Mamdani Family Trust – Tax Court of Canada finds that a taxable dividend was to be valued at its pre-tax amount for s. 160 purposes
An inter vivos family trust received over $3.5 million in taxable dividends from a wholly-owned Canadian private corporation (“Global”) at times that Global had unpaid income tax liabilities. The Trust unsuccessfully submitted that “the amount of income tax payable by the transferee” should be taken into account for the purposes of valuing the amount of such dividends for s. 160(1)(e)(i) purposes.
Sommerfeldt J indicated that he was bound to reject this argument by Gilbert, which had found that, for s. 160(1) purposes, where the transferred property is a dividend, the amount transferred is “the amount that the Minister could have seized in the hands of the corporation had the transfer not been effected” and that the tax consequences of the dividend to the transferee were irrelevant. He went on to indicate that, even in the absence of Gilbert, he would not have been convinced by the evidence of the taxpayer’s valuation expert given inter alia that “if a corporation has declared a dividend, the dividend belongs to the holder of the share on which the dividend was declared, such that the corporation is not in a position to sell that dividend to someone else” – so that the usual test of what the property could sell for was simply inapplicable.
Neal Armstrong. Summary of Mamdani Family Trust v. The Queen, 2020 TCC 93 under s. 160(1)(e)(i).