Words and Phrases - "indirectly"
30 October 2002 Internal T.I. 2002-0134077 F - ATTRIBUTION DES GAINS EN CAPITAL
Two individuals transferred the shares they held of a particular company to their respective holding companies which, in turn, each disposed of a portion of those shares to the individuals’ respective spouses in consideration for non-interest-bearing notes. Following an exchange of such shares for shares of another class, and an amalgamation of the company, the spouses disposed of the shares of Amalco at a gain. In finding that s. 74.2(1) applied, the Directorate stated:
[W]e consider it possible that an indirect transfer of the individuals' shares to their spouse was effected through their respective holding companies … [so] that the shares disposed of by the spouses … constitute substituted property for the property transferred indirectly by the individuals,
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 74.5 - Subsection 74.5(6) | presence of indirect transfer through Holdcos for s. 74.5(1) purposes reinforced by s. 74.5(6) | 103 |
Canada v. 594710 British Columbia Ltd., 2018 FCA 166
Income account treatment of the profits realized by a condo-project limited partnership was avoided through the corporate partners (the Partnercos) of the partnership paying safe income dividends (out of the realized but unallocated condo profits) to their respective Holdco shareholders through the payment of stock dividends of preferred shares followed by a redemption of those preferred shares – in turn, followed by a sale by the Holdcos of the Partnercos to a public company with substantial resource pools (Nuinsco). The income of the partnership for the year in which the condo sales had occurred was allocated to Nuinsco following the winding up into it of the Partnercos.
After first finding that the allocation of the income to Nuinsco rather than to the Partnercos represented an abusive avoidance for purposes of s. 245(4) of ss. 96(1)(f) and 103(1), Woods JA went on to find that s. 160 would have applied to the transfer of property of the Partnercos to the Holdcos effected through the preferred share stock dividends and redemptions but for the fact that the associated tax liability did not arise until the income was allocated to an arm's length person (Nuinsco), stating (at paras. 112, 115):
The stock dividends and the redemption together resulted in a transfer of cash “indirectly … by any means whatever” from Partnerco to Holdco without consideration. …
Although the Algoa Trust decision deals with a cash dividend, the combination in this case of stock dividends followed by a redemption has the same effect and similarly results in a transfer of property without consideration.
She went on to find that it was an abuse under s. 245(4) for the application of s. 160 to have been avoided given that the acquisition of the Parterncos, which resulted in the year end occurring before teh allocation of income, "arose as part of a series of transactions that was devoid of any purpose or effect except to obtain a tax benefit" (para. 123).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | allocation of most partnership profits to a lossco that acquired its interest at year end without economic risk was vacuous and abused ss. 96(1)(f), 103(1) and 160 | 634 |
| Tax Topics - Income Tax Act - Section 103 - Subsection 103(1) | s. 103(1) likely applies to the allocation of most of the partnership profits at year end to a lossco that never had significant economic interest or risk in the partnership business | 327 |
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) | s. 152(8) cured an error in an assessment as to when the taxation year in question commenced | 371 |
| Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(f) | purpose of s. 96 is for income allocation to be allocated in accordance with economic participation | 102 |
Army & Navy Department Stores Ltd. v. Minister of National Revenue, 53 DTC 1185, [1953] CTC 293, [1953] 2 S.C.R. 496
One-half of the shares of the 5,000 shares of the “Western Company” were owned by the “Alberta company,” and the other half were owned by the “Saskatchewan company.” Two brothers owned 60% of the shares of the Alberta company (with the balance held by the husband of their sister) and those two brothers owned 80% of the shares of the Saskatchewan company (with the balance held by the son of one of them).
S.36(4)(b)(iii) of the 1948 Act, which deemed one corporation to be related to another where "70% or more of all the issued common shares of the capital stock of each of them is owned directly or indirectly by ... persons not dealing with each other at arm's length one of whom owned directly or indirectly one or more of the shares of the capital stock of each of the corporations", did not apply to make the Western Company related to the Alberta Company and the Saskatchewan Company given that (i) neither the Alberta nor Saskatchewan owned shares of each other, and (ii) (as addressed in the concurring reasons of Cartwright J) the individual shareholders of the Alberta Company and the Saskatchewan Company did not have any ownership (direct or otherwise) in the property of the companies in which they held shares. In this regard, Cartwright J quoted with approval (at p. 511) the statement in Macaura v. Northern Assurance Company, [1925] A.C. 619 at 626 that “no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein.”
However, the Alberta Company and the Saskatchewan Company were related to each other under the same provision given that their shareholders were connected by blood relationship or marriage.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Statutory Interpretation - Expressio Unius est Exclusio Alterius | reference to person implied exclusion of persons | 129 |
| Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 33(2) | 129 | |
| Tax Topics - General Concepts - Ownership | the shares of a subsidiary of a corporation are not owned “indirectly” by the shareholders of that corporation | 134 |