CRA accepts Poulin distinction between accommodation parties and tax advantaged arm’s length dealings

In the Poulin decision, D’Auray found that s. 84.1 applied to the sale by an individual of his shares of a CCPC to the holding company of an unrelated employee (“Hélie Holdco”), given that Hélie Holdco was essentially just acting as an accommodation party (i.e., the sale was not an arm’s length transaction)– but also found that s. 84.1 did not apply to a purchase of shares in the same CCPC under a similarly structured transaction from the other major shareholder, as they each were advancing their own interests (arranging an exit on advantageous terms, and acquiring control of the CCPC, respectively) – so that it was an arm’s length transaction.

CRA accepts both aspects of the decision. It accepts the finding in Poulin that the structuring of a sale transaction so that the vendor secured a tax advantage (the capital gains deduction) “does not mean that the parties acted in concert without separate interests.” Respecting the accommodation party aspect, it stated:

Hélie Holdco… incurred no economic risk in participating in the transaction, did not derive any benefit from the purchase of shares, had no interest other than to allow the employee/shareholder to realize a capital gain and benefit from the deduction, and had no function independent of the employee/shareholder or the operating corporation - and, in short, it only participated in the transaction as an accommodation for the benefit of the employee/shareholder.

Neal Armstrong. Summary of 7 October APFF Roundtable, Q. 20 under s. 251(1)(c).