The appellant taxpayer engaged in a series of transactions, including a horizontal amalgamation of sister corporations, to preserve the paid-up capital of a subsidiary's shares that would have been cancelled in a vertical amalgamation.
The amalgamated corporation subsequently redeemed shares and paid out the preserved paid-up capital to its non-resident shareholder as a tax-free return of capital.
The Minister assessed the taxpayer for withholding tax, applying the general anti-avoidance rule (GAAR) to reduce the paid-up capital and deem a portion of the redemption a taxable dividend.
The Supreme Court of Canada dismissed the taxpayer's appeal, holding that the transactions constituted an abusive avoidance transaction that circumvented the purpose of section 87(3) of the Income Tax Act.
