Words and Phrases - "apply"

The taxpayer ("Products"), which was a corporation resident in the U.S., transferred the shares of its subsidiary ("CAHL"), which was non-resident in Canada notwithstanding that it had been incorporated in Canada in 1929, to a newly incorporated Canadian-subsidiary of Products ("Holdings") in consideration for a common share of Holdings that had a paid-up capital equal to the fair market value of CAHL. After CAHL became resident in Canada (as a result of its central management and control moving to Canada), CAHL paid dividends to Holdings, which distributed the same amounts to Products as distributions of paid-up capital.

In finding that it was not abusive for the stepped-up paid-up capital of the common share of Holdings to be utilized by Products to receive a distribution free of Part XIII tax, Boyle, J. rejected the Crown's submission that there was a scheme under the Act that should treat most distributions as subject to tax (noting (at paragraph 72) that any alleged legislative purpose "should be demonstrably evident from the provisions of the Act"), and noted (at paragraph 86) that the real reason the reorganization plan "worked" was that CAHL was a non-Canadian holding company whose shares were not taxable Canadian property and were excluded from the application of s. 212.1. On the appeal, Sharlow J.A. remarked: "We see no reason to conclude that the limited scope of those provisions was anything other than a deliberate policy choice by Parliament."

After finding for the taxpayer, Boyle J. went on to reject a taxpayer submission that there was no use of s. 84(4) by Holdings and, therefore, no misuse of s. 84(4) because s. 84(4) did not apply: s. “84(4) applies every time a corporation returns capital” even if a deemed dividend does not arise and that he “would equate the fact that subsection 84(4) was applicable to any step in the series to it being used” (para. 108).