SCC 2009

The appellant appealed from a judgment of the Quebec Court of Appeal that set aside his acquittal for extortion and entered a conviction.

The Supreme Court of Canada, in a brief oral judgment, dismissed the appeal.

The majority held that the trial judge drew the necessary findings from the evidence and that the substitution of a conviction for the acquittal was justified in the circumstances.

Two justices dissented and would have ordered a new trial.

The appellant taxpayers engaged in a series of transactions where a wife borrowed money to purchase shares in a family corporation from her husband, and the couple subsequently obtained a mortgage to repay the share loan.

The husband then deducted the interest on the mortgage loan and reported the taxable dividends on the shares as income, relying on the spousal attribution rules.

The Minister disallowed the deductions, arguing the transactions constituted abusive tax avoidance under the General Anti-Avoidance Rule (GAAR).

The Supreme Court of Canada dismissed the appeals, holding that while the individual transactions were legally effective, the overall result of using the spousal attribution rules to reduce the husband's income tax frustrated the object, spirit, and purpose of those rules, thereby constituting abusive tax avoidance under section 245(4) of the Income Tax Act.