Income account treatment of the profits realized by a condo-project limited partnership was avoided through the corporate partners (the Partnercos) of the partnership paying safe income dividends (out of the realized but unallocated condo profits) to their respective Holdco shareholders through the payment of stock dividends of preferred shares followed by a redemption of those preferred shares – in turn, followed by a sale by the Holdcos of the Partnercos to a public company with substantial resource pools (Nuinsco). The income of the partnership for the year in which the condo sales had occurred was allocated to Nuinsco following the winding up into it of the Partnercos.
After first finding that the allocation of the income to Nuinsco rather than to the Partnercos represented an abusive avoidance for purposes of s. 245(4) of ss. 96(1)(f) and 103(1), Woods JA went on to find that s. 160 would have applied to the transfer of property of the Partnercos to the Holdcos effected through the preferred share stock dividends and redemptions but for the fact that the associated tax liability did not arise until the income was allocated to an arm's length person (Nuinsco), stating (at paras. 112, 115):
The stock dividends and the redemption together resulted in a transfer of cash “indirectly … by any means whatever” from Partnerco to Holdco without consideration. …
Although the Algoa Trust decision deals with a cash dividend, the combination in this case of stock dividends followed by a redemption has the same effect and similarly results in a transfer of property without consideration.
She went on to find that it was an abuse under s. 245(4) for the application of s. 160 to have been avoided given that the acquisition of the Parterncos, which resulted in the year end occurring before teh allocation of income, "arose as part of a series of transactions that was devoid of any purpose or effect except to obtain a tax benefit" (para. 123).