Separate Existence

The taxpayer was formed on amalgamation, and purported to avoid the application of s. 87 by causing some of its property to be transferred to a numbered corporation simultaneously with the amalgamation (so that it did not possess "all of the property" of its predecessors, as required by s. 87).

In the course of finding that this attempt failed, Rothstein J rejected a "tracing" approach of the Court of Appeal which, in effect, treated the shares of the numbered company as being the same as the surplus properties. He stated (at para. 57):

It is a basic rule of company law that shareholders do not own the assets of the company: see, e.g., Wotherspoon v. Canadian Pacific Ltd., [1987] 1 S.C.R. 952, at p. 1033.

Rothstein J.A. applied (at p. 6256) the determination in Pioneer Laundry & Dry Cleaners Ltd. v. MNR, [1939] 4 DLR 481 (HL) that "in a taxing statute the corporate veil could only be pierced in instances of fraud or improper conduct" to find that the court should not look through the character of the taxpayer's employer as a corporation.

Before finding, on the evidence, that the taxpayer had transferred all the assets of his chicken farm business to a corporation other than the land and the chicken quota and that the corporation was not an agent of the taxpayer, Wetson J. stated (p. 6622):

"... one must start from the presumption that generally when a company is incorporated to carry on a business, the business becomes that of the company and the shareholder cannot claim that business as his or her own. However, it has also been recognized that the relationship between a company and a shareholder can be such as to constitute the company as an agent of the shareholder. ... When such circumstances exist, the business carried on by the company can in reality be said to be that of the shareholder."

In finding that losses of an incorporated farm business could not be deducted by the individual who had incorporated the business, Robertson J.A. accepted the Crown's submission that the individual and his corporation were "separate legal entities and that 'the normal rule of a corporation being a separate and distinct legal entity from its shareholder' should apply":

"Only in the clearest of cases, and in compelling circumstances and after a thorough legal analysis could the 'normal rule' be displaced."

The taxpayer ("MerBan") in connection with a leveraged share acquisition arranged for borrowings to be made to two special purpose subsidiaries in order to limit its liability and to facilitate the use of an income debenture. "MerBan was no doubt the driving force behind and ultimate beneficiary of the subsidiaries' activities, restricted as they were. It may be that the Trial Judge believed that the subsidiaries as mere instrumentalities served no business purpose. But it has been held that, even when there is a lack of business purpose, courts will recognize otherwise legally valid and complete transactions or legally created relationships which are clearly enforceable." [C.R: Agency; Tax Avoidance]

"... I cannot accept the proposition that the Company carried on a hobby as agent for the plaintiff for to do so would be to disregard the very concept of the nature of a corporation laid down in Salomen v. Salomen & Co. ([1897] 2 A.C. 22) ..." (p. 6038)