In E Hamelin, “Surplus Stripping: A New Approach?” 18:4 Tax for the Owner-Manager (October 18, 2018), the author notes that the Court in Pomerleau v R, 2018 FCA 129 seemed to treat the one-half portion of a capital gain that is “tax free” as an amount that is untaxed for the purposes of a section 84.1 purpose analysis. Mr Hamelin writes
Will this new approach have an impact on the surplus-stripping operations currently accepted by the tax authorities or validated by the courts that involve, directly or indirectly, capital gains? Examples include two-step pipeline transactions, either post mortem or inter vivos, for the purpose of distributing a corporation’s surplus through the realization of a taxable capital gain (sale of shares to an individual to trigger a taxable capital gain before a subsequent sale to a corporation), and gains such as those realized in Gwartz v. The Queen (2013 TCC 86).
