At a time that the taxpayer was an officer, director, and 49% shareholder of an incorporated Ford dealership ("Holiday 77"), Holiday 77 transferred a substantial portion of its business assets to a new corporation ("Holiday 80") whose shares were owned as to 20% by the taxpayer and as to the remaining 80% by Ford Motor Company of Canada. During the several weeks following the transfer, while Holiday 77 was exclusively managed by Ford Credit Canada Ltd., and prior to the appointment of a receiver of Holiday 77, Holiday 80 under the taxpayer's managment entered into various transactions whose effect was to reduce liabilities of Holiday 77 (so that effectively assets of Holiday 80 were misappropriated in favour of Holidcay 77).
Mahoney J.A. analysed the potential effect of s. 56(2) on the basis that the taxpayer was the taxpayer referred to therein, Holiday 77 ws the other person on whom benefits were conferred and Holday 80 was the source of the benefits. He found that because the amounts were clearly subject to tax in Holiday 77's hands, s. 56(2) could not be invoked by the Minister in reassessing the taxpayer. Before reaching this conclusion, he indicated his agreement with a statement by the trial judge that "the concurrence or participation of the taxpayer to the conferring of the benefit need not be active. It may well be passive or implicit and can be inferred from all the circumstances ... " and that this condition was satisfied here given that the taxpayer's exercised control over Holiday 80.