Words and Phrases - "arrangement"
29 May 2008 External T.I. 2007-0262591E5 F - Remboursement de sommes versées par erreur
After disability payments to the taxpayer, under the policy taken out by the employer with an insurer, were suspended, then retroactively restored. However, the insurer discovered that, in the interim, the taxpayer had started receiving a pension under the Quebec Pension plan and also had been granted a retroactive pension by the employer – so that it claimed reimbursements of the disability payments it had made for the same periods. CRA stated:
[T]he word "arrangement" is broad enough to include a situation where a taxpayer must reimburse disability benefits to an insurer.
Thus, as long as all the conditions of paragraph 8(1)(n) are satisfied, we are of the view that the taxpayer may deduct the disability benefits reimbursed by the taxpayer to the insurer.
Canada v. Canadian Pacific Ltd., 2002 DTC 6742, [2002] 3 F.C. 170, 2002 FCA 98
The Crown argued that CP's act of denominating the debentures in Australian dollars was in and of itself a transaction and that it amounted to an “arrangement” under the s. 245(1) definition of "transaction" - and then argued that such "separate transaction", namely the designation of borrowing in Australian dollars, was entered into solely for tax purposes. In rejecting this submission, Sexton JA stated (at paras. 24-26):
…[T]hat extended definition [of transaction] cannot be interpreted to justify taking apart a transaction in order to isolate its business and tax purposes. The necessity to determine primary purpose implies that there is more than one purpose and that the transaction is to be considered as a whole.
…If this argument was correct, the Crown could allege that the tax planning component of any transaction amounted to an event or arrangement constituting a "separate transaction". … In other words, any action taken to obtain a tax benefit would be an avoidance transaction and there would never be an occasion to determine the primary purpose of a transaction. …
The words of the Act require consideration of a transaction in its entirety and it is not open to the Crown artificially to split off various aspects of it in order to create an avoidance transaction. In the present case, the Australian dollar borrowing was one complete transaction and cannot be separated into two transactions by labelling the designation in Australian dollars as a separate transaction.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) | primary purpose of a borrowing in a tax-advantageous currency was to raise money | 290 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | transaction not to be recharacterized until after a determination of abuse | 283 |
5 October 2012 Roundtable, 2012-0454021C6 F - Expiration d'un arrangement
An employee who subscribed directly for treasury shares, and subsequently transferred them to a new corporation could benefit from the Reg 6205(2) exclusion from ITA s. 110.6(8) to the extent that that transaction did not occur under the same arrangement. In this context, what is an "arrangement" and when is it can be considered to end? After referring to dictionary definitions of arrangement, CRA stated
[T]he purpose of the provisions of ITR subsection 6205(2) is to grant the status of "prescribed shares", for purposes of ITA subsection 110.6(8), to shares issued pursuant to an arrangement the primary purpose of which is to effect a total or partial freeze in favour of persons not dealing at arm's length with the shareholder effecting the freeze, employees of the corporation or a corporation controlled by it, or a combination of such persons and employees. The question of whether the primary purpose of an arrangement is to ensure that the increase in the value of a corporation's property is attributed to "other shares" is a question of fact. An arrangement could have been put in place primarily for purposes other than those provided in paragraph 6205(2)(a), including to achieve certain financial, structural or other objectives, or to obtain certain tax benefits.
The questions of what constitutes an arrangement in a particular situation and, secondly, when that arrangement ends, are ones of fact.
Cameco Corporation v. The Queen, 2018 TCC 195, aff'd 2020 FCA 112
As part of a preliminary discussion of s. 247(2), Owen J stated (at para. 677):
An “arrangement” includes an informal agreement or a plan, whether legally enforceable or not,[Fn. 779: Davidson v. R., [1999] 3 C.T.C 2159 at paragraph 14 and the dissenting judgment of Spence J. in Geophysical Engineering Ltd. v. M.N.R., [1977] 2 S.C.R. 1008 at pages 1023 and 1024, in both of which the decision of the Judicial Committee of the Privy Council in Newton v. Commissioner of Taxation of the Commonwealth of Australia, [1958] 2 All E.R. 759 (P.C.) at page 763 is cited.] ... and an “event” includes “anything that happens”. [Fn. 780: The OED defines the noun “event” as “[t]he (actual or contemplated) fact of anything happening” and “[a]nything that happens, or is contemplated as happening”. However, the statutory context requires that this definition be limited to anything that in fact happens.]
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) | having a Swiss/Lux subsidiary enter into long-term purchase contracts at a somewhat fixed price with third parties and the taxpayer did not engage s. 247(2) | 708 |
| Tax Topics - General Concepts - Sham | transactions that were not factually misrepresented were not a sham | 254 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(10) | "series" concept narrowly interpreted to permit comparison with arm's length transactions | 82 |
10 October 2014 APFF Roundtable Q. 19, 2014-0538041C6 F - 2014 APFF Roundtable, Q. 19 - Stock dividend
Mr. X holds all 100 of Opco's Class A shares with a fair market value of $1,000,000 and nominal ACB and PUC. Opco pays a stock dividend comprising Class B shares which have a retraction right for $900,000; the 100 Class shares are exchanged for estate freeze Class C preferred shares; and the family trust subscribes for Class A shares for $10. Would the Class B shares issued on the stock dividend be issued as part of an arrangement the main purpose of which was to permit any increase in the value of the property of the corporation to accrue to other shares that would, at the time of their issue, be prescribed shares, so that ITR subparagraph 6205(2)(a) is satisfied? CRA responded (Tax Interpretations translation):
…"[A]rrangement"…has a broad meaning. An arrangement can encompass more than one transaction. Thus, if several transactions are effected in the context of a freeze in favour of persons contemplated by ITR subparagraph 6205(2)(a), the CRA could consider that the arrangement includes these transactions if it appears to it that they are planned together to achieve the targeted purpose, being the freeze. For example, the payment of a stock dividend of Class B Shares…in order to lower the value of the Class A Shares …followed by an exchange of all of such CLass A Shares in order to receive Class C Shares…being transactions effected so as to be followed by the issuance of new participating shares to the family trust, could form part of the same arrangement in the circumstances. In such a case, the Class B and C shares of Opco would be issued as part of the arrangement.
The question of whether the main purpose of the arrangement is to permit any increase in the value of property of a corporation to accrue to other shares that would, at the time of their issue, be prescribed shares, is a question of fact. An arrangement could have been put in place mainly for purposes other than those described in ITR subparagraph 6205(2)(a), such as realizing certain financial, structural or other objectives, or for obtaining certain tax advantages.
…[I]t would be necessary in the current situation to determine if the test provided in ITR subparagraph 6205(2)(a) is satisfied at the completion of the arrangement, being when the Class A shares…are issued (assuming that these were prescribed shares at the date of their issue) to the family trust.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 15 - Subsection 15(1.1) | not engaged if stock dividend is proportional | 211 |
| Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c) | SI apportionment to stock dividend prefs | 251 |
| Tax Topics - Income Tax Act - Section 74.4 - Subsection 74.4(2) | non-application to stock dividend, cf. s. 86 reorg | 255 |
30 September 1992 T.I. (Tax Window, No. 24, p. 18, ¶2180)
The word "arrangement" is open to very broad interpretation ranging from formal contracts to verbal understandings. S.96(2.4)(d) can apply where a partner disposes of his interest in a general partnership to another person for the sole purpose of limiting its liability, and one of the main reasons for the agreement or other arrangement for the disposition was avoidance of the application of s. 96(2.4)(a), (b) or (c).
Re Assaly and Minister of Revenue (1986), 56 OR (2d) 30 (HCJ)
A corporation owned by the appellant entered into an agreement with him in 1981 to sell vacant land to him for a purchase price of $185,000 with the agreement of purchase and sale being conditional upon the appellant and the corporation entering into a building contract under which the corporation would construct condominium units on the land. The transfer was registered in 1983 after building work had been completed.
Although the gross sale price for the conveyance was $185,000, the building contract constituted "part of the arrangement relating to the conveyance" and by virtue of the building contract arrangement a liability was assumed by the appellant as part of that arrangement. McKinlay J. noted that the Oxford English Dictionary defined "arrangement" as "a structure or combination of things for a purpose". Consequently, the total "value of the consideration" was $2,142,700 (i.e., including such liability).
Newton v. Commissioner of Taxation of the Commonwealth of Australia, [1958] A.C. 450 (PC)
Before finding that dividend stripping transactions were void for taxation purposes by virtue of s. 260 of the Commonwealth Income Tax and Social Services Contribution Assessment Act, 1936-1951 (Australia) Lord Denning stated (p. 465):
"Their Lordships are of opinion that the word 'arrangement' is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons - a plan arranged between them which may not be enforceable at law. But it must in this section comprehend, not only the initial plan but also all the transactions by which it is carried into effect - all the transactions, that is, which have the effect of avoiding taxation, be they conveyances, transfers or anything else."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) | 51 |
Apple Fields Ltd. v. New Zealand Apple and Pear Marketing Board, [1991] 2 WLR 129 (PC)
S.27(1) of the Commerce Act 1986 (New Zealand) provided:
"No person shall enter into a contract or arrangement, or arrive at an understanding, containing a provision that has the purpose ... of substantially lessening competition in a market."
Lord Bridge stated (p. 134):
"'Arrangement' is a perfectly ordinary English word and in the context of section 27 involves no more than a meeting of minds between two or more persons, not amounting to a formal contract, but leading to an agreed course of action."
Deckelbaum v. MNR, 82 DTC 1636, [1982] CTC 2659 (T.R.B.)
A home purchase loan arrangement was evidenced by a resolution of the corporation authorizing the making of the loan and providing for its repayment in six equal annual instalments without interest. Mr. Taylor found that there was not a bona fide arrangement for a repayment given that no loan agreement or promissory note was signed by the taxpayer for the loan (p. 1638):
"An arrangement is an accord or agreement between parties and where the purpose of that arrangement is the conscious avoidance of income tax otherwise payable, it behooves the parties affected to be meticulous in the extreme ... It is difficult for the Board to accept that an arrangement for repayment of a loan from a shareholder to his personally-held corporation, should be regarded as 'bona fide' when it is less stringent than that which the same shareholder would insist his corporation impose on an unrelated third party."
Davidson v. R., 99 DTC 933, [1999] 3 CTC 2159 (TCC)
Before finding that a loan made by a family company to the taxpayer to finance the acquisition of a home satisfied the requirements for bona fide arrangements for repayment (based on evidence that the taxpayer and her husband intended that the loan would be repaid through the proceeds of a dividend to be made within five years of the date of advance). Bowie TCJ. indicated that there was no requirement for an arrangement to be contractually binding (the plain meaning of the word "arrangement" indicated as much), that there was no requirement for repayment on a date certain and that evidence that the payment was not made in accordance with the arrangement (as was the case here) was relevant to the issue of bona fides but was not conclusive on the issue.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Evidence | 39 |