Extension of common-law series (pp. 76-77)
… Kandev et al. argue that the purpose of subsection 248(10) is merely to bring into the Act the common-law meaning of series; [fn 25: Michael Kandev, Brian Bloom, and Olivier Fournier, "The Meaning of 'Series of Transactions' as Disclosed by a Unified Textual, Contextual, and Purposive Analysis" (2010) 58:2 Canadian Tax Journal 277-330, at 279.] however, that view is not one that is widely held….
In Copthorne, the Supreme Court again stated that the "common law series is expanded by s. 248(10) of the Act." [fn 28: Copthorne, 2011 SCC 63, at paragraph 43.]…
Meaning of "related transactions" (p. 78)
[N]one of the cases involving subsection 248(10) explicitly purports to define "related transactions or events" as an independent element. [fn 32: On the other hand, it should be noted that in OSFC…at paragraph 36, Rothstein JA wrote, "As long as the transaction has some connection with the common law series, it will, if it was completed in contemplation of the common law series, be included in the series by reason of the deeming effect of subsection 248(10) [emphasis added]."…] The courts seem to have simply taken the view that a transaction is related to a series where it is carried out in contemplation of that series. In other words, the courts appear to have effectively read subsection 248(10) as though it had used the words "related in the sense of having been completed in contemplation of the series."
This interpretation is arguably inconsistent with the principle of statutory interpretation to the effect that Parliament does not speak without reason. [fn 33: See, for example, R v. D.A.I., 2012 SCC 5, at paragraph 31.]…
Breaking of series by intervening event (p. 84)
One possible standard to consider for intervening events comes from the field of tort law: the concept of novus actus interveniens…. Applying this test to the series concept would mean asking whether the intervening event was foreseeable at the time of the earlier transaction or series. If the event was foreseeable, it would not be sufficient to break the series….
Length of time between series and related transactions (p. 85)
The courts have previously expressed a variety of views on what might count as a sufficient length of time to prevent a series from existing. In Les Placements E. & R. Simard Inc. v. The Queen, for example, Tardif J wrote that a 12-month interval constituted a "long period of time" for the purpose of determining whether a series existed. [fn 65: 97 DTC 1328, at 1337 (TCC).] Similarly, in Industries SLM Inc. v. MNR, Archambault J suggested that intervals of 9 months and 33 months were relatively long for a common-law series. [fn 66: [1996] 2 CTC 2572, at 2489 (TCC).] Finally, in Copthorne itself, Ryer J of the Federal Court of Appeal appeared to be of the view that while 18 months might be sufficient to prevent subsection 248(10) from applying, one year was relatively short. [fn 67: … 2009 FCA 163, at paragraph 51.]
Meaning of "family resemblance" (pp. 90-1)
Milet has explained the idea of family resemblance as follows:
[T]he various instances of a general term's application would be linked by, as Wittgenstein called them, "family resemblances" – the reference here being to the way that traits are shared by and dispersed among members of a family: for instance, a girl has red hair and is short like her father and grandmother, while her brother, who is also red-haired, is tall like his blond mother. Despite having no single set of features in common, the various members viewed as a group may quite visibly belong to the same family. …[fn 80: Matias Milet, "Hybrid Foreign Entities, Uncertain Domestic Categories: Treaty Interpretation Beyond Familiar Boundaries" (2011) 59:1 Canadian Tax Journal 25-57, at 34.]
Application of purpose of non-GAAR provision to series determination (pp. 93-4)
[H]aving determined the purpose of the provision, how should a court use that purpose to determine whether or not a series exists? The answer in many statutory contexts is that the set of transactions must bear a family resemblance to those that Parliament could reasonably be considered to have had in mind in invoking the series concept as a means of anti-avoidance. Under a family resemblance approach to series of transactions, a court would begin by identifying a stylized set of transactions or events (generally an avoidance arrangement of some kind) that Parliament could reasonably be considered to have had in mind in drafting the provision (or provisions) in which the series concept appears. The court would then attempt to ascertain whether the transactions carried out by the taxpayer bore a sufficient family resemblance to that stylized set of transactions or events to be considered a series for the purposes of that particular statutory invocation of the term.
Example: are replacement stock options part of bump denial series? (pp. 94-5)
Consider the following example…
- Bidco is a wholly owned subsidiary of a public corporation, Pubco. Bidco intends to acquire all of the shares of Target, also a public corporation, in an all-cash deal. Certain management employees of Target are specified shareholders for purposes of the bump denial rules in paragraph 88(1)(c)….
- Bidco will enter into employment agreements with the management employees of Target providing that those employees will receive, in accordance with Pubco's regular compensation policy, options to acquire shares of Pubco. The purpose of the stock option grant is to retain Target's management employees and foster their loyalty to Pubco following the takeover. Target's management has no involvement in Bidco's tax planning and is unaware that Bidco is contemplating a bump reorganization. [fn 87: Mark D. Brender, "Series of Transactions: A Case for a Purposive Interpretation," Corporate Tax Planning feature (2007) 55:1 Canadian Tax Journal 220-34.]
…Brender argues that the transactions do not form a series because they do not share a common purpose, a point with which we agree. That being said, in our view, the option grant should not form part of the series for a more fundamental reason—namely, that the option grant does not bear any family resemblance to the types of transactions that Parliament can reasonably be considered to have had in mind when it enacted subparagraph 88(1)(c)(vi). ...[T]here is no subset of the sequence of events described in Brender's example that bears a family resemblance to the avoidance arrangements that Parliament sought to address... .
Application of purpose of GAAR to series determination (p. 104)
We contend that if a particular transaction in its context bears a family resemblance to a stylized transaction that is accepted as being abusive, then the safeguard of subjection 245(4) ought not to operate to protect the tax benefit claimed by the taxpayer, which will be denied "as is reasonable in the circumstances" by the operation of subsection 245(2).
UK GAAR (p. 107)
[I]t is instructive that the United Kingdom has decided not to use the series concept in its new general anti-abuse rule ("UK GAAR"). Instead, it has adopted a "tax arrangement" test, which sets a low threshold for determining whether transactions are tax-motivated….
Purpose of s. 55(3)(a)(ii) (pp. 96-7)
Subparagraph 55(3)(a)(ii)… seems to have been enacted for the purposes of avoiding a relatively straightforward avoidance technique: rolling an asset that the taxpayer intends to sell to a third party into a newly created subsidiary, having the third party subscribe for shares of the subsidiary, and then having the subsidiary use the subscription proceeds to redeem the shares held by the taxpayer. [fn 91: See generally David Tetreault, "Reorganizations of Private Corporations," in 1991 Ontario Tax Conference (Toronto: Canadian Tax Foundation, 1991), 14:1-166.]
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