[2013] 4 F.C.R. D-9
Income Tax
Income Calculation
Dividends
Appeal from Tax Court of Canada decision (2012 TCC 123) allowing respondent’s (MacDonald) appeal from reassessment—Principal issue whether Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 84(2) applying to deem respondent to have received dividend of approximately $500,000 as result of transactions relating to winding up of corporation—Respondent initiating series of transactions to dismantle medical practice—Plan devised whereby assets of practice liquidated, shares sold to respondent’s brother-in-law—Act, s. 84(2) providing, inter alia, that “[w]here funds or property of a corporation resident in Canada have … been distributed or otherwise appropriated in any manner whatever to or for the benefit of the shareholders of any class of shares in its capital stock, on the winding-up, discontinuance or reorganization of its business, the corporation shall be deemed to have paid at that time a dividend on the shares of that class equal to”—T.C.C. holding Act, s. 84(2) not applying to respondent’s transactions because respondent receiving funds in question in capacity as creditor, not shareholder—Textual, contextual and purposive analysis of Act, s. 84(2) leading Court to look to: (i) who initiated the winding-up, discontinuance or reorganization of the business; (ii) who received the funds or property of the corporation at the end of that winding-up, discontinuance or reorganization; and (iii) the circumstances in which the purported distributions took place—This approach consistent with case law interpreting Act, s. 84(2)—T.C.C. erring in focusing exclusively on legal character of various transactions in series, failing to give effect to statutory phrase “in any manner whatever”— In this case, at end of winding up, all of practice’s money ending up through circuitous means in hands of respondent, original, sole shareholder of practice, driving force behind, beneficiary of, transactions—Act, s. 84(2) thus applicable—Appeal allowed.
MacDonald v. Canada (A-143-12, 2013 FCA 110, Near J.A., reasons for judgment dated April 25, 2013, 13 pp.)