The taxpayer, a paper products manufacturer, engaged in a hybrid transaction in which it sold some of the assets of its “Tissue Division” directly to a third-party purchaser (“Cascades”) and rolled the balance of them down to a Newco under s. 85(1) for Newco shares and sold the Newco shares to Cascades. CRA assessed on the basis that the sale of the Newco shares was on income account.
In its Notice of Objection and in its Notice of Appeal, the taxpayer took the position that s. 54.2 deemed the gain on the share sale to be a capital gain, but advertently refrained from arguing that it was a capital gain on general principles.
In finding that the latter issue could not be raised on an appeal to the Court of Appeal, Webb JA stated (at paras. 35-37):
The critical question that arises is whether all of the relevant evidence to decide the new issue that is now raised by Atlantic Packaging was before the Tax Court. In its memorandum, Atlantic Packaging refers to the six factors that have been considered by the courts in determining whether the gain realized on a disposition of a particular property is an income gain or a capital gain. These are set out in Happy Valley Farms … .
…[O]ne of the considerations that is listed as a relevant factor is the frequency or number of other similar transactions completed by the taxpayer. While it would be presumed that Atlantic Packaging would not be frequently selling off an entire division, there is no indication of whether Atlantic Packaging followed a similar pattern or similar transactions in disposing of other depreciable property. …
[T]he absence of this evidence is sufficient for this Court to reject Atlantic Packaging’s argument that this new issue should be considered by this Court. The Crown has been deprived of any opportunity to explore the facts related to the frequency or number of similar transactions … .