
an
abuse
of
the
provisions
of
the
Act,
read
as
a
whole.
Counsel
for
the
Appellant
argues
that
subsection
18(13)
is
not
misused
in
this
case,
because
the
result
for
which
he
contends
is
the
very
result
that
the
subsection
dictates
in
the
circumstances.
That
will
always
be
the
case
when
a
section
of
the
Act
is
put
to
a
use
for
which
it
was
not
intended
in
furtherance
of
an
avoidance
transaction,
or
a
series
of
avoidance
transactions.
That
unintended
application
of
the
section
is
the
very
mischief
at
which
GAAR
is
aimed.
Subsection
18(13)
was
enacted
as
a
stop-loss
provision,
the
object
of
which
is
to
prevent
taxpayers
who
are
in
the
money-
lending
business
from
artificially
realizing
losses
on
assets
which
have
declined
in
market
value
by
transferring
them
to
a
person
with
whom
they
do
not
deal
at
arm’s
length,
while
maintaining
control
of
the
assets
through
the
non-arm’s
length
nature
of
their
relationship
with
the
transferee.
The
use
of
that
provision
to
effect
the
transfer
of
unrealized
losses
from
a
taxpayer
who
has
no
income
against
which
to
offset
those
losses
to
a
taxpayer
which
does
have
such
income
is
clearly
a
misuse.
I
am
also
of
the
view
that
the
transactions
in
issue
here
would,
but
for
section
245,
result
in
abuse
of
the
provisions
of
the
Act
as
a
whole.
Counsel
for
the
Appellant,
in
his
careful
written
argument,
postulates
that
for
the
Court
to
find
that
there
has
been
abuse
of
the
provisions
of
the
Act
as
a
whole
requires
two
prerequisites:
1.
a
legislative
scheme
the
object
of
which
can
readily
be
ascertained,
and
2.
a
conclusion
that
the
provisions
of
the
Act
have
been
misused,
and
not
simply
a
conclusion
that
in
the
eye
of
the
beholder,
the
tax
benefit
obtained
is
economically
inappropriate.
(the
emphasis
is
counsel’s)
In
McNichol
v.
/?.,
Judge
Bonner
of
this
Court
said,
in
the
context
of
a
surplus
stripping
scheme:
...
he
transaction
in
issue
which
was
designed
to
effect,
in
everything
but
form,
a
distribution
of
Bee’s
surplus
results
in
a
misuse
of
sections
38
and
110.6
and
an
abuse
of
the
provisions
of
the
Act,
read
as
a
whole,
which
contemplate
that
distributions
of
corporate
property
to
shareholders
are
to
be
treated
as
income
in
the
hands
of
the
shareholders.
It
is
evident
from
section
245
as
a
whole
and
paragraph
245(5)(c)
in
particular
that
the
section
is
intended
inter
alia
to
counteract
transactions
which
do
violence
to
the
Act
by
taking
advantage
of
a
divergence
between
the
effect
of
the
transaction,
viewed
realistically,
and
what,
having
regard
only
to
the
legal
form
appears
to
be
the
effect.
For
purposes
of
section
245,
the
characterization
of
a
transaction
cannot
be
taken
to
rest
on
form
alone.
I
must
therefore
conclude
that
section
245
of
the
Act
applies
to
this
transaction.
In
RMM
Canadian
Enterprises
Inc.
v.
/?.,
Judge
Bowman
expressed
complete
agreement
with
this
passage,
and
then
went
on
to
say.
To
what
Bonner
J.
has
said
I
would
add
only
this:
the
Income
Tax
Act,
read
as
a
whole,
envisages
that
a
distribution
of
corporate
surplus
to
shareholders
is
to
be
taxed
as
a
payment
of
dividends.
A
form
of
transaction
that
is
otherwise
devoid
of
any
commercial
objective,
and
that
has
as
its
real
purpose
the
extraction
of
corporate
surplus
and
the
avoidance
of
the
ordinary
consequences
of
such
a
distribution,
is
an
abuse
of
the
Act
as
a
whole.
In
my
view
the
same
principal
applies
to
the
present
case.
What
we
have
here
is
an
arrangement,
only
thinly
disguised,
to
make
the
incipient
losses
of
Standard
a
marketable
commodity
for
which
the
liquidator
was
to
receive
100
on
the
dollar.
That
this
is
contrary
to
the
scheme
of
the
Act
is
made
clear
by
the
following
passage
from
the
reasons
for
judgment
of
Linden
J.A.
in
the
Duha
Printers
case,
where,
after
setting
out
the
provisions
of
subsections
87(2.1),
111(1)
and
(5),
251(2)
and
256(7)
of
the
Act,
he
said:
These
sections
are
part
of
a
complicated
network
of
provisions
that
prescribe
the
various
circumstances
under
which
losses
may
be
utilized
by
certain
specified
corporations.
The
provisions
above
are
specifically
directed
at
corporations
recently
subject
to
a
reorganization.
They
begin
with
the
general
proposition,
in
subsection
111(1),
that
a
corporation
may
deduct
from
its
taxable
income
for
a
year
non-capital
losses
that
arose
in
any
of
the
years
specified.
Subsection
87(2.1)
then
adds
that,
where
two
or
more
corporations
are
amalgamated,
the
resulting
corporation
is
deemed,
for
the
purpose
of
determining
loss
deductibility,
to
be
the
same
corporation
as
each
predecessor
corporation.
By
the
combination
of
these
two
provisions,
recently
amalgamated
corporations
are
allowed
to
share
losses
between
them.
However,
subsection
87(2.1)
also
adds
that
subsections
111(3)
to
(5.4)
may
apply
to
restrict
loss
deductibility.
Subsection
111(5),
the
provision
relevant
to
this
case,
states
that
in
an
amalgamation
where
control
changes
hands,
losses
may
be
shared
only
to
the
extent
that
the
business
of
the
loss
corporation
is
carried
on
by
the
amalgamated
corporation
as
a
going
concern.
To
understand
what
is
meant
by
“control”
and
how
it
can
change
hands,
one
must
first
refer
to
subparagraph
251
(2)(c)(i).
It
states
that
two
corporations
are
related
if
they
are
controlled
by
the
same
person
or
by
the
same
group
of
persons.
Subparagraph
256(7)(a)(i)
then
clarifies
that
control
of
a
corporation
will
be
deemed
not
to
have
been
acquired
in
a
share
acquisition
where
the
corporations
at
issue
were
related
“immediately
before”
to
the
acquisition.
The
notion
of
“control”
is
therefore
central
to
the
working
of
subsection
111(5).
As
complicated
as
these
provisions
might
seem,
the
goal
they
seek
is
an
implementation
of
certain
basic
principles
governing
income
computation.
These
principles
are
fondamental
to
the
taxing
scheme
implemented
by
the
Act.
Briefly
described,
this
scheme
contemplates
the
taxation
of
overall
net
increases
in
an
individual
taxpayer’s
income.
In
computing
such
income,
the
Act
allows
losses
to
be
shared
between
income
sources
so
long
as
those
sources
are
referable
to
a
single
individual
taxpayer.
This
is
the
net
income
concept.
What
is
not
allowed,
however,
is
income
or
loss
sharing
between
individuals.
The
reason
for
this
is
that
the
Act
allocates
tax
burdens
differentially
across
different
income
strata.
Certain
policy
initiatives
are
thereby
implemented,
and
these
initiatives
would
be
frustrated
by
income
or
loss
sharing
between
individuals.
Within
this
scheme,
corporations
present
a
special
challenge.
Corporations
are
individuals,
legally
speaking,
and
as
individuals
are
liable
to
pay
tax.
But
they
are
also
fictional
creations
of
law
whose
income
is
ultimately
distributed
to
the
shareholders
who
own
them.
They
are
furthermore
very
portable
and
are
easily
created,
traded,
bought,
and
sold.
Specific
corporate
taxation
rules
exist,
therefore,
to
harmonize
the
taxation
of
corporate
and
shareholder
income,
and
to
prevent
loss
sharing
that
can
result
from
inappropriate
corporate
manipulation.
One
example
of
the
latter
concerns
the
stop-loss
provisions
of
section
111,
which
quarantine
losses
to
the
corporations
that
created
them.
Subsection
111
(5),
however,
provides
the
exception
that
related
corporations
may
share
losses
without
restriction.
Such
corporations
are,
for
this
purpose,
treated
by
the
Act
as
a
single
taxable
unit,
and
may
be
claimed
as
such
by
the
corporate
taxpayer.
The
primary
intention
of
the
liquidator
in
this
case
was
to
thwart
the
legislative
scheme
crafted
by
Parliament.
The
Appellant
was
well
aware
of
that,
and
was
willing
to
participate,
subject
to
the
provisions
of
Articles
I
and
2
of
the
Agreement
of
Purchase
and
Sale
which
make
the
Additional
Payment,
that
is
the
payment
for
the
tax
losses,
subject
to
the
Appellant,
and
any
subsequent
purchasers
from
the
Appellant,
being
successful
in
claiming
the
losses
in
the
computation
of
their
income.
Subsection
245(4)
has
no
application
here.
question
4
—
the
remedy
The
final
aspect
of
section
245
is
the
selection
of
an
appropriate
remedy.
I
did
not
understand
counsel
for
the
Appellant
to
dispute
that
the
remedy
applied
by
the
Minister,
which
was
to
disallow
the
Appellant’s
claim
to
offset
its
share
of
the
losses
of
the
SRMP
partnership
against
its
other
income,
was
appropriate
in
the
event
of
an
adverse
finding
on
the
substantive
issues.
The
appeals
are
therefore
dismissed,
with
costs.
Appeals
dismissed.
Appendix
“A”
18(13)
Subject
to
subsection
138(5.2)
and
notwithstanding
any
other
provision
of
this
Act,
where
a
taxpayer
(a)
who
was
a
resident
of
Canada
at
any
time
in
a
taxation
year
and
whose
ordinary
business
during
that
year
included
the
lending
of
money,
or
(b)
who
at
any
time
in
the
year
carried
on
a
business
of
lending
money
in
Canada
has
sustained
a
loss
on
a
disposition
of
property
used
or
held
in
that
business
that
is
a
share,
or
a
loan,
bond,
debenture,
mortgage,
note,
hypothec,
agreement
of
sale
or
any
other
indebtedness,
other
than
a
property
that
is
a
capital
property
of
the
taxpayer,
no
amount
shall
be
deducted
in
computing
the
income
of
the
taxpayer
from
that
business
for
the
year
in
respect
of
the
loss
where
(c)
during
the
period
commencing
30
days
before
and
ending
30
days
after
the
disposition,
the
taxpayer
or
a
person
or
partnership
that
does
not
deal
at
arm’s
length
with
the
taxpayer
acquired
or
agreed
to
acquire
the
same
or
identical
property
(in
this
subsection
referred
to
as
the
“substituted
property”),
and
(d)
at
the
end
of
the
period
described
in
paragraph
(c),
the
taxpayer,
person
or
partnership,
as
the
case
may
be,
owned
or
had
a
right
to
acquire
the
substituted
property,
and
any
such
loss
shall
be
added
in
computing
the
cost
to
the
taxpayer,
person
or
partnership,
as
the
case
may
be,
of
the
substituted
property.
245(1)In
this
section,
“tax
benefit”
means
a
reduction,
avoidance
or
deferral
of
tax
or
other
amount
payable
under
this
Act
or
an
increase
in
a
refund
of
tax
or
other
amount
under
this
Act;
“tax
consequences”
to
a
person
means
the
amount
of
income,
taxable
income,
or
taxable
income
earned
in
Canada
of,
tax
or
other
amount
payable
by,
or
refundable
to
the
person
under
this
Act,
or
any
other
amount
that
is
relevant
for
the
purposes
of
computing
that
amount;
“transaction”
includes
an
arrangement
or
event.
(2)
Where
a
transaction
is
an
avoidance
transaction,
the
tax
consequences
to
a
person
shall
be
determined
as
is
reasonable
in
the
circumstances
in
order
to
deny
a
tax
benefit
that,
but
for
this
section,
would
result,
directly
or
indirectly,
from
that
transaction
or
from
a
series
of
transactions
that
includes
that
transaction.
(3)
An
avoidance
transaction
means
any
transaction
(a)
that,
but
for
this
section,
would
result,
directly
or
indirectly,
in
a
tax
benefit,
unless
the
transaction
may
reasonably
be
considered
to
have
been
undertaken
or
arranged
primarily
for
bona
fide
purposes
other
than
to
obtain
the
tax
benefit;
or
(b)
that
is
part
of
a
series
of
transactions,
which
series,
but
for
this
section,
would
result,
directly
or
indirectly,
in
a
tax
benefit,
unless
the
transaction
may
reasonably
be
considered
to
have
been
undertaken
or
arranged
primarily
for
bona
fide
purposes
other
than
to
obtain
the
tax
benefit.
(4)
For
greater
certainty,
subsection
(2)
does
not
apply
to
a
transaction
where
it
may
reasonably
be
considered
that
the
transaction
would
not
result
directly
or
indirectly
in
a
misuse
of
the
provisions
of
this
Act
or
an
abuse
having
regard
to
the
provisions
of
this
Act,
other
than
this
section,
read
as
a
whole.
(5)
Without
restricting
the
generality
of
subsection
(2),
(a)
any
deduction
in
computing
income,
taxable
income,
taxable
income
earned
in
Canada
or
tax
payable
or
any
part
thereof
may
be
allowed
or
disallowed
in
whole
or
in
part,
(b)
any
such
deduction,
any
income,
loss
or
other
amount
or
part
thereof
may
be
allocated
to
any
person,
(c)
the
nature
of
any
payment
or
other
amount
may
be
recharacterized,
and
(d)
the
tax
effects
that
would
otherwise
result
from
the
application
of
other
provisions
of
this
Act
may
be
ignored,
in
determining
the
tax
consequences
to
a
person
as
is
reasonable
in
the
circumstances
in
order
to
deny
a
tax
benefit
that
would,
but
for
this
section,
result,
directly
or
indirectly,
from
an
avoidance
transaction.