Regulation 6202

Part of the subscription proceeds paid by the taxpayer to the corporate issuer ("Borealis") for common shares and common share purchase warrants of Borealis were loaned back to the taxpayer pursuant to a limited-recourse loan that was payable by the taxpayer only in the event that the trading price of Borealis's common shares rose above a stipulated level for 30 consecutive trading days (an event which, in fact, never occurred). In finding that the shares acquired by the taxpayer were prescribed shares, Bonner TCJ. stated (at p. 1276):

"It is apparent from the loan agreement that the parties agreed that Borealis ought to compensate the Appellant if the value of the shares failed to reach the predetermined $116 level and that compensation for such failure was to be the eradication of the obligation to repay ... . [B]y that agreement Borealis was required to provide a form of security with respect to the shares... . The security was the receivable which Borealis was to forfeit if the share price did not rise sufficiently."