Alain Gareau

The Appellants appealed assessments under section 160 of the Income Tax Act for the tax liability of their former subsidiaries.

The Appellants had sold the shares of their subsidiaries to an arm's length purchaser under a share put agreement.

The purchaser used the cash and receivables in the subsidiaries to pay the purchase price.

The Minister assessed the Appellants under section 160 on the basis that the subsidiaries had indirectly transferred property to the Appellants.

The Tax Court of Canada allowed the appeals and vacated the assessments.

The Court found that while there was an indirect transfer of property, the Appellants and the subsidiaries were dealing at arm's length at the time of the transfer, and the Appellants had given fair market value consideration for the property.

The Court also found that the general anti-avoidance rule did not apply because the transactions were not undertaken primarily to obtain a tax benefit and did not result in abusive tax avoidance.

The appellant appealed the Minister's determination of losses for its 2012 taxation year.

The dispute centered on the characterization and timing of a finder's fee paid in shares for brokering a farm-in agreement.

The appellant argued the fee was receivable in 2010 and that the subsequent increase in share value was a capital gain.

The Tax Court of Canada held that the fee was not receivable in 2010 because the right to payment was conditional on expenditure targets being met.

The Court further held that the full value of the shares received in 2012 was business income for services rendered, with only the subsequent increase in value taxable as a capital gain.

The appeal was dismissed.