Section 251

The taxpayer was the designated beneficiary of her husband's RRSP, and received the RRSP proceeds upon his death, and was assessed for his unpaid taxes under s. 160. Before going on to find that this transfer also was not a non-arm's length one under s. 251(1)(b) or (c), Lamarre J found that the taxpayer and her husband were not related persons under s. 251(1)(a) at the time of transfer because their marriage was dissolved on the husband's death, so that at the time of transfer they were not related by marriage under s. 251(2)(a). As the transfer to the taxpayer was an arm's length one, s. 160(1) did not apply.

The taxpayer disposed of shares of a corporation to another corporation (“CSC”) all of whose shares were held by a family trust whose trustees were the taxpayer, her husband and an unrelated individual and whose trust deed provided for decisions by a majority of the trustees. Bowie J found that the taxpayer and her husband were related by marriage and, as two of the three trustees could by majority vote control the decisions of the trust, the taxpayer and her husband were a related group in a position to control CSC, so that the taxpayer was related to CSC pursuant to s. 251(2)(b)(ii). Bowie J also (at para. 10) that while s. 84.1(2)(d) could deem the trust and a beneficiary of the trust or a person related to a beneficiary of the trust not to deal at arm's length, this was not relevant to the question whether the taxpayer dealt at arm's length with CSC.

The taxpayer was an estate whose executors and trustees were the son (John) and accountant (Gordon) of the deceased. Gordon had married the widow of the deceased and, upon surviving her, had become a beneficiary of the estate, as were John and the daughter of the deceased (Mary Louise). John, Gordon and Mary Louise also were the equal shareholders of a company (“WWHL”) that had paid various expenses on behalf of the estate for which it had not yet been reimbursed. CRA assessed the estate under s. 15(2) on the basis that was connected (i.e., did not deal at arm’s length) with a shareholder of the corporation (WWHL) to which it owed such amounts.

The estate was found not to be related to the three individual shareholders of WWHL notwithstanding that they also were beneficiaries of the trust and that two of their number were the trustees, because the trust was a separate person for purposes of the Act and, as such, could not be connected by blood relationship to a shareholder of WWHL. After referring to ss. 104(1) and (2) and to the trust's status as a deemed person, McArthur TCJ stated (at p. 1512):

I must determine if the Appellant was related to a shareholder of WWHL and, if not, was the Appellant in fact dealing with a shareholder of WWHL at non-arm's length? Subsection 251(2) provides that related persons are individuals connected by blood relationship, marriage or adoption. The Appellant, a trust, is in fact a person. Subsection 248(1) defines "individual" as a person other than a corporation. Thus, by applying the connecting sections of the Act to the present situation, it is clear that the legislature has created a new person, a trust, which is related to no one. The Appellant is therefore a separate person and separate legal entity and as such is not connected by blood relationship, marriage or adoption to a shareholder of WWHL.

The taxpayer was the designated beneficiary of her husband's RRSP, and received the RRSP proceeds upon his death, and was assessed for his unpaid taxes under s. 160. Lamarre J found that the taxpayer and her husband were not related under s. 251(1)(b), because the RRSP devolved to the taxpayer directly by operation of Ontario's Succession Law Reform Act, rather than forming part of the husband's estate.

As the transfer to the taxpayer also was not a non-arm's length one under s. 251(1)(a) or (c), s. 160(1) did not apply.

A Calgary shopping mall was sold by Harvard Properties and the other co-owners to a third party (“Abacus”) in a share sale transaction but at a price representative the mall’s asset value and, thus, at a premium to its share-sale value. This was accomplished by transferring their co-ownership interests on a s. 85(1) rollover basis to respective Newcos (“HP Newco”, in the case of Harvard Properties) in consideration inter alia for voting and non-voting shares, followed by a sale of those voting shares to an Abacus subsidiary (NH Properties) for promissory notes for under half of the sale price. The Newcos then sold the shopping centre to a third party (Bentall), and the co-owners then sold their Newco non-voting shares to NH Properties for the balance of the purchase price (receiving, by direction, the Bentall sales proceeds), at no gain due to an ACB step-up pursuant to a stated capital increase coming out of the newly-created capital dividend accounts of the Newcos. Real estate counsel for the vendors negotiated for these transactions to all occur in one integrated interdependent closing.

The s. 160 assessment of Harvard Properties turned in part on the assumption that it was not dealing at arm’s length with NH Properties. In this regard, Boyle J referred (at para. 140) to the finding in Microbjo that the purpose of the arm’s length test is to render assurances that the terms reflect ordinary commercial dealings, and that ”[s]uch assurances cannot be found unless parties not only seek a profit, but also transact with their own property or money with the result that what is at stake is their own patrimony or property” and, in that regard, found (at para. 165) that the co-owners were “wilfully blind” to the proposition that the “source of the co-owners’ premium and Abacus’ anticipated profit was generated by the transactions giving rise to a tax liability that would not be paid.”

In finding that Harvard Properties and NH Properties, were not dealing with each other at arm’s length, Boyle J stated (at paras. 155, 161):

Given the agreement for Abacus to pay a premium to the co-owners to purchase the co-owners’ interests … the steps and the amounts in the series of transactions cannot be considered to reflect ordinary commercial dealings. …

Harvard Properties, Abacus and NH Properties clearly acted together to dictate [the] Newcos’ actions from their inception and throughout the closing of this series of transactions.

Boyle J went on to find that s. 160 applied.

A group of unrelated individuals were the co-owners of a seniors’ residence (“SR”), which was leased by them to the corporate operator of the residence (“9118”), whose shares they owned in the same proportions as the residence. In order to access the capital gains exemption on a sale of the residence business to an arm’s-length purchaser (“SECA”), all the individuals, other than the one with the largest (35%) interest (NG), sold their shares of the operator to a holding company (“9084”) for NG for a sale price stated to be the FMV of the shares (which was not specified in dollars). Two days later (on January 20, 2006), the residence and the operating business were sold by the individuals and 9118 to SECA for a purchase price that was not allocated between the residence sold by the individuals and the operating assets (essentially, the goodwill) sold by 9118. However, when the vendors filed their returns, they treated all of the asset appreciation that had occurred as relating to the goodwill sold by 9118. NG received supposed capital dividends out of the goodwill gain reported by 9118.

Morissette, JCA affirmed the finding below that the sale of the shares of 9118 by the other individuals to NG’s holding company (9084) was a transaction between persons not dealing with each other at arms’ length, given the dominant role of NG in establishing the terms of the transaction. In this regard, he stated (at para. 18, TaxInterpretations translation):

The record shows that NG was the real instigator and driving force behind the SR project. He had designed the underlying legal structure with the advice of his own accountants. The co-owners and shareholders of 9118 were all long-time acquaintances of NG, including a former spouse, a "childhood friend of 40 years" or, in his words, "partners from almost the beginning of my involvement in the business in 1989". Moreover, although the other appellants were kept informed of NG's actions, he informed them of the transactions after they had been planned and decided by him. He alone conducted the negotiations with SECA (whose officers he knew well and with whom he had previously dealt) and he remained, on behalf of all the co- owners and shareholders of 9118, the principal contact for the respondent's auditors.

However, he agreed with the taxpayers that this had no significance, given that the Quebec equivalent of s. 69(1)(b) only addressed situations where shares or other property was sold at less, rather than more, than its FMV.

The taxpayers were a corporation (“9118”) and its eight individual shareholders who co-owned a fully-occupied retirement residence whose business was carried on by 9118. Two days before the sale referred to below, a corporation (“9084”) owned by one of the individuals (“Godcharles”) purchased the shares of the other shareholders of 9118. The retirement residence (treated as consisting most relevantly of the immovable and the goodwill) was sold to a limited partnership (“Anjou LP”) for a global purchase price of $11.55 million whose allocation was to be as subsequently determined (which occurred at the time of filing the returns, with the parties treating all of the appreciation in the sold assets as pertaining to the goodwill belonging to 9118 rather than to the immovable - which thus was lower than a valuation previously provided for financing purposes.) The partners of Anjou LP were not disclosed in the reasons for judgment, but presumably overlapped considerably with the taxpayers. There was a voluntary dissolution of 9118 before the hearing of this appeal.

The ARQ treated the proceeds for goodwill received by 9118 as being reduced to $2.1 million, and accordingly reassessed to (i) increase the taxable capital gains realized by all the taxpayers (i.e., from the disposition of the immovable), (ii) include recapture of income for 9118 and five of the individuals, (iii) reduce the capital gain from the eligible capital amount from the disposition of goodwill for 9118, and (iv) in the case of one of the individual co-owners who also was a shareholder of 9118 (“Godcharles”), treat a purported capital dividend received by him as a grossed-up taxable dividend.

In finding that the TA s. 422(c)(i) (equivalent to ITA s. 69(1)(b)(i)) could be applied to the sale of the immovable, Quenneville, J.C.Q stated (at paras. 88-91, TaxInterpretations translation):

It is reasonable to conclude that all of the plaintiffs had a common purpose and acted in concert. …

Splitting the ownership of the building and the ownership of 9118, which continued to operate the [residence], had only one goal, to minimize the taxes payable.

Also, how else to explain that they agreed to sell their shares in 9118 without knowing the price that would be paid to them?

The evidence shows that Mr. Godcharles was the sole director of all aspects of the transaction, from the purchase of the land in 2002 to the sale in 2006, with all the other plaintiffs seemingly absent from the entire negotiation.

The taxpayer (“Keybrand”), its wholly-owning parent (“BWS”), and another Strassburger-family company were guarantors of loans made to a start-up company (“Vidabode”) by GE Capital. After Vidabode defaulted, and after taking tax advice as to what was the best approach for providing GE Capital with the funds to discharge its loans, in late December 2010, Keybrand subscribed $19.5 million for Vidabode common shares and also used $14.3 million of borrowed money to acquire Vidabode common shares, thereby resulting in Keybrand holding about 39% of the common shares of Vidabode in addition to the 41% already held at that point by BWS. A receiver (“BDO”) was retained in April 2011 (with its appointment already having been drafted in December 2010) and on 6 May 2011, Vidabode filed for bankruptcy.

At issue was whether Keybrand was properly denied its claim for an allowable business investment loss (ABIL) for its common share investment in Vidabode on the ground that it was not dealing at arm’s length with Vidabode. In September 2009 (when the largest Vidabode shareholder was BWS with 41% of the common shares, and the other (unrelated) large shareholder held 34%), there was also an amendment to the Vidabode shareholders’ agreement to provide that BWS would appoint two of the four directors and the chairman, who would have a casting vote.

Jorré DJ found that Keybrand was not entitled to the claimed ABIL stating (at paras 69 and 70):

The practical effect of the casting vote is the same as if BWS has the power to name three out of five directors.

…I must conclude that the Silicon Graphics test is met. BWS had de facto control of Vidabode. It follows that BWS and Vidabode do not deal at arm’s length and, in turn, because BWS and the Appellant do not deal at arm’s length, the Appellant and Vidabode do not deal at arm’s length.

A company (“PES,” or the “Operating Company”) providing electricians’ services initially was owned on a 50-50 basis by two individuals – Smith and Scott, who each was an officer and director, and with Smith overseeing the work at various sites and with Scott responsible for most financial matters. By the taxation years in issue, the Smith interest was held through a holding company (“HLB,” or the “Holding Company”) which, in turn, was held by the Smith Family Trust. The other 50% interest in PES was held by the Scott Family Trust.

Each week, PES would pay a $1,000 amount (which was documented as a dividend) to each of HLB and the Scott Family Trust. The dividends so received by HLB were dividended, in turn, by it to the Smith Family Trust which, in turn, distributed those dividends to Smith and his wife.

The validity of s. 160 assessments made of HLB, the Smith Family Trust, and of Smith and his wife, turned on whether HLB was dealing at arm’s length with PES as a factual matter. In following Fournier, to find that HLB was not dealing at arm’s length with PES, D'Arcy J stated (at para. 28):

…Mr. Smith and Mr. Scott, acting in concert as the only directors of the Operating Company, authorized the payment of dividends to the Holding Company for the benefit of Mr. Smith and to the Scott Family Trust for the benefit of Mr. Scott. In the words of Judge Dussault, Mr. Smith and Mr. Scott as the Operating Company’s only directors and officers acted in concert and with a common economic interest to decide how they would withdraw the profits made by the Operating Company for their personal use.

In the fall of 2007, the two equal individual shareholders (“Poulin” and “Turgeon”) of a Quebec construction corporation (“Amiante”) reached an agreement for the staged withdrawal over a five-year period of Poulin (who had been attending to the financial and administrative aspects of Amiante’s business, and had had a strained relationship with Turgeon) from Amiante. On November 1, 2007, Poulin sold 450,004 Class F preferred shares to a newly-incorporated corporation of Turgeon (“Turgeon Holdco”) for a purchase price of $450,004, which was satisfied by a cash payment of $45,000, and with the unpaid balance bearing interest at 5% and being payable in five annual payments equal to the greater of $81,000 and 90% of the income received by Turgeon Holdco from Amiante, and with Amiante covenanting to distribute 80% of its annual profits as dividends to its shareholders. The amount owing in fact was paid out of redemption proceeds received in 2008, 2009 and 2010 by Turgeon Holdco for its Class F preferred shares. Poulin sold the balance of his shares of Amiante to Turgeon Holdco for $1,370,000 in March 2012

At the same time as the incorporation of Turgeon Holdco, the controller of Amiante (“Hélie”) incorporated “Hélie Holdco.” Hélie Holdco purchased 10.5% of the common shares of Amiante from Poulin for nominal consideration and purchased 388,861 Class D preferred shares from Turgeon for a purchase price of $388,861 in consideration for a note in that amount bearing interest at 4% and which was to be repaid out of 90% of the amounts received by Hélie Holdco from Amiante. The note was partly repaid out of redemption proceeds received in between 2008 and 2012 by Hélie Holdco for its Class D preferred shares. In January 2014, Hélie Holdco transferred the balance of its Class D preferred shares to what now was the parent corporation of Amiante, without there being any evidence of consideration having been received for this transfer, and with the balance of the note remaining unpaid.

D’Auray J found that the sale by Poulin to Turgeon Holdco was a transaction between persons dealing at arm’s length, so that s. 84.1 did not apply and Poulin enjoyed the capital gains deduction on the sale; whereas Hélie Holdco and Turgeon were acting in concert, so that s. 84.1 deemed Turgeon to receive a dividend of $388,861.

Respecting the Poulin sale, she stated (at para. 102, TI translation):

The objective of Mr. Turgeon was to acquire the control of Amiante; this was accomplished by the departure of Mr. Poulin and the purchase of his shares. Mr. Poulin for his part had the objective of receiving the best possible conditions for his departure from Amiante. The two parties had their own interests and benefits to advance, which was not the case for the sale of shares by Mr. Turgeon to Hélie Holdco.

Respecting the Turgeon sale, she noted that in light inter alia of the back to back terms of the Class D shares and the note payable of Hélie Holdco that “there were not, for Mr. Hélie, risks in participating in this transaction” (para. 96) and “there was no benefit for Hélie Holdco in purchasing such shares…whose value was frozen” (para. 97), and stated (at paras. 98, 101):

…Hélie Holdco had no interest other than to permit Mr. Turgeon to realize a capital gain so as to claim the capital gains deduction. …

Hélie Holdco served only to participate in the transaction for the benefit of Mr. Turgeon, thereby permitting him to strip the surplus of Amiante free of tax by virtue of utilizing the capital gains deduction.

In the Court of Appeal, Boivin JA stated that D’Auray J had followed the principles stated by the Supreme Court in McLarty.

The taxpayer was the designated beneficiary of her husband's RRSP, and received the RRSP proceeds upon his death, and was assessed for his unpaid taxes under s. 160. In response to a submission of the Crown that the taxpayer was factually not at arm's length with her deceased husband because the relevant time was that at which she was designated as his RRSP's beneficiary, Lamarre J stated (at para. 29) that there was nothing in the wording of s. 160(1):

...that relates the relationship between the transferor and the transferee to any moment other than that of the transfer of the property (or a moment after the transfer in a case where the transferee has since become the transferor's spouse. The subsection refers throughout to the act of transferring and the time of the transfer, without specifying that other moments in time, previous to the transfer, could be contemplated for the purpose of its application to the transferee.

As the transfer to the taxpayer also was not a non-arm's length one under s. 251(1)(a) or (b), s. 160(1) did not apply.

An agreement between the taxpayers and an unrelated purchaser of their shares to allocate a portion of the amounts paid by the purchaser to the taxpayers' non-compete covenant was found to be a transaction between persons who were not dealing at at arm's length given that the purchaser was being paid a portion of the anticipated tax benefit to the taxpayers of the restructured transaction. Favreau J stated (at para. 43):

[T]he parties were working together and had a common interest, that is, that of minimizing as much as possible the tax consequences of the transaction and to divide among them the tax saving on the projected income.

The taxpayer was a Canadian-controlled private corporation in the business of printing customized circuits, held 75% by a holding company for Mr. Bamber and his wife and 25% by Mr. McMuldroch. Mr. McMuldroch left his employment with the taxpayer to incorporate a Barbados company ("ACPI"), of which he initially was the sole director, and the CEO and president, on the understanding that two thirds of the profits from ACPI would go to Mr. Bamber or his family. Mr. McMuldroch also sold his shares of the taxpayer to the Bamber holding company. ACPI sold set-up services and software to the taxpayer, who was its only customer. Mr. McMuldroch transferred his ACPI shares to a holding corporation in the Channel Islands ("Morville"), which initially was to be owned by two discretionary trusts for the two families, but which ultimately was held by an insurance company for two insurance plans whose beneficiaries could be designated to be members of the McGoldrick family (in the case of the plan for which 10 shares were held) and the Bamber famiy (in the case of the plan for which 20 shares were held).

Pizzitelli J. found that the taxpayer and ACPI were not dealing at arm's length. In finding that the two companies' principals (Messrs. Bamber and McMuldroch) were acting in concert, he stated (at para. 75):

[T]hey not only sought the same legal and accounting advice together, but directed the implementation of the tax planning jointly as well, corresponding with the same contacts in doing so.

He also stated (at para. 76) that they acted "without separate interests...their interest being the movement of money off-shore for their mutual benefit."

Furthermore, a party has de facto control of a company if it has "the clear right and ability... to influence in a very direct way the shareholders who would otherwise have the ability to elect the board of directors," (para. 91) and here, although the shares of ACPI were nominally owned by the insurance company, "the insurance company was no better than a trustee acting on their behalf" (para. 93).

The taxpayer, who was a member of a partnership, was accused of tax evasion under s. 239(1)(a) in connection with capital cost allowance claims made by the partnership on software that it had purchased at an allegedly inflated price from a vendor who was alleged not to deal at arm's length with the partnership. In denying the taxpayer's motion for a directed verdict, Fradsham J. noted at para. 26 that the "taxpayer" referred to in s. 69(1)(a) can be a partnership, and at para. 35 that in the phrase "where a taxpayer has acquired anything from a person whom the taxpayer was not dealing at arm's length," the "when" refers to the time of the "dealing" rather than the subsequent time that the acquired property is transferred.

The taxpayer and its 50% shareholder were found not to be dealing with each other at arm's-length in light of the fact that the taxpayer agreed to guarantee obligations under a credit facility held by the shareholder without receiving any benefit for doing to.

The taxpayer and an unrelated individual ("DeBruyn") accomplished a split-up of the business of a corporation ("DEL") of which they were equal common shareholders by transactions under which (i) DeBruyn converted his (Class A) common shares into Class B common shares, (ii) the taxpayer sold his Class A common shares of DEL to a newly-incorporated holding company for DeBruyn's wife ("114") for a purchase price of $150,000, (iii) DEL issued a promissory note to 114 in satisfaction of a $150,000 dividend declared by it on the Class A shares, (iv) 114 assigned the promissory note to the taxpayer in satisfaction of the purchase price for the Class A shares, (v) the taxpayer transferred the promissory note owing to him by DEL to a holding company ("HHCI"), and HHCI purchased assets of the Kingston branch of the business of DEL in consideration for satisfaction of the promissory note.

In finding that the sale of the Class A shares of DEL by the taxpayer to 114 was a transaction between persons dealing with each other at arm's length (so that s. 84.1 did not apply), Lamarre J. noted (at pp. 292-293) that the actions of the taxpayer and the DeBruyns in negotiating the share sale transaction were governed by their respective perceptions of their own self interest, that "buyer and seller do not act in concert simply because the agreement which they seek to achieve can be expected to benefit both" and that "it cannot be concluded that parties have acted in concert simply because they have used the same financial advisors".

Before going on to find that the taxpayer had purchased a sublicence of software from a person with whom he was dealing at arm's length (and rejecting a submission of the Crown that the fact that the software was sold for a fixed price without negotiation by the taxpayer was evidence of non-arm's length dealing) Bell J. stated (at p. 2654):

"The fact that the parties considered that they had entered into a mutually beneficial relationship when, at the same time, they were pursuing their own individual interests and were free, without either of them being controlled by the other, to enter or not enter into that relationship means that they were dealing with each other at arm's length as a matter of fact."

The taxpayer facilitated a leveraged buy-out of him and his co-shareholder of a company ("Brouillette Automobiles") by incorporating a corporation ("9016") of which he controlled 51% of the voting shares with the balance of the shares being owned by the purchaser corporation ("9017") of which two unrelated individuals were equal shareholders, with 9016 using the proceeds of a loan to it by Brouillette Automobile to purchase for cash the shares of the co-shareholder of Brouillette Automobile, the taxpayer rolling his shares of Brouillette Automobile into 9016 for non-voting shares of 9016 (so that Brouillette Automobile was now a wholly-owned subsidiary of 9016) and then selling his shares of 9016 to 9017 for a promissory note.

In finding that the sale by the taxpayer of the shares of 9016 to 9017 was a transaction between persons dealing with each other at arm's length, so that s. 84.1 did not apply, Lamarre Proulx J. found that the interests of the taxpayer were totally separate from those of the individual shareholders of 9017 (the two parties were each trying to get the best price), and (at p. 1010) that:

"It cannot be determined that parties have acted in concert simply because they have used the same financial advisors."

The purchase by the taxpayer of an undivided interest in seismic data in a transaction whose terms were set by a promoter nonetheless was an arm's-length transaction given that the taxpayer freely chose as to whether or not to invest. There was no evidence that the promoter unilaterally imposed the purchase of the data on the taxpayer or had the power to do so.

An acquisition of software by a tax-shelter partnership was found not be an arm's length transaction in light of the very non-commercial nature of the terms of the notes that were issued to the vendor and the fact that the purchase price substantially exceeded the fair market value of the acquired software. Although Archambault J. agreed with counsel for the taxpayer that the existence of a discrepancy between the fair market value and the price paid should not in and of itself be conclusive as to the existence of a non-arm's length relationship, he indicated that such a discrepancy is a factor to be taken into account.

The taxpayer, who owned one-third of the shares of a corporation that paid a dividend to its shareholders, and was a director and bookkeeper of the corporation, was found not be acting in concert with the other two directors (who were the remaining shareholders) when the directors with her assent declared and paid a dividend given that the other two directors largely ignored her when they were not in conflict with her. Accordingly, there was no common mind amongst the three directors.

The assets of a Canadian-controlled private corporation ("Gestion") consisted of the shares of two companies, the first of which ("2321") was leasing a building for use in the active business of the second corporation ("3104"). In finding that 3104 was related to 2321, Tardif T.C.J. noted that all the issued and outstanding shares of 2321 and 3104 were held equally by Gestion and an individual and, after indicating that the definition of related person in s.256(1.2) codified the rule in Buckerfield's as to what constituted a group, Tardif T.C.J. found that the two corporations were related.

As 2321 qualified as a small business corporation, Gestion itself qualified as a small business corporation, so that a loss realized by the taxpayer on an advance to Gestion qualified as a business investment loss.

After finding that the taxpayer (a franchisee) and the franchisor were dealing with each other at arm's length, Bowman A.C.J. stated (at p. 1002):

"To say that every time two independent business persons in pursuit of their own business interests work together to achieve a mutually beneficial commercial objective means that they are 'acting in concert' and are, therefore, not at arm's length would mean that no business relationships would ever be at arm's length."

In order that Canadian exploration expenses of another oil and gas company ("Phillips" could be transferred to the taxpayer for purposes of the Act, it and Phillips established a joint exploration company (the "JEC"), and the JEC purchased seismic data from Phillips and renounced CEE to the taxpayer. The taxpayer and Phillips each appointed two directors to the board of the JEC. (Similar transactions were entered into with another petroleum company.)

In finding that the JEC and Phillips were not dealing at arm's length, Bowie T.C.J. noted (at p. 109) that

"Notwithstanding the high purchase price $26.5 million no care was taken to see that the data was useful to the JEC, the price was not vigorously negotiated, that it was in the mutual interest of the two shareholder corporations that the price paid for the seismic data be as high as could be justified, and that JEC's in this and the other transaction "were, so far as the acquisition of seismic was concerned, simply pawns of their shareholders, the three acting in concert to achieve a common goal."

A sale by the taxpayer of his shares of a company (Trans Côte) to a corporation (LBS) whose voting shares were equally owned by the taxpayer and another individual (Labadie) was found to be a non-arm's length sale given that the terms of the transaction were determined by the taxpayer and his advisors without significant input by Labadie (who worked in low-level jobs). Labadie did not have a significant interest in the transaction given the nominal purchase price paid and he understood that he would take future directions from the taxpayer for a further sale of Trans Côte. Dussault T.C.J. stated (at p. 1835) that:

"It is not believable that the appellant could have divested himself of the control of Trans Côte for nothing, or for so little without ensuring that he had effective control of LBS both before and after the transaction, in particular by seeing to it that his agents and advisors were put in the right places and that Philippe Labadie also became an agent of his in the search for third-party purchaser after the contract was signed."

The purchase by a partnership of software from an American company ("ASC") was found to be a transaction between persons not dealing with each other at arm's length given that the general partner was owned by a solicitor for ASC until shortly before the time of the transaction and thereafter the general partner was controlled by an individual ("Williams") who was heavily involved in the sale and promotion of tax shelter investments with which ASC was involved (and, in fact, memoranda on ASC letterhead were sent by him to the partners). Furthermore, the terms of the promissory note issued by the partnership to ASC were not those that would have been agreed to by an arm's length vendor. Williams was found to have acted in concert with ASC and to have the same interest as ASC in directing the conduct of the partnership.

A Bahamian company ("Helvetia") distributed all the shares of its Canadian subsidiary ("Quamco") equally to three trusts each of which owned one-third of its shares. The Minister assessed on the basis that the distribution of Quamco was a non-arm's length transaction, so that s. 84.1 applied to a subsequent disposition of the Quamco shares to a non-arm's length Canadian corporation for promissory notes. At trial, the Crown took the position that because the mother of the beneficiaries of the trusts, who was also the wife of the settlor, had de jure control of Helvetia by virtue of her right under the trust deed to appoint and remove trustees of each trust (who were unrelated individuals), she (and, by extension, the settlor himself) had de jure control of Helvetia. In rejecting this submission, Sarchuk TCJ. stated (at p. 1081):

There is no basis upon which this Court could conclude that trustees would neglect their fiduciary obligation to exercise voting rights in accordance with their independent judgment and would follow the wishes of another person solely because of the risk of being removed and replaced by another trustee.

A transfer by the taxpayer of its interest as lessor in mining concessions and railway rights-of-way to a corporation ("CJC") in which a subsidiary of the taxpayer had a beneficial 37% interest was found to be a non-arm's length transaction given that the boards of the taxpayer and CJC had mostly overlapping directors and that one of those directors had determined that the transfer should occur for consideration that was 20% less than the appraised value of the leasehold interest.

The transfer to the taxpayer of a property in which she had been living with a married man who controlled the corporate transferor was found to be an arm's length transaction. She wanted the property in order to secure her future, and there was no existence of a common mind directing the bargaining for both parties to the transfer of land.

The taxpayer and an unrelated individual (Cloutier) were found to be dealing at arm's length in transactions through which the taxpayer indirectly sold its interest in a company to Cloutier given that the taxpayer did not make all of the decisions for both parties, there was independent bargaining, and each was acting in his own self-interest. Although they shared a common goal in seeking to further the success of the company in order to finance the redemption of shares held by the taxpayer, distinct interests were served in so doing. McArthur TCJ. stated (at p. 1186) that "buyer and seller do not act in concert simply because the agreement which they seek to achieve can be expected to benefit both".

The corporate taxpayer was found to be dealing in arm's length with a non-resident corporation ("Slupy") which had provided most of the taxpayer's debt and equity capital based on a finding that the family that owned most of the voting common shares of the taxpayer (having a relatively nominal capital) dealt at arm's length with the persons owning a second non-resident corporation that had de facto control of Slupy. The fact that the terms of the equity portion of the investment of Slupy in the taxpayer (non-cumulative and non-participating preferred shares) were not those that would have been normally agreed to by persons dealing at arm's length only reflected the fact that the non-resident group had made a bad investment. Accordingly, interest paid by the taxpayer to Slupy on advances was exempt under s.212(1)(b)(vii).

The taxpayer, who was the deputy chairman and a director of a public corporation ("Central Capital"), was found to be dealing at arm's length with Central Capital when he exercised stock options that had been granted to him by Central Capital notwithstanding that he had a degree of friendship with the principal shareholders of Central Capital and that the allotment of option shares to him had been generous.

A non-resident corporation ("EC") approached a business associate who, along with two other individuals, formed a Canadian corporation ("RMM") to buy the shares of a Canadian subsidiary ("EL") of EC for a cash purchase price approximating the cash and near cash on hand of EL and a Canadian subsidiary of EL ("ECL"). Immediately following the purchase, EL was wound-up into RMM and ECL was amalgamated with RMM; and three or four days later, RMM used the cash received by it from EL and ECL to pay off a loan that had financed the acquisition.

In finding that RMM was not dealing at arm's length with EC, (with the result that s.212.1 would have applied to deem the excess of the sale proceeds over the paid-up capital of the EL shares to be a deemed dividend, if s. 84(2) did not already accomplish this result), Bowman TCJ. found that once the implicit compensation of RMM for acting as an accommodation party had been negotiated, it virtually disappeared from the scene and had no independent role.

In order to effectively receive the cash held by a corporation ("Bec") owned by them, the taxpayers found a corporate purchaser to purchase their shares thereby giving rise (before the application of s.245 of the Act) to exempt capital gains rather than distributions taxable under s. 84(2) of the Act. In finding that the sale transaction was an arm's length transaction (with the result that s. 84.1 did not apply), Bonner TCJ. noted the element of arm's length bargaining, that the interest of vendors and purchaser were divergent with regard to the purchase price, and that the individual shareholder of the corporate purchaser received his own accounting and tax advice before committing the purchaser to the transaction.

The estate of a deceased taxpayer (which was deemed by s.248 to be a person) was found to be dealing at arm's length with the taxpayer's surviving wife with respect to a transfer of shares from the estate to her, given that two of the three executors were unrelated to the deceased taxpayer, and that the estate had complete discretion as to whether it would sell the shares or transfer them to the wife in specie.

A testamentary trust was found to be dealing at arm's length with the three shareholders of a family corporation (the son and daughter of the deceased, and his accountant who had married his surviving wife before her death) who also were the beneficiaries of the trust and two of whom (the accountant and son) were its administrators, given that as a factual matter the three individuals did not get along or trust each other and zealously guarded their own respective interests and given that decisions of the two administrators were required to be taken unanimously.

Pursuant to a separation agreement between Mr. and Mrs. Freedman, Mr. Freedman agreed to pay Mrs. Freedman the sum of $950,000 in full satisfaction of all claims for support and maintenance or division of property, she loaned the money to a Cayman Islands company in which she held substantially all the equity, and the Cayman Islands company loaned the money to a Canadian holding company ("Holdings") which was controlled by Mr. Freedman and beneficially owned by a family trust of which she was the income beneficiary. In finding that interest paid by Holdings to the Cayman Island company following the death of Mr. Freedman was eligible for the exemption in s.212(1)(b)(vii) because Holdings and the Cayman Islands company were dealing at arm's length, Rip TCJ. noted that there was no evidence that the board of directors of Holdings (which consisted of Mrs. Freedman, a brother of Mr. Freedman, a family lawyer and the controller of the family business) was controlled by Mrs. Freedman or her son (who was a manager of Holdings) and that, in any event, neither the son nor Mrs. Freedman was likely to take orders from the other but, instead, looked after his or her own separate interest.

The written assignment by the Netherlands judgment creditor of an insolvent company of debt for a nominal amount to the taxpayer and the other shareholder of the company was an acquisition "by way of a bargain made at arm's length" for purposes of s.29A(1) of the Capital Gains Tax Act 1979 given that the taxpayer had no relevant connection with the creditor.

The taxpayer purchased the shares of a holding company whose assets consisted of shares of operating companies whose adjusted cost base substantially exceeded their fair market value, and further agreed that following the winding-up of the holding company it would sell the shares of the operating companies back to the vendor for their respective fair market values.

In finding that the taxpayer was dealing at arm's length with the vendor, Kempo TCJ. found that the common interest of both parties to carry out the transactions in a way that did not result in the disappearance of the potential capital loss was not sufficient to say that there was a "lack of independent judgment or interest, or of subordination of one to the other" with respect to the transactions (p. 326).

When a corporation ("Trilogy") made an offer to acquire all the shares of a corporation ("DEB"), including any outstanding stock options, the taxpayer, who was the chief financial officer of DEB incorporated a numbered company, transferred his options to it, sold the shares of the numbered company to Trilogy for shares of Trilogy, and filed a joint election with Trilogy under s. 85. In finding that the taxpayer did not deal at arm's length with Trilogy, so that s. 7(1)(b) could not apply to a transfer of his option rights to Trilogy, Bowman TCJ. noted that the taxpayer was a partner in a partnership which, with other corporations, raised capital and promoted the acquisition by Trilogy of the shares of DEB and that the taxpayer for some time had been an executive vice-president of Trilogy and was instrumental in formulating the exchange offer made by Trilogy for the shares and options.

The taxpayer, who was a 25% shareholder in a private company, was found to be dealing at arm's length with the company given that the other principal was "a strong minded man who, while he respected the appellant, was very much in charge of the business and was not likely to be influenced by the appellant if he did not choose to be" (p. 141).

A third party ("Grundy") purchased shares of a corporation indirectly controlled by an individual ("Martin") only to accommodate Martin as his friend and business associate. Grundy essentially was a trustee or agent for Martin's corporation and it was quite clear that Martin was the directing mind in the transaction. Accordingly, it was a non-arm's length transaction, and the capital loss realized on the sale was not a business investment loss.

The taxpayer, who had a 45% shareholding in a private company, agreed with the other principal shareholder and director and on the advice of the company's accountant that it would declare a $100,000 dividend to its shareholders. In finding that this was a non-arm's length transaction, with the result that s.160 applied to the $45,000 dividend received by the taxpayer, Dussault J. stated (p. 748) that:

"the company's two principal directors and shareholders apparently acted in concert and with a common economic interest to decide how they would withdraw the profits made by the company for their personal use. Acting both as directors of the company and its shareholders, they were in a position where the concept of not being at arm's length in fact as established by our courts could hardly be better applied."

A transaction whereby the three indirect individual shareholders of the Appellant "acted in concert to cause the Appellant to distribute $715,000 pro rata in accordance with their personal equity in the Appellant by causing the Appellant to purchase preference shares in their respective holding companies" (which, in the case of the preference shares of the holding company at issue, had a liquidation value of 31% of the purchase price) was not an arm's length transaction.

Two couples each owned 50% of the voting shares of a private corporation, either directly or through holding companies. A declaration of a dividend on the Class B shares of the corporation, 25% of which were held directly by each of the four individuals, in order to utilize the $1,000 dividend deduction was an arm's length transaction. Tremblay J. noted that all the acting-in-concert cases cited by the Minister entailed "a transaction of sale or purchase and not an administrative decision as it is in the instant case."

In order for the taxpayer to realize an allowable business investment loss with respect to a debt owing to it by its subsidiary (MIL) the two controlling shareholders of the taxpayer (Wallace and Foster) effected a restructuring in December 1979 by virtue of which the taxpayer was enabled to sell the debt to Wallace for $1.00 at a time that Foster owned the taxpayer and Wallace owned MIL. Taylor J. found that the parties in December 1979 had not "operated independently and for separate and distinct purposes" and that the December transactions reflected "the combined mind and will of Wallace and Foster." The sale of the debt accordingly was to a non-arm's length person.

The acquisition of shares by an estate by virtue of the death of the deceased was not an arm's length transaction because "the trust created by the [deceased's will] could not alter the conditions under which the shares were transferred," and therefore the same person could be said to be dictating the terms of the bargain on behalf of both the testatrix and the trust. However, the repurchase for cancellation by the corporation (whose president was the deceased's father) of the shares from the estate (whose two trustees were the deceased's husband and a lawyer) was found to be an arm's length transaction, because the evidence indicated "that both the trustees and the beneficiaries of the trust had interests that were opposed to those of the corporation and that the corporation had no power to influence or control the trustees."

45.3% of the common shares of Orchan Mines Limited ("Orchan") were owned by Noranda Mines Limited ("Noranda"), and 5.53% of the common shares of Orchan were owned by Kerr Addison Mines Limited ("Kerr Addison") and Pamour Porcupine Mines, Limited ("Pamour"), 41%, or 45%, of the shares of which were owned by Noranda. The balance of the shares of Orchan, Kerr Addison and Pamour were held by the public.

Noranda was held by Bonner J. not to be dealing at arm's length with Orchan:

"From a practical standpoint Noranda controlled Orchan. It would be unrealistic to suppose, in light of the shareholdings outlined earlier, that Orchan was in a position to act exclusively on the basis of its own perception of its own best interests ... Furthermore, the presence in various companies of the group of common Directors and officers served to foster a group approach at senior management levels."

It was stated, in the context of the Bankruptcy Act, that a transaction is not at arm's length "where one of the co-contracting parties is, by reason of his influence, or superiority, in a position to pervert the ordinary rule of supply and demand and force the other to transact for a consideration which is substantially different than adequate normal or fair market value". [Carswell translation]

The deceased, in one of his sober moments, agreed with his son's professional adviser that in order to protect his investments from further depletion due to the imprudent decisions to which he was prone, he should transfer those assets to a newly-incorporated corporation to be owned by his son and daughter in consideration for an annuity and a 25-year debenture of the corporation bearing interest at 3% (at a time at which Canada bonds yielded 4.83%). The below-market yield reflected a tacit understanding that the corporation should hold only trust type securities.

Cattanach J. held that the debenture was to be valued at the time of the death of the deceased pursuant to s.29(1) of the Estate Tax Act, which applied to debts owing to a deceased by a corporation controlled by relatives "unless it is established that at the time of the creation of the debt the deceased and such debtor were persons dealing with each other at arm's length." Cattanach J. (after noting that it was "immaterial that the whole arrangement was the 'brain child' of the professional advisers") held that "regardless of who had 'control' of the corporation at the time that the debentures were authorized and issued ... the only time when any decision was taken was when the instructions for the scheme as a whole were given, and the decision to give such instructions was a unilateral decision of the deceased." Given that "where the evidence reveals that the same person was 'dictating' the 'terms of the bargain' on behalf of both parties, it cannot be said that the parties were dealing at arm's length," the deceased was not dealing at arm's length with the corporation at the time of issuance of the debentures.

The two principal shareholders and directors of the taxpayer, who also carried on a real estate business in partnership, sold real estate to the taxpayer for a deferred purchase price. The taxpayer was not dealing at arm's length with the two shareholders for the purposes of what now is s. 78. The two shareholders were "partners united by a common interest in a property, who sold that property to themselves by the instrumentality of a company which they may get to do anything they want ... The partners ... by selling, acted together as they were obliged by [partnership] law so to do, and together they authorized the appellant to make the purchase ... Therefore, as purchaser, the appellant was dependant upon, and under the thumb of, the vendors."

Before going on to find that a transaction was an arm's length one, Mr. Fisher noted (at p. 22) that "the expression 'to deal at arm's length' is one which is found chiefly where one person is in a position of trustee and another person is cestui que trust".

Through a holding company, the taxpayer held 37.5% of the shares of a corporation which granted him employee stock options ("Forages Garant"). A holding company whose shares were held as to 50% by his son and as to 25% by his wife (from whom he was legally separated) held 25% of the shares of Forages Garant. Accordingly, he was a member of a related group which controlled Forages Garant if he was related to his wife.

In finding that the taxpayer was so related, so that his subsequent surrender of stock options to Forages Garant did not represent an arm's length transaction, and in responding to a submission (at para. 30) that "in Quebec, marriage breakdown can take the form of a legal separation" (para. 30), Paris J stated (at paras. 42, 44, TaxInterpretations translation):

In Canada, a marriage is dissolved by divorce or by the death of one of the spouses. …Even if in practice a legal separation represents a definitive marriage breakdown, it does not, strictly speaking, break the marriage tie… .

An individual is not related to the relatives of his deceased wife.

The rate of health premium tax to which ARTV Inc. (“ARTV”) was subject (under the Loi sur la régie de l'assurance maladie du Québec) turned on whether the total annual payroll of it and persons with whom it was associated exceeded $5 million. Although Radio Canada held 61% of the ARTV shares (which were voting), this did not give it control of ARTV in light of a unanimous shareholder’ agreement (the “USA”) which required a special voting majority of 66 2/3%. Whether ARTV was associated with Radio Canada instead turned on whether Radio Canada had (as per the Quebec equivalent of s. 251(5)(b)(i), namely, s. 21.20.4 of the Taxation Act) "a right...either immediately or in the future and either absolutely or contingently...to acquire" a pro rata portion of a 15% bloc of ARTV shares held by the second-largest shareholder (“ARTE France”). This question referenced a term of the USA which gave ARTE France the right to put its shares to the other shareholders at its cost, so that the ARQ was arguing that Radio Canada had a right described in the equivalent of s. 251(5)(b)(i) to acquire 61% of the 15% ARTE France bloc (or 9%), so that, including this contingent right, Radio Canada should be treated as having voting rights over more than 66 2/3% of the ARTV shares.

In finding that this clause did not give Radio Canada the “right” to acquire the 9% bloc of shares (so that Radio Canada was not associated with ARTV), Cameron JCQ stated (at paras. 41, 45, TaxInterpretations translation):

Before the exercise by ARTE France of its option, which depended on its will, Radio Canada had no right and, notwithstanding the irrevocability of its obligation to purchase, no expectation of purchasing, given the absence of control or influence over ARTE France. ...

[T]he suspensive condition and the decision of ARTE France to trigger the sale or not depended on the sole discretion of the latter. The obligation of ARTE France, if one wished to term it that, was nul by reason of the existence of the purely potestative condition. [He then quoted s. 1500 of the Civil Code.]

In order to generate refundable investment tax credits for research and development expenditures, a Canadian public corporation ("Lyrtech") transferred its R&D operations to the taxpayer, which was intended to qualify as a Canadian-controlled private corporation. The taxpayer initially was financed through debt owing to a discretionary trust which also held it shares. The trust's trustees were two individuals, one of whom was the president and a director of Lyrtech, of the other trust beneficiaries and of the taxpayer, and the other of whom was a director of such companies and a co-founder of Lyrtech. The trust's capital beneficiaries were various subsidiaries of Lyrtech.

After finding that the taxpayer was controlled de facto by Lyrtech, Favreau J went on to indicate that the contingent right of subsidiaries of Lyrtech to receive a distribution of the shares of the taxpayer qua discretionary beneficiary did not cause the taxpayer to be deemed to be controlled de jure by any of those subsidiaries (and, thus, by Lyrthech). He stated (at para. 55-56):

[T]he nature of the beneficial interest of each beneficiary ... is too aleatory, uncertain or indirect to be a right to the appellant's shares under paragraph 251(5)(b). ...

I highly doubt that Parliament's intent was for subsection 248(25) to apply to paragraph 251(5)(b) because the concept of beneficial interest is far too broad in scope and much too vague for it to apply to the concept of de jure control for the purposes of the definition of "Canadian

I strongly doubt that the legislator intended that subsection 248(25) should apply to paragraph 251(5)(b) as the concept of beneficial right has a scope that is too expansive and nebulous for it to apply to the notion of legal control for purposes of the definition of "Canadian controlled private corporation."

The taxpayer was held 25% by a Canadian individual ("Côté") and three US family members. The four acquired the taxpayer with the understanding that Côté would operate the business. Two of the US shareholders delegated their power of attorney to the third, who then appointed Côté as his proxy. The taxpayer argued that, because Côté had the right to acquire the shares of the other three, he had control of the taxpayer; and therefore the US shareholders could not also have control.

Archambault J dismissed the taxpayer's appeal for a small business deduction. Deemed control under s. 251(5)(b)(i) is a legal fiction that did not have the effect of nullifying the US shareholders' actual control. He stated (at para. 23):

There can in a sense, be two distinct persons or groups of persons that are simultaneously in a position of control with respect to a corporation, namely: the person or group determined on the basis of reality, and the person or group determined on the basis of the legal fiction. ... [P]aragraph 251(5)(b) of the Act does not state that the real owners ... are no longer to control the corporation.

Paragraph 251(5)(b), which deemed a shareholder to be in the same position in relation to control of a corporation as if the shareholder owned shares that were subject to options, did not have the effect of deeming such optioned shares to be owned by the shareholder for purposes of the definition of "Canadian-controlled private corporation" in light of the contrast with the wording of subsection 256(1.4), which deems the option holder to own the optioned shares. In any event, paragraph 251(5)(b) did not deem the actual owner of the shares (in respect of which option rights have been transferred to somebody else) to have ceased to own those shares or to have ceased to control the target corporation. Accordingly, Archambault J. rejected a submission of the taxpayer's counsel that shares owned by a subsidiary of a public corporation should not be considered to be treated as shares that tainted the corporation's mooted status as a CCPC because the right to control the voting rights of those shares had been transferred to a Canadian-resident non-public corporation for a six-year period.

An arrangement under which the majority of the voting shares of a company were not turned over to another corporation ("Cloutier") until all of the preferred shares held by the taxpayer in the company were redeemed in accordance with provisions that required their redemption out of earnings of the company did not represent a right described in the pre-1989 version of s.251(5)(b).

An individual (Shapiro) was the shareholder of all the shares of Richard Shapiro Limited ("RSL") and of one-half of the common shares of the taxpayer. Most of the balance of the shares of the taxpayer were held by the Canada Trust Company under a voting trust agreement pursuant to which the common shares were held for the benefit of nieces and nephews of Shapiro and their father was designated as the voting trustee. Because under the terms of the voting trust agreement, the voting trustee was required to act on the advice of Shapiro and could be replaced if he refused to do so, Shapiro had the right to control the voting rights held pursuant to the voting trust agreement, i.e., the right "to have or exercise the power of direction or command" in respect of those voting rights. Accordingly, the taxpayer and RSL were associated corporations.

The taxpayers (a husband and wife) were not dealing at arm's length with a corporation ("29061") whose shareholder was a trust of which they and their accountant were the trustees. Although major decisions of the trustees were required to be unanimous, the accountant would never have voted against his clients' wishes, and as a role was essentially passive.

As the sale of shares by the taxpayers 29061 was a non-arm's length transaction, s. 84.1 applied to deem them to receive a dividend on the sale.

"Children" in the Wills Variation Act (B.C.) did not include stepchildren.

The taxpayers were the named beneficiaries of a life income fund held by their late father, who died on June 8, 2011, and with the distributions to them occurring on July 26, 2011. In reliance on Kiperchuk (which found a taxpayer not to be related to her deceased husband) they argued that the distributions were from an arm’s length person, so that s. 160 did not apply to them respecting their deceased father’s tax debts.

Although D'Arcy J stated (at para. 21) his agreement with the finding in Kiperchuk that “where a person is named as the beneficiary under an RRSP or, as in this appeal, an income fund, a transfer from the person who held the fund to the designated beneficiary occurs on the death of the person who held the fund,” he nonetheless went on to dismiss the taxpayers’ appeals, stating (at paras. 23-24, 27):

Pursuant to paragraph 251(6)(a), persons are connected by blood relationship “if one is the child or other descendant of the other”. …

Th[eir] relationship did not end on …[the father’s] death. The Appellants continue to be the children of …[the father]..

I agree with [Kiperchuk] that under the relevant provincial law the statutory status of marriage was ended by death. However, the relationship of father and child is not a statutory relationship; it is a factual relationship. … [T]he Appellants are the children of …[the father].

Smith J found that a taxpayer was related under s. 251(6)(a) to a two year old child who was the result of relations between the taxpayer’s father and a woman who was not his spouse or common-law partner. Accordingly, the taxpayer might have been entitled to the new housing GST rebate under ETA s. 254 if she could have established (which she did not) that her half-sister and that child’s mother had been the first occupants of a new condo that had been acquired by the taxpayer.

In this regard, Smith J noted the oddity of a two-year old child satisfying the occupying-the-new-home requirement in s. 254(2)(g). However, he referred to s. 158 of the Civil Code of Quebec, which provided that “an act that may be performed by a minor alone may also be validly performed by his representative,” and then found that the acts of the child (i.e., occupation) could be performed by her representative (the mother).

A husband was not related to his deceased wife.