The Appellant corporation appealed a tax assessment under subsection 160(1) of the Income Tax Act, which held it jointly and severally liable for the tax debt of a related corporation.
The related corporation had transferred property to the Appellant by paying a $600,000 dividend, and the Appellant argued it provided fair market value consideration by executing a $600,000 loan agreement in return.
The Tax Court of Canada dismissed the appeal, finding that the two corporations were controlled by the same directing mind and thus deemed not to deal at arm's length.
Furthermore, the Court concluded that the loan was a separate transaction and did not constitute fair market value consideration for the dividend.
