Words and Phrases - "one of the main purposes"


Travel Document Service & Ladbroke Group International v Revenue & Customs (Rev 1), [2018] EWCA Civ 549

“main” has a connotation of importance

A British taxpayer (TDS) used a total return swap to cause its share investment in a subsidiary (LGI) to be deemed to be a loan. However, its hoped-for tax benefit was denied by an anti-avoidance provision that applied if “one of the main purposes” for being a party to a loan relationship was to secure relief from tax. In this regard, TDS emphasized that it had held its TDS shares long before entering into the swap and a related novation contract. In rejecting this contention, Lord Justice Newey stated (at para. 46):

Had the tax advantage in view been small, there might have been scope for argument as to whether an intention to use the shares to achieve it implied that obtaining the advantage was now a main purpose of holding the shares. In fact, however, the hoped-for gain was large both in absolute terms (more than £70 million) and relative to the apparent value of TDS (some £280 million).

After so concluding against TDL, Lord Justice Newey stated (at para. 48):

I would add, however, that I do not accept that, as was submitted by Mr Ghosh [for HMRC], "main" … means "more than trivial". A "main" purpose will always be a "more than trivial" one, but the converse is not the case. A purpose can be "more than trivial" without being a "main" purpose. "Main" has a connotation of importance.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation/Definition Provisions where an anti-avoidance provision’s application depended on the purpose of being a creditor, that purpose was the one for holding shares which were a deemed loan 355

Mady v. The Queen, 2017 TCC 112

transfer from wife to higher-income husband was infused with his income-splitting purpose (as well as regulatory breach if she didn’t transfer)

As a result of a rule change of the Dental College, it was necessary for ownership of all the voting common shares of the professional corporation through which the taxpayer carried on his dental practice (“MDPC”) to be transferred from a family trust to him. This was accomplished by those shares being distributed out of the trust to his wife qua capital beneficiary in 2002, followed by their immediate gifting to him. Dividends paid by MDPC to the taxpayer in 2010 and 2011 were reported as his wife’s income under s. 74.1(1), but the Minister assessed to include those dividends in his income under s. 74.5(11).

Hogan J first noted (at paras 111-112):

… The Appellant observes that subsection 74.5(11) does not refer to a “series” of transactions ... [and] that subsection 74.5(11) dictates that the purpose of the transfer from Mrs. Mady to Dr. Mady must be determined solely by reference to that transaction. …

[T]he transfer of the shares from her to Dr. Mady could not have been intended to reduce tax payable on the dividends received on the shares. She was already the shareholder and the lower income earner.

In rejecting this argument, he stated (at paras. 114-116):

…[Lehigh Cement] accepts that, even in the absence of a “series of transactions” concept, the entire series of transactions may form part of the relevant circumstances in determining the purpose of the transfer of property.

… The rules of the Royal College of Dental Surgeons prohibited Mrs. Mady from owning the shares. If she could not own the shares she could not receive dividend income thereon. Therefore, dividends could not be subject to tax in her hands at a lower tax rate than that which applied to Dr. Mady. …

… [Per] Groupe Honco … “one of the main purposes” … “…implies that a taxpayer may have more than one main motive in acquiring shares”. Even if I accept that one of the purposes of the transfer from Mrs. Mady to Dr. Mady was to ensure compliance with the new [Dental College] share ownership restriction…, this does not override…that the other main purpose of structuring the transaction … was to trigger the application of the attribution rules… .

Words and Phrases
one of the main purposes
Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership wife and children did not acquire beneficial interest in shares the taxpayer was to transfer to them, under tax plan, until the share transfer occurred 263
Tax Topics - Income Tax Act - Section 86 - Subsection 86(2) family members did not acquire beneficial interest in new shares until after completion of s. 86 reorg 297
Tax Topics - General Concepts - Fair Market Value - Shares arm’s length sales price established FMV for closing-date internal transfer of same shares 482
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) - Subparagraph 69(1)(b)(i) contemporaneous arm’s length sale price established that shares previously transferred at undervalue 478
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) was not responsible under s. 163(2) for the unbeknownst sharp practice of his tax advisor 692
Tax Topics - General Concepts - Price Adjustment Clause no jurisdiction to comment on application of price adjustment clause where the affected taxpayers are not appellants 233

May 2016 Alberta CPA Roundtable, Income Tax Q.9

“one of the main purposes” in s. 74.4(2) re freeze trust with minor child acquiring common shares

When asked to comment on factors taken into account in deciding if “one of the main purposes” of a transfer or loan is reasonably considered to benefit a designated person, CRA stated:

In…2001-0067725…we stated that in a situation where a trust of which the beneficiary is a minor child of the freezor acquires common shares of the freezor’s Holdco on an estate freeze, the provisions of subsection 74.4(2) will generally apply, subject to subsection 74.4(4). The taxpayer would have to rebut the presumption that “one of main purposes” of the transfer was not to reduce the income of the individual and benefit a designated person.

Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Income Tax Q.9 under s. 74.4(2).

Words and Phrases
one of the main purposes

Groupe Honco Inc. v. Canada, 2014 DTC 5006, 2013 FCA 128, aff'g 2013 DTC 1032 [at 149], 2012 TCC 305, infra

Trudel JA stated (at para. 24) that:

[C]ounsel for the appellants is ignoring the purpose and spirit of subsection 83(2.1) of the Act in attempting to persuade us that the word "main" does not leave open the possibility of having two or three motivations that explain a transaction or series of transactions.

An argument that the exception in s. 83(2.1) applied was not raised with sufficient notice.

Words and Phrases
one of the main purposes
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(10) sometimes elapsed time will be relevant to series determination 194