The Minister of National Revenue reassessed the respondent, attributing dividends paid to his wife on her Class B shares to his income under s. 56(2) of the Income Tax Act.
The dividends were declared pursuant to a discretionary dividend clause in the company's Articles of Incorporation.
The Supreme Court of Canada held that the discretionary dividend clause was valid under corporate law and did not violate the common law presumption of equality among shares.
The Court further held that s. 56(2) generally does not apply to dividend payments, and the dividends paid to the wife were a legitimate return on her investment and contribution to the company, not a tax avoidance scheme.
The Crown's appeal was dismissed.
