Précis: The taxpayer entered into two sets of complex tax planning transactions.
The first involved a trust holding shares of his dental practice corporation which transferred shares to his wife who then transferred the shares to the taxpayer. The result, if it worked, was that dividends would be taxed in his wife’s hands because of the application of section 74.1 of the Income Tax Act (the “Act”). The Minister denied the application of section 74.1 and applied the avoidance rule contained in subsection 74.5(11) to tax the dividends in the hands of the taxpayer rather than at a lower rate in the hands of his wife.
The second transaction involved a reorganization of his dental corporation which involved three special classes of common shares which he then sold to his wife and two children, in trust, for one cent for each holder. On the same day all of the shares of the dental corporation were sold to an unrelated third party purchaser. The common shares issued to the taxpayer’s wife and children, in trust, were sold for roughly $735,000 for each holder. CRA reassessed on the basis that the shares were not transferred at fair market value by the taxpayer.
Mady v. R. - TCC: Taxpayer under-reported income on selling shares to wife and children for one centREAD MORE »