In R v 594710 British Columbia Ltd., 2018 FCA 166, the Court held that GAAR applied to a complicated series of transactions in which profits of a limited partnership were allocated to a corporation with tax shelter where the economic benefits of those profits ended up with the original partners (minus a deal fee).
Interestingly, the Court also found that a stock dividend and a subsequent redemption of the shares issued in satisfaction of the dividend together were the equivalent of a cash dividend for the purposes of section 160 of the Income Tax Act (Canada) (as per Algoa Trust v R, 93 D.T.C. 405, [1993] 1 C.T.C. 2294 (TCC), which held that a dividend was a transfer of property without consideration for the purposes of section 160). See ¶¶110–116.
Far be it for me to question the Federal Court of Appeal, but is that right? I understand that a cash dividend paid on, say, common shares, is not paid in return for anything that the holder of the shares does to earn the dividend. As was pointed out in Algoa Trust, the holder gave consideration for the shares but the holder does not give any further consideration for the dividends. On the redemption of shares, however, the holder of the shares is surrendering the bundle of rights against the corporation and its assets that make up the shares. If the fair market value of the share is equal to the payment made to the holder for its surrender, hasn’t the holder given consideration?
