Rogers Enterprises – Tax Court of Canada finds no GAAR tax benefit where an alleged excessive CDA addition was not yet distributed to individual shareholders (and also no abuse)
To simplify somewhat, a group of private corporations owned for the benefit of the Rogers family structured their affairs such that one corporation (“CGESR”) was the beneficiary of policies on the life of Ted Rogers whereas a company (“ESRL”) holding shares of CGESR through another CCPC (“ESRIL 98”) was the policyholder and had been paying the premiums, so that its adjusted cost basis (“ACB”) was $42M. On the death of Mr. Rogers in 2008, the full proceeds of the policies ($102M) were added to the capital dividend account (“CDA”) of CGESR, which used such proceeds to pay actual and deemed capital dividends in that amount. However, not all of these proceeds were fully distributed up the chain, so that, on the trial date, ESRIL 98 continued to have a CDA of approximately $42M.
CRA considered that it was abusive for the group to benefit from the full $102M addition to the CGESR CDA rather than an amount net of the $42M ACB to the policyholder (ESRL). However, Sommerfeldt J. found that there was no “tax benefit” for GAAR purposes because, so far, no tax had been avoided, i.e. any intercorporate dividends would have been free of tax (in light inter alia of the availability of the s. 184(3) election) irrespective of whether they were paid as “taxable” or capital dividends, and the “abusive” portion of the $102M increment to CGESR’s CDA had not, so far, been used by the estate or any other individual.
In any event, there was no abuse under s. 245(4). In 1977, there had been a legislative change to reflect a policy that the addition to a corporate beneficiary’s CDA would now only be reduced by the policy’s ACB to it rather than by the ACB of the policy to any person. Accordingly, taking advantage of the fact that CGESR itself had a nil ACB for the policies, so that the bump to its CDA was $102M rather than by $60M ($102M - $42M) accorded with the object and spirit of the provisions. Sommerfeldt J. stated that “this is one of those, perhaps rare, situations where the underlying rationale of the Reduction [for ACB] Provision in 2008 and 2009 was no broader than the text itself.”
Notwithstanding some “self-serving” language of Finance to the contrary, a 2016 amendment “clearly changed” the object and spirit of the provisions so that, from thence onwards, there was to be a reduction in the bump to the corporate CDA for the policyholder’s ACB.
Neal Armstrong. Summaries of Rogers Enterprises (2015) Inc. (successor by amalgamation to CGESR Limited) v. The Queen, 2020 TCC 92 under s. 245(1) – tax benefit, s. 245(4), and s. 89(1) – CDA – (d)(iii).