HER MAJESTY THE QUEEN,
AMENDED REASONS FOR JUDGMENT
 This is an appeal from an assessment in which the Minister of National Revenue ("Minister") recharacterized as a taxable dividend of $187,500 the taxable capital gain of $37,500 reported by the appellant for his 1995 taxation year and in respect of which he claimed a capital gains exemption. The Minister relies in particular on subsections 84(2) and 84.1(1) and on section 245 of the Income Tax Act ("Act").
 In 1989, the appellant purchased, for $100,000, 100 common shares in DeBruyn & Kraszewski Enterprises Ltd. ("D & K"), a corporation incorporated under the laws of the province of Ontario. At that time, D & K changed its name to DeBruyn McMullen Enterprises Limited ("DMEL"), as the appellant and Bernard DeBruyn each owned 50% of the outstanding common shares in DMEL.
 DMEL was operating a heating and air conditioning business from two locations, namely, in the cities of Bellevilleand Kingston in the province of Ontario. Its year-end was September 30. According to its financial statements for the year ending September 30, 1995 (Exhibit A-1, Tab 2), the business was operating at a loss; the operating loan from the bank went up from $80,000 to $150,000 and, according to the appellant, the bank started to put more pressure on the shareholders. Mr. DeBruyn believed they should begin subcontracting the work while the appellant had concerns about going in that direction. The appellant did not have more money to invest in DMEL. In that context, in the spring of 1995 the appellant advised Mr. DeBruyn that he wanted to sever his relationship with him and that he wanted out of their business association. The two shareholders had a shareholder's agreement that included a shotgun clause. However, neither shareholder had the money to buy out the other. The appellant sought advice from DMEL's accountant, Michael Descent. Although the appellant had considered bankruptcy, believing that the assets of the business would not cover the payables and that the bank would seek satisfaction from the shareholders under their personal guarantees if they decided to dissolve the corporation, Mr. Descent suggested instead that they separate DMEL's two branches and asked the appellant to consider taking over the Kingstonbranch. In the appellant's words, Mr. Descent was of the opinion that they could structure something that would not be too costly, such that the appellant would take over the Kingston operation while Mr. DeBruyn would keep the Bellevilleoperation and the two would have no further involvement with each other. On the other hand, Mr. DeBruyn was a little astonished when the appellant advised him in the spring of 1995 that he wanted out. He could not imagine operating the two branches alone as he did not feel that he had the financial resources to do so. He did not have the money to buy out the appellant. However, he considered Mr. Descent's suggestion as being a possible solution and at that point suggested bringing in his wife as his partner. Mr. Descent decided to consult a tax adviser, Douglas Parker, C.A.
 The appellant called Mr. Parker to testify. Mr. Parker said that when he was approached by Mr. Descent, he analysed the situation to see whether Mr. Descent's plan was workable. Looking at the corporation's balance sheet as at September 30, 1994, Mr. Parker noticed an equity figure for 1994 of $67,414. That was not a significant amount considering the level of assets and liabilities (both being in the vicinity of $1.3 million). The corporation did not have a lot of cash on hand and there was a debt owed to the bank and mortgages on its real estate. There was little capacity either to borrow to pay dividends to a shareholder or to use for that purpose funds within the corporation. The other problem noted by Mr. Parker was that the values of the Kingstonand the Belleville branches were not representative of the share structure. Each shareholder held 50% of the shares but the Belleville and Kingstonbranches were not of equal value (see statement of income for 1994 and 1995 filed as Exhibit A-1, Tab 2). Mr. Descent had told Mr. Parker, and it is not disputed, that the fair market value of the shares was $300,000, half of which would be $150,000. Another concern for Mr. Parker was that Mr. DeBruyn's wife, Linda DeBruyn, wished to become a shareholder of the corporation.
 With that in mind, Mr. Parker structured a plan whereby Linda DeBruyn would acquire the appellant's shares through the use of a holding company (namely, 1149530 Ontario Inc. ("114 Co"), which was in fact incorporated on September 29, 1995, and whose sole shareholder was Linda DeBruyn). 114 Co was to become a 50-50 shareholder in DMEL, along with Linda DeBruyn's husband, Bernard DeBruyn. To finance the acquisition of the appellant's shares by 114 Co, Mr. Parker originally suggested that 114 Co borrow money from the bank to pay the appellant. However, it was finally decided to change DMEL's corporate share structure. On September 29, 1995, Articles of Amendment were filed with the Ontario Ministry of Consumer and Commercial Relations to redesignate the existing common shares in the capital of the corporation as Class A common shares and to create an unlimited number of Class B common shares. By the same token, DMEL's name was changed to DeBruyn Enterprises Ltd. ("DEL") (see Exhibit A-1, Tab 19). As the new Class A shares were convertible into Class B common shares at any time at the option of their holder, on September 29, 1995, Mr. DeBruyn converted his 100 Class A common shares into Class B common shares in DEL (Exhibit A-1, Tab 20).
 On October 1, 1995, a Share Purchase Agreement was executed by which the appellant sold his 100 Class A common shares of DEL to 114 Co for a consideration of $150,000, with the purchase price to be paid by 114 Co by certified cheque or bank draft on the closing date (being defined as October 2, 1995, or such earlier or later date as may be mutually acceptable to the vendor and purchaser; see Exhibit A-1, Tab 23). The means used to finance the purchase of the shares was a leveraged buyout. On October 1, 1995, the directors of DEL, now Linda and Bernard DeBruyn, declared a dividend in the amount of $150,000 on the Class A common shares, these being held solely by 114 Co (Exhibit A-1, Tab 33). DELobtained what is called a midnight bank loan to pay that dividend. Pursuant to section 112 of the Act, that intercorporate dividend was not taxable. 114 Co assigned to the appellant in satisfaction of the purchase price of the 100 DEL Class A common shares the $150,000 payable to it by DEL, and receipt of $150,000, representing payment in full pursuant to the Share Purchase Agreement was acknowledged by the appellant on October 1, 1995 (Exhibit A-1, Tab 27).
 Mr. McMullen, by using those funds - which he received tax-free by virtue of the capital gains exemption - along with his shareholder loan account credit with DEL, and by assuming the debts of the Kingston branch, would acquire that branch at its fair market value through Haven Home Comfort Inc. ("HHCI"), a corporation incorporated under the laws of Ontario on August 11, 1995, and owned by the appellant and his spouse, Diane McMullen, each holding 50% of its common shares. On October 1, 1995, the appellant assigned the $150,000 payable to him by DELto HHCI (Exhibit A-1, Tab 34) in consideration of a promissory note (Exhibit A-1, Tab 18, second last page).
 Also on October 1, 1995, pursuant to an Asset Purchase Agreement, HHCI acquired DEL's assets relating to its business operations in Kingston for a consideration of $431,508 (which, it is not disputed, was the fair market value at the time). In the statement of adjustments (filed as Exhibit A-1, Tab 44 and presented in diagram form in Exhibit A-3) this amount is itemized as follows:
in cash borrowed by the appellant from the bank
shareholder loan account
due by DEL to HHCI offset against the purchase price (see Exhibit A-1, Tabs 46 and 47)
 The Kingston assets comprised land and a building, vehicles, furniture and equipment, leasehold improvements, inventory and goodwill (as per the asset purchase agreement, Exhibit A-1, Tab 35).
 As the $150,000 amount was now back in DEL, it repaid the midnight bank loan.
 On October 2, 1995, as a result of the series of transactions noted above, DEL's business assets were divided as follows: the appellant and his wife through their ownership of HHCI each held a 50% interest in the operating assets of DEL's former Kingston operation, and Bernard and Linda DeBruyn - the latter through her wholly owned corporation, 114 Co - each held a 50% interest in DEL's operating assets in Belleville. The McMullens and the DeBruyns, who had signed a non-competition agreement (Exhibit A-1, Tab 35, Schedule D) never had any dealings with each other thereafter. DEL in filing its T2 income tax return for the 1996 taxation year reported a taxable capital gain and recapture in respect of its sale of the Kingston branch to HHCI (see Respondent's Written Submissions, p. 6, paragraph 16c)).
 HHCI is still carrying on business today. The DeBruyns sold DEL three years later, in 1998, to Lennox, an independent corporation operating in the same field in Belleville.
 The respondent argues that this case involves a circular series of preordained transactions that principally occurred on the same day. In the respondent's view, the series of transactions included a non-arm's length sale of shares by the appellant to 114 Co, by which $150,000 worth of property of DEL was extracted to or for the benefit of the appellant as part of the reorganization of DEL's business. The appellant reported a taxable capital gain of $37,500 (being proceeds of disposition of $150,000 less the adjusted cost base of $100,000 multiplied by a 75% capital gain inclusion) which was wholly offset by his capital gains exemption. It is the respondent's position, on the facts of this case, that the amount of $150,000 received by the appellant is deemed under subsection 84(2) or paragraph 84.1(1)(b) of the Act, or by the application of section 245 (the general anti-avoidance rule ("GAAR")) of the Act, to be a taxable dividend of $187,500 (being the actual dividend of $150,000 plus a 25% gross-up).
 The issues are summarized as follows in the respondent's written submissions at paragraphs 19, 20 and 21, page 8:
19. The issue in respect of s. 84(2) is whether:
a) the $150,000 received by McMullen from 114 on the sale of Class "A" DEL shares constitutes a distribution or appropriation of funds or property of DEL in any manner whatever on the wind-up, discontinuance or reorganization of DEL's business. Specifically:
i) Does the sale by DEL of its Kingston Branch constitute a reorganization of DEL's business, and
ii) Did the Appellant receive in "any manner whatever" property or funds of DEL on the reorganization of DEL's business.
20. If s. 84(2) does not apply, the issue regarding s. 84.1(1)(b) is whether:
a) the sale of Class "A" DEL shares to 114 constitute [sic] a non arm's length share transfer within the meaning and operation of this provision. Specifically:
i) On October 1, 1995 were McMullen and 114 dealing with each other at arm's length within the meaning of s. 251(1)(b), and
ii) immediately after the disposition, were 114 and DEL connected corporations within the meaning of subsection 186(4) of the Act.
21. If neither s. 84(2) nor s. 84.1(1)(b) of the Act apply, the issue is whether:
a) subsection 245(2) applies to the sale of DEL share [sic] to deny in the circumstances the taxable capital gain reported by McMullen and to instead include in his income a taxable dividend. Specifically:
i) did McMullen received [sic] a tax benefit in respect of the sale of DEL shares within the meaning of subsection 245(1);
ii) did any of the September 29, 1995 and October 1, 1995 transactions forming part of a series of transaction [sic] constitute an avoidance transaction within the meaning of s. 245(3)(b);
iii) did any of the avoidance transactions constitute a misuse or abuse of the Act within the meaning of s. 245(4); and
iv) whether the Respondent's determination of the tax consequences of the avoidance transaction was appropriate in all the circumstances.
I. Subsection 84(2) of the Act
 Subsection 84(2), as applicable for the 1995 taxation year, reads as follows:
84. . . .
Distribution on winding-up, etc.
(2) Where funds or property of a corporation resident in Canada have at any time after March 31, 1977 been distributed or otherwise appropriated in any manner whatever to or for the benefit of the shareholders of any class of shares in its capital stock, on the winding-up, discontinuance or reorganization of its business, the corporation shall be deemed to have paid at that time a dividend on the shares of that class equal to the amount, if any, by which
(a) the amount or value of the funds or property distributed or appropriated, as the case may be,
(b) the amount, if any, by which the paid-up capital in respect of the shares of that class is reduced on the distribution or appropriation, as the case may be,
and a dividend shall be deemed to have been received at that time by each person who held any of the issued shares at that time equal to that proportion of the amount of the excess that the number of the shares of that class held by the person immediately before that time is of the number of the issued shares of that class outstanding immediately before that time.
 The respondent argues that subsection 84(2) of the Act is designed to prevent the stripping of property or funds from a Canadian-resident corporation on the winding-up, discontinuance or reorganization of its business. The respondent submits that the appellant's sale of DELshares to 114 Co for proceeds of $150,000 constituted a distribution of funds or property of DEL on the reorganization of DEL's business, within the meaning of subsection 84(2) of the Act. As a result, the respondent submits, DEL is deemed to have paid, and the appellant to have received, a dividend in the amount of $150,000 on October 1, 1995.
 The appellant, on the other hand, submits that the primary purpose of the transactions was for two business partners to divide a single business having two physical locations - one in Bellevilleand one in Kingston - into two separate businesses to be independently owned, one by each former shareholder and his wife. According to the appellant, subsection 84(2) of the Act does not apply because the transactions that occurred did not result in DEL's reorganizing its business. In his view, a reorganization occurs in the context of a winding-up or dissolution. Here, he submits, DELcontinued operating its business and, therefore, we cannot speak of a reorganization within the meaning of subsection 84(2) of the Act.
 The meaning of what constitutes a reorganization was analysed with respect to subsection 81(1), the predecessor to subsection 84(2), by Cattanach J. in Kennedy v. M.N.R., 72 DTC 6357 (FCTD), at pages 6362 and 6363:
If an undertaking of some definite kind is being carried on but it is concluded that this undertaking should not be wound up but should be continued in an altered form in such manner that substantially the same persons will continue to carry on the undertaking, that is what I understand to be a reorganization. It is that the same business is carried on by the same persons but in a different form.
. . .
In section 81(1) the word "reorganization" is used in association with the words "winding-up" and "discontinuance". Both of those words contain an element of finality. The company is ended. It is therefore logical to assume that the word "reorganization" presupposes the conclusion of the conduct of the business in one form and its continuance in a different form.
. . .
[No "reorganization" in this case]
In the circumstances of the present case there has been no "fresh" organization. The same Company continued the same business in the same manner and in the same form. The only difference was that by reason of the sale of its premises the Company operated the same business from the same premises which were rented by it rather than being owned by it.
This was merely the sale by the Company of a capital asset which did not result in the end of the business of the Company. It might have bought other premises from which to carry on its business but it chose to continue its business from the rented premises it had owned formerly. Obviously this would not affect the conduct of its business per se but only the manner in which the Company held the premises from which it conducted its business.
In my view this is not a "reorganization" of the business in a commercial sense nor in the sense of the word as contemplated in section 81(1).
 In Merritt v. M.N.R.,  3 D.L.R. 115 at p. 119 (Ex. Ct. Can.), reversed by  2 D.L.R. 465 (SCC) on other grounds, Maclean J. was of the opinion that the words "winding-up, discontinuance or reorganization", as used in former subsection 19(1) of the Act were commercial and not legal terms. This proposition was adopted by the Supreme Court of Canada in Smythe et al v. M.N.R., 1970 S.C.R. 64 at p. 71.
 In the present case, what in fact happened was that DEL sold its Kingstonbranch to HHCI, a corporation owned by the appellant and his wife, while keeping its business in Belleville. Had DEL sold its Kingstonbranch to a third party, that sale of part of its business presumably would not have been considered a reorganization. (See for example the case of Geransky v. R., 2001 CarswellNat 272, in which the cessation of a significant portion of a business and the resulting sale of the cement manufacturing assets to a third party did not constitute, in this Court's view, a reorganization within the meaning of subsection 84(2) of the Act.) The fact that the Kingston branch was sold to a corporation half of which was owned by the appellant, who had just severed his links with DEL, is in my view no different than selling to a third party. It is no different than the situation in the Kennedy case where a company sold its premises to its controlling shareholder. The situation here is even clearer, in my view, than that in Kennedy. Indeed, in Kennedy, the purchasing controlling shareholder leased back the premises to the company, which continued to operate its business from that site. In the present case, the appellant, through HHCI, purchased the Kingstonassets from DELand subsequently never had any dealings with that entity. DEL continued to operate its business in Belleville, but was no longer controlled by the same shareholders. Indeed, DELwas thereafter owned by Bernard DeBruyn and 114 Co, belonging to Linda DeBruyn. DEL's business was now focused only on Bellevilleand had ceased to be carried on by the same partners as those that had carried it on, when DEL had two branches. The end result was the sale by DEL of capital assets which did not result in the end of its business. Indeed, DELdid not discontinue its business. In my view, this was not a reorganization of the business as contemplated by subsection 84(2) of the Act.
 Because of the conclusion I have reached, it becomes unnecessary to consider whether any funds or property of DEL were distributed or otherwise appropriated in any manner whatever to or for the benefit of the appellant within the meaning of subsection 84(2), as one prerequisite for the application of that subsection (namely, the existence of a winding-up, discontinuance or reorganization) has not been met. However, I do not think that funds or property of DELwere appropriated for the benefit of the appellant. The respondent raised the appropriation argument on the basis that DEL's surpluses were being stripped (as was the case in RMM Canadian Enterprises Inc. et al. v. the Queen, 97 DTC 302 (TCC), and in Smythe et al. v. M.N.R., supra), since the payment for the appellant's shares was made by 114 Co essentially by using DEL's funds. However, both in Smythe and in RMM, there was a corporation with a substantial surplus and the steps taken involved the use of another corporation as a means of getting the surplus into the hands of the shareholders. Here, according to the financial statements for the year ending September 30, 1995, DELwas in a loss position in 1995. The shareholders' equity had gone from modest retained earnings of $67,000 in 1994 to a deficit of over $10,000 in 1995. Contrary to the situation in Smythe and in RMM, there were no retained earnings to strip. I therefore find it difficult to conclude that funds or property of DELended up in the hands of the appellant. Associate Chief Judge Bowman's observation in Geransky, supra, at paragraph 35, applies here: the appellant did not extract $150,000 from DEL; he sold shares for $150,000. In fact, he sold the shares that he had purchased for $100,000, to 114 Co, which was entitled to a dividend from DEL, and 114 Co paid the price of the shares with the $150,000 dividend it received. The appellant then used the $150,000 to purchase part of the Kingston assets. The end result was that the appellant received part of DEL's assets in exchange for releasing his shares. I find that there was no appropriation of funds by the appellant in this particular situation.
II. Paragraph 84.1(1)(b) of the Act
 Paragraph 84.1(1)(b), as applicable for the 1995 taxation year, reads as follows:
Non-arm's length sale of shares
84.1 (1) Where after May 22, 1985 a taxpayer resident in Canada (other than a corporation) disposes of shares that are capital property of the taxpayer (in this section referred to as the "subject shares") of any class of the capital stock of a corporation resident in Canada (in this section referred to as the "subject corporation") to another corporation (in this section referred to as the "purchaser corporation") with which the taxpayer does not deal at arm's length and, immediately after the disposition, the subject corporation would be connected (within the meaning assigned by subsection 186(4) if the references therein to "payer corporation" and to "particular corporation" were read as "subject corporation" and "purchaser corporation" respectively) with the purchaser corporation,
. . .
(b) for the purposes of this Act, a dividend shall be deemed to be paid to the taxpayer by the purchaser corporation and received by the taxpayer from the purchaser corporation at the time of the disposition. . . .
 The respondent submits that section 84.1 of the Act is an anti-avoidance provision which is designed to prevent corporate surplus stripping by a shareholder through the non-arm's length transfer of shares of one corporation to another corporation connected with the former. The respondent's position is that the sale of DEL Class A shares on October 1, 1995, constituted a non-arm's length sale of shares to 114 Co with the result that a dividend is deemed to have been paid by DELand received by the appellant.
 The only question in dispute here is whether the appellant and 114 Co were dealing at arm's length at the time of the share transaction. As they were not related persons pursuant to paragraph 251(1)(a) of the Act, the issue is whether they were factually at arm's length pursuant to paragraph 251(1)(b) of the Act. Subsection 251(1), as applicable for the 1995 taxation year, reads as follows:
SECTION 251: Arm's length.
(1) For the purposes of this Act,
(a) related persons shall be deemed not to deal with each other at arm's length; and
(b) it is a question of fact whether persons not related to each other were at a particular time dealing with each other at arm's length.
 The question of whether parties are factually dealing at arm's length was raised in Petro-Canada v. Canada,  F.C.J. No. 734 (FCA) (QL). The court summarized as follows the analysis to be undertaken, at paragraph 54:
54 There is a large body of jurisprudence dealing with the determination of whether a transaction is between two parties dealing at arm's length. Broadly speaking, the courts have identified three questions that may be used as a framework for analysis; see, for example, Peter Cundill & Associates Ltd. v. Minister of National Revenue,  2 C.T.C. 221, 91 D.T.C. 5543 (F.C.A.). First, is there a common mind directing the bargaining for both parties to the transaction? Second, did the parties to the transaction act in concert without separate interests? Third, did one party to the transaction exercise de facto control over the other?
 In M.N.R. v. Merritt Estate, 69 DTC 5159 (Ex. Ct.), Cattanach J. said at pages 5165-66:
In my view, the basic premise on which this analysis is based is that, where the "mind" by which the bargaining is directed on behalf of one party to a contract is the same "mind" that directs the bargaining on behalf of the other party, it cannot be said that the parties are dealing at arm's length. In other words where the evidence reveals that the same person was "dictating" the "terms of the bargain" on behalf of both parties, it cannot be said that the parties were dealing at arm's length.
 In McNichol et al. v. The Queen, 97 DTC 111 (TCC), Judge Bonner added this at pages 117-18:
The acting in concert test illustrates the importance of bargaining between separate parties, each seeking to protect his own independent interest. It is described in the decision of the Exchequer Court in Swiss Bank Corporation v. M.N.R. [ C.T.C. 427, 71 DTC 5235; aff'd  C.T.C. 614, 72 DTC 6470]. At page 5241 Thurlow J. (as he then was) said:
To this I would add that where several parties - whether natural persons or corporations or a combination of the two - act in concert, and in the same interest, to direct or dictate the conduct of another, in my opinion the "mind" that directs may be that of the combination as a whole acting in concert or that of any of them in carrying out particular parts or functions of what the common object involves. Moreover as I see it no distinction is to be made for this purpose between persons who act for themselves in exercising control over another and those who, however numerous, act through a representative. On the other hand if one of several parties involved in a transaction acts in or represents a different interest from the others the fact that the common purpose may be to so direct the acts of another as to achieve a particular result will not by itself serve to disqualify the transaction as one between parties dealing at arm's length. The Sheldon's Engineering case  C.T.C. 174, 55 DTC 1110], as I see it, is an instance of this.
 In my view, the appellant and 114 Co, wholly owned by Linda DeBruyn, had separate economic interests at the time the appellant disposed of his Class A common shares. Just because the parties agreed on the sale price of the shares, which in fact - and this is not disputed - was the fair market value, that does not mean we must infer that the interests of the vendor and the purchaser were not divergent. The sale price of the appellant's shares was to be offset against the purchase price for the whole of the assets, which HHCI had to pay to take possession of the Kingstonbranch. In fact, from the moment the appellant decided to terminate his business association with Mr. DeBruyn, they had divergent economic interests. The appellant, who acquired through HHCI some of DEL's assets, and DEL, as the vendor, were not acting in concert. In the end, they arrived at an acceptable solution that suited each of them. In McNichol, supra, Judge Bonner said at page 118:
. . . The actions of the appellants and Mr. Forestell in negotiating the share sale transaction were clearly governed by their respective perceptions of their own self-interest and nothing else. The fact that the tax savings potentially accruing to the appellants as a consequence of sale formed not only the reason for the sale but also the boundaries within which sale price might be negotiated does not suggest that the appellants and Forestell acted in concert. Buyer and seller do not act in concert simply because the agreement which they seek to achieve can be expected to benefit both. Section 84.1 is therefore not applicable.
 Here, the actions of the appellant and the DeBruyns in negotiating the share sale transaction were governed by their respective perceptions of their own self-interest. Both partners wanted to part from each other. The structure set up on the accountant's advice resulted in a tax benefit to the appellant and provided 114 Co with the financing needed to purchase the shares. As stated by Judge Bonner, buyer and seller do not act in concert simply because the agreement which they seek to achieve can be expected to benefit both. Furthermore, it cannot be concluded that parties have acted in concert simply because they have used the same financial advisors (see Brouillette v. Canada,  T.C.J. No. 139 (QL), at paragraph 51).
 The appellant had no control over 114 Co.In fact the $150,000 dividend payable by DELto 114 Co was more beneficial to 114 Co, which was able to avoid having to borrow money to purchase the shares, than to the appellant, who was entitled to receive $150,000 in consideration for his shares.
 I therefore conclude, in light of the factors analysed above, that the appellant and 114 Co were dealing at arm's length. As a result, paragraph 84.1(1)(b) does not apply in the present case.
III. Section 245 GAAR issue
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.
. . .
General anti-avoidance provision
(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.
Where s. (2) does not apply
(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.
Determination of tax consequences
(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.
. . .
 The approach to be taken regarding section 245 of the Act is summarized as follows at paragraph 66 of Canada Trustco Mortgage Co. v. Canada,  2 S.C.R. 601, 2005 SCC 54:
66 The approach to s. 245 of the Income Tax Act may be summarized as follows.
1. Three requirements must be established to permit application of the GAAR:
(1) A tax benefit resulting from a transaction or part of a series of transactions (s. 245(1) and (2));
(2) that the transaction is an avoidance transaction in the sense that it cannot be said to have been reasonably undertaken or arranged primarily for a bona fide purpose other than to obtain a tax benefit; and
(3) that there was abusive tax avoidance in the sense that it cannot be reasonably concluded that a tax benefit would be consistent with the object, spirit or purpose of the provisions relied upon by the taxpayer.
2. The burden is on the taxpayer to refute (1) and (2), and on the Minister to establish (3).
3. If the existence of abusive tax avoidance is unclear, the benefit of the doubt goes to the taxpayer.
4. The courts proceed by conducting a unified textual, contextual and purposive analysis of the provisions giving rise to the tax benefit in order to determine why they were put in place and why the benefit was conferred. The goal is to arrive at a purposive interpretation that is harmonious with the provisions of the Act that confer the tax benefit, read in the context of the whole Act.
5. Whether the transactions were motivated by any economic, commercial, family or other non-tax purpose may form part of the factual context that the courts may consider in the analysis of abusive tax avoidance allegations under s. 245(4). However, any finding in this respect would form only one part of the underlying facts of a case, and would be insufficient by itself to establish abusive tax avoidance. The central issue is the proper interpretation of the relevant provisions in light of their context and purpose.
6. Abusive tax avoidance may be found where the relationships and transactions as expressed in the relevant documentation lack a proper basis relative to the object, spirit or purpose of the provisions that are purported to confer the tax benefit, or where they are wholly dissimilar to the relationships or transactions that are contemplated by the provisions.
7. Where the Tax Court judge has proceeded on a proper construction of the provisions of the Income Tax Act and on findings supported by the evidence, appellate tribunals should not interfere, absent a palpable and overriding error.
 The appellant, in his counsel's written submissions, argues that the GAAR has no application to the facts of this appeal for two reasons. First, the transactions in question were not avoidance transactions. Second, there was no abusive tax avoidance. However, counsel for the appellant admits that there was a tax benefit resulting from the series of transactions.
 According to the appellant's counsel, there was no avoidance transaction within the meaning of subsection 245(3) of the Act because it is reasonable to conclude that the transactions entered into by the appellant were arranged primarily for bona fide business purposes. He submits that while financial advisors helped the appellant carry out the transactions in a tax-effective manner, the primary purpose was to separate the single business of DELinto two independently owned businesses. The tax planning was merely implemented to support the independent business goals of the appellant and Mr. DeBruyn. Accordingly, in counsel's view, the capital gains exemption claimed by the appellant in his 1995 tax return should be immune from the application of the GAAR under subsection 245(3) because the transactions giving rise to the capital gain were primarily for business purposes. Alternatively, counsel for the appellant argues that if it is established that there was an avoidance transaction, the respondent has not discharged the burden of demonstrating that the transactions entered into by the appellant resulted in abusive tax avoidance as contemplated in subsection 245(4) of the Act. Counsel argues that the capital gains exemption for shares in a qualified small business corporation is designed to allow a taxpayer to reduce the amount to be included in his income in consequence of the disposition of shares in such a corporation at a gain. In counsel's view, there is no evidence in this case to suggest that the appellant used this capital gains exemption to achieve a result that it was designed to prevent. The use of the exemption by the appellant allowed him to sell his shares in a small business which was in danger of failing. The result was the creation of two new small businesses, one for the appellant and his wife and the other for Mr. DeBruyn and his wife, and both businesses survived. Moreover, the capital gains exemption claimed by the appellant is a tax benefit conferred by the plain wording of the Act. In the appellant's counsel's view, the respondent did not establish that the use of the exemption frustrated or defeated the purpose for which the exemption was enacted.
 The respondent argues that the series of transactions, in particular the reorganization of the share capital of DEL, the appellant's sale of DEL Class A common shares to 114 Co, the ensuing $150,000 dividend declared by DEL in favour of 114 Co and the assignment of the amount of $150,000 by 114 Co to the appellant in satisfaction of the purchase price of the shares, resulted in a tax benefit to the appellant. The series of transactions converted what was otherwise a taxable dividend into a capital gain wholly offset by the appellant's capital gains exemption. It is the Crown's position that the amendment to DEL's articles, the share sale, the dividend declaration and the assignment of the amount of $150,000 from 114 Co to the appellant constitute avoidance transactions.
 The Crown's position is summarized at paragraphs 91 to 95 of the respondent's written submissions, which read as follows:
Amendment to Articles
91. The Amendment to DEL Articles to reorganize its share capital to create two classes of share was devoid of any business purpose. The severance of McMullen's ties to DEL by selling his shares did not require the reorganization of DEL's share capital two days before the sale. This transaction was done to facilitate McMullen obtaining a tax benefit. The conversion of Dubruyn's [sic] Class "A" to Class "B" shares allowed a dividend to be declared on Class "A" shares once these shares were held by 114. This was the vehicle by which $150,000 of DEL funds was extracted and, which through 114 indirectly conferred a tax benefit on McMullen.
92. Undoubtedly, the Share Sale between McMullen and 114 served the business purpose of severing McMullen's interest in DEL. The Share Sale was included in the series of transactions to split the assets of DEL between its shareholders on the divisive reorganization of its business. The primary purpose of the Share Sale was for McMullen to obtain a tax benefit. The Share Sale allowed $150,000 of DEL property to flow through to McMullen tax-free in order to equalize the value of assets between McMullen and Dubruyn [sic] on the divisive reorganization of DEL. McMullen reported what otherwise was a taxable dividend of $187,500 as a taxable capital gain of $37,500 wholly offset by his capital gain exemption.
93. The Dividend Declaration to 114 was also without a primary business purpose. It provided the vehicle which allowed $150,000 of DEL funds to indirectly end up in the pocket of McMullen while avoiding a deemed dividend. The dividend to 114 attracted no taxation in the hands of 114, due to the dividend deduction permitted by section 112 of the Act. This transaction was not simply a conventional distribution of corporate surplus to its shareholder but rather was primarily done to facilitate McMullen obtaining a tax benefit. It also allowed Ms. Dubruyn [sic] through 114 to acquire 50% of DEL share [sic] at no real (out of pocket) cost.
First Dividend Assignment
94. The assignment by 114 to McMullen of the $150,000 DEL dividend payable to it in satisfaction of the purchase price for DEL shares had an obvious business purpose. However, the primary purpose of this transaction was to confer a tax benefit on McMullen. The transaction put in McMullen's hands $150,000 of DEL's funds as a means of equalizing assets in the divisive reorganization of DEL's business while avoiding a deemed dividend or any tax consequences resulting from this dividend strip.
95. The Crown submits that none of the noted transactions can reasonably be considered to have been undertaken or arranged primarily for bona fide non-tax purposes and are, as such, avoidance transactions within the meaning of paragraph 245(3)(b). Once it has been established that any of the transactions was an avoidance transaction then subsection 245(4) of the Act, must be considered.
 The respondent acknowledges that the share transaction was not a sham. However, the Crown is of the view that the use of the capital gains sections of the Act (sections 38 and 110.6) to side step the policy of the Act with respect to corporate distributions to shareholders was a misuse of those sections. The respondent refers to McNichol, supra, and RMM, supra, in stating that, under the misuse/abuse analysis pursuant to section 245, transactions legally characterized as a sale of shares but which result in the extraction of corporate surplus and the avoidance of the ordinary consequences of such a distribution, constitute an abuse of the Act as a whole. The respondent argues that the policy of the Act read as a whole is to tax corporate distributions of surplus as dividends in the hands of the corporation's shareholders. The Crown submits that, as a result, the Minister was correct to ignore the tax effect of the application of sections 38 and 110.6 of the Act on the appellant's sale of shares and to deny him under section 245 of the Act the tax benefit of a taxable capital gain wholly offset by the capital gains exemption and to instead consider the amount of $150,000 as a dividend.
 The appellant's response is that the abusive nature of a transaction must be clear in the sense that the transaction frustrates a clear and unambiguous statutory policy. The appellant submits that the respondent seeks to recharacterize the sale of shares (i.e., a disposition of capital property) as a distribution of property resulting in a deemed dividend. The appellant argues that even if such a recharacterization were permitted, there is no clear or unambiguous policy under the Act requiring capital gains treatment to give way to dividend treatment. These two forms of treatment coexist within the Act but serve different purposes. It cannot be said, as a matter of policy, that one is to be preferred over the other.
 Therefore, the appellant argues, the GAAR cannot be applied to the transactions herein because there is no abusive tax avoidance involved.
1. Avoidance transaction: subsection 245(3) of the Act
 As stated by the Supreme Court of Canada in Canada Trustco, supra, at paragraph 21, "[t]he function of this requirement is to remove from the ambit of the GAAR transactions or series of transactions that may reasonably be considered to have been undertaken or arranged primarily for a non-tax purpose. . . . The GAAR . . . was not intended to introduce uncertainty in tax planning". If there are both tax and non-tax purposes to a transaction, it must be determined whether it was reasonable to conclude that the non-tax purpose was primary. If so, the GAAR cannot be applied to deny the tax benefit (Canada Trustco, paragraph 27).
 In giving guidelines to Tax Court of Canada judges who have to make this objective assessment, the Supreme Court of Canada, at paragraphs 30, 31 and 32 of Canada Trustco, referred in particular to the Explanatory Notes, as follows:
30 The courts must examine the relationships between the parties and the actual transactions that were executed between them. The facts of the transactions are central to determining whether there was an avoidance transaction. It is useful to consider what will not suffice to establish an avoidance transaction under s. 245(3). The Explanatory Notes state, at p. 464:
Subsection 245(3) does not permit the "recharacterization" of a transaction for the purposes of determining whether or not it is an avoidance transaction. In other words, it does not permit a transaction to be considered to be an avoidance transaction because some alternative transaction that might have achieved an equivalent result would have resulted in higher taxes.
31 According to the Explanatory Notes, Parliament recognized the Duke of Westminster principle "that tax planning - arranging one's affairs so as to attract the least amount of tax - is a legitimate and accepted part of Canadian tax law" (p. 464). Despite Parliament's intention to address abusive tax avoidance by enacting the GAAR, Parliament nonetheless intended to preserve predictability, certainty and fairness in Canadian tax law. Parliament intends taxpayers to take full advantage of the provisions of the Income Tax Act that confer tax benefits. Indeed, achieving the various policies that the Income Tax Act seeks to promote is dependent on taxpayers doing so.
32 Section 245(3) merely removes from the ambit of the GAAR transactions that may reasonably be considered to have been undertaken or arranged primarily for a non-tax purpose. Parliament did not intend s. 245(3) to operate simply as a business purpose test, which would have considered transactions that lacked an independent bona fide business purpose to be invalid.
 It is also understood that if at least one transaction in a series of transactions is an "avoidance transaction", then the tax benefit that results from the series may be denied under the GAAR. This is apparent from the wording of subsection 245(3) (see Canada Trustco, paragraph 34).
 Here, the respondent submits that four transactions in the series of transactions were avoidance transactions. The amendment to DEL's articles for the purpose of reorganizing its share capital to create two classes of shares is the first transaction which the respondent says was devoid of any business purpose. I do not agree. To be an avoidance transaction, a transaction must have been undertaken or arranged primarily to obtain a tax benefit. The primary purpose of the transaction in question here was, it seems obvious, for DELto be able to declare a discretionary dividend in favour of the holder of a particular class of shares, in conformity with corporate law. That transaction considered alone cannot be said to have been arranged primarily to obtain a tax benefit per se.
 The second transaction at which the respondent takes aim is the share sale between the appellant and 114 Co.The respondent is of the view that the primary purpose of that transaction was for the appellant to obtain a tax benefit because it allowed $150,000 worth of DELproperty to flow through to the appellant tax-free in order to equalize the value of assets to be held by the appellant and Mr. DeBruyn on the divisive reorganization of DEL. I do not agree with this reasoning. The appellant sold his shares at their fair market value to 114 Co, which was wholly owned by Linda DeBruyn. The evidence revealed that DEL continued operating its business in Bellevilleafter the appellant's sale of his shares. DELwas thereafter owned by Mr. DeBruyn and 114 Co. In my view, the sale of the appellant's shares to 114 Co had primarily a business purpose. The appellant severed his ties with Mr. DeBruyn who, for his part, wanted to keep operating DEL's business with his wife. This was not an avoidance transaction.
 The third transaction targeted by the respondent is the dividend declared by DELin favour of 114 Co. The fact that under section 112 of the Act 114 Co did not have to pay tax on this intercorporate dividend does not mean that the primary purpose of the dividend was to facilitate the appellant's obtaining a tax benefit. It certainly allowed Linda DeBruyn, through 114 Co, to acquire 50% of the shares in DEL at no real cost for her. It may have benefited 114 Co or Linda DeBruyn but I do not see how this particular transaction benefited the appellant. Mr. Parker testified that he had thought 114 Co would borrow the money to purchase the appellant's shares. Once the appellant was out of the corporation, he no longer had any part in any decision to declare a dividend.
 Finally, the fourth and last transaction referred to by the respondent as being caught under subsection 245(3) of the Act is 114 Co's assignment to the appellant of the $150,000 payable by DEL to it in satisfaction of the purchase price of DELshares. In the respondent's view, the primary purpose of this transaction was to confer a tax benefit on the appellant because it put in his hands $150,000 of DEL's funds as a means of equalizing assets in the divisive reorganization of DEL's business while avoiding a deemed dividend or any tax consequences resulting from this dividend strip. Again, the primary objective was, in my view, for the appellant to terminate his business association with Mr. DeBruyn. Linda DeBruyn was willing to buy up the appellant's shares through 114 Co at fair market value. She did not, however, have the money to do so. Instead of borrowing from the bank, DELdeclared a dividend in favour of 114 Co, which was used to pay the purchase price. As soon as a dividend was declared, it became a debt due from DEL to 114 Co. It was legitimate for 114 Co to use that amount owed to it by DEL to pay the purchase price of the shares acquired from the appellant. But, legally, 114 Co did not assign the "dividend" to the appellant, as once a dividend is declared by the corporation, a shareholder cannot assign that dividend as such to anyone else.
 Furthermore, as stated in the Explanatory Notes referred to by the Supreme Court of Canada in Canada Trustco, supra, "[s]ubsection 245(3) does not permit the 'recharacterization' of a transaction for the purposes of determining whether or not it is an avoidance transaction. In other words, it does not permit a transaction to be considered to be an avoidance transaction because some alternative transaction that might have achieved an equivalent result would have resulted in higher taxes".
 The Crown tried to recharacterize the sale of shares as a distribution of DEL's funds on a reorganization of DEL. I have already concluded that there was no reorganization of DEL's business and that there were no appropriation of the corporation's funds by the appellant. The two shareholders severed their relationship and DELcontinued operating its business with a new shareholder in place of the appellant. The agreement reached was that the appellant would buy up the Kingstonassets. Part of the purchase price was offset by the $150,000 originally declared as a dividend to 114 Co. But there was a consideration for that: the appellant released his shares in DEL, valued at $150,000, in favour of Linda DeBruyn through 114 Co. I do not consider this as a tax-free extraction of corporate funds. Rather, I find that this transaction may reasonably be considered to have been arranged primarily for bona fide purposes other than to obtain a tax benefit.
2. Abusive tax avoidance: subsection 245(4) of the Act
 Although I have concluded that there were no avoidance transactions, I will nevertheless make some observations on the requirement under subsection 245(4) of the Act that there be abusive tax avoidance. The Supreme Court of Canada has established that subsection 245(4) imposes a two-part inquiry for the purpose of making such a determination. That court said at paragraph 55 of Canada Trustco, supra:
55 In summary, s. 245(4) imposes a two-part inquiry. The first step is to determine the object, spirit or purpose of the provisions of the Income Tax Act that are relied on for the tax benefit, having regard to the scheme of the Act, the relevant provisions and permissible extrinsic aids. The second step is to examine the factual context of a case in order to determine whether the avoidance transaction defeated or frustrated the object, spirit or purpose of the provisions in issue.
 The abusive nature of the transaction must be clear. The analysis focuses on the purpose of the particular provisions that on their face give rise to the benefit, and on whether the transaction frustrates or defeats the object, spirit or purpose of those provisions (Canada Trustco, paragraph 69).
 Here, what provisions of the Act were used to achieve the result desired by the two former shareholders in a way that was affordable for them? They wanted to sever their association with one another and each was willing to operate his own business with his wife by splitting the two branches that were formerly operated by DELinto two distinct businesses.
 Section 112 was relied upon to declare a non-taxable intercorporate dividend. Sections 38 and 110.6 were used to claim a capital gain on the sale of the shares and an offsetting capital gains exemption.
 In Evans v. Canada,  T.C.J. No. 581 (QL), Bowman C. J. said at paragraphs 28, 29, 30 and 31:
28 . . . I do not see how it can be said that to rely upon a provision that permits a tax free rollover of assets for shares, followed by a tax free intercorporate dividend, can possibly be said to frustrate or defeat the object or spirit of those provisions within the context of the Act as a whole. Their object and spirit is to permit people to do exactly what was done here. Indeed, they do not admit of any other interpretation. Similarly, the Act is highly specific when it comes to stock dividends. The overall result is that the stock dividends, when issued to Dr. Evans,were included in his income to the extent of $100, which was his adjusted cost base and the increase in the paid up capital (para. 21, ASF). When he sold the shares to the partnership he realized a capital gain of $486,900 which was offset by the capital gains deduction. The capital gains deduction was not abused or misused. It was merely being used. When the Class B shares were redeemed the deemed dividend was not taxed in the children's hands simply because of the tax bracket they were in. Section 74.5 excluded the attribution rules because that is what it was designed to do if its terms were complied with.
29 I do not think that it can be said that there is an abuse of the provisions of the Act where each section operates exactly the way it is supposed to. The Crown's position seems to be predicated on the view that since everything worked like clockwork there must have been an abuse. The answer to this position is, of course, that if everything had not worked like clockwork we would not be here.
30 The only basis upon which I could uphold the Minister's application of section 245 would be to find that there is some overarching principle of Canadian tax law that requires that corporate distributions to shareholders must be taxed as dividends, and where they are not the Minister is permitted to ignore half a dozen specific sections of the Act. This is precisely what the Supreme Court of Canada has said we cannot do.
31 I have so far focussed on only those words of subsection 245(4) "a misuse of the provisions of this Act" and have concluded that no section of the Income Tax Act, considered individually, has been misused. I am however aware that the Supreme Court of Canada has treated the question under subsection 245(4) as a single enquiry and has stated that the first part must be read with the question whether the transactions resulted in an "abuse, having regard to the provisions of the Act, other than [section 245] read as a whole."
 In light of those principles, I do not find that the transactions herein defeat or frustrate the object, purpose or spirit of any of the provisions of the Act referred to above. Those transactions do not lack economic substance. They were real and had legal effect. They were not shams. There was a genuine change in the legal and economic relations between the two former shareholders in DEL. As stated in Evans, "[t]o treat the transactions as abusive so that their results can be recharacterized would not preserve but rather would destroy certainty, predictability and fairness and would frustrate Parliament's intention that taxpayers 'take full advantage of the provisions of the Act that confer tax benefits'" (paragraph 35(c)).
 The appellant's not using the provisions of the Act in a manner that maximized the tax resulting from the transactions is not synonymous with misuse or abuse of the provisions. The appellant could have had his shares redeemed by DEL, which would then have issued shares to Linda DeBruyn at a certain cost, and perhaps the same economic result would have thereby been obtained, but certainly in the least tax-effective way. Indeed, DEL would have offset the redemption price of the shares against the purchase price of the Kingstonassets and the appellant would have been taxable on a deemed dividend pursuant to subsection 84(3) of the Act. But as long as the transactions reflect their actual legal effect and fall within the object, spirit or purpose of the provisions of the Act, the taxpayer is not obliged to follow the course which is the least tax-effective for him. As the Supreme Court of Canada said in Tsiaprailis v. the Canada, 2005 DTC 5119, at 5124, 2005 1 S.C.R. 113:
39 This Court has consistently held that taxpayers' legal relationships should be respected in tax cases absent a contrary provision in the Income Tax Act or a finding that they are a sham. McLachlin J. explained this principle in Shell Canada Ltd. v. Canada, [99 DTC 5669]  3 S.C.R. 622, at para. 39:
[T]his Court has never held that the economic realities of a situation can be used to recharacterize a taxpayer's bona fide legal relationships. To the contrary, we have held that, absent a specific provision of the Act to the contrary or a finding that they are a sham, the taxpayer's legal relationships must be respected in tax cases. Recharacterization is only permissible if the label attached by the taxpayer to the particular transaction does not properly reflect its actual legal effect: Continental Bank leasing Corp. v. Canada, [98 DTC 6505]  2 S.C.R. 298, at para. 21, per Bastarache J.
 In conclusion, the respondent has not persuaded me, or has not presented any evidence establishing, that there was any abuse of the Act read as a whole, or that the policy of the Act read as a whole is designed so as to necessarily tax corporate distributions as dividends in the hands of shareholders. In any event, as the Supreme Court of Canada has said, "[i]f the existence of abusive tax avoidance is unclear, the benefit of the doubt goes to the taxpayer" (Canada Trustco, supra, paragraph 66, para.3).
 The appeal from the assessment made under the Act for the 1995 taxation year is allowed, with costs, and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that subsections 84(2), 84.1(1) and 245(2) do not apply to the transactions in question.
Signed at Montréal, Quebec, this 22nd day of January 2007.