Les Placements E&R Simard Inc. v. The Queen, 97 DTC 1328 (TCC)

On September 10, 1988, the taxpayer transferred its assets to a subsidiary ("Alimentation 1988") in consideration for a demand promissory note and 506,125 Class B shares having a redemption value of $1 per share and nominal paid-up capital. 151,125 of the Class B shares were redeemed in the fiscal years of Alimentation 1988 ending on May 31, 1990, 1991 and 1992.

In finding that the redemptions did not occur as part of the same series of transactions that included the 1988 sale, Tardiff TCJ. noted that they did not occur close in time to the first transaction, the transactions were not interdependent in the sense that there was a real possibility that Alimentation 1988 might never have redeemed the shares, and the fundamental objective underlying the 1988 transaction was for one of the two principals of the taxpayer to retire from the business of the taxpayer. The financial objective of converting, at some time, the Class B shares into cash was secondary.

On September 10, 1988, the taxpayer transferred its assets to a subsidiary ("Alimentation 1988") in consideration for a demand promissory note and 506,125 Class B shares having a redemption value of $1 per share and nominal paid-up capital. 151,125 of the Class B shares were redeemed in the fiscal years of Alimentation 1988 ending on May 31, 1990, 1991 and 1992.

In finding that the redemptions did not occur as part of the same series of transactions that included the 1988 sale, Tardiff TCJ. noted that they did not occur close in time to the first transaction, the transactions were not interdependent in the sense that there was a real possibility that Alimentation 1988 might never have redeemed the shares, and the fundamental objective underlying the 1988 transaction was for one of the two principals of the taxpayer to retire from the business of the taxpayer. The financial objective of converting, at some time, the Class B shares into cash was secondary. Accordingly, when the shares were redeemed, the relevant time for determining the safe income of Alimentation 1988 under former s. 55(2) was subsequent to September 10, 1988.

On September 10, 1988, the taxpayer transferred its assets to a subsidiary ("Alimentation 1988") in consideration for a demand promissory note and 506,125 Class B shares having a redemption value of $1 per share and nominal paid-up capital. 151,125 of the Class B shares were redeemed in the fiscal years of Alimentation 1988 ending on May 31, 1990, 1991 and 1992.

After finding that the redemption of the shares did not occur as part of the same series of transactions that included the September 10, 1988 sale transaction, Tardiff TCJ. found that there was no safe income attributable to the Class B shares because they had a fixed redemption amount, and, accordingly, could not participate in the earnings of Alimentation 1988.