Spruce Credit Union - Tax Court finds that a distribution of needed corporate funds is not an avoidance transaction
General anti-avoidance rule cases usually turn on the question whether there was an abusive transaction. Quite unusually, the Tax Court has found that the distribution of funds of a deposit insurance corporation to its credit union shareholders in a manner that accessed the inter-corporate dividend deduction was not an avoidance transaction, so that Boyle J did not even have to get to the question of abuse.
CRA clearly was bothered by the fact that the dividend in question was paid out of tax-free assessments previously received by the deposit insurance corporation from its members - and the distribution of its funds could have been designed in a different way in order to avoid the "inappropriate" result of these amounts also being distributed free of tax. Nonetheless, the dividend payment itself (which Boyle J emphasized was the only transaction he had to consider) clearly had a primary non-tax purpose - they needed the money! Therefore: no avoidance transaction.
Neal Armstrong. Summaries of Spruce Credit Union v. The Queen, 2012 TCC 357 under s. 245(3) and s. 137.1(4)(c).