3295940 Canada Inc. v R, 2022 TCC 68 considered a taxpayer who had wanted to sell shares of 329, which had a high tax cost, to an arm’s length purchaser. The purchaser would not buy the shares for commercial reasons. The taxpayer, then, undertook a reorganization that permitted it to sell the shares of another corporation with the same inherent capital gain. The reorganization would have been subject to the application of 55(2) except that the inter-corporate dividends were non-taxable capital dividends. The Court held that GAAR applied. It did not matter that the gain realized after the completion of the reorganization was the same as it would have been if the purchaser had acquired the 329 shares or that the reorganization had not created additional tax cost within the group.
Joseph Bogle “GAAR and Subsection 55(2)” 12:4 Canadian Tax Focus (November 2022)
