Ownership

Whether the UK taxpayer (“Hargreaves”) was liable for failure to withhold UK tax on interest paid by it to a non-arm’s length UK company (“Houmet”) turned on whether, under a domestic UK tax provision, Houmet was “beneficially entitled” to such income. As part of a tax plan to achieve group relief for such interest as well as exemption from UK withholding tax, Houmet purchased the interest coupon and the related principal one or two days before the due date, and was required to pay essentially all of the amount received by it from Hargreaves on the due date to the person from whom it had been assigned the coupon and principal.

In finding that Houmet had no beneficial entitlement to the interest, Falk LJ first stated (at paras. 49, 52 and 54):

[T]he concept of beneficial ownership is well established … . In essence, it means ownership for the benefit of the person in question … .

[C]onsistent with the fundamental requirement of ownership for the benefit of the person in question, or "ownership with benefits", a person who is the legal owner of property will not be its beneficial owner if they do not in fact have any of the benefits of ownership, such that they hold only a "mere legal shell". …

[T]he concept of "beneficial entitlement" should be construed with regard to the authorities that consider the concept of beneficial ownership. In broad terms, therefore, it can be construed as "entitlement with benefits". If the person in question would, in truth, have none of the benefits that entitlement would ordinarily bring, they will not be beneficially entitled.

She applied (at para. 70) this meaning of ““beneficially entitled” to the following findings of the First-tier Tribunal in concluding that Hargreaves’ appeal should be dismissed:

Hargreaves was unable to establish that, viewed realistically, the transactions conferred any benefit of an entitlement to the interest. There was no evidence to suggest that Houmet could have used the funds received for any other purpose [other than to pay for the assignment to it], or that it could benefit from them in any other manner. … Further, Houmet's involvement was entirely ephemeral … . There is no suggestion that Houmet was either at risk as to the amount that might be paid, such that it might not be put in funds to pay for the assignment to it, or that it might be able to benefit from the receipt being higher than anticipated.

The ARQ assessed the appellant (9154-6093) for its failure to collect and remit QST on its transfer of a condo unit (Unit 54) to its shareholders (two spouses) in April 2009 for consideration of $567,000. One of the shareholders testified that the transfer was made to them for the purpose of obtaining mortgage financing on Unit 54 (which was received on the next day, and used for rental purposes) and that they had no intention of inhabiting the unit.

In accepting that the shareholders had acquired the unit as nominees and that 9154-6093 remained the actual owner, Alcindor JCQ stated (at paras. 123-124, TaxInterpretations translation):

[D]espite the assignment, 9154-6093 rented Unit 54 to third parties, declared the income from such rentals, and collected the taxes and remitted them to Revenu Québec. …

Just before the sale of the Unit in October 2019 [the shareholders] retroceded the building to 9154-6093, which collected and remitted the GST and QST [on the sale] … to Revenu Québec.

She further stated (at para. 129) that in light of this reporting of the 2019 sale:

[A]llowing Revenu Québec to recover QST on the 2009 transaction means that 9154-6093 is remitting QST twice on the same housing unit. … [T]his runs counter to both Revenu Québec's role and tax policy in this regard.

The taxpayer was assessed penalties for failure to file T1135 forms regarding a bank account with the Bank of China (BofC), which he had assisted his father (Joseph) to open up in his name. In finding that the taxpayer was not required to file T1135s, Russell J stated (at para. 45):

[A]s Joseph sourced the funding of the account at all times and he alone exercised control and usage of the account, it appears reasonably clear that he alone utilized and thus enjoyed the benefit of the account. Thus I conclude that Joseph was the beneficial owner of the account, while his son the appellant merely held legal title, as his father’s nominee.

The appellants, were private companies controlled by a resident individual (Grenon), whose RRSP held 58% of the units of a publicly traded income fund (“FMO”). They engaged in a series of transactions that were intended to result in the realization by them of substantial capital gains (resulting in additions to their capital dividend accounts (“CDAs”), that were immediately distributed by them), followed by the realization of largely offsetting capital losses later that day.

In very general terms, significant elements of the series of transactions included:

1. Grenon’s RRSP transferring its units of FMO to a newly-formed unit trust (“TOM” – which was found in Grenon not to qualify as a mutual fund trust) – in exchange for units of TOM representing close to 100% of the issued and outstanding TOM units.
2. The appellants acquiring such FMO units from TOM in consideration for issuing $161M in promissory notes.
3. Various transaction being engaged in “beneath” FMO that resulted in capital gains being realized on the indirect transfer of subsidiary entities to a new unit trust (“New FIF”) that was intended to be the replacement public vehicle for FMO and those gains being allocated to or otherwise realized by FMO.
4. The public transferring their units of FMO to New FIF in exchange for units of New FIF.
5. After various steps to clean up the structure, FMO distributing essentially all its assets (being units of New FIF) to the appellants, and treating this as a distribution of the capital gains realized by it as described above. (This was the capital gain referred to above that was treated as CDA additions to be distributed.)
6. The units of FMO being repurchased by FMO for nominal consideration. The appellants had full (FMV) cost for their FMO units when acquired in step 2, and the capital gains distributions did not reduce the ACB of their units by virtue of s. 53(2)(h)(i.1)(A) and (B)((I). Accordingly, such repurchases resulted in the realization of largely offsetting capital losses (and, in light of the intervening distribution of the transitory increase to their CDAs, also resulted in negative CDAs.)

In finding that the appellants had not acquired the FMO units in step 2 above (which continued to be beneficially owned by the RRSP) and, therefore, did not realize a capital loss in step 6 above, Smith J stated (at paras. 174, 176):

Since it was intended, as admitted by the Appellants, that the FMO units allegedly acquired from TOM on December 23, 2005 would be repurchased for cancellation on December 28, 2005 resulting in the alleged capital losses, I find as a fact that the Appellants had “absolutely no discretion” ... as to the disposal of those units. The only role of the Appellants was to hold legal title to the units for a few days. I find that those units were to be held on a bare trust basis only to be disposed of a few days later at a substantial loss. It was understood that the Appellants would not take any other steps. All of these transactions were pre-ordained. …

[I]t cannot be said that the Appellants enjoyed “the three key attributes of ownership, namely, risk, use and possession” … .

In October 2006, Mr Higgins entered into a contract, for a purchase price was £575,000, to take a 125-year lease of an apartment in a project involving the conversion of a hotel into apartments. At the date of the contract, the area which was to become the apartment was "a space in a tower". The development was delayed by the 2008 credit crunch, and it was not until November 2009 that work began to construct the apartment and it was substantially completed physically the following month. The purchase was completed on 5 January 2010. Mr Higgins occupied the apartment as his main residence from 5 January 2010 until 5 January 2012. He contracted to sell the apartment on 15 December 2011 and the sale was completed on 5 January 2012.

The availability to Mr Higgins of the principal private residence relief from capital gains tax turned on whether he satisfied the requirement s. 223 of the Taxation of Chargeable Gains Act 1992 ("the TCGA") that the apartment “has been the individual's only or main residence throughout the period of ownership.” In finding that this requirement was satisfied, Newey LJ stated (at para. 21):

HMRC's case … runs counter to the ordinary meaning of the words "period of ownership". The expression would not naturally, I think, be taken to extend to the interval between contract and completion. A purchaser would, as a matter of ordinary language, be described as "owner" only once the purchase had been completed. … Lord Walker said this on the subject in Jerome v Kelly [2004] UKHL 25 … at paragraph 32:

… Neither the seller nor the buyer has unqualified beneficial ownership. Beneficial ownership of the land is in a sense split between the seller and buyer on the provisional assumptions that specific performance is available and that the contract will in due course be completed, if necessary by the court ordering specific performance. In the meantime, the seller is entitled to enjoyment of the land or its rental income.

The mere fact that someone has contracted to buy a property will not give him "ownership" such as could allow him to possess, occupy or even use the property, let alone to make it his "only or main residence".

Newey LJ further found that s. 28 of the TCGA, which provided that the disposal and acquisition of an asset under a non-conditional contract occurred at the time the contract was made, did not “dictate the conclusion that the ‘period of ownership’ of a dwelling-house for the purposes of section … 223 must run from the date of the contract under which it was bought” (para. 25).

Before finding that there had been a transfer to the taxpayer of ½ of the beneficial ownership of the family home for s. 160 purposes from her husband (rather than her having been the full beneficial owner all along), MacPhee J adopted (at para. 24) a previous judicial formulation of the concept of beneficial ownership, viz:

The primary attributes of beneficial ownership include possession, use and risk. Therefore, in determining whether a person has beneficial ownership in a property, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair, the obligation to pay property taxes and other relevant rights and obligations.

Here, the husband had had a significant degree of mutual control over the home, his income had contributed significantly to servicing the mortgage, and the funding of the down payment with a gift from her parents was not dispositive.

CRA denied the ability of a home builder (“Universo Home”) to claim a new home rebate purportedly assigned to it pursuant to ETA s. 254(4) on the basis that Universo Home had no interest in the property at the time the home was constructed and, therefore, did not qualify as its “builder.” The difficulty centered on the fact that the 2011 purchase and 2013 sale documentation named the wife (Mrs. Dhesi) of the sole shareholder (Mr. Dhesi) of Universo Home as the purchaser and vendor of the property, and the fact that Declaration of Trust, which named Mrs. Dhesi as the nominee for Universo Homes, was found by Bocock J to have not been signed until sometime before (perhaps, shortly before) the closing of the 2013 sale.

Bocock J nonetheless found that Universo Home was the beneficial owner for some period prior to the sale, partly on the basis that it paid for the construction work and reported the property as an asset for financial statement purposes. Accordingly, it qualified as a builder for rebate purposes.

On September 21, 2010 the Australian Family Court made orders by consent between Mr and Ms Ellison that joined Sandini Pty Ltd (“Sandini”) as trustee for the Ellison Family Trust (of which Mr Ellison was a beneficiary) to the Family Court proceedings and required it within 7 days to do all things necessary to transfer 2.1M shares in an Australian publicly listed company (“MIN”) to Ms Ellison. However, Sandini was not the trustee of the Ellison Family Trust, but it did own 35M shares of MIN in its capacity as the trustee of a unit trust (“KRUT”) of which the sole unitholder was another company (“Wabelo”) as trustee for the Ellison Family Trust. In response to a request by Ms Ellison, Sandini transferred 2.1M shares of MIN, nine days later, to a company controlled by Ms Ellison (“Wavefront”) rather than to her. Mr Ellison then sought a declaration that Sandini was entitled to rollover relief under s. 126-15 of the Income Tax Assessment Act 1997 (Australia) on the basis that there was a transfer of the 2.1M shares under the consent orders that “involved” a trustee (as transferor) [i.e., Sandini] and a spouse or former spouse of an individual as transferee [i.e., Ms Ellison] “because of a court order under the Family Law Act 1975” (Australia). (A direct transfer from Sandini to Ms Ellison’s company (Wavefront) would not have engaged rollover relief.)

Whether there was a “disposal” of 2.1M shares under the consent orders turned on whether there was a transfer by virtue of the order of their beneficial ownership. In this regard, Jagot J stated (at para 99):

1. …there is no change of ownership if a person continues to be a “beneficial owner” of an asset…;
2. a “beneficial owner” of an asset has more than a mere proprietary interest in the asset. To be a beneficial owner the person must have rights which a court of equity would enforce involving full dominion over the asset; and
3. if the original owner continues to enjoy rights to deal with the asset, including rights of disposal, then it could not be said that another entity is the beneficial owner of the asset, even if the other entity may have a beneficial interest in the asset.

In rejecting Mr Ellison’s submission that the order instead rendered Sandini a trustee for 2.1M shares, so that Ms Ellison became their beneficial owner, Jagot J stated (at para 148):

… [T]he weight of authority is that there can be a valid trust over a fungible pool of assets provided the assets and relevant proportions for the different beneficiaries are identified with sufficient certainty. The better view is that for the requirement of certainty to be satisfied the trust must be over all of the fungible assets in the pool, the beneficial co-ownership proportions reflecting the respective interests of the beneficiaries. … [I]t may be accepted that the beneficiary obtains a proprietary right in a proportion of the asset pool. If, given the terms of the declaration and the nature of the property, the trustee is constituted as nothing more than a bare trustee on behalf of the beneficiary in respect of the beneficiary’s proportional interest, it may well be that there has been a change of ownership within the meaning of [the definition of disposal]. For this to be the case, however, the rights vested in the beneficiary must be capable of supporting the grant of equitable remedies the equivalent of ownership, including preventing the trustee from dealing in the relevant proportion of the asset pool other than in accordance with the beneficiary’s directions. ...

However, she stated (at para. 149) that this test of fungibility appeared not to be satisfied, on the basis that “shares may have a different cost base for the purposes of capital gains tax and thus, in this sense, may not be interchangeable,” and then stated (at paras. 151-152):

As the party seeking the declarations, it was for Sandini to answer any questions about its capacity and obligations to the KRUT in respect of the MIN shares. Sandini’s inability to do so satisfactorily, weighs against its contention that the orders should be construed as it proposes, that is, as in White v Shortall [[2006] NSWSC 1379], by creating a trust over the whole of Sandini’s shareholding as to some shares on trust for the KRUT and as to 2,115,000 on trust for Ms Ellison, Sandini thereafter being nothing more than bare trustee for Ms Ellison as the beneficial owner of that proportion of the pool.

These considerations tend to support the doubt that has been expressed as to the fungible character of shares … [then citing an article that] the essence of fungibility is “a choice between legally interchangeable units”. If all shares in the company are of the same class, there is but a single asset, being the issued share capital. On this basis, as Professor Goode proposes, a single asset cannot give rise to the capacity for selection which defines a fungible asset.

In essentially returning to and concluding on the beneficial ownership issue, she stated (at para. 164):

[T]he orders vested statutory rights and a beneficial interest of some kind in Ms Ellison but … I do not consider that interest can be characterised as beneficial ownership … .

In finding that, in any event, the consent orders did not apply to the 2.1M shares, Jagot J stated (at para 168):

[T]he orders are to be construed on their own terms without reference to extrinsic material. The fact that Sandini is the trustee of the KRUT, which owned shares in MIN, is all extrinsic material. So too is the fact that Sandini was not and is not the trustee of the Ellison Family Trust. None of those matters arise on construction of the orders. … In short, on their own terns, the orders have no operation and cannot be enforced.

A limited partnership was found to have immediately transferred the beneficial ownership of applications to the Saskatchewan government for potash exploitation rights (the “Purchased Applications and Purchased Permits”) to a corporation (“Devonian”) immediately upon entering into a sale agreement of the Purchased Applications and Purchased Permits with Devonian. In this regard, D’Arcy J referred (at para. 95) with approval to the finding in Prévost Car, 2008 TCC 231 (aff'd 2009 FCA 57) that “the beneficial owner is the true owner who enjoys and assumes all the attributes of ownership, without having to be accountable to anyone, including to the legal owner, as to how the property is used or dealt with.”

The taxpayer, who owned all the shares of his dental corporation (“MDPC”), agreed to sell all the MDPC shares to third-party purchaser and its affiliate (collectively, “DCC”) for $4.5 million. Immediately before the closing of the sale to MDPC, the taxpayer exchanged all his commons shares of MDPC under s. 86 for preferred shares with a redemption value of $2 million and for new common shares of MDPC, and then immediately sold 85% of those common shares equally to his wife and two children for nominal consideration. Those three family members then immediately sold those common shares to DCC for cash proceeds of $2.2 million in the aggregate.

In finding that the taxpayer’s wife and two children did not become the beneficial owners of 85% of the new common shares until the transfer to them for nominal consideration, Hogan J stated (at paras 127 and 130):

[T]here is no evidence that shows that the Appellant conveyed a beneficial interest in the aforementioned shares prior to the completion of the purchase and sale arrangement with his family member.

[T]he Appellant’s intention to carry out the pre-closing transaction steps prior to the closing date, in accordance with the tax plan is not equivalent to him being bound to do so. There is nothing in the SPA that suggests that the Appellant had granted to his wife and two daughters the right to acquire the 85 Class B, C and D common shares for nominal consideration. Therefore, the Appellant owned 100% of the new shares immediately upon completion of the capital reorganization.

A Canadian Intrawest corporation (the “Canadian Developer” and “U.S. Developer, respectively”) transferred individual resort condos (the “Vacation Homes,” which they had acquired in Canada, the U.S. and Mexico) to the Appellant (which was a non-share corporation resident in Canada) in consideration for the Appellant transferring occupancy rights to the Vacation Homes, in perpetuity to them. The Canadian Developer and the U.S. Developer then sold “Resort Points” to members of the public in Canada and the U.S. which could be periodically applied under a booking system to obtain access to particular Vacation Homes at specified times.

In connection with considering an agency issue, D’Arcy J found that the Appellant had not established that the beneficial interests in Vacation Homes were held by it on behalf of its members, given inter alia that the risk of damage to the property through fire, misconduct of the users or normal wear and tear rested with the Appellant and the Resort Points represented only contractual rights to make reservations rather than being interests in the Vacation Homes.

Before finding that the assignment of leases by a tenant (HBC) to a limited partnership of which a subsidiary was a general partner, but in which a third party (RioCan) held substantially all the partnerships interests qua limited partner, qualified as a transfer between affiliates so that consent of the landlord was not required, the Court agreed with the following findings of the applications judge (as summarized by it at paras. 19-20):

First, any property in which a limited partnership has an interest can be held only by the general partner. In the case of a lease, there can be no assignment of the lease to the limited partnership – it must be assigned to the general partner.

Second, it is not simply a matter of the general partner acquiring legal title to the property. The general partner has control over the property and is solely responsible for the operations of the limited partnership. The limited partner, as a passive investor, is restricted from taking part in the control or management of the business. To do otherwise would jeopardise its limited partner status.

Before concluding that a residuary beneficiary in an estate had acquired a property by purchase rather than devise, Owen J observed that, under the laws of Ontario, residuary beneficiaries do not acquire an interest in any specific property in the residue of the estate and it is instead the executors who acquire the property in the residue (noting, at para. 56, that 909403 Ontario Ltd. v. DiMichele, 2014 ONCA 261 "confirmed that an entitlement to the residue of an estate under a will does not amount to a property interest in specific estate assets"). See summary under s. 70(5).

Pizzitelli J found that purported gifts by the taxpayers were not effective to transfer property in the gifted licences as such licences had not yet been allocated to them by the promoter, out of the pool of licences, at the time they executed their Deeds of Gift (with the Schedule describing the gifted licences not yet attached.) See summaries under s. 118.1 – total charitable gifts and s. 104(1).

The taxpayer - which was a member of group of companies that included a producer of exterior trim boards for construction ("W.L.") – earned management fees and rental fees from W.L. In 2003, the taxpayer lent $3.5 million to an arm's length supplier of specially prepared boards ("Interact") secured by patents held by Interact's principal ("Cable").

Following the bankruptcy of Interact and Cable earlier in 2005, the trustee in bankruptcy for Cable released the patents to the taxpayer "subject to ultimate accounting for the proceeds of disposition" - by which the trustee apparently meant to address the unlikely event that the taxpayer could sell the patents for more than the amount it was owed by Interact. Legal title in the patent remained with the trustee.

The taxpayer sold the patents to a corporation owned by the taxpayer's principal's son for $1 in September 2007, and claimed a terminal loss of $3.9 million (based on it having been deemed under s. 79.1 (6) to have acquired them at a cost of $3.5 million plus $0.4 million of relevant legal costs). The trustee (who was not aware of the 2007 transfer) transferred legal title in the patents to the taxpayer in 2010, in exchange for the taxpayer reducing its secured claim by $1 million. The Minister denied the terminal loss - among other reasons, arguing that taxpayer had not become the patents' beneficial owner by the time it sold them in September 2007.

Rip J allowed the taxpayer's appeal. Based on the plain (i.e. dictionary) meaning of the words "beneficial owner, and on the "incidents of title" test in Wardean, he stated (at para. 92):

A beneficial owner of property therefore, is someone who is the real owner of the property, a person who is in possession of the property, a person who could derive income from the property or otherwise use it and who is the person who suffers any loss if the property is damaged or destroyed. The beneficial owner is the only person who can dispose of the property in his or her sole discretion without interference.

The taxpayer had obtained the incidents of title when the trustee released the patents in 2005: the taxpayer possessed the physical patent documents, the trustee confirmed to the patent agent that the taxpayer would henceforth be instructing the patent agent and did not thereafter interfere with the taxpayer's use and enjoyment, the taxpayer assumed the costs of ownership and defended the patent ownership rights against the claims of Cable's common law spouse (who claimed a constructive trust in her favour).

The Minister assessed the appellant trust company under s. 116(5) for its failure to withhold from the purchase price paid by self-directed RRSP trusts for which it was trustee from the purchase price for shares, which were taxable Canadian property, acquired from non-resident vendors (without s. 116 certificates being received). In responding affirmatively to a Rule 58 question as to whether the appellant was a purchaser under s. 116(5), Bocock J stated (at para. 31):

While use, benefit and enjoyment arising from the shares were exclusively reserved for the Annuitant, the trust and related RRSP plan documents bifurcated the other incidents of ownership and delivered possession, title and management of that very property to Olympia, as trustee. …[N]o relevant party desired to have the Annuitant be the party from whom the purchase moneys were advanced (this would have involved an RRSP withdrawal)… .

In finding that the taxpayer's husband was the beneficial owner of two shares initially issued by a corporation, Rip CJ stated (at para. 23):

Mr. Strachan was the beneficial owner of the dividends paid to shareholders and received by him as owner of the two shares. He received the dividend for his own use and enjoyment. He enjoyed all the attributes of ownership of the shares and of the dividend received.

Seeking to protect herself from being sued by her brother, the taxpayer transferred title to all her real properties for no consideration to corporations under her majority control. She reported rental and business income and expenses from these properties while her accountant did the same in the corporations' returns. The Minister's reassessment included the inclusion in her income of a taxable capital gain on a disposition of the properties to the corporations.

Hogan J. noted (para. 30) that "a transfer of property for no consideration generally results in a rebuttable presumption of a resulting trust" . This presumption was further supported by the fact that, following the transfer, the taxpayer continued to operate the business properties in a personal capacity. All invoices for repairs and renovations, and all rent cheques were addressed to her personally, and all income and expenses went into or came from her personal bank accounts; and the corporations held themselves out to third parties as the property owners only in limited circumstances.

Hogan J. found that the resulting trust was a bare trust, in which the corporations could reasonably be considered to have acted as mere agents for the taxpayer. The trust was therefore not a "trust" for the purposes of the Act, pursuant to s. 104(1). Furthermore, the transfer was not a "disposition" under s. 248(1) because, as per paragraph (e), the taxpayer retained beneficial ownership. The income and expenses on the properties therefore were those of the taxpayer, and she did not realize a capital gain on the transfer.

The taxpayer's father transferred real property to her in June 2006 without her knowledge. She discovered the transfer in December 2008 and transferred the property back on 26 February 2009 after obtaining legal advice. Angers J. found that the taxpayer was not liable under s. 160 for her father's unpaid taxes. The common law on property provides that an unwitting recipient of a gift can, as the taxpayer had done, repudiate the gift retroactively (para. 16). There had therefore been no transfer of property, and hence no liability under s. 160.

Although the taxpayer ("ATCO") continued to be the legal owner of a plant, the effect of the agreements between it and the Alberta government were that all the benefits and all the burdens that arose from the ownership thereof rested with the "Balancing Pool" of the Alberta government, so that it became the beneficial owner of the plant. Rossiter ACJ stated (at para. 69):

At the end of the day, what ATCO had left was really the fees to operate the plant pursuant to the [Operating Agreement] and if it was not sold and did not operate on its own, it would decommission the plant at its own cost. All the benefits, and all the burdens that arise from the ownership rested throughout, from January 1, 2001 onward with the Balancing Pool. The Balancing Pool had all the decision making power with respect to all operations of the plant, how it was to be operated, what expenditures were to be made, what the output was going to be, to whom and when it was going to be sold, and what the selling price would be to a third party. There were certainly some clauses in the agreement of sale with the third party which tied in the Appellant, but that was because a) the Appellant was still the legal title holder of the plant and b) the Appellant operated the plant to and for the benefit of the Balancing Pool.

The position of the Minister was that a vehicle had been acquired by the taxpayer's mother and not by the taxpayer, so that the taxpayer was not entitled to claim capital cost allowance. Webb J. found that the taxpayer had acquired beneficial ownership of the automobile when the vehicle was acquired as his mother simply financed the purchase and held title as security for the debt owing by the taxpayer to her. The fact that the motor vehicle was registered in the taxpayer's name was not determinative.

In order to avoid Quebec mutation tax, the taxpayer transferred the assets of a business division to a newly-incorporated wholly owned subsidiary and then sold the shares of the subsidiary to a purchaser. The taxpayer was unsuccessful in arguing that these transactions should be viewed as an indivisible transaction or as two transactions that occurred simultaneously. Accordingly, the taxpayer was found to have controlled the subsidiary "immediately after" the transfer.

The taxpayer was found to continue to be the beneficial owner of shares that he transferred to a protective trust of which he was the sole beneficiary and one of the three trustees. The trust deed provided broad powers of management to the trustees, accorded them the discretion to pay out income and capital to the taxpayer at any time and provided that the trust property was to be distributed no later than the 21st anniversary of the trust. Woods, J. noted (at para. 36) that "although the term 'beneficial ownership' is often used in the sense of full ownership except bare legal title", the ordinary meaning of the term is quite broad and includes a sole beneficiary's interest in trust property. This broad meaning was reflected in former s. 248(3)(f) (respecting Quebec properties, and similar to s. 248(3)(e)(iii) of the current Act), which she stated (at para. 43) "is designed to provide harmonization of transactions across the country." Although, in contrast to the terms of the trust at issue in Trans-Canada Investment, the taxpayer here did not have the right to require delivery of the trust corpus at any time, this merely indicated that the taxpayer in that Supreme Court decision may have had ownership, rather than merely beneficial ownership, of the shares held in the trust in that case.

Accordingly, there was no disposition of the shares (on the basis that, under the exclusion in s. (v) of the definition of “disposition,” the transfer of legal ownership occurred "without any change in the beneficial ownership") and, therefore, no taxable capital gain was realized by the taxpayer.

The Special Commissioners concluded that under an arrangement whereby the respondent ("SPI") granted an option to Citibank International PLC ("Citibank") to acquire governments bonds at an exercise price equal to 90% of the face amount, and Citibank granted an option to SPI to acquire identical government bonds at an exercise price of 70% of their face amount, each option should be treated as separate because there was a commercially realistic (albeit quite unlikely) possibility that the option granted by Citibank to SPI would not be exercised (i.e., that the bonds would fall in price below 90% of their face amount).

The Court concluded that in applying the Ramsay principle the composite effect of the arrangement should be considered as the scheme was intended to operate without regard to the contingency that one of the options might not be exercised. Accordingly, it was held that Citibank did not have an "entitlement" to the property covered by its option.

A predecessor of the defendant (“BC Tel”) raised $150 million by transferring receivables to a securitization trust (“RAC”) in consideration for an advance and the receipt of deferred amounts. RAC funded its payments in the commercial paper market and BC Tel serviced the receivables for no fee. The plaintiffs were bond holders who alleged that the use by BC Tel of the advance to redeem the bonds (which bore a high rate of interest) violated a Trust Deed covenant not to redeem the bonds “by the application, directly or indirectly, of funds obtained through borrowings, having an interest cost to the Company of less than 11.35% per annum.”

In finding that the transfer of the receivables was a true sale rather than a secured loan, so that this covenant was not violated, Ground J stated

• (at para. 40) that “the wording of the Agreement throughout clearly indicates the intention of both parties that the transaction be a true sale,”
• (at para. 43) that although “for all practical purposes the only risk of uncollectibility assumed by RAC was the possibility of an insolvency of BC Tel and accordingly, the inability to be compensated by BC Tel in the event of Purchased Receivables in excess of the amount of the Reserve being uncollectible,” nonetheless “because of that possibility, however remote, RAC did assume some risk with respect to the collectibility of the Purchased Receivables,”
• (at para. 56) that “it does not appear…that the absence of a right in RAC to retain the surplus from the collection of accounts receivable is fatal to a determination that the securitization transaction between BC Tel and RAC was a true sale,”
• (at para. 63) that “the fact that the Agreement contemplated that a particular receivable may, under certain circumstances, be reconveyed to BC Tel, does not…derogate from…[satisfaction of the requirement that] the subject matter of the sale must be ascertainable,” and
• (at para. 67) that “the ultimate test to be applied to determine whether a particular transaction should be interpreted as a secured loan or as a true sale” is that in “a secured loan transaction… the borrower, upon repayment of the debt, [can] require the lender to reassign to it all of the lender’s interests in the assets secured to pay the debt” whereas here (para. 69) “nowhere in the Agreement is BC Tel given any right at its option to repurchase or redeem the Purchased Receivables upon payment of a specified amount to RAC.”

O'Connor T.C.J. accepted (at para. 10) the submissions of the Minister that under a contract between the taxpayers and a local mill ("Evans") for the sale of fallen logs on their property, "beneficial ownership did not pass and there was no possession use and risk in Evans until after the weighing of the wood and the determination of the price." As that time occurred after the time of phasing out of the capital gains exemption, the taxpayers were not able to utilize the exemption with respect to the capital gains realized by them on their disposition of their logs.

A partnership was entitled to claim capital cost allowance in respect of a rental property notwithstanding that the transfer to it of the property had not been registered at the Registry Office. Although article 2098 of the Civil Code of Lower Canada provided that "in default of such registration, the title of conveyance cannot be invoked against any third party who has purchased the same property from the same vendor for a valuable consideration and whose title is registered", it was clear that the Minister is not a third party within the meaning of this article.

After finding that the corporate general partner of an Ontario limited partnership, which held title to real estate on behalf of the partnership, was subject to the prohibition in s. 18(2) of the Mortgages Act against a joint stock company or other corporation prepaying a mortgage on the basis that because a limited partnership was not a legal entity capable of holding and conveying title to real property, provision was made in the Limited Partnerships Act (Ontario) for a general partner to conduct and manage the business of the limited partnership including acquiring and conveying real estate on its behalf, Borins, J.A. went on to state (at p. 594):

"There is no question that the general partner was authorized by the limited partners to arrange the financing and, under the Limited Partnerships Act was empowered and required to do so. Therefore, it was intended that the mortgage would be an obligation enforceable against the general partner. The fact that the beneficial ownership of the property was made up of limited partners who were individual, non-corporate investors does not detract from the fact that the mortgage was given by the corporate general partner, and accordingly, does not remove the mortgage from the exemption in s. 18(2) of the Mortgages Act, or entitle the limited partners to the right of prepayment under s. 18(1)."

(See also Hudson’s Bay v. OMERS and Lehndorff.)

Bowman TCJ. stated (at p. 1037) that he agreed with the proposition that "ownership for purposes of the Income Tax Act means beneficial ownership."

Lady Fox at the time of her death was the freehold owner of a 3,000 acre estate which was let to a farming partnership in which she had a 92.5% interest. In finding that Lady Fox should be treated for purposes of valuing her estate as having a 92.5% interest in the tenancy, Hoffmann J. stated (at p. 8042):

"As between themselves, partners are not entitled individually to exercise proprietary rights over any of the partnership assets. This is because they have subjected their proprietary interests to the terms of the partnership deed which provides that the assets shall be employed in the partnership business, and on dissolution realised for the purposes of paying debts and distributing any surplus. As regards the outside world, however, the partnership deed is irrelevant. The partners are collectively entitled to each and every asset of the partnership, in which each of them therefore has an undivided share. It is this outside view which identifies the nature of the property falling to be valued for the purpose of capital transfer tax ... ."

The taxpayer failed to establish that a Liechtenstein "establishment" held a Toronto condominium as bare trustee for the taxpayer in light inter alia of evidence that under the relevant arrangements the taxpayer's spouse was required to approve any procedure taken with respect to the assets and funds of the establishment. [C.R.: 13(21)(b); 212(1)(d); 54(c)]

Before finding that an order as to a stay of proceedings pursuant to s. 11 of the Companies' Creditors Arrangement Act (Ontario) could extend to group companies, which were general partners of Ontario, Alberta or German limited partnerships in respect of the undivided interests in such partners in the limited partnership property, Farley, J. made the following comments (at paras. 17, 20) respecting the character of a limited partner's interest in a limited partnership governed by the Limited Partnerships Act (Ontario):

The general partner has all the rights and powers and is subject to all the restrictions and liabilities of a partner in a partnership. In particular a general partner is fully liable to each creditor of the business of the limited partnership. The general partner has sole control over the property and business of the limited partnership: see Ontario LPA ss. 8 and 13. Limited partners have no liability to the creditors of the limited partnership's business; the limited partners' financial exposure is limited to their contribution. The limited partners do not have any "independent" ownership rights in the property of the limited partnership. The entitlement of the limited partners is limited to their contribution plus any profits thereon, after satisfaction of claims of the creditors. See Ontario LPA sections 9, 11, 12(1), 13, 15(2) and 24. The process of debtor and creditor relationship associated with the limited partnership's business are between the general partner and the creditors of the business. ...

The limited partners leave the running of the business to the general partner and in that respect the care, custody and the maintenance of the property, assets and undertaking of the limited partnership in which the limited partners and the general partner hold an interest. The ownership of this limited partnership property, assets and undertaking is an undivided interest which cannot be segregated for the purpose of legal process.

(See also Hudson’s Bay v. OMERS and Kucor.)

It was found that by an agreement dated January 16, 1985, the taxpayer had disposed of his shares of a corporation to a shareholder. Accordingly, a subsequent agreement signed by the taxpayer dated June 26, 1985, which the taxpayer thought only altered the agreement of January 16, 1985 in minor respects but which, in fact, named the corporation as the purchaser of the taxpayer's shares, did not have the effect of causing the taxpayer to receive a deemed dividend.

Before finding that leases of equipment made by the taxpayer should be characterized as such rather than as conditional sales agreements, as submitted by the taxpayer, Sarchuk J. stated (p. 1789):

"There was, as I see it, no enforceable right during or at the expiration of the lease, to acquire the property at a price which at the inception of the lease is substantially less than the probable fair market value of the property at the time of permitted acquisition by the lessee, nor can it be said that the lessee had the right, and by this I mean enforceable right, during the lease or at its expiration to acquire the property at a price which the lessee knew at the inception of the lease was such that no reasonable person would refuse."

The taxpayer, which leased heavy machinery under five-year leases which provided that the taxpayer could exercise an option to purchase the machinery for the price of the remaining rental on 60 days' prior notice, and which provided that the taxpayer was responsible for the maintenance of the machinery, was found not to have acquired the machinery and, therefore, was precluded from deducting capital cost allowance. Lamarre Proulx J. stated (p. 1385):

"... The words 'property acquired' must be taken to mean property in which the taxpayer has a right of ownership, or if not such a right, then all the attributes of a right of ownership, as in the case of a conditional sale."

The Quebec taxpayer was found to have "acquired" trucks pursuant to leases given that it had possession and use of the trucks, it had assumed all risks, it had the option, six months before the expiry of the lease, to purchase the trucks for an amount approximately equal to the fair market value of the remaining lease payment, and it was required to pay the "rent" even if the trucks were destroyed or it no longer had the use of them. However, the taxpayer was found not to be the "owner" of the trucks because, under the Quebec Civil Code, ownership could not be divided between a legal and beneficial owner, and the lessor rather than the taxpayer was the legal owner. Because the definition of "depreciable property" in its amended form required ownership of the property, the taxpayer was not entitled to claim capital cost allowance.

An individual (Edward) was the holder and beneficial owner of substantially all the shares of the taxpayer and his father (Clarence) was the holder and beneficial owner of a substantial portion of the voting shares of a second corporation ("DeWalt"). In addition, Clarence held one share of the taxpayer on behalf of Edward, and Edward held one share of DeWalt on behalf of Clarence. In finding that Edward and Clarence did not "own" shares of both corporations for purposes of s. 36(4)(b)(iii) of the Act as it then read, Mr. Fordham stated (at p. 28):

"In Stroud's Judicial Dictionary, 2nd Edition Ed., p. 1387, it is stated that the owner of a property is the person in whom (with his or her consent) it is for the time being beneficially vested, and who has the occupation, or control, or usufruct of it. In my view, Clarence ... did not have such an interest in the share of the appellant's stock registered in his name and the real owner was Edward ...".