Words and Phrases - "apply"
As s. 84.1(1) takes precedence over s. s. 85(2.1), a "grind" of paid-up capital will not occur under s. 85(2.1) if all the conditions for the application of s. 84.1(1) are satisfied, even if the grind under s. 84.1(1)(a) is nil (i.e., s. 84.1 is still considered to "apply" in that circustance).
Canada v. Cascades Inc., 2009 DTC 6122, 2009 FCA 135
The trial judge had found that the stop-loss rule in s. 40(3.4) did not apply to the disposition by the taxpayer of shares of a subsidiary ("PII") at a loss to another newly-incorporated subsidiary because within 30 days of that disposition, the two subsidiaries were amalgamated - on the basis that the presumption in s. 40(3.5)(c) only applied if subsections 40(3.3) and (3.4) had already been applied, whereas here not all the conditions of s. 40(3.3) had been met (because the shares of the transferee corporation had to cease to exist as a result of the amalgamation within the 30 day period).
In reversing this decision, Nadon, J.A. stated (at para. 30) that the word "apply" meant "'pertain', 'relate', 'concern', 'deal with'" so that s. 40(3.5) did not require the three conditions of s. 40(3.3) be met before the presumptions in s. 40(3.5)(c) applied. Accordingly, because s. 40(3.5)(c) deemed the transferee subsidiary to continue to exist, the stop-loss rule in s. 40(3.4) applied.
Collins & Aikman Products Co. v. The Queen, 2009 DTC 1179 [at 958], 2009 TCC 299, aff'd 2010 DTC 5164 [at 7293], 2010 FCA 251
The taxpayer ("Products"), which was a corporation resident in the U.S., transferred the shares of its subsidiary ("CAHL"), which was non-resident in Canada notwithstanding that it had been incorporated in Canada in 1929, to a newly incorporated Canadian-subsidiary of Products ("Holdings") in consideration for a common share of Holdings that had a paid-up capital equal to the fair market value of CAHL. After CAHL became resident in Canada (as a result of its central management and control moving to Canada), CAHL paid dividends to Holdings, which distributed the same amounts to Products as distributions of paid-up capital.
In finding that it was not abusive for the stepped-up paid-up capital of the common share of Holdings to be utilized by Products to receive a distribution free of Part XIII tax, Boyle, J. rejected the Crown's submission that there was a scheme under the Act that should treat most distributions as subject to tax (noting (at paragraph 72) that any alleged legislative purpose "should be demonstrably evident from the provisions of the Act"), and noted (at paragraph 86) that the real reason the reorganization plan "worked" was that CAHL was a non-Canadian holding company whose shares were not taxable Canadian property and were excluded from the application of s. 212.1. On the appeal, Sharlow J.A. remarked: "We see no reason to conclude that the limited scope of those provisions was anything other than a deliberate policy choice by Parliament."
After finding for the taxpayer, Boyle J. went on to reject a taxpayer submission that there was no use of s. 84(4) and therefore no misuse of s. 84(4) because s. 84(4) did not apply: s. 84(4) applies every time a corporation returns capital even if a deemed dividend does not arise.
|Locations of other summaries||Wordcount|
|Tax Topics - General Concepts - Payment & Receipt||payment by direction||133|
|Tax Topics - Income Tax Act - Section 152 - Subsection 152(1.12)||186|
|Tax Topics - Statutory Interpretation - Retroactivity/Retrospectivity||68|