INCOME TAX |
Income Calculation |
Dividends |
Canada v. Olsen
A-421-00
2002 FCA 3, Noël J.A.
14/1/02
14 pp.
Appeal from T.C.C. Judge's decision ((2000), D.T.C. 2121) vacating assessments issued with respect to taxpayer's 1993, 1994 taxation years on basis not in receipt of deemed dividend pursuant to ITA, s. 84.1--Cross-appeal as to how, if appeal allowed, deemed dividend should be computed--Narrow issue raised by appeal whether reference in ITA, s. 84.1 to s. 186(4) incorporating definition of word "control" in s. 182(2) --Respondent controlling shareholder of Leader Fishing Ltd., corporation carrying on business of fishing--Respondent sold shares of Leader to his children's companies--MNR assessed on grounds that respondent disposed of shares of Leader to each of children's corporations with which not dealing at arm's length, and, immediately after disposition, respondent and children's corporations connected within meaning of ITA, s. 186(4), therefore ITA, s. 84.1(1)(b) deeming each of children's corporations to have paid respondent dividend-- Dividends taxable as income from property--T.C.C. Judge held no deemed dividend arose from transaction as taxpayer not connected to purchasers of shares within meaning of ITA, s. 186(4), on basis notion of "control" as defined in ITA, s. 186(2) had no application--Added, obiter, that if deemed dividend did arise, ought to be computed by reference to fair market value of notes rather than fair market value of shares--Appeal and cross-appeal allowed--ITA, s. 84.1(1) incorporating notion of "connected" within meaning assigned by ITA, s. 186(4), in turn incorporating notion of "control" within meaning assigned by ITA, s. 186(2)--ITA, s. 84.1 initially designed to forestall stripping of valuation day values--Was and is anti-surplus stripping provision--In 1984, ITA, s. 84.1 expanded to take into account fact tax-free capital gains could be realized by individuals in respect of qualified small business corporations shares--As to cross-appeal, fair market value reflected in D of ITA, s. 84.1(1)(b) not fair market value of subject shares but fair market valued of non-share consideration received by taxpayer for subject shares, here, notes fair market value of which agreed to be $318,268 and $104,998 for 1993, 1994 taxation years respectively-- Income Tax Act, S.C. 1970-71-72, c. 63, ss. 84.1(1) (as am. by S.C. 1977-78, c. 1, s. 39(1); c. 32, s. 19(1); 1980-81-82-83, c. 140, s. 49(1); 1986, c. 6, s. 44(1); 1991, c. 49, s. 63(1)), 186(2) (as am. by S.C. 1980-81-82-83, c. 140, s. 11(3)), (4) (as enacted by S.C. 1977-78, c. 1, s. 85(2); c. 32, s. 42(2); 1980-81-82-83, c. 140, 11(4); 1983-84, c. 1, s. 93(2)).