Molly Martin

The Crown brought motions for leave to amend its pleadings to add a sham argument and for security for costs in two consolidated appeals concerning the validity of limited partnerships.

The Tax Court of Canada granted the motion to amend, finding it would assist in determining the real question in controversy and that any prejudice was compensable in costs.

The Court dismissed the motion for security for costs, holding that the Rules only permit such an order where the appellant appears to be resident outside of Canada, which was not the case here.

The appellant was reassessed under subsection 160(1) of the Income Tax Act for the tax liability of a related corporation, Bakorp.

The Minister alleged that deemed dividends resulting from an increase in stated capital, as well as declared dividends evidenced by promissory notes, constituted transfers of property.

The Tax Court of Canada allowed the appeal, finding that neither the deemed dividends nor the declared dividends (which were unpaid and evidenced only by demand promissory notes) constituted a transfer of property under section 160, as there was no actual divestment of assets or impoverishment of the transferor.