Harvard Properties – Federal Court of Appeal finds in a s. 160 context that the FMV of a note and preferred shares equaled the cash amount that their transferee agreed to pay for them

The sale of a Calgary shopping mall by the taxpayer (“Harvard”) and the other co-owners to a third party (“Bentall”), which otherwise would have occurred as an asset sale, was effectively converted to a share sale through the participation in the transactions of a subsidiary (“NH Properties”) of another third party (“Abacus”).

Focusing on Harvard, it transferred its ½ co-ownership interest on a s. 85(1) rollover basis to its Newco in consideration inter alia for voting shares, and non-voting preferred shares, of Newco. In order for Newco to be controlled by NH Properties at the time the shopping mall was acquired by Bentall, Harvard first transferred its voting shares to NH Properties in exchange for an NH Properties promissory note. On the closing of the sale to Bentall, Newco directed that the applicable portion of the net proceeds be applied to pay off the promissory note owing by NH Properties to Harvard, and to pay the purchase price for the acquisition by NH Properties from Harvard of the Newco preferred shares.

The Crown position was that s. 160 applied to the exchange by Harvard of the NH Properties promissory note for cash and its sale of the Newco preferred shares to NH Properties for cash, because Harvard was not dealing at arm’s length with NH Properties and because such promissory note and preferred shares had a fair market value (FMV) of nil. This latter (FMV) position was based on the proposition that, at the precise time of their disposition, those securities had an FMV of nil because their only value was to a person protected by the various directions, escrow arrangements, and trust accounts for ensuring the payment of the note and the preferred share sale price. In rejecting this proposition, Goyette JA stated inter alia:

“[I]t is the value of the consideration as it stands in the hands of the transferee at the time of the transfer that governs”: Eyeball Networks at para. 67 (emphasis added). The directions, escrow arrangements, and trust accounts relied on by the Minister were intended to ensure that Harvard would be paid when it disposed of the preferred shares [and similarly re the note]. It is therefore difficult to see how those same arrangements could have reduced the value of the shares in Harvard’s hands.

The Tax Court had concluded that Harvard and the Abacus Group of companies were not dealing at arm's length, based on its conclusion that the sales proceeds received by Harvard, representing its pro rata share of the total mall sale price of $89.8 million, represented a premium to the mall's FMV. In reversing this finding, Goyette J.A. found that the FMV of the mall was the $89.8 million for which it was sold to Bentall, stating that “[per] Nash … “ ‘[i]n determining the fair market value of property, little evidence could be more probative than the direct sale of the property in question.’ ”

In also reversing a Tax Court finding that the creation and sale of the Newco voting shares were “avoidance transactions” intended to cause Harvard to lose control of Newco so that it would be at arm's length with Newco and NH Properties, thereby avoiding the application of s. 160, Goyette JA indicated that Harvard was, in fact, dealing at arm's length with the Abacus group of companies. The creation and sale of the Newco voting shares also did not result in a misuse or abuse of s. 160 given that the Harvard and the Abacus group of companies dealt at arm’s length and Harvard had provided full consideration for the cash transfers to it from NH Properties.

Harvard’s appeal was allowed.

Neal Armstrong. Summaries of Harvard Properties Inc. Canada, 2026 FCA 142 under s. 160(1), s. 245(3) and General Concepts – FMV – land.