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Laplante v. Canada, 2018 FCA 193

a purported distribution of QSBCS gains to family trust beneficiaries was a sham

In or about November 2004, the taxpayer (“Laplante”) and the two other shareholders of a small business corporation (“DTI”) each settled a family trust (the “DL Trust”) on the advice of their accounting firm, with the three trusts acquiring a portion of the DTI shares. In January 2008, all the DTI shares (which were qualified small business corporation shares) were sold to a German company, with DL Trust realizing a $5.9 million capital gain. In December 2008, a resolution of the three trustees (Laplante, and two “temporary” trustees, being his mother and a friend) signed a resolution for the allocation and distribution of the taxable capital gain to Laplante and the various members of his family qua beneficiaries of the trust, with the amounts allocated to those beneficiaries equalling their available claim for the taxable capital gains deduction under s. 110.6(2.1) (of $370,487.50). At the same time, Laplante issued a cheque to each beneficiary in an amount equal to the allocated taxable capital gain. The beneficiaries all endorsed their cheques, delivered them to Laplante and signed deeds of gift to him each in the amount of $370,487.50. Laplante paid the alternative minimum tax that was payable by the beneficiaries as a result of their reporting “their” taxable capital gains of $370,487.50 (with the s. 110.6(2.1) deduction claimed).

In finding that the two elements under CCQ s. 1451 for a “simulation” had been established, namely the substantive element (“élément materiel”) and intentional element (“élément intentionnel”), Ouimet J had stated (at 2017 CCI 118, para. 73, TaxInterpretations translation, respecting the first element) that the beneficiaries

had each accepted a mandate from Mr. Laplante whose essential features consisted in receiving from the DL Trust a distribution in the amount of $375,000 and thereupon paying that amount to Mr. Laplante. In so doing, they were required to use their capital gains exemption, which was essential. In consideration, they were permitted to keep the recoveries of alternative minimum tax made by them in the subsequent taxation years.

Respecting the second element, he had found (at para. 82):

[T]he parties did not uncloak the existence of the mandates to the Minister and had no intention of ever doing so.

In affirming the findings below by Ouimet J, including that the reassessment of Laplante made after the normal reassessment period was valid, Boivin JA stated (at para. 4):

He was … correct to identify a substantive element and an intentional element, being the two elements which must be present in order to conclude that there is a simulation under Article 1451 … . Furthermore … the judge … did not err in finding a simulation in this case, i.e., that the appellant was the true beneficiary of the amounts distributed by DL Trust to the seeming beneficiaries.

Words and Phrases
Locations of other summaries Wordcount
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

deceit of taxpayer was irrelevant to assessment – so that “sham” also was irrelevant

The applicant (“Coast Capital”), which was the trustee of RRSPs and RRIFs, was assessed under s. 116(5) for failure to withhold on its purchase of shares (that were taxable Canadian property) of Canadian companies from non-resident vendors at prices which were substantially in excess of those shares' fair market value (with the result that the RRSPs and RRIFs were stripped of funds which ended up in offshore accounts or were applied to pay the fees of the "promoter.") Coast Capital alleged that it had been misled as to the true nature of the transactions, and sought to amend its Notice of Appeal to plead that the scheme was a sham and that it should be reassessed in accordance with what actually occurred.

In confirming the Tax Court’s rejection of this amendment (on the basis that the sham doctrine had no application as the parties intended the share purchase), Gleason JA stated (at paras. 26-27):

There is no underlying “real” transaction so that the share purchase transaction could be set aside and the Minister could impose tax on that “real” transaction. …[I]t is not being taxed on the withdrawal from the RRSPs or RRIFs but rather is simply being taxed as the purchaser of taxable Canadian property. ..

The jurisprudence recognizes that taxpayers are not relieved of their tax obligations if they have been victims of mistake or fraud (Nunn [2006 FCA 403] at para. 22, citing Vankerk v. Canada, 2006 FCA 96 at para. 3…). Thus, the fact that Coast Capital might have been deceived as to the ultimate nature of the transactions in this case is irrelevant to its tax liability under subsection 116(5)… .

Locations of other summaries Wordcount
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

trust deed did not reflect the factual expectatons of the settler and trustee

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 corporation was found not to exist at the time of a purported sale of shares by the purported trust given that the settler never intended to lose control of the shares to the Barbados trustee, or of the money resulting from their sale, he did not sign the trust deed until after the sale of the shares to the third party, and the shares were not validly transferred to the trust (and, in fact, at the relevant time, they could not be so transferred because they were subject to the security interest of a third party).

In going on to find that the purported trust also was a sham, Noël JA stated (at paras. 19, 20):

The Tax Court judge found as a fact that both the appellant and the trustee knew with absolute certainty that the latter had no discretion or control over the shares. Yet both signed a document saying the opposite. …[T]he Tax Court Judge misconstrued the notion of intentional deception in the context of a sham. …It suffices that parties to a transaction present it as being different from what they know it to be.

Locations of other summaries Wordcount
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

capital dividend elections for distributions of what should have been known to be income-account gains were shams

Overview of facts. The two individual taxpayers devised a scheme to: generate artificial capital gains of $110 million in some home-grown companies; pay the supposedly resulting capital dividend accounts (CDAs) of $55 million to another company (1915); generate artificial capital losses in the home-grown companies to offset their capital gains; effectively sell negotiated portions of the CDA to 3rd-party purchasers by having them subscribe for preferred shares at a 21% premium to their redemption amount with the shares' redemption amounts effectively being flowed out to the 3rd parties as purported capital dividends; and then pocketing such subscription "premiums" as capital dividends paid out to them. A more detailed summary of the facts is under s. 83(2).

Gains generated on income account. After finding that the daylight loan used in the transactions and the promissory notes issued in the transactions issued in the transactions generating capital gains were not shams, and finding that the share premiums generated by 1915 were business income, Noël JA found that the "gainmaking" shares which were acquired for the purpose of their immediate resale so as to give rise to such gains were acquired on income account, given that "property acquired for resale is held on account of revenue" (para. 73).

Elections were shams. Given that these shares were acquired on income account, the subsidiaries in making capital capital dividend elections to flow out their CDAs to 1915 were making a misrepresentation which rendered such elections shams, and similarly the subsequent capital dividend elections by 1915 also were shams.

Locations of other summaries Wordcount
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

misrepresentation element of sham

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 misrepresentation represented a sham, Malone J.A. stated, after citing the Snook v. London & West Riding Investments Ltd. case stated (at p. 5114):

"In other words, the elements of a sham require that the parties to a transaction together have deliberately set out to misrepresent the actual state of affairs to a third party ... ."

Locations of other summaries Wordcount
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)

documents did not reflect actual transactions

The Court affirmed (at p. 6466) the findings of the trial judge that a series of complex transactions comprising 43 stages that were completed within a few days, whose apparent purpose was to transmute an income-account gain into a capital gain, "did not reflect the actual transactions completed and did not correspond to the actual relationships formed between the parties: in short, it constituted a deception, a subterfuge, a sham".

Locations of other summaries Wordcount
Tax Topics - General Concepts - Tax Avoidance documents did not reflect actual transactions 70

McEwen Bros. Ltd. v. The Queen, 99 DTC 5326 (FCA)

deception of Minister

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 taxpayer must say one thing to the Minister, and do another in an attempt to avoid its tax obligations."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Tax Avoidance deception of Minister 44
Tax Topics - Income Tax Act - Section 96 purported partners did not jointly manage or provide capital 85

Continental Bank Leasing Corp. v. The Queen, 96 DTC 6355 (FCA), rev'd 98 DTC 6501 (SCC)

no sham if docs reflect legal reality
rev'd on other grounds 98 DTC 6501 (SCC)

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 other parties, Linden J.A. quoted a statement of the Tax Court Judge that "if the legal reality that underlies the ostensible legal relationship is the same as that which appears on the surface, there is no sham", and then stated (at p. 6359):

"Absent the essential component of deceit, the present transaction cannot be considered a sham according to current Canadian law."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Tax Avoidance no sham if docs reflect legal reality 86
Tax Topics - Income Tax Act - Section 97 - Subsection 97(2) no rollover because partnership not established 216

The Queen v. Parsons, 84 DTC 6447, [1984] C.T.C 354 (FCA)

no sham as purported legal rights were created

It was found by the trial judge that management companies, which two professional engineers ("Parsons" and "Vivian") had incorporated and interposed between themselves and an engineering firm ("Design") of which they had been employees until that time, "(1) had no bona fide business purpose, (2) had, primarily, the purpose of directly reducing their income tax liabilities [and] (3) had, secondarily, an estate planning purpose which ... must be taken to have also been solely motivated by tax and personal, not business, considerations." Nonetheless, it was held that the arrangements were not a sham and were effective for tax purposes because the legal rights and obligations which the parties purported to create, they had succeeded in actually creating.

The Queen v. Esskay Farms Ltd., 76 DTC 6010, [1976] CTC 24 (FCTD)

no sham if documents describe intended legal rights

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 its second taxation year, but was informed that the City was precluded by statute from purchasing land over a period of years. As a result: the taxpayer sold the land to a trust company for the same purchase price, but payable in two instalments with the second instalment bearing interest at 7.5% per annum, and with a clause in the purchase agreement that the trust company could elect within 60 days of the date of the agreement of sale to void the agreement; and the trust company sold the land to the City for the same purchase price, paid in cash. Title was transferred directly from the taxpayer to the City.

Cattanach J. found that the transactions were not a sham as the intended legal rights of the three parties were exactly those described in the documents. For example, the Trust Company had the use of the money received on its sale to the City for a protracted period, which it could and did turn to profit on its own account.

Cattanach J., after noting that, in fact, the Trust Company did not pay interest until the time it received money on the sale to the City, rather than from the earlier date provided in the agreement, stated (at p. 6016):

"The delay in payment exceeded the estimated date and there is no impediment to the parties not to strictly comply with the agreement in this respect although the benefiting party is entitled to do so and the party detrimentally affected is bound by the agreement."

After noting that the trust company did not record a liability in its book of account to the taxpayer until the time it receiving payment from the City, Cattanach J. stated (at p. 6016):

"I do not think that bookkeeping entries or the lack of an entry can be accepted as contradicting the clear provisions of a written agreement."

Simard-Beaudry Inc. v. M.N.R., 74 DTC 6552, [1974] CTC 715 (FCTD)

motives should not be exaggerated

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 quoting the "excellent definition of a financial sham" in Snook, Addy J stated (at p. 6556):

"[I]n order to determine if a document constitutes a sham or not and for this reason must necessarily attract financial consequences, one must not take an exaggerated view of the motives of the parties for the sole purpose of arriving at an interpretation favourable to the taxing authority."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency agent can act for two principals 47
Tax Topics - General Concepts - Tax Avoidance motives should not be exaggerated 90
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A cost of option included in cost of acquired asset 26
Tax Topics - Income Tax Act - Section 245 - Old 130

Stubart Investments Ltd. v. The Queen, 84 DTC 6305, [1984] CTC 294, [1984] 1 S.C.R. 536

taxpayer-created facade

Before finding that a transfer by the taxpayer of its flavouring business to an affiliated company with a history of losses (coupled with the agreement of the taxpayer to act as the affiliated company's agent respecting that business) was a legally effective transaction and also was effective for tax purposes, Estey J stated:

…This expression [sham] comes to us from decisions in the United Kingdom, and it has been generally taken to mean (but not without ambiguity) a transaction conducted with an element of deceit so as to create an illusion calculated to lead the tax collector away from the taxpayer or the true nature of the transaction; or, simple deception whereby the taxpayer creates a façade of reality quite different from the disguised reality.

See Also

Paletta Estate v. The Queen, 2021 TCC 11

FX straddles were not shams, and “window dressing” is not a standalone anti-avoidance doctrine

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 straddle positions (while entering into further contracts to maintain his hedged position) but deferred closing out the remaining contracts until the subsequent taxation year. The taxpayer here carried out a similar straddle program, except that it involved FX OTC forward contracts rather than gold futures. In order that he could shelter virtually all of the income of around $40 million earned by him over a number of years ending in 2007, he had to keep increasing the scale of his straddle position, given that the entire gain from closing out, in each year, the gain leg from the previous year’s trading needed to be offset in addition to his other taxable income for that year. Associated companies claimed $150 million in losses from the same straddle program.

The straddle trades were not shams: the “parties to the trades did not represent their legal rights and obligations to the Minister any differently than the way they themselves understood them” (para. 225); and although there could “be no doubt but that the straddle trading had no business purpose” (para. 227), “[l]ack of business purpose is not a sham” (para. 228).

Furthermore, the Crown failed to “cite any binding authority that establishes ‘window dressing’ as a stand-alone judicial anti-avoidance doctrine” (para. 245).

Locations of other summaries Wordcount
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

confused books and records, where no intent to deceive, were not indicative of sham

The taxpayer (“AgraCity”) was a resident corporation wholly-owned by a resident individual (James Mann) that between 2005 and 2008 promoted the importation into Canada of a herbicide (ClearOut) that was a generic version of RoundUp. The rules of the applicable Health Canada branch (the “PMRA”) required that Canadian corporations could not promote the sale of this product in Canada, although they could promote its importation (under the “Own Use Import” or “OUI” program). To comply with this PMRA requirement, in 2005 James Mann caused the formation of a new US corporation (“NewAgco US”) to be used to purchase ClearOut in the US markets, to warehouse it in its rented warehouse facilities in North Dakota, and to sell it to farmer “members” of the group of companies that included AgraCity (the “FNA members”). NewAgco US charged what James Mann considered to be a reasonable mark-up over its costs, and paid fees to AgraCity for logistical and other related services.

In order to minimize U.S. taxes on the profits generated by NewAgco US, a corporation in the group owned equally by James Mann and his younger brother Jason Mann (“SaskCo”) formed a Barbados international business corporation (“NewAgco Barbados”) to take over the role of NewAgco US in 2006.

In reassessing AgraCity for its 2007 and 2008 taxation years, CRA relied upon the transfer pricing rules in ss. 247(2)(a) and (c) and re-allocated an amount equal to all of NewAgco Barbados’ profits from these sales activities to the income of AgraCity. However, in its arguments before Boyle J, the Crown’s primary position was now that the transactions were a sham or window dressing; in the alternative, that ss. 247(2)(b) and (d) applied to recharacterize the transactions; and in the further alternative, ss. 247(2)(a) and (c) resulted in a transfer pricing adjustment.

Boyle J found that the evidence presented did not establish the existence of any sham transactions, nor any deceptive window dressing, stating (at para 78):

The reassessed 2006 and 2007 transactions (involving NewAgco Barbados in its 2007 and 2008 fiscal years) are otherwise identical to the calendar 2005 year transactions which used NewAgco US, a related company that was not in a low tax jurisdiction. … There was no attempt to mislead or deceive others about the adopted structure, the participants involved or its purpose and objectives. …[A] Canadian entity could not be the seller of the US ClearOut to the Canadian farmers under the OUI program. … It was clearly NewAgco Barbados that purchased the ClearOut …[and] bore material risk in these transactions. … That two related parties would sit down at year end and ensure the service fee generated a reasonable profit above the service provider’s costs should not be surprising or of much concern. … The Services Agreement between AgraCity and NewAgco Barbados appears to be a valid contractual agreement setting out in very large measure what AgraCity was responsible for doing and what it in fact did, as well as how AgraCity was to be paid for performing those services. There is no requirement that such a contract or agreement be in writing. … [C]onfused books and records … are not, on their own, evidence of a sham unless their inaccuracies, inconsistencies and/or omissions can be shown to favor a particular, but clearly inaccurate, recording of the party’s rights, obligations, revenues etc. In this case they do not.

Locations of other summaries Wordcount
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

film marketing partnership loss denied on the basis that an alleged option was a sham

In 2006, one of the two taxpayers (“Paletta International”) invested US$8.0 million cash in a limited partnership (“Six Iron Partnership”) to finance the alleged acquisition of a recently-produced film that the producer (“Fox”) allegedly sold to the Six Iron Partnership for US$128.3 million. As part of these transactions, the Six Iron Partnership signed a distribution agreement with Fox and agreed to bear US$82 million for the prints and advertising expenses (“P&A expenses”) respecting the film.

Fox, or an affiliate, had the right to reacquire the film under a series of option agreements prior to, or within five days following the commercial release of the film. The option price was essentially the cost of the film, plus the P&A expenses allegedly incurred by the partnership, less 3% of the P&A expenses. The options were allegedly exercisable at the option holder’s sole discretion. Fox, through its affiliate, exercised the options and reacquired the film prior to its commercial release. This series of transactions led to the dissolution of the Six Iron Partnership.

Paletta International reported a loss of US$96.1 million from the partnership, which mostly related to its share of the P&A expenses – and also reported a capital gain from the disposition of its partnership units (but took advantage of the 5-year capital gains reserve.) It further claimed other financing charges and expenses.

A few years later, Angelo Paletta (the second taxpayer), along with other members of his family, invested in a quite similar arrangement involving the “Swilcan Partnership”.

In confirming the denial of the partnership losses claimed by the two taxpayers, Hogan J stated (at paras. 243-245):

[T]he Appellants invested in the Six Iron and Swilcan Partnerships solely to avail themselves of the tax savings that the promoters led them to believe they could expect and that they felt secure in the knowledge that Fox had agreed to reacquire the films prior to their commercial release.

Accordingly, I conclude that the options were shams designed to mask the parties’ agreement that Fox would reacquire the films prior to their commercial release.

Consequently, the P&A expenses allegedly borne by the partnerships were not incurred for the purpose of earning income. Likewise, the financing and other expenses incurred by the Appellants with respect to their partnership interests are not deductible.

Locations of other summaries Wordcount
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 310

Lee v. The Queen, 2018 TCC 230

Quebec discretionary trust was not a sham

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 avoided provincial tax on a deemed dividend received on the redemption of shares in the trust’s hands. The Trust elected to be taxed federally on income it had distributed to its beneficiary (Mrs. Lee) but did not elect to be taxed on this same income in Québec. Since the beneficiary was not a resident in Québec, no provincial tax was paid on the distributed income. Nevertheless, the Trust received the federal abatement. The Province of Québec subsequently enacted retroactive tax legislation that deemed the Trust to have elected to be taxed on the distributed income in Québec, thereby retroactively eliminating the tax benefit associated with the strategy. The Minister reassessed Mr. Lee after the expiration of the “normal reassessment periods” for the taxation years in question on the basis that the Trust that he purportedly settled did not exist either because the trust or the transfer of property to the trust was a sham, or because the trust was not properly constituted under Québec law.

After noting that the Quebec trustee (Mr. Paris, a retired KPMG accountant) had followed the advice of Montreal counsel in connection with the settling of the trust including depositing the initial "gift” of the taxpayer to the Trust of $2,000 in the name of the Trust, Owen J found (at paras 67, 68, 69, 70 and 73), and before vacating the reassessments:

In my view, the fact that Mr. Paris followed a course of action recommended by KPMG that he concluded after proper deliberation was in the best interests of the beneficiary of the Trust is perfectly in keeping with the role of a trustee of a discretionary trust. While the reasonable expectation of all concerned may have been that Mr. Paris would follow the steps suggested by KPMG, that expectation is not evidence of an absence of discretion, nor is it evidence of a sham. Under the terms of the Deed, Mr. Paris had the legal authority to make all necessary decisions regarding the Trust and its property and he in fact made those decisions. A decision to follow a pre-conceived or pre-planned course of action is still a decision. Mr. Paris had the expertise and experience to consider the best interests of the beneficiary and to make that decision.

The Respondent appears to be applying the concept of sham as a sort of step transaction doctrine to disregard the creation of the Trust. That is neither correct nor appropriate. A sham involves an element of deceit—the parties must intend to give to third parties the appearance of creating between them legal rights and obligations different from the legal rights and obligations, if any, that the parties actually intend to create. …

Creating legal (or equitable) relationships to give effect to a tax plan is not the perpetration of a sham. In this case, there was no deceit on the part of the Appellant or Mr. Paris regarding the legal relationships created under Québec law. …

… [E]ven if the Appellant’s sole reason (motive) for creating the Trust and transferring the Class F Shares to the Trust was to save tax, that is not in and of itself evidence of a sham. …

Own J further found (at para. 75):

I have considerable difficulty understanding the basis of the Respondent’s submission that the creation of the Trust was legally ineffective. The PASF and the evidence clearly indicate that the Trust was created for the benefit of Mrs. Lee in accordance with the requirements of Québec law and that following the creation of the Trust Mr. Paris, as trustee, had control over the property of the trust for the benefit of Mrs. Lee.

Cameco Corporation v. The Queen, 2018 TCC 195, aff'd 2020 FCA 112

transactions that were not factually misrepresented were not a sham

Cameco Canada formed a Swiss subsidiary (“CESA/CEL,” - more precisely, a two-employee Swiss branch of a Luxembourg subsidiary ("CESA"), that was succeeded a few years later by a Swiss subsidiary ("CEL")) and had it enter into long-term contracts for the purchase of uranium from two Russian-based companies, with the benefit of a Cameco Canada performance guarantee. CESA/CEL also purchased uranium from the Cameco Canada under long-term base-escalated supply contracts (the “BPCs”), and then sold that uranium to Cameco US (who had marketed the uranium) at 98% of the sales price obtained by Cameco US. When the price of uranium subsequently increased significantly, CESA/CEL made substantial profits from the resale of the uranium under both types of contract.

Although CRA assessed Cameco Canada under s. 247(2), it also argued that “although on paper the uranium-trading business was transferred to CESA/CEL, CESA/CEL did little more than rubberstamp the paperwork” and that “in reality the Appellant continued to control and carry on the uranium-trading business” (para. 578). In finding that there was no sham, Owen J stated (at para. 670):

[T]he Appellant, Cameco US and CESA/CEL did not factually represent the numerous legal arrangements that they entered into in a manner different from what they knew those arrangements to be, nor did they factually represent the transactions created by those arrangements in a manner different from what they knew those arrangements to be, consequently, the element of deceit required to find sham is simply not present.

Locations of other summaries Wordcount
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 40
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

ephemeral transactions under a Plan of Arrangement were not a sham
replaces the judgement in 2015 TCC 232 which was nullified by 2017 FCA 89

A newly-launched public corporation ("Birchcliff") sought to access the losses and credits of a lossco ("Veracel"). A substantial subscription receipt offering by Veracel closed about one month before the implementation of a Plan of Arrangement under which the subscription receipts were converted into Class B common shares and then immediately converted on the amalgamation of Vercel with Birchcliff into common shares of the amalgamated corporation. As these investors received a majority voting equity interest in Amalco, the loss streaming rules otherwise engaged by ss. 256(7)(b)(iii)(B) and 111(5)(a) were avoided.

In rejecting a Crown submission that the issuance of the Class B shares was a sham, Jorré J stated (at paras 100 and 101):

…I do not see how there can be an element of deceit in this case where the ephemeral nature of the Class B shares and the resulting inability of Class B shareholders to enjoy any of the attributes of owing the shares was, so to speak in plain view, in the arrangement agreement and the plan of arrangement filed with the Court of Queen’s Bench of Alberta … .

The two predecessor corporations told the Court of Queen’s Bench what they would do and proceeded to do it. That is not hidden.

Locations of other summaries Wordcount
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

sham doctrine did not apply to a "minor pretence"

A family corporation (“Ontario”) used proceeds of a daylight loan to redeem shares of Holdco, which used those proceeds to purchase a life insurance policy (or, to be more precise, to purchase an annuity to fund the premiums on the acquired policy) from an accommodating offshore insurance company, with those funds making their way back, through a series of equally accommodating intermediaries, to the sole individual shareholder of Holdco (“Paul Sr.”) as a loan. This “Metropac” loan was guaranteed by Holdco, with the guarantee secured by Holdco’s life insurance policy. The loan terms limited the lender’s recourse thereunder to realization of such security.

After finding that there was a shareholder benefit arising from Holdco permitting its policy to be used to pay off the Metropac Loan, C Miller J went on, in the alternative, to find (at para. 105, see also para. 123) that “the documents misrepresented what was indeed an absolute assignment [of the policy by Holdco], and in this respect there is a sham element to the transaction,” so that his finding of a shareholder benefit was further justified on this basis.

The terms of the annuity referenced an additional return based on an investment referencing a global index fund. The parties knew this clause would be inapplicable given that all of the funds used to purchase the annuity were immediately deployed elsewhere. C. Miller found that this did not render the annuity a sham, stating (at paras. 117 and 118):

Although there has been a misrepresentation, my view is that to void the entire transaction as a sham transaction because of a misrepresentation that is not fundamental to the nature of the annuity extends the concept too broadly. …[T]he annuity is simply to fund the insurance. While there may be a minor pretense in how the funds were to be invested, there is no deception by Paul Sr. as to what was really going on with this contract. It was to provide $400,000 a year… .

Locations of other summaries Wordcount
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)

the addition of an accommodation co-purchaser (for financing purposes) of condo might have been a sham if done for tax purposes

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 purchase agreement entailed, at most, a supply of a co-ownership interest in the property by the appellant to her friend in consideration for her friend’s guarantee – and did not result in any interest in the condo also being supplied by the builder to the friend (so that the new housing rebate was not denied to the appellant). In this regard, he stated (at para. 23):

The amended agreement did nothing of substance. Indeed, if such an agreement had been entered into to gain an unintended tax advantage, it might be seen as a wholly artificial transaction – a sham.

Locations of other summaries Wordcount
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 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

taxpayer involvement in deceit unnecessary

The taxpayers were participants in leveraged donation transactions, which were intended to result in a step-up of the adjusted cost base of courseware licences (e.g., on how to use Microsoft products) under ss. 69(1)(c) and 107(2) (apparently with a view to avoiding s. 248(35)) before the licences were donated by them at a higher stipulated value to a registered charity ("CCA").

A Bahamian corporation ("Phoenix') acquired various courseware licenses, at costs of 13.3 to 26.7 cents each from a Florida corporation ("Infosource") which also packaged and sold such licences in the course of its business and gifted most of them to a Canadian–resident Trust (with the balance being sold to raise cash to fund its purchase price). Ostensibly, the licences then were distributed to the program participants such as the taxpayers as capital beneficiaries of the Trust, with the participants then donating them to CCA. The participants also made cash donations to a second registered charity ("Millennium"), which redonated 80% of those amounts to CCA and used the balance to pay fees and other expenses. The participants were issued charitable receipts for three or more times their cash outlay (and perhaps 800 times the cost to Phoenix of the licences (para. 125)).

Pizzitelli J agreed with the Minister that the transactions were a sham. The trust and escrow agent were operated, either directly or indirectly, by the Promoter, so that any purported independent exercise of discretion or judgment was a fabrication. There were numerous other examples of deceit, including concealing the fact that 90% of the total cash donated did not stay with any charities, and the creation of fraudulent invoices and a backdated inventory of courseware CDs.

Before stating (at para. 89) "the deceit…need not be perpetrated by the Appellants in order to find a sham, as their participation in the sham is sufficient to invalidate their purported gifts of cash and property to the charities," Pizzitelli J noted that their execution of Deeds of Gifts referencing the gifted licences as described in "Schedule A" which, in fact had not yet been completed, amounted to, if not complicity, at least wilful blindness (para. 88).

See summaries under s. 118.1 – total charitable gifts and s. 104(1).

Locations of other summaries Wordcount
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

transitory share issuance under plan of arrangement was not a sham
see summary of 2017 FCA 89

A predecessor ("Birchcliff") of the taxpayer negotiated a plan to merge with a corporation ("Veracel"), which had discontinued its medical equipment business, in order to access Veracel's non-capital losses and credits. Investors subscribed for subscription receipts of Veracel and received voting common shares of Veracel therefor under a Plan of Arrangement, and Veracel and Birchcliff amalgamated immediately thereafter under the Plan. The voting common shares received by the investors on the amalgamation represented a majority of the voting shares of the amalgamated corporation, so that no acquisition of control of Veracel occurred under s. 256(7)(b)(iii)(B), and the loss-streaming rules under ss. 111(5)(a) and 87(2.1) were avoided.

Although he proceeded to find that GAAR applied to extinguish the losses, Hogan J rejected the Minister's argument that the investors' "would not enjoy the rights and privileges attached to [their] shares" (para. 45) so that their acquisition was a sham, stating (at para. 52) that there was no evidence "that the New Investors were engaged in deceit."

See summary under s. 245(4).

Locations of other summaries Wordcount
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

sham may be pleaded only by the Minister

On the basis of allegations accepted in the pleadings, the applicant, which was the trustee of RRSPs and RRIFs, purchased shares (that were taxable Canadian property) of Canadian companies from non-resident vendors at prices which (unbeknownst to it) were substantially in excess of those shares' fair market value, with the result that the RRSPs and RRIFs were stripped of funds which ended up in offshore accounts or were applied to pay the fees of the "promoters." The applicant was assessed under s. 116(5) for failure to withhold.

V. Miller J. denied a requested amendment to the applicant's Notice of Appeal asserting that the sale transactions were a sham (intended to deceive the applicant), stating (at paras. 22, 24, 27):

[I]n a tax case, a court will make a finding of "sham", only when it is the Minister who is deceived… . [I]t is only the Minister who can plead "sham" and rely on the "sham" argument to have the courts disregard a transaction. …

It is clear that both the Annuitants and the Promoters intended the purchase price for the shares be the stated purchase price. … They misled the Applicant with respect to the value of the shares purchased by the RRSPs but this is not a "sham." It is fraud.

See summary under s. 116(5).

Locations of other summaries Wordcount
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

purported recipients of trust distributions had no control over funds

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 13, for annual salaries of $1200 each (or $600 for the two younger children) to perform tasks such as maintaining the lawn or sorting mail. The taxpayer set up an "employee profit-sharing plan" with Richard and his wife as trustees, with a "committee" of the taxpayer (i.e., Richard) to determine the taxpayer's contributions to the plan and the participants, and with distributions to the participants determined by the trustees (i.e., Richard). The taxpayer elected under s. 144(10).

D'Arcy J found that the taxpayer could not deduct its contributions to the plan, as the plan was a sham. What in fact occurred was that the purported distributions out of the fund were to a bank account controlled by Richard, so that the participants "never had control of these funds" (para. 40), and so that the "real transactions" were "the payment of amounts by the Appellant to Richard" (para. 42). Moreover, the small portion of the funds received out of the "EPSP" which were applied to expenses represented payment simply of "family expenses that a father and mother incur for their children" (para. 41).

Although these findings were sufficient grounds for "sham," he went on to note that the children did not make any contribution to the taxpayer's profits, as the chores performed were services for their parents, not the taxpayer (para. 45).

Locations of other summaries Wordcount
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

professional "services" corporation with no employees

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 through a holding company) pursuant to annual contracts which (in an apparently back-dated Appendix) provided for the provision of management and health services to the practice by the services company. Gouin JCQ stated (at para. 34, TaxInterpretations translation) that "the evidence…demonstrates clearly that [the services company] had no employees and did not purchase any supplies for eventual use in management or health services."

Before denying the deduction of the fees in toto, Gouin JCQ stated (at para. 30) that "it is necessary to prove that the management expenses constitute genuine expenses and not a sham in the sense that the concluded agreements represented genuine transactions between the parties," and then quoted with approval the statement in Fillion v. The Queen, 2004 FCA 135, at para. 72 [clumsy official translation below] that:

In order to claim an expense, it is not enough to make an accounting entry backed by a vague invoice [and]… it must be established that the evidence was real, fully supported and justified and, moreover, that the expenditure was incurred in order to produce business income… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose professional "services" corporation with no employees 210

McLarty v. The Queen, 2014 DTC 1162 [at 3556], 2014 TCC 30

sham cannot apply to just part of transaction

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 promissory note. The Minister limited the taxpayer's deductions in connection with the note portion to the amount of licensing revenues ultimately received. After finding that the expenses connected with the note were reasonable (see summary under s. 67), Favreau J stated (at para. 78):

In my opinion, the Crown cannot apply the doctrine of sham to only a part of a particular transaction while considering another part of the same transaction as being legally valid and effective. For example, I have difficulty with the Crown being permitted to apply the doctrine of sham to only that part of the acquisition by the appellant of an undivided interest in the Seismic Data that was paid for by the appellant's Promissory Note.

Locations of other summaries Wordcount
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

documents did not reflect legal reality

A consulting contract did not reflect the legal reality of the parties' rights and obligations (it was never contemplated that consulting services would be provided and the payments were to be made irrespective of the level of services to be provided) and, accordingly, the contract was found to be a sham for purposes of the Act.

Administrative Policy

26 February 2015 CBA Roundtable, Q. 6

elements of sham/Aggressive Planning management of assessments

a) When CRA alleges "sham," what internal procedures are required before assessing on that basis?

b) What criteria does CRA apply in determining that a "sham" exists?

c) What is the role of the Aggressive Tax Planning Unit?

CRA responded:

(a) Internal procedure

Auditors are required to prepare a position paper in order to explain the assessing position and send it to the Aggressive GST/HST Planning (AGP) Section - HQ for review.

(b) CRA criteria in determining "sham"

After referring to the definition of sham in Stubart CRA stated:

An auditor needs to… support the following two elements of sham: a) intentional deceit; and b) legal rights and obligations presented to the CRA that are different than the actual ones.

Respecting the first element, CRA noted that under Antle the conduct could fall short of the tort of deceit and “it suffices that parties to a transaction present it as being different from what they know it to be,” and respecting the second element, noted that Faraggi indicated that:

For a sham to exist, the taxpayers must have acted in such a way as to deceive the tax authority as to their real legal relationships.

(c) Role of AGP Unit

The mandate of the AGP program is to minimize losses to GST/HST revenue by identifying fictitious entities and persons participating in suspicious patterns of behaviour designed to undermine the tax system. ...

AGP focuses on schemes based on fictitious transactions or series of transactions designed to undermine the tax system. When the sham argument is used to support an audit assessment, AGP – HQ is informed and works closely with the TSO in ensuring the two elements of sham are demonstrated and that our position is well supported. The final assessment is approved by AGP - HQ.


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 deceit of third parties, which in tax cases are the Canadian tax authorities, i.e. the CRA…. Second, there must be an apparent transaction or arrangement, and an actual but concealed one. Third, there must be a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. Importantly, and as will be discussed in more detail later in this chapter, a "common intention" to deceive may not necessarily be required in the tax context; if a single deceitful taxpayer advances an apparent position as a façade for another, concealed one that could be enough to satisfy the Canadian tax law test for sham.

Relationship to legal substance doctrine (pp. 245-6)

The sham and the legally ineffective doctrines are both subsets of an important, over-arching principle in Canadian tax law—derived from the famous 1936 UK tax case IRC v Duke of Westminster [fn 20: [1936] AC 1 (HL.)]—that tax consequences are to depend on the legal substance actually created by the parties rather than the form or descriptions employed or the economic substance. [fn 21: David Duff et al. (eds), Canadian Income Tax Law, 4th edn (LexisNexis Canada, 2012) 156-8.] It follows that if the legal rights reflected in the transaction documents (e.g. the contracts, the (p.246) trust deeds) do not reflect the actual legal rights the parties created, either because the parties intended it that way in an attempt to deceive the tax authorities (i.e. a sham) or because the transaction was not legally effective in the way the parties intended, the apparent rights will be ignored and tax computed in accordance with the actual legal rights.

Stubart (p. 248)

[S]tubart involved the transfer of a business from a profit-making company (Stubart) to a loss-making sister company (Grover) in the same group. Grover appointed Stubart to run the business as agent for Grover, and Stubart paid over the profits of the business to Grover and offset against those profits accumulated loss carry-forwards. … [T]he court held the transaction was not a sham because it was not constructed to create a false impression-the appearance created by the documentation was the reality….

No requirement for common intention to deceive (pp. 249-250)

[E]stey J also outlined a new, tax specific formulation of sham:

  • …This expression [sham] comes to us from decisions in the United Kingdom, and it has been generally taken to mean (but not without ambiguity) a transaction conducted with an element of deceit so as to create an illusion calculated to lead the tax collector away from the taxpayer or the true nature of the transaction; or, simple deception whereby the taxpayer creates a façade of reality quite different from the disguised reality.

…Estey J goes further than simply re-affirming the Snook formulation of sham. Noticeably absent from Estey J's formulation is any reference to common intention to deceive by the parties to the sham….Thus, on the Estey J formulation, if the taxpayer alone has created a façade to disguise the reality of the situation, this could, it appears, constitute a sham….

Classic doctrine reaffirmed in Singleton (p. 252)

The Supreme Court decision in Singleton appeared to dash any hope that the sham doctrine would have a significant role to play in Canadian tax law. To that point, all judicial attempts to push the boundaries of sham outwards were quickly challenged and ultimately rejected….

Sham elections in Faraggi (p. 254)

What then was the sham in Faraggi?...Noël JA concluded that the taxpayers' actions suggested that they were aware of the flaw in their plan–that the shares were not capital property. Despite this knowledge, the subsidiaries controlled by the taxpayers represented in filings to the tax authorities and in their elections, which were relied upon by the third party purchasers, that they had generated capital gains. Noël JA concluded that on that basis the filings were a sham. …

The classic Snook formulation of a sham requires a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. In this case, the taxpayers and the companies that they controlled could be said to have that intention, but the third-party purchasers were apparently unaware of the source of the CDAs they were purchasing (and CDAs clearly could legitimately arise by other means). On this reading, the deceit in this case lies solely with the taxpayers. As the Tax Court judge put it:…'To have made an election pursuant to section 83(2) in these circumstances is, to put it mildly, dishonest…'….

Antle in Tax Court (p. 255)

[I]n [Antle]an attempt to shelter the gain from tax, Mr A's [fn 64: Antle v R 2010 FCA 280; 2010 DTC 7304] tax advisors came up with a plan under which Mr A would settle a Barbados trust in favour of his wife, and convey his shares to the trust. The trust would then sell the shares to Mrs A at fair market value, and Mrs A would sell the shares (now with a cost base 'stepped-up' to market value) to the arm's length purchaser….

[I]n obiter remarks, Miller J went on to discuss his findings on the question of sham:

…I do not accept that [the Barbadian trustee] had any real discretion….The pretence of discretion was critical to make the strategy work, but I entertain no doubt whatsoever in this situation, it was a preference….

Despite this finding, Miller J ruled that there was no intentional deception and therefore no sham.

Antle in FCA (p. 256)

[I]n Noël JA's view, the Tax Court judge's findings that both the appellant and the trustee gave a 'false impression of the rights and obligations created between them' was sufficient to justify a holding of sham….

Sham after Faraggi and Antle (pp. 256-7)

Whilst Faraggi arguably could be confined to its unusual facts, in Antle the Federal Court of Appeal sent a clear warning to taxpayers and their advisors that the sham doctrine is alive and well in Canadian tax law….

[I]t is not entirely clear what Noël JA meant when in Antle he described the level of deceit necessary to establish a sham as merely a false impression that can fall short of the level of deceit required in the criminal or tort law context. This appears to be intended to 'lower the bar' and make it easier for a court to find a sham exists, possibly by signalling to judges that they should not be unduly troubled about the level of proof required to establish the necessary deceit. In fact, there is some anecdotal evidence that the CRA has begun to issue more assessments alleging sham since Antle. [fn 71: Statement by an unnamed tax practitioner at the University of British Columbia tax workshop held in Vancouver at Thorsteinssons LLP (March 19, 2013).]…