Canada Safeway v. Alberta, 2012 DTC 5133 [at 7271], 2012 ABCA 232

The taxpayer implemented a series of transactions that gave rise to interest deductions in Alberta, with the interest income being received free of tax in Ontario and being repatriated free of tax back to Alberta. In the course of finding that the transactions did not run afoul of Alberta's general anti-avoidance rule (similar to s. 245 of the ITA), Hunt J.A. stated (at para. 28):

[Alberta] next argues that when a series of transactions such as the Plan is tax-motivated, "every transaction comprising the series is an ‘avoidance transaction'": para 32 Factum. It cites no authority for this proposition other than the language of section 245(3)(b) itself. That provision merely underscores that an avoidance transaction may form part of a series of transactions. In contrast, the provision itself concentrates on individual transactions, not the series.

This case was a companion decision to Husky Energy.

An Alberta taxpayer ("CSL") borrowed $600 million from its Alberta parent ("CSHL") over the course of a month, and used the borrowed funds to repay commercial paper which it previously had borrowed for an income-producing purpose. At the same time as these borrowings occurred, CSL paid dividends totaling $600 million to CSHL. CSHL then assigned the $600 million of debt to another subsidiary ("SOFC") which had been incorporated in the British Virgin Islands but had a permanent establishment in Ontario. CSL paid interest to SOFC, SOFC paid dividends to CSHL, and CSHL would make further loans to CSL. CSL deducted the interest paid to SOFC in computing its income for Alberta purposes, SOFC was not taxable in Ontario on the interest it received from CSL, and CSHL claimed the intercorporate dividend deduction respecting the dividends it received from SOFC.

In the course of finding that the series of transactions was not subject to Alberta's general anti-avoidance rule (on similar reasoning to Husky), Hunt J.A. stated (at para. 38):

I am not persuaded by Alberta's argument that Safeway did not "need" to borrow $600 million... . It is clear that a taxpayer is free to replace retained earnings with borrowed money and doing so does not by itself show that the purpose of section 20(1)(c) has been frustrated: Lipson at para 41; see also Ludco and Singleton.