Cases
Paletta International Corporation v. Canada, 2021 FCA 182
Hogan J had found that a tax shelter partnership, which had funded the prints and advertising expenses for films that it had purchased from...
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| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate | potential to resell under secondary intention doctrine must be an operating motivation to the acquisition | 53 |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | essential certainty that a film would be resold under an “option” before it generated any revenue established that s. 18(1)(a) not satisfied | 202 |
Laplante v. Canada, 2018 FCA 193
In or about November 2004, the taxpayer (“Laplante”) and the two other shareholders of a small business corporation (“DTI”) each settled a...
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| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) | a purported distribution of QSBCS gains to family trust beneficiaries was received by them as agent for father | 289 |
Coast Capital Savings Credit Union v. Canada, 2016 FCA 181
The applicant (“Coast Capital”), which was the trustee of RRSPs and RRIFs, was assessed under s. 116(5) for failure to withhold on its...
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| Tax Topics - Income Tax Act - Section 116 - Subsection 116(5) | rejection of apparent attempt to argue that an inflated purchase price should be bifurcated between a FMV cost and a benefit conferral | 294 |
| Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base | no bifurcation of inflated purchase price between FMV cost and benefit conferral | 142 |
Antle v. Canada, 2010 DTC 5172 [at 7304], 2010 FCA 280
A purported Barbados trust that was used in connection with a tax plan to avoid Canadian capital gains tax on the disposition of shares of a...
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| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) | settler did not intend to lose control of "contributed" property | 294 |
2529-1915 Québec Inc. v. Canada, 2009 DTC 5023 [at 5585], 2008 FCA 398
Overview of facts. The two individual taxpayers devised a scheme to: generate artificial capital gains of $110 million in some home-grown...
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| Tax Topics - General Concepts - Tax Avoidance | capital dividend elections for distributions of what should have been known to be income-account gains were shams | 266 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business | shares premiums received for marketing tax scheme were business income | 213 |
| Tax Topics - Income Tax Act - Section 83 - Subsection 83(2) | capital dividend elections for distributions of what should have been known to be income-account gains were shams | 718 |
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Shares | shares acquired for immediate resale as part of capital dividend account generation scheme were on income account | 177 |
| Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business | shares premiums received for marketing tax scheme were business income | 223 |
Canada v. Nunn, 2007 DTC 5111, 2006 FCA 403
In finding that the trial Judge has erred in finding that the investment of the taxpayer's RRSP in worthless shares as a result of fraudulent...
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| Tax Topics - General Concepts - Tax Avoidance | misrepresentation element of sham | 87 |
| Tax Topics - Income Tax Act - Section 171 - Subsection 171(1) | sham finding not argued | 51 |
Ledoux c. La Reine, 2000 DTC 6465, 2001 FCA 130 (FCA)
The Court affirmed (at p. 6466) the findings of the trial judge that a series of complex transactions comprising 43 stages that were completed...
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| Tax Topics - General Concepts - Tax Avoidance | documents did not reflect actual transactions | 70 |
McEwen Brothers Ltd. v. R., 99 DTC 5326, [1999] 3 CTC 373 (FCA)
In finding that a purported partnership agreement was not a sham, Robertson J.A. stated (at p. 5330):
"In short, to qualify as a sham, the...
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| Tax Topics - General Concepts - Tax Avoidance | deception of Minister | 50 |
| Tax Topics - Income Tax Act - Section 96 | purported partners did not jointly manage or provide capital | 87 |
Continental Bank of Canada v. R., [1997] 1 CTC 13, 96 DTC 6355, [1996] 3 CTC 14
Before finding that the taxpayer had failed to accomplish a tax-motivated plan because it had failed, in law, to establish a partnership with two...
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| Tax Topics - General Concepts - Tax Avoidance | no sham if docs reflect legal reality | 92 |
| Tax Topics - Income Tax Act - Section 97 - Subsection 97(2) | no rollover because partnership not established | 228 |
The Queen v. Parsons, 84 DTC 6447, [1984] C.T.C 354, 84 DTC 6452 (FCA)
It was found by the trial judge that management companies, which two professional engineers ("Parsons" and "Vivian") had incorporated and...
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| Tax Topics - General Concepts - Tax Avoidance | no sham as purported legal rights were created | 117 |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Related Companies | 117 | |
| Tax Topics - Income Tax Act - Section 9 - Related Companies | 117 |
The Queen v. Esskay Farms Ltd., 76 DTC 6010, [1976] CTC 24 (FCTD)
The taxpayer, wished to sell land to the City of Calgary in consideration for two annual instalments in order to defer a portion of the gain to...
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| Tax Topics - General Concepts - Agency | weight given to written agreement terms in finding that intermediary purchased as principal | 122 |
| Tax Topics - General Concepts - Evidence | 81 | |
| Tax Topics - General Concepts - Tax Avoidance | no sham if documents describe intended legal rights | 354 |
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) | 143 | |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(n) | 199 | |
| Tax Topics - Income Tax Act - Section 245 - Old | 57 | |
| Tax Topics - Income Tax Act - Section 246 - Subsection 246(1) | 195 | |
| Tax Topics - Statutory Interpretation - Provincial Law | 58 |
Simard-Beaudry Inc. v. M.N.R., 74 DTC 6552, [1974] CTC 715 (FCTD)
Before concluding (at p. 6557) that "the purchase by the Appellant by means of an option does not constitute a sham in the legal sense," and after...
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| Tax Topics - General Concepts - Agency | agent can act for two principals | 51 |
| Tax Topics - General Concepts - Tax Avoidance | motives should not be exaggerated | 98 |
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A | cost of option included in cost of acquired asset | 28 |
| Tax Topics - Income Tax Act - Section 245 - Old | 134 |
Stubart Investments Ltd. v. The Queen, 84 DTC 6305, [1984] CTC 294, [1984] 1 S.C.R. 536
Before finding that a transfer by the taxpayer of its flavouring business to an affiliated company with a history of losses (coupled with the...
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| Tax Topics - General Concepts - Tax Avoidance | legally effective transaction with non-arm's length party should not be disregarded because it was tax-motivated | 148 |
| Tax Topics - Income Tax Act - Section 245 - Old | 33 | |
| Tax Topics - Statutory Interpretation - Resolving Ambiguity | 24 |
See Also
Chad v. The King, 2024 TCC 142
In order to generate a targeted loss of $22 million for use in his 2011 taxation year, Chad agreed to pay a fee of $240,000 to a UK foreign...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | the presumption that commercial activity is in pursuit of profit and, thus, a source, was rebutted where there was no real interest in generating profit | 420 |
ARQ v. Kone Inc., 2024 QCCA 678
The taxpayer (“KQI”), which was a Canadian operating subsidiary in a group ultimately controlled by a Finnish parent, used funds that had been...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | repo produced results consistent with it not being a loan form of financing and with the policy behind exempt surplus dividends | 341 |
Kone Inc. v. ARQ, 2022 QCCQ 9892, aff'd 2024 QCCA 678
The taxpayer (“KQI”), which was a Canadian operating subsidiary in a group ultimately controlled by a Finnish parent, used funds that had been...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | a cross-border repo was not an abuse of the s. 17 rule | 476 |
Magren Holdings Ltd. v. The Queen, 2021 TCC 42
The appellants engaged in transactions which were intended to result in the realization by them of substantial capital gains (resulting in...
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| Tax Topics - Income Tax Act - Section 185 - Subsection 185(3) | Part III tax assessments of distributions of gains that were denied outside the Part I tax normal reassessment period were not statute-barred | 314 |
| Tax Topics - Income Tax Act - Section 185 - Subsection 185(1) | no requirement to issue separate assessment for each election, and no remedy for inordinate time to issue assessments | 396 |
| Tax Topics - General Concepts - Ownership | acquisition of income fund units to be held for a few days before their redemption did not represent an acquisition of beneficial ownership | 549 |
| Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) | election was not available where a CDA sham | 365 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | no CDA addition where capital gains were not real | 373 |
Paletta Estate v. The Queen, 2021 TCC 11, rev'd 2022 FCA 86
The taxpayer in Friedberg entered into spread positions in gold futures contracts, and in the same taxation year closed out the losing legs on his...
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| Tax Topics - Income Tax Act - Section 9 - Timing | straddle trade losses recognized consistently with Friedberg | 337 |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | losses generated under straddles were deducible from a source notwithstanding that they generated small economic losses | 261 |
| Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) | a reasonable person would have surfaced the omission of an $8M trading gain with an inquiry of his accountant | 391 |
Agracity Ltd. v. The Queen, 2020 TCC 91
The taxpayer (“AgraCity”) was a resident corporation wholly-owned by a resident individual (James Mann) that between 2005 and 2008 promoted...
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| Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) - Paragraph 247(2)(b) | no evidence proffered that arm’s length parties would not have entered into non-resident goods seller/domestic servicing transactions | 494 |
| Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) - Paragraph 247(2)(a) | fee earned by Canadian servicer fell within “rough, but … acceptable, range of what an arm’s length service provider might have enjoyed” | 303 |
| Tax Topics - General Concepts - Onus | Hickman Motors followed, but same result under Sarmadi | 331 |
| Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a.1) | assessments based on s. 95(2)(a)(a.1) dropped by Crown | 221 |
Paletta v. The Queen, 2019 TCC 205, aff'd 2021 FCA 182
In 2006, one of the two taxpayers (“Paletta International”) invested US$8.0 million cash in a limited partnership (“Six Iron Partnership”)...
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| Tax Topics - Income Tax Regulations - Regulation 231 - Subsection 231(6) | expectation of repurchase option being exercised generated a prescribed benefit | 207 |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | expenses non-deductible because partnership expected to be repurchased before any income generated | 127 |
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate | rental revenues were incidental to secondary intention save for land with 25-year hold | 309 |
| Tax Topics - General Concepts - Evidence | TCC not bound by admission contrary to facts where benefiting party has adduced evidence on point | 50 |
Lee v. The Queen, 2018 TCC 230
The taxpayer, Mr. Lee, a resident of B.C., engaged in a tax avoidance plan involving a spousal trust (intended to be resident in Quebec) which...
Cameco Corporation v. The Queen, 2018 TCC 195, aff'd 2020 FCA 112
Cameco Canada formed a Swiss subsidiary (“CESA/CEL,” - more precisely, a two-employee Swiss branch of a Luxembourg subsidiary ("CESA"), that...
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| Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) | having a Swiss/Lux subsidiary enter into long-term purchase contracts at a somewhat fixed price with third parties and the taxpayer did not engage s. 247(2) | 708 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(10) | "series" concept narrowly interpreted to permit comparison with arm's length transactions | 84 |
| Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(1) - Transaction | meaning of "arrangement" and "event" | 153 |
Birchcliff Energy Ltd. v. The Queen, 2017 TCC 234
A newly-launched public corporation ("Birchcliff") sought to access the losses and credits of a lossco ("Veracel"). A substantial subscription...
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| Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(2) - Paragraph 251.2(2)(a) | proxy which accorded no discretion to a class of shareholders did not render them a group | 221 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) | series of transactions found to be an avoidance transaction | 306 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | raising share equity through a lossco immediately before its amalgamation was abusive | 278 |
R. v. Golini, 2016 TCC 174
A family corporation (“Ontario”) used proceeds of a daylight loan to redeem shares of Holdco, which used those proceeds to purchase a life...
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| Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) | a loan to a shareholder with recourse limited to an asset pledged by the corporation was a shareholder benefit | 589 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | interest deduction on limited recourse loan | 305 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | use of corporate asset to create PUC was abuse of s. 84(1) | 250 |
| Tax Topics - Income Tax Act - Section 84 - Subsection 84(1) | policy of 84(1) | 219 |
Crooks v. The Queen, 2016 TCC 52 (Informal Procedure)
An agreement for the purchase of a new condo by the appellant was amended to add her friend as a co-purchaser. Hershfield J found that the amended...
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| Tax Topics - Excise Tax Act - Section 254 - Subsection 254(2) - Paragraph 254(2)(a) | accommodation co-owner was not supplied her interest directly by the builder | 451 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient | “ultimate liability” doctrine indicated an accommodation-party co-purchaser of condo was not a recipient | 301 |
| Tax Topics - Excise Tax Act - Section 262 - Subsection 262(3) | accommodation co-purchaser (for financing purposes) of condo was not a recipient of supply by builder | 231 |
| Tax Topics - General Concepts - Substance | the addition of an accommodation co-purchaser (for financing purposes) of condo did not reflect the parties' true intentions | 173 |
| Tax Topics - Statutory Interpretation - Benefits-Conferring Legislation | interpretation to favour conferral of intended benefits | 207 |
Mariano v. The Queen, 2015 DTC 1209 [at 1331], 2015 TCC 244
The taxpayers were participants in leveraged donation transactions, which were intended to result in a step-up of the adjusted cost base of...
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| Tax Topics - General Concepts - Fair Market Value - Other | courseware licences valued at modest initial cost, given relevant wholesale market and depressive effect of huge volumes purchased | 303 |
| Tax Topics - General Concepts - Ownership | no acquisition of unascertained property | 76 |
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) | void for lack of certainty of objects | 224 |
| Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2) | delegation of power of appointment to promoter not authorized | 238 |
| Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts | no gift where no intent for impoverishment and where gifted property not yet identified | 566 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(35) | attempted use of initial gift to step-up ACB under s. 69(1)(c) | 262 |
Birchcliff Energy Ltd. v. The Queen, 2015 TCC 232, nullified on procedural grounds 2017 FCA 89
A predecessor ("Birchcliff") of the taxpayer negotiated a plan to merge with a corporation ("Veracel"), which had discontinued its medical...
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| Tax Topics - Income Tax Act - Section 111 - Subsection 111(5) - Paragraph 111(5)(a) | grant of proxy did not detract from investors acting individually in own interest | 237 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) | share subscription was avoidance transaction notwithstanding its "overarching purpose" was financing | 148 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | abusive reverse takeover by Lossco through diverted private placement | 261 |
Coast Capital Savings Credit Union v. The Queen, 2015 TCC 195, aff'd 2016 FCA 181
On the basis of allegations accepted in the pleadings, the applicant, which was the trustee of RRSPs and RRIFs, purchased shares (that were...
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| Tax Topics - Income Tax Act - Section 116 - Subsection 116(5) | cost of shares was cash amount required to be paid rather than FMV | 165 |
Dimane Enterprises Ltd. v. The Queen, 2015 DTC 1013 [at 64], 2014 TCC 334
The taxpayer's sole director ("Richard"), who ran the taxpayer's business out of his home office, employed his four children, aged 23, 21, 14 and...
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| Tax Topics - General Concepts - Payment & Receipt | payments not received where children "recipients" had no control over funds | 64 |
| Tax Topics - Income Tax Act - Section 144 - Subsection 144(1) - Employee Profit Sharing Plan | purported recipients of trust distributions had no control over funds | 242 |
Bessette v. ARC (Quebec Revenue Agency), 2014 QCCQ 4329
The dental practice of the taxpayer paid fees of approximately 70% of its revenues to a services company (which was wholly-owned by the dentist...
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| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | professional "services" corporation with no employees | 222 |
McLarty v. The Queen, 2014 DTC 1162 [at 3556], 2014 TCC 30
The taxpayer, as a member of a joint venture, bought an undivided interest in seismic data for $20,000 cash and an $85,000 limited-recourse...
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| Tax Topics - General Concepts - Agency | participations contrary to agreement were disregarded | 111 |
| Tax Topics - General Concepts - Illegality | participations contrary to agreement were disregarded | 113 |
| Tax Topics - General Concepts - Tax Avoidance | sham cannot apply to just part of transaction | 145 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | revenues 10% of interest | 186 |
| Tax Topics - Income Tax Act - Section 67 | leveraged purchase of seismic data at arm's length was presumptively reasonable | 296 |
Foresbec Inc. v. The Queen, 2002 DTC 1786 (TCC), aff'd 2003 DTC 5455, 2002 FCA 186
A consulting contract did not reflect the legal reality of the parties' rights and obligations (it was never contemplated that consulting services...
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|---|---|---|
| Tax Topics - General Concepts - Tax Avoidance | documents did not reflect legal reality | 58 |
| Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) | 97 | |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | 81 |
Administrative Policy
26 February 2015 CBA Roundtable, Q. 6
a) When CRA alleges "sham," what internal procedures are required before assessing on that basis?
b) What criteria does CRA apply in determining...
Articles
Glen Loutzenhiser, "Sham in the Canadian Courts", Sham Transactions (Edwin Simpson and Miranda Stewart, editors), Oxford University Press, 2014.
Sham formulation in Snook
(pp. 244-5)
The classic Snook-inspired Canadian formulation of sham has three main components. First, there must be a...