In Harvard Properties Inc. v R, 2024 TCC 139, the taxpayer, as a co-owner of a shopping mall, rolled its interest in the mall to Newco and then sold the Newco shares for a “premium” over the value of the mall. The Court found that section 160 to the taxpayer applied in respect of the unpaid tax liability Newco incurred when it turned around and sold the mall to a third party. Section 160 applied because, among other things
It was clear from the advice and information given to the co-owners that the premium they were to receive was to be funded by Abacus not paying the tax liability created and to which the co-owners chose to be wilfully blind as long as they also enjoyed the irrevocable, secured tax indemnity covering section 160 and other tax risks dependent on the parties’ relationships. (para 123(h))
This “wilfull blindness” was critical in light of the Federal Court of Appeal decision in R v. Microbjo Properties Inc., 2023 FCA 157, because
[138] The Court stresses that “the parties’ state of mind is essential to the arm’s length component of the analysis.” (paragraph 75). In the case before this court, the state of mind of Harvard Properties and the other co-owners includes their choice to remain willfully blind to the tax liability created by following the Abacus proposal and to instead insist upon changes to the series of transactions that might better shield them from liability including the irrevocable secured tax indemnity.
