Digests

Industries S.L.M. Inc. v. Canada

T-2006-95

Dubé J.

27/10/00

30 pp.

Appeal de novo from T.C.C. decision dealing with assessments for 1991 and 1993 taxation years of plaintiff (SLM)--First transaction that in which SLM divested itself of its "St-Laurent" subsidiary, which declared $1,000,000 share dividend--Second transaction that in which SLM sold "Valcartier" subsidiary to subsidiary of SNC--MNR based assessments resulting from two transactions on Income Tax Act, s. 55(1)--Additionally, for second transaction Minister relied alternatively on Act, s. 55(2)--Discussion raised points of law involving s. 55(1) and (2) of Act in effect in two years in question--Crown not permitted to advance new basis for reassessment after four-year limitation period expired--Plaintiff argued, with regard to $1,000,000 capital loss resulting from disposition of 1,000 class B preferred shares and 470 ordinary shares in SLM, that did not dispose of these shares artificially or unduly to create loss--Under Act, s. 55(1), taxpayer must be person who contributed by actions to creating loss--S. 55(1) sets out anti-avoidance rule of general application, while s. 55(2) deals with more limited application--Minister bound by fundamental basis of assessment after four-year limitation period and T.C.C. also subject to this prescription--S. 55(2) does not apply to facts of case at bar for three reasons--First, Crown not permitted to advance different basis for reassessment after four-year limitation period expired--Second, Act, s. 152(9) could not be relied on because not in effect at relevant time--Third, series of transactions and events leading to notices of assessment commenced before April 22, 1980 and thus excluded from capital gain presumption contained in s. 55(2)--S. 55(1) applies to first transaction, but not second--Pre-condition for application of Act, s. 55(1) that taxpayer himself did something to influence either adjusted cost base (ACB) or proceeds of disposition so as to artificially or unduly increase loss--Declaration of $1,000,000 share dividend by St-Laurent must be attributed to SLM because of degree of control exercised by latter over subsidiary--Declaration of dividend by St-Laurent had direct consequence of increasing ACB of SLM shares by $1,000,000, which led to loss in question--In case at bar $1,000,000 loss would not have occurred but for declaration of dividends--Loss not achieved because of a particular provision of Act, but rather as result of something done by SLM--When SLM declared dividend, did something to influence ACB of shares so as to artificially create loss within meaning of s. 55(1)--At time of second transaction, Prego sole shareholder in SLM and SLM in turn held 100% of Valcartier shares--Loss not "artificial or undue" when results from application of Act--Defendant unable to show loss in question was actually created "artificially or unduly"--S. 55(1) does not apply to this transaction--Taxpayer entitled to arrange affairs so as to maximize tax shelter available under law and cannot be held to have implicit intention to evade tax artificially or unduly simply because used complex and unusual tax strategy--Plaintiff's appeal dismissed as to first transaction and allowed as to second transaction--Income Tax Act, S.C. 1970-71-72, c. 63, s. 55(1) (as am. by S.C. 1980-81-82-83, c. 48, s. 24), (2) (as enacted idem; c. 140, s. 25)--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 159(9) (as am. by S.C. 1999, c. 22, s. 63.1).