On Golini v R, 2016 TCC 174, Karen Stilwell writes:
With respect to the assignment by Holdco, however, the Court reached a different conclusion. It found that though the collateral assignment by Holdco to secure its guarantee presented itself as contingent, nonetheless the assignment was absolute and the taxpayer had no obligation to repay the Metropac loan (see at paragraphs 123 through 125). The Court declined, however, to extrapolate from this that the Metropac loan itself was a sham or to deny the validity of the guarantee fee and interest paid by the taxpayer. Thus, the particular transaction found to be a sham transaction was not allowed to infect any of the surrounding transactions. Instead, it was simply treated as what the court found it to actually be. The Court made this limit perfectly clear in stating that it, “… [relied] on the Respondent’s sham argument only to cement my initial view that there was a benefit. I do not rely on it to wipe out the many contractual arrangements constituting the plan.” (at paragraph 125).
These limitations on the scope of the “sham doctrine” seem utterly appropriate. The doctrine that a document that misrepresents the legal relationship between parties is to be ignored for tax purposes is not an anti- avoidance doctrine but it rather flows logically from the fact of misrepresentation. The doctrine does not establish a basis to ignore for tax purposes actual legal relationships — be they the legal relationships misrepresented or the legal relationships established separately and that are otherwise legally valid.
Karen Stilwell, “Golini—Shareholder Benefit and Sham” (2016) 13:8 Tax Hyperion
