Lehigh Cement – Federal Court of Appeal finds that s. 95(6)(b) is restricted to status-manipulation share acquisitions or dispositions

Stratas JA confirmed that CRA could not apply s. 95(6)(b) to deny the s. 113(1)(a) deduction of the taxpayer for exempt dividends in a double-dip structure (where the taxpayer borrowed to contribute to an LLC which was a partnership for US purposes, with the LLC lending to US Opco and distributing the interest income to the taxpayer as exempt dividends on the basis that they were deemed active business income). He found that s. 95(6)(b) was intended only to deal with "the manipulation of share ownership of the non-resident corporation to meet or fail the relevant tests for foreign affiliate, controlled foreign affiliate or related corporation status in subdivision i" through share acquisitions or dispositions (perhaps thinking of the types of transactions described by Nat Boidman).  Here, there was no such manipulation of status, and the Tax Court instead had found that the purpose of the LLC was to achieve US tax savings.

Stratas JA also advanced a principle that one should be loath to interpret an avoidance provision broadly so as to effectively give CRA a largely unfettered right to treat similarly-situated taxpayers differently.

Neal Armstrong. Summaries of The Queen v. Lehigh Cement Ltd., 2014 FCA 103 under s. 95(6)(b) and Statutory Interpretation – Certainty.