(1)-(3)

Bowman A.C.J. noted that GAAR should not be applied if other sections of the Act are effective to eliminate the beneficial tax results sought by the taxpayer. In this instance, given that section 69 reduced the capital cost of software required by the taxpayer, there was no room left for the application of GAAR.

The taxpayer acquired all the shares of a corporation ("Perth") with $5.8 million of tax losses from an arm's length vendor for a purchase price equal to the greater of $10,000 and 22.5% of the losses which proved to be deductible by the taxpayer or affiliated companies. Perth then gave notice of election under s. 191 of the Income Tax Act 1976 (New Zealand) transferring Perth's loss of $5.8 million to subsidiaries of the taxpayer.

Lord Templeman found that the utilization of the losses was denied by s. 99 of the Act, which provided that any contract shall be "absolutely void as against" the Commissioner "if and to the extent that, directly or indirectly, its purpose or effect" is to reduce "any liability to income tax". In response to a submission that s. 99 did not apply because the taxpayer complied with the specific provisions of s. 191 (including a specific anti-avoidance provision in s. 191(1)(c)(i)), Lord Templeman stated (p. 447):

"Tax avoidance schemes largely depend on the exploitation of one or more exemptions or reliefs or provisions or principles of tax legislation. Section 99 would be useless if a mechanical and meticulous compliance with some other section of the Act were sufficient to oust sec. 99... . [I]n the formulation and enforcement of effective anti-tax avoidance provisions, Parliament thought that an overlap might be useful and could not be harmful."

A newly-launched public corporation ("Birchcliff") accessed the losses of a lossco ("Veracel"), in order to shelter the profits from producing oil and gas properties which it was acquiring. Private placement investors were directed to subscribe for subscription receipts of Veracel rather than Birchcliff, with their subscriptions followed immediately by Veracel's amalgamation with Birchcliff, and with the subscription proceeds applied to the properties' purchase. As they received a majority voting equity interest in Amalco, the loss streaming rules otherwise engaged by ss. 256(7)(b)(iii)(B) and 111(5)(a) were avoided.

Hogan J found (at para. 73) that although "the overarching purpose behind…the sale of subscription receipts by Veracel was to raise equity financing for the [properties'] acquisition, this does not provide a bona fide non-tax reason for having Veracel rather than Birchcliff issue the subscription receipts," so that such issuance was an avoidance transaction.

A Canadian subsidiary ("Greenleaf") of Ford U.S. paid down to $9,750,000 (including accrued interest) a debt of $24,369,439 (plus accrued interest) owing by it to Ford U.S. through the application of share subscription proceeds of $14,843,596 received by it from Ford U.S.A. and the application of a small amount of cash on hand of $100,706. Eighteen days later, a predecessor of the taxpayer ("392"), which was at arm's length with Ford U.S., purchased all the shares of Greenleaf from Ford U.S. for consideration of $1, and purchased the debt at only a slight discount to the amount owing, so that the debt-parking rules in ss. 80.01(6) to (8) did not apply. The Minister applied s. 245(2) on the basis that Greenleaf had sustained a debt forgiveness in the amount of the debt-paydown.

After finding that the debt-paydown transactions were part of the same series of transactions as the sale as they would have occurred either for the tax related reasons of Ford U.S. (to realize a loss for U.S. tax purposes) or for those of Greenleaf (to avoid application of the debt forgiveness rules) on the subsequent sale transaction, Bédard J went on to find that it was implausible that the taxpayer did not have a hand in the debt-paydown transactions so as to avoid the application of the debt forgiveness rules. Accordingly, the debt-paydown transactions were avoidance transactions.

Bédard J proceeded to find abuse.

For creditor-proofing reasons, the taxpayer sold shares in a family real estate development company ("Torgan") to his wife, and used the sales proceeds to satisfy shareholder loans owing by him to Torgan. Torgan,in turn, used the proceeds to purchase a GIC, which it pledged (as security for a guarantee) to a trust company which had lent the shares' purchase price to the taxpayer's wife. He sought to have his wife's related losses (mostly due to interest on the loan) attributed to him pursuant to s. 74.1(1).

After finding that the loan interest was not deductible, Paris J. went on to address the Minister's argument that if, in fact, losses had arisen on the wife's share investment, the attribution of such losses should be denied under s. 245. Paris J. accepted the taxpayer's evidence that the transactions were carried out in order to pay off the shareholder loans to him and for creditor proofing, and that tax reduction was not one of the main reasons for the transactions. The taxpayer also enjoyed tax benefits in that he avoided the inclusion of the shareholder loans in income under s. 15(2), and avoided capital gains by virtue of the spousal rollover under s. 73(1), but these benefits were likewise not the primary purpose of the transactions.

A family holding company ("MPSI") paid a stock dividend of preferred shares, having nominal paid-up capital and a redemption amount of $48,000, on the Class B non-voting shares of MPSI, which were held by a family trust ("MFT"). MFT then sold these preferred shares to "McClarty" (the family patriarch, holder of the Class A voting shares of MPSI and sole trustee of MFT) in consideration for a demand promissory note of $48,000. The capital gain of approximately $48,000 which thus was realized by MFT was distributed to the children beneficiaries of MFT by MFT issuing demand promissory notes to them. McClarty then sold his preferred shares of MPSI to a corporation ("101 SK") of which he was the sole shareholder and director in consideration for a $48,000 demand promissory note, which 101 SK then repaid out of cash proceeds received by it on the redemption of the preferred shares. The taxpayers alleged that these cash proceeds were used by McClarty to repay another loan (not described above) that had been made to him by MFT rather than the $48,000 promissory note that had been the consideration for his purchase of the preferred shares. The parties engaged in further similar transactions.

The series of transactions did not include an avoidance transaction. Although the series resulted in a clear tax benefit (the splitting of capital gains among the minor beneficiaries), every transaction in the series furthered McClarty's bona fide non-tax purposes of making himself indebted to MFT, and eroding his interest in MSPI to the benefit of MFT. Angers J. found that these transactions all were intended to protect McClarty's assets in the event that a firm which had been his former employer brought action against him for alleged theft of its intellectual property and goodwill. Furthermore, although the transfer by MPSI of $48,000 of value to MFT could have been accomplished in a more tax-ineffective manner (by MPSI declaring a full dividend for distribution by MFT to the children beneficiaries, which would have engaged the "kiddie tax" under s. 120.4), the fact of such an alternative transaction did not detract from the actual (stock dividend) transaction being implemented primarily for creditor-proofing reasons.

The taxpayer and an unrelated individual ("DeBruyn") accomplished a split-up of the business of a corporation ("DEL") of which they were equal common shareholders by transactions under which (i) DeBruyn converted his (Class A) common shares into Class B common shares, (ii) the taxpayer sold his Class A common shares of DEL to a newly-incorporated holding company for DeBruyn's wife ("114") for a purchase price of $150,000, (iii) DEL issued a promissory note to 114 in satisfaction of a $150,000 dividend declared by it on the Class A shares, (iv) 114 as signed the promissory note to the taxpayer in satisfaction of the purchase price for the Class A shares, (v) the taxpayer transferred the promissory note owing to him by DEL to a holding company ("HHCI"), and HHCI purchased assets of the Kingston branch of the business of DEL in consideration for satisfaction of the promissory note.

Lamarre J. made a finding that the primary purpose of the sale of the Class A shares by the taxpayer to 114 was to sever his ties with DeBruyn, that the dividend from DEL to 114 was not a transaction to facilitate the taxpayer's obtaining a tax benefit (given that it was not a transaction that benefited the taxpayer), and that the primary objective of the assignment to the taxpayer of the $150,000 note was, again, to terminate the taxpayer's business association with DeBruyn. Lamarre J. also noted that s. 245(3) did not permit the recharacterization of a transaction for the purpose of determining whether or not it was an avoidance transaction, and that the transaction did not represent an appropriation of DEL's funds by the taxpayer.

In March 1993 an individual ("Boulle") transferred his shares of a Canadian public junior exploration company ("DFR") to the taxpayer, which was a newly-incorporated Cayman Islands company wholly owned by him. By June 1995, the taxpayer exchanged, on a rollover basis pursuant to s. 85.1, a portion of its DFR shares (which had substantially appreciated) for common shares of a large Canadian public company ("Inco"), with the result that the taxpayer's shareholding in DFR was reduced below 10%. This result positioned the taxpayer to clearly fit within an exemption from Canadian capital gains tax under Article XIII of the Canada-Luxembourg Income Tax Convention (the "Treaty") on a subsequent disposition of that block of shares once the taxpayer became resident in Luxembourg. In July 1995, the taxpayer was continued into Luxembourg, in August 1995 the taxpayer disposed of its shares of Inco and in August 1996 it sold its DFR shares to Inco.

In finding that the June 1995 exchange by the taxpayer of its DFR shares for Inco shares was not an avoidance transaction, Bell J. accepted the evidence of Boulle that he made the sale in order to raise cash and to diversify his portfolio. In finding that the continuation of the taxpayer to Luxembourg was not an avoidance transaction, he found that although one of the "driving forces" of the transactions was the taxpayer's desire to ensure the sale of its shares in a tax effective manner, this did not render the transaction an avoidance transaction where there was a bona fide commercial reason for selling the shares of DFR, and that in such circumstances it was open to the taxpayer to seek tax advice respecting the appropriate structure for concluding such a sale.

Respecting the subsequent sale of DFR shares by the taxpayer to Inco in August 1996, Bell J. noted that Boulle did not have the ability to organize and effect a favourable vote for the sale to Inco, and, in any event, it was "unimaginable" that Boulle could have persuade the sophisticated shareholders of DFR to vote in favour of that sale simply because he alone might enjoy a tax benefit.

The taxpayer, who held 14.28% of the common shares of a Canadian private corporation ("Consercom") transferred a 9.76% block to a wholly-owned holding company ("6311") in consideration for preferred shares of 6311 with a high paid-up capital (thereby giving rise to a capital gain eligible for the capital gains exemption). The taxpayer also transferred shares of a Canadian private corporation ("Gestion") that he owned together with his brother to 6311 in consideration for shares of 6311. The redemption of the taxpayer's preferred shares of 6311 was financed through dividends received by 6311 from Gestion.

The transfer of a portion of the Consercom shares (being under the 10% threshold to which s. 84.1 would apply) to 6311 was an avoidance transaction. This transfer was completed primarily to make it possible for the taxpayer to receive a distribution sourced from Gestion surpluses free of tax.

The taxpayer owed approximately $2.3 million to a wholly-owned corporation. The loan, which had been used by him for personal purposes, would be included in his income under s. 15(2) if not repaid.

The taxpayer's wife borrowed $2.3 million from a bank to purchase some of her husband's shares for that sum, and he used the proceeds to repay his loan to the corporation which, in turn, purchased cash collateral to be pledged to the bank as security for its guarantee of the bank loan. The share sale occurred on a rollover basis under s. 73(1), and the interest incurred on the bank loan was attributed to the taxpayer under s. 74.1(1).

Little J. found that the transactions were not avoidance transactions and (if he was not correct in this finding) were not abusive tax avoidance transactions.

The taxpayer incorporated a Barbados subsidiary ("BarbadosCo") using borrowed money to subscribe for the shares of BarbadosCo, and BarbadosCo used the proceeds to purchase from the American parent of the taxpayer ("UC") an interest-bearing note owing to UC by a wholly-owned European subsidiary of UC ("UE"). Bell J. accepted evidence of the taxpayer's officers that there was never any intent for the taxpayer to itself acquire the note. Accordingly, there was no tax avoided through the incorporation of BarbadosCo and the receipt of tax-free dividends by the taxpayer from BarbadosCo funded out of the interest payments made on the note.

The taxpayer facilitated a leveraged buy-out of him and his co-shareholder of a company ("Brouillette Automobiles") by incorporating a corporation ("9016") of which he controlled 51% of the voting shares with the balance of the shares being owned by the purchaser corporation ("9017") of which two unrelated individuals were equal shareholders, with 9016 using the proceeds of a loan to it by Brouillette Automobile to purchase for cash the shares of the co-shareholder of Brouillette Automobile, the taxpayer rolling his shares of Brouillette Automobile into 9016 for non-voting shares of 9016 (so that Brouillette Automobile was now a wholly-owned subsidiary of 9016) and then selling his shares of 9016 to 9017 for a promissory note.

Lamarre Proulx J. found that as she had already found that s. 84.1 did not apply to the transaction (because the taxpayer was dealing at arm's length with 9017), s. 245 should not be applied. To do so would be to legislate. Even if s. 245 could be so applied, the transactions were entered into fundamentally for a business or commercial purpose (obtaining the best possible price).

The taxpayer, who owned a portion of the shares of the holding ("GH") which, in turn, owned an operating company ("GBC") utilized the enhanced capital gains exemption in connection with the sale of a cement plant operated by GBC through the following transactions: the taxpayer and the other shareholders of GH transferred a portion of their shares of Holdings to a newly-incorporated company ("Newco") in consideration for shares of Newco having a value of $500,000; GBC paid a dividend-in-kind of most of the cement plant assets (having a value of $1 million) to Holdings; Holdings redeemed the common shares held in its capital by Newco by transferring to Newco the assets it had received from GBC; and the shareholders of Newco's sold their interests in Newco to the purchaser (who also purchased the remaining cement-plant assets directly from GBC).

Bowman T.C.J. found that even if the transactions had been avoidance transactions, there would have been no abuse or misuse for purposes of s. 254(4):

"Simply put, using the specific provisions of the Income Tax Act in the course of a commercial transaction, and applying them in accordance with their terms is not a misuse or an abuse. The Income Tax Act is a statute that is remarkable for its specificity and replete with anti-avoidance provisions designed to counteract specific perceived abuses. Where a taxpayer applies those provisions and manages to avoid the pitfalls, the Minister cannot say 'Because you have avoided the shoals and traps of the Act and have not carried out your commercial transaction in a manner that maximizes your tax, I will use GAAR to fill in any gaps not covered by the multitude of specific anti-avoidance provisions'."

A Bermuda corporation, which was in financial difficulty and in which the taxpayer had an indirect 35% interest, transferred a drilling vessel, utilizing the rollover provisions of s. 85(5.1) of the Act, to a partnership in which the taxpayer had a substantial interest. The drilling vessel then was disposed of to an arm's-length purchaser giving rise to a substantial loss, most of which was allocated to the taxpayer.

In finding (at p. 322) that the transactions "were commercial transactions for commercial purposes from beginning to end", Beaubier TCJ. noted that the transactions permitted the taxpayer to sever its relationship with insolvent companies in the Bow Valley Group, to remove its guarantee in favour of its Export Development Corporation and to get rid of the drilling vessel.

Under arrangements that were characterized as a deposit of funds by the taxpayer in the Cook Islands, the taxpayer received an interest rate on its deposit of 4% below the Australian bank bill buying rate, but took the position that it was exempt from Australian income tax because of the situs of the deposit.

In concurring in a reversal of a finding of the full Federal Court that the "dominant purpose" of the taxpayer for purposes of Part IV of the Income Tax Assessment Act of 1936 was to obtain the maximum return on money invested after the payment of all applicable costs including tax, and not to obtain a tax benefit, McHugh J. stated:

"... This case is far removed from the ordinary case of a taxpayer switching an investment from one which had no tax advantages to one from which it would or might obtain tax benefits ... . The elaborate nature of the scheme and its attendant circumstances lead inevitably to the conclusion that the scheme was not merely tax driven but that its dominant purpose was to enable the taxpayer to obtain a tax benefit by participating in the scheme."

A non-resident corporation ("EC") approached a business associate who, along with two other individuals, formed a Canadian corporation ("RMM") to buy the shares of a Canadian subsidiary ("EL") of EC for a cash purchase price approximating the cash and near cash on hand of EL and a Canadian subsidiary of EL ("ECL"). Immediately following the purchase, EL was wound-up into RMM and ECL was amalgamated with RMM; and three or four days later, RMM used the cash received by it from EL and ECL to pay off a loan that had financed the acquisition.

In finding that the transaction gave rise to a benefit, Bowman TCJ. noted that the elimination of capital gains tax on the sale proceeds as a result of the application of the Canada-U.S. Income Tax Convention did not detract from such reduction occurring "under this Act", and also indicated that he was not prepared to say that because the envisaged U.S. tax saving was greater than the envisaged Canadian tax saving established that the primary purpose of the transaction was not the avoidance of Canadian tax.

Before going on to find that the former s. 245(1) did not prohibit the deduction of interest by the taxpayer, Bowman J. stated, in obiter dicta that:

"... Even if there were any place in the analysis of the consequences of a tax-motivated arrangement for assessing some level of fiscal reprehensibility, which I doubt, I should think that the absorption of business losses within a corporate group would rank rather low ... There is a world of difference between the creation of artificial deductions and losses out of thin air and the utilization of legitimately incurred losses within an unrelated group."

The taxpayer ("BMI") acquired a film from the producer ("WBI"), leased it to another corporation at a return that yielded 2.16% per annum on its expenditure, and claimed a 100% first-year capital allowance for the amount of the expenditure (on the basis that the film qualified as "plant"). S.3(1)(c) of Schedule 8 to the Finance Act 1971 denied the deduction of the allowance if it appeared with respect to the purchase of the plant "that the sole or main benefit which ... might have been expected to accrue to the parties ... was the obtaining of an allowance". In finding that this anti-avoidance provision did not apply, Vinelott J. accepted (at pp. 239-240) a submission that:

"The main object of WBI in selling the film to BMI was to recover the cost of making the film while ensuring that the film be distributed by the WBI organisation. They main object of BMI was to make profit by acquiring and leasing the plant. It is probable that BMI would not have been able to offer a leaseback to a company in the WBI organization at an acceptable rent unless it could obtain a capital allowance and unless it had spare capacity in the group sufficient to absorb it. But it does not follow that BMI's object was to obtain an allowance; BMI's object and purpose was to make a profit on a purchase and lease of the plant.

The court rejected the view that in ascertaining the purpose of an expenditure, the state of mind of the spender is the only relevant factor.

In interpreting the provisions of s. 260 of the Commonwealth Income Tax and Social Services Contribution Assessment Act, 1936-1951 (Australia), Lord Denning stated (p. 465):

"The word 'purpose' means, not motive but the effect which it is sought to achieve - the end in view."