The taxpayer and her husband had operated a service station in partnership and then transferred pursuant to s. 85(2) the assets of the business other than the land (which was leased under a head lease to BP Oil Ltd., which subleased the land back to the taxpayer) to a corporation owned by them. It was found that on the same incorporation transactions she had assigned to the corporation her right to receive gallonage and other rental payments from BP under the head lease as well as assigning the head lease and sublease (considered as an integrated whole). S.56(4) did not apply because there was no diversion by the taxpayer to the corporation of income to which she otherwise would have been beneficially entitled. Instead, the corporation was beneficially entitled to the BP gallonage payments as the party who had earned the income represented thereby.
In addition, the exclusion for property transfers (namely, the assignment of the rents payable and the lease) applied.