Kirby-Maurice (16.3)
Kirby-Maurice…formulates in different terms the concept that was expressed by the Supreme Court in Sheldon's Engineering as "dictating the terms of the bargain".
Merritt Estate (p.16:5)
[F]lowing from Merritt Estate, a non-arm's-length finding may result when there is a single directing mind or where there is an absence of bargaining between parties with independent interests.
Robson Leather (p.16:6)
Robson Leather applied the directing mind standard initially developed in Sheldon's Engineering and formulated in those terms in Merritt Estate. Furthermore, it did so expressly taking a practical business view of what would constitute a directing mind (expressed as "de facto control of both sides of the transaction").
Peter Cundill (p.16:7)
The Peter Cundill case is important for two reasons. First, the willingness of the courts to take into account relatively subjective business considerations, such as strength of bargaining power, in finding a directing mind seems to have carried the latter concept a long way. … .
Second, the Federal Court of Appeal stated that, "[i]t was accepted on appeal that IT-419 correctly and fully defined the factors determinative of whether or not dealings are at arm's length."…
Swiss Bank (p.16:10)
[I]t is arguable that the acting-in-concert formulation of the Exchequer Court is no longer good law, at least outside the context of the interest withholding tax exemption now found in paragraph 212(l)(b) or in the absence of very similar facts, having been supplanted by the purposive approach taken by the Supreme Court. Second, even if the acting-in-concert standard is still good law, it only supports a vertical non-arm's-length finding (between each of the investors, regarded severally, and City Park or their analogues), and not a horizontal non-arm's-length finding (among the investors or their analogues inter se). While this may not be a perfect correlation, it seems to follow that the invocation of Swiss Bank may be relevant in cases where transaction non-arm's-length rules are asserted, but not where aggregation non-arm's-length rules are asserted.
Fournier (pp. 16:10)
In Fournier, the Tax Court... followed Swiss Bank in reaching a non-arm's length finding, stating the principle from that case very broadly [viz.]: "that company's two principal directors and shareholders apparently acted in concert and with a common economic interest to decide how they would withdraw the profits made by the company for their personal use…."
…[I]f this view is correct, it is hard to imagine a private corporation situation in which the same non-arm's-length finding could not be made. Nevertheless, the Canadian Revenue Agency (CRA) has incorporated a similar notion in its folio version of what was previously IT-419. In its Income Tax Folio S1-F5-C1, the CRA states, "Even when there are two distinct parties (or minds) to a transaction, but these parties act in a highly interdependent manner (in respect of a transaction of mutual interest), then it can be assumed that the parties are acting in concert and therefore are not dealing with each other at arm's length." [fn 30: …2013-0479402C6…reverses CRA's previous position on corporations established for employees to access surplus funds of the operating corporation to purchase shares, now asserting that CRA will no longer consider these arrangements to be arm's length given what it construes as the degree of accommodation and lack of separate interests.]
Drouin (p. 16:11)
The Drouin case […2001 DTC 72…] involved facts quite similar to those in Fournier…[stating]:…"Above all it must not be forgotten that the test is not merely ''act[ing] in concert'' but "act[ing] in concert, and in the same interest". Thurlow J. [in Swiss Bank] was careful to acknowledge that people who act in concert but with a separate interest are dealing with each other at arm's length....
Petro-Canada (p. 16:13)
In Petro-Canada…[t]he court did not differ from the statement in Drouin; however, it distinguished the latter case on the basis that in Petro-Canada the result of the structure was that there was no "commercial safeguard" preventing the shareholder's self-interest from overriding the interests of the corporation or the other shareholder.
H.T. Hoy (p. 16:17-18)
HT Hoy Holdings…involved the structured transfer of ownership of an operating corporation….Thus, two parties exercising their independent economic interests should not be found not to be dealing at arm's length, even where they otherwise might be found to be "acting in concert" in the literal sense of acting in an agreed manner. The existence of a common goal does not prevent each party from looking after his or her own interests in an arm's-length manner.
Brouillette (p. 16:18)
The Brouillette case also involved a structured sale transaction. …[T]he court observed that (unlike the situation in Petro-Canada) there was no evidence of "ordinary or normal commercial relations" that would have differed from those entered into by the parties here, and that the parties were clearly adverse in their objectives regarding price.
McMullen (p. 16:18)
McMullen held that while the parties had entered into a structured sale transaction for their mutual benefit, they nevertherless dealt at arm's length.
McLarty (p. 16:19)
[In McLarty] it appears that willing entry into a structured arrangement may still be an arm's length transaction, even if the entry then subjects the taxpayer to binding obligations (even regarding price).
Wiffen Financial (p. 16:19)
In Wiffen Financial Services […2003 TCC 780…], the issue was whether an employment relationship was at arm's length, thus constituting insurable employment pursuant to the Employment Insurance Act. The employee was one of three shareholders of the employer corporation, having joined the business by transferring his client base and paying $34,000 to the two current shareholders in consideration for one-third of the shares of the company, and entering into an employment agreement. The court held that the employee/shareholder did not deal at arm's length with the corporation in his employment relationship, finding that the parties "conducted themselves in accordance with an oral agreement which called for decisions to be made by consensus and not by majority rule". …
With respect, it appears to us that the court in this case may have confused relative informality among the three shareholders with a lack of separate interests, and that it is unlikely that the case will be extended much beyond its own facts.
Remai Estate (pp.16:19-20)
[In Remai Estate] the Federal Court of Appeal... made it clear that it is possible to find an "ordinary commercial transaction," even when the transaction in issue is not, viewed in and of itself, the subject of hard bargaining. … [T]he existence of ordinary commercial dealings is not sufficient to find the parties to be dealing at arm's length; rather, the key factual question is whether the commerciality of the dealings entered into constitutes sufficient evidence of the parties acting in their own separate interests.
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