Ownership

Before concluding that a residuary beneficiary in an estate had acquired a property by purchase rather than devise, Owen J observed that, under the laws of Ontario, residuary beneficiaries do not acquire an interest in any specific property in the residue of the estate and it is instead the executors who acquire the property in the residue (noting, at para. 56, that 909403 Ontario Ltd. v. DiMichele, 2014 ONCA 261 "confirmed that an entitlement to the residue of an estate under a will does not amount to a property interest in specific estate assets"). See summary under s. 70(5).

Pizzitelli J found that purported gifts by the taxpayers were not effective to transfer property in the gifted licences as such licences had not yet been allocated to them by the promoter, out of the pool of licences, at the time they executed their Deeds of Gift (with the Schedule describing the gifted licences not yet attached.) See summaries under s. 118.1 – total charitable gifts and s. 104(1).

The taxpayer - which was a member of group of companies that included a producer of exterior trim boards for construction ("W.L.") – earned management fees and rental fees from W.L. In 2003, the taxpayer lent $3.5 million to an arm's length supplier of specially prepared boards ("Interact") secured by patents held by Interact's principal ("Cable").

Following the bankruptcy of Interact and Cable earlier in 2005, the trustee in bankruptcy for Cable released the patents to the taxpayer "subject to ultimate accounting for the proceeds of disposition" - by which the trustee apparently meant to address the unlikely event that the taxpayer could sell the patents for more than the amount it was owed by Interact. Legal title in the patent remained with the trustee.

The taxpayer sold the patents to a corporation owned by the taxpayer's principal's son for $1 in September 2007, and claimed a terminal loss of $3.9 million (based on it having been deemed under s. 79.1 (6) to have acquired them at a cost of $3.5 million plus $0.4 million of relevant legal costs). The trustee (who was not aware of the 2007 transfer) transferred legal title in the patents to the taxpayer in 2010, in exchange for the taxpayer reducing its secured claim by $1 million. The Minister denied the terminal loss - among other reasons, arguing that taxpayer had not become the patents' beneficial owner by the time it sold them in September 2007.

Rip J allowed the taxpayer's appeal. Based on the plain (i.e. dictionary) meaning of the words "beneficial owner, and on the "incidents of title" test in Wardean, he stated (at para. 92):

A beneficial owner of property therefore, is someone who is the real owner of the property, a person who is in possession of the property, a person who could derive income from the property or otherwise use it and who is the person who suffers any loss if the property is damaged or destroyed. The beneficial owner is the only person who can dispose of the property in his or her sole discretion without interference.

The taxpayer had obtained the incidents of title when the trustee released the patents in 2005: the taxpayer possessed the physical patent documents, the trustee confirmed to the patent agent that the taxpayer would henceforth be instructing the patent agent and did not thereafter interfere with the taxpayer's use and enjoyment, the taxpayer assumed the costs of ownership and defended the patent ownership rights against the claims of Cable's common law spouse (who claimed a constructive trust in her favour).

The Minister assessed the appellant trust company under s. 116(5) for its failure to withhold from the purchase price paid by self-directed RRSP trusts for which it was trustee from the purchase price for shares, which were taxable Canadian property, acquired from non-resident vendors (without s. 116 certificates being received). In responding affirmatively to a Rule 58 question as to whether the appellant was a purchaser under s. 116(5), Bocock J stated (at para. 31):

While use, benefit and enjoyment arising from the shares were exclusively reserved for the Annuitant, the trust and related RRSP plan documents bifurcated the other incidents of ownership and delivered possession, title and management of that very property to Olympia, as trustee. …[N]o relevant party desired to have the Annuitant be the party from whom the purchase moneys were advanced (this would have involved an RRSP withdrawal)… .

In finding that the taxpayer's husband was the beneficial owner of two shares initially issued by a corporation, Rip CJ stated (at para. 23):

Mr. Strachan was the beneficial owner of the dividends paid to shareholders and received by him as owner of the two shares. He received the dividend for his own use and enjoyment. He enjoyed all the attributes of ownership of the shares and of the dividend received.

Seeking to protect herself from being sued by her brother, the taxpayer transferred title to all her real properties for no consideration to corporations under her majority control. She reported rental and business income and expenses from these properties while her accountant did the same in the corporations' returns. The Minister's reassessment included the inclusion in her income of a taxable capital gain on a disposition of the properties to the corporations.

Hogan J. noted (para. 30) that "a transfer of property for no consideration generally results in a rebuttable presumption of a resulting trust" . This presumption was further supported by the fact that, following the transfer, the taxpayer continued to operate the business properties in a personal capacity. All invoices for repairs and renovations, and all rent cheques were addressed to her personally, and all income and expenses went into or came from her personal bank accounts; and the corporations held themselves out to third parties as the property owners only in limited circumstances.

Hogan J. found that the resulting trust was a bare trust, in which the corporations could reasonably be considered to have acted as mere agents for the taxpayer. The trust was therefore not a "trust" for the purposes of the Act, pursuant to s. 104(1). Furthermore, the transfer was not a "disposition" under s. 248(1) because, as per paragraph (e), the taxpayer retained beneficial ownership. The income and expenses on the properties therefore were those of the taxpayer, and she did not realize a capital gain on the transfer.

The taxpayer's father transferred real property to her in June 2006 without her knowledge. She discovered the transfer in December 2008 and transferred the property back on 26 February 2009 after obtaining legal advice. Angers J. found that the taxpayer was not liable under s. 160 for her father's unpaid taxes. The common law on property provides that an unwitting recipient of a gift can, as the taxpayer had done, repudiate the gift retroactively (para. 16). There had therefore been no transfer of property, and hence no liability under s. 160.

Although the taxpayer continued to be the legal owner of a plant, the effect of the agreements between it and the Alberta government were that all the benefits and all the burdens that arose from the ownership thereof rested with the Alberta government, so that it became the beneficial owner of the plant (para. 69).

The position of the Minister was that a vehicle had been acquired by the taxpayer's mother and not by the taxpayer, so that the taxpayer was not entitled to claim capital cost allowance. Webb J. found that the taxpayer had acquired beneficial ownership of the automobile when the vehicle was acquired as his mother simply financed the purchase and held title as security for the debt owing by the taxpayer to her. The fact that the motor vehicle was registered in the taxpayer's name was not determinative.

In order to avoid Quebec mutation tax, the taxpayer transferred the assets of a business division to a newly-incorporated wholly owned subsidiary and then sold the shares of the subsidiary to a purchaser. The taxpayer was unsuccessful in arguing that these transactions should be viewed as an indivisible transaction or as two transactions that occurred simultaneously. Accordingly, the taxpayer was found to have controlled the subsidiary "immediately after" the transfer.

The taxpayer was found to continue to be the beneficial owner of shares that he transferred to a trust of which he was the sole beneficiary and one of the three trustees, notwithstanding that he had no control over the distribution of the trust property until the trust matured on its 21st anniversary. Woods, J. noted (at para. 36) that "although the term 'beneficial ownership' is often used in the sense of full ownership except bare legal title", the ordinary meaning of the term is quite broad and includes a sole beneficiary's interest in trust property. This broad meaning was reflected in s. 248(3)(f).

Accordingly, there was no disposition of the shares.

The Special Commissioners concluded that under an arrangement whereby the respondent ("SPI") granted an option to Citibank International PLC ("Citibank") to acquire governments bonds at an exercise price equal to 90% of the face amount, and Citibank granted an option to SPI to acquire identical government bonds at an exercise price of 70% of their face amount, each option should be treated as separate because there was a commercially realistic (albeit quite unlikely) possibility that the option granted by Citibank to SPI would not be exercised (i.e., that the bonds would fall in price below 90% of their face amount).

The Court concluded that in applying the Ramsay principle the composite effect of the arrangement should be considered as the scheme was intended to operate without regard to the contingency that one of the options might not be exercised. Accordingly, it was held that Citibank did not have an "entitlement" to the property covered by its option.

A predecessor of the defendant (“BC Tel”) raised $150 million by transferring receivables to a securitization trust (“RAC”) in consideration for an advance and the receipt of deferred amounts.  RAC funded its payments in the commercial paper market and BC Tel serviced the receivables for no fee.  The plaintiffs were bond holders who alleged that the use by BC Tel of the advance to redeem the bonds (which bore a high rate of interest) violated a Trust Deed covenant not to redeem the  bonds “by the application, directly or indirectly, of funds obtained through borrowings, having an interest cost to the Company of less than 11.35% per annum.”

In finding that the transfer of the receivables was a true sale rather than a secured loan, so that this covenant was not violated, Ground J stated

• (at para. 40) that “the wording of the Agreement throughout clearly indicates the intention of both parties that the transaction be a true sale,”
• (at para. 43) that although “for all practical purposes the only risk of uncollectibility assumed by RAC was the possibility of an insolvency of BC Tel and accordingly, the inability to be compensated by BC Tel in the event of Purchased Receivables in excess of the amount of the Reserve being uncollectible,” nonetheless “because of that possibility, however remote, RAC did assume some risk with respect to the collectibility of the Purchased Receivables,”
• (at para. 56) that “it does not appear…that the absence of a right in RAC to retain the surplus from the collection of accounts receivable is fatal to a determination that the securitization transaction between BC Tel and RAC was a true sale,”
• (at para. 63) that “the fact that the Agreement contemplated that a particular receivable may, under certain circumstances, be reconveyed to BC Tel, does not…derogate from…[satisfaction of the requirement that] the subject matter of the sale must be ascertainable,” and
• (at para. 67) that “the ultimate test to be applied to determine whether a particular transaction should be interpreted as a secured loan or as a true sale” is that in “a secured loan transaction… the borrower, upon repayment of the debt, [can] require the lender to reassign to it all of the lender’s interests in the assets secured to pay the debt” whereas here (para. 69) “nowhere in the Agreement is BC Tel given any right at its option to repurchase or redeem the Purchased Receivables upon payment of a specified amount to RAC.”

A partnership was entitled to claim capital cost allowance in respect of a rental property notwithstanding that the transfer to it of the property had not been registered at the Registry Office. Although article 2098 of the Civil Code of Lower Canada provided that "in default of such registration, the title of conveyance cannot be invoked against any third party who has purchased the same property from the same vendor for a valuable consideration and whose title is registered", it was clear that the Minister is not a third party within the meaning of this article.

After finding that the corporate general partner of an Ontario limited partnership, which held title to real estate on behalf of the partnership, was subject to the prohibition in s. 18(2) of the Mortgages Act against a joint stock company or other corporation prepaying a mortgage on the basis that because a limited partnership was not a legal entity capable of holding and conveying title to real property, provision was made in the Limited Partnerships Act (Ontario) for a general partner to conduct and manage the business of the limited partnership including acquiring and conveying real estate on its behalf, Borins, J.A. went on to state (at p. 594):

"There is no question that the general partner was authorized by the limited partners to arrange the financing and, under the Limited Partnerships Act was empowered and required to do so. Therefore, it was intended that the mortgage would be an obligation enforceable against the general partner. The fact that the beneficial ownership of the property was made up of limited partners who were individual, non-corporate investors does not detract from the fact that the mortgage was given by the corporate general partner, and accordingly, does not remove the mortgage from the exemption in s. 18(2) of the Mortgages Act, or entitle the limited partners to the right of prepayment under s. 18(1)."

Bowman TCJ. stated (at p. 1037) that he agreed with the proposition that "ownership for purposes of the Income Tax Act means beneficial ownership."

Lady Fox at the time of her death was the freehold owner of a 3,000 acre estate which was let to a farming partnership in which she had a 92.5% interest. In finding that Lady Fox should be treated for purposes of valuing her estate as having a 92.5% interest in the tenancy, Hoffmann J. stated (at p. 8042):

"As between themselves, partners are not entitled individually to exercise proprietary rights over any of the partnership assets. This is because they have subjected their proprietary interests to the terms of the partnership deed which provides that the assets shall be employed in the partnership business, and on dissolution realised for the purposes of paying debts and distributing any surplus. As regards the outside world, however, the partnership deed is irrelevant. The partners are collectively entitled to each and every asset of the partnership, in which each of them therefore has an undivided share. It is this outside view which identifies the nature of the property falling to be valued for the purpose of capital transfer tax ... ."

The taxpayer failed to establish that a Liechtenstein "establishment" held a Toronto condominium as bare trustee for the taxpayer in light inter alia of evidence that under the relevant arrangements the taxpayer's spouse was required to approve any procedure taken with respect to the assets and funds of the establishment. [C.R.: 13(21)(b); 212(1)(d); 54(c)]

It was found that by an agreement dated January 16, 1985, the taxpayer had disposed of his shares of a corporation to a shareholder. Accordingly, a subsequent agreement signed by the taxpayer dated June 26, 1985, which the taxpayer thought only altered the agreement of January 16, 1985 in minor respects but which, in fact, named the corporation as the purchaser of the taxpayer's shares, did not have the effect of causing the taxpayer to receive a deemed dividend.

Before finding that leases of equipment made by the taxpayer should be characterized as such rather than as conditional sales agreements, as submitted by the taxpayer, Sarchuk J. stated (p. 1789):

"There was, as I see it, no enforceable right during or at the expiration of the lease, to acquire the property at a price which at the inception of the lease is substantially less than the probable fair market value of the property at the time of permitted acquisition by the lessee, nor can it be said that the lessee had the right, and by this I mean enforceable right, during the lease or at its expiration to acquire the property at a price which the lessee knew at the inception of the lease was such that no reasonable person would refuse."

The taxpayer, which leased heavy machinery under five-year leases which provided that the taxpayer could exercise an option to purchase the machinery for the price of the remaining rental on 60 days' prior notice, and which provided that the taxpayer was responsible for the maintenance of the machinery, was found not to have acquired the machinery and, therefore, was precluded from deducting capital cost allowance. Lamarre Proulx J. stated (p. 1385):

"... The words 'property acquired' must be taken to mean property in which the taxpayer has a right of ownership, or if not such a right, then all the attributes of a right of ownership, as in the case of a conditional sale."

The Quebec taxpayer was found to have "acquired" trucks pursuant to leases given that it had possession and use of the trucks, it had assumed all risks, it had the option, six months before the expiry of the lease, to purchase the trucks for an amount approximately equal to the fair market value of the remaining lease payment, and it was required to pay the "rent" even if the trucks were destroyed or it no longer had the use of them. However, the taxpayer was found not to be the "owner" of the trucks because, under the Quebec Civil Code, ownership could not be divided between a legal and beneficial owner, and the lessor rather than the taxpayer was the legal owner. Because the definition of "depreciable property" in its amended form required ownership of the property, the taxpayer was not entitled to claim capital cost allowance.

An individual (Edward) was the holder and beneficial owner of substantially all the shares of the taxpayer and his father (Clarence) was the holder and beneficial owner of a substantial portion of the voting shares of a second corporation ("DeWalt"). In addition, Clarence held one share of the taxpayer on behalf of Edward, and Edward held one share of DeWalt on behalf of Clarence. In finding that Edward and Clarence did not "own" shares of both corporations for purposes of s. 36(4)(b)(iii) of the Act as it then read, Mr. Fordham stated (at p. 28):

"In Stroud's Judicial Dictionary, 2nd Edition Ed., p. 1387, it is stated that the owner of a property is the person in whom (with his or her consent) it is for the time being beneficially vested, and who has the occupation, or control, or usufruct of it. In my view, Clarence ... did not have such an interest in the share of the appellant's stock registered in his name and the real owner was Edward ...".