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Income Tax

Corporations

Appeal from Tax Court of Canada judgment (2009 TCC 118) dismissing appeal from reassessment—Issue whether Income Tax Act, R.S.C., 1985 (5th Supp), c. 1, s. 87(4) or 69(4) deeming appellant’s corporate predecessor to have realized taxable capital gain—Act containing number of provisions (referred to as “rollovers”) permitting taxpayer to defer recognition of capital gain on disposition of capital property if disposition occurring in certain circumstances—Act, s. 87(4) rollover provision applying to amalgamation of two or more taxable Canadian corporations—However, no rollover available to shareholder of predecessor corporation where certain conditions met (Act, s. 87(4)(b) exception)—As to Act, s. 64(4), denying corporation reduction in tax liability by deeming corporation’s proceeds of disposition to be fair market value of the property where corporation selling property for less than fair market value to or for benefit of shareholder—Appellant arguing these anti-avoidance provisions having no application herein—Tax Court Judge wrong to say that s. 87(4) exception designed to compel shareholder of predecessor corporation to act in its own interest and not for the benefit of related party such as controlling shareholder—S. 87(4) exception intended to deter taxpayer from using corporate amalgamation to shift part or all of value of predecessor corporation to amalgamated corporation if person related to taxpayer having direct, indirect interest in amalgamated corporation that will be enhanced by shift in value—Record not supporting Judge’s impression appellant’s predecessor’s (Old Husky) business objective not achievable without amalgamation—Even if amalgamation critical step in completion of contractual agreement that was particularly advantageous to Old Husky, not following that s. 87(4) exception could apply—Benefit contemplated by s. 87(4) exception must be all or part of shift in value represented by “gift portion”—That benefit cannot be tax savings resulting from amalgamation—Application of s. 87(4) exception in this case based on interpretation that its words cannot bear, inconsistent with its purpose—Reassessment at issue not justified by s. 87(4) exception—S. 87(4) trumping more general rule in s. 69(4)—Appeal allowed.

Husky Oil Limited v. Canada (A-147-09, 2010 FCA 125, Sharlow J.A., judgment dated May 21, 2010, 26 pp.)