In order that the taxpayer’s RRSP could indirectly invest in operating businesses in which he(and/or tow business colleagues) had a management role, he instigated the formation of various unit trusts (the “Income Funds”) which were intended to be mutual fund trusts on the basis that 171 individuals (the “Investors”) - immediate and extended family members, friends, employees, business associates and others - each subscribed approximately $750 for units of each Income Fund. The taxpayer’s RRSP then invested a large sum (e.g., over $150 million for one of the Income Funds) in subscribing for additional units. The Income Funds invested in underlying LPs carrying on the businesses through an intermediate sub trust and master limited partnership, or more directly.
Smith J sustained assessments of the RRSP under s. 146(10.1) on the basis that the Income Funds did not qualify as mutual fund trusts and, even if they had, their use as “alter egos” for the taxpayer would have been an abuse under GAAR. However, in rejecting CRA arguments based on the “window-dressing” doctrine, he stated (at paras. 402-403):
In the end, although the case law cited above suggests that “window dressing” is “a deception that is not about the legal validity of a transaction, as in sham, but about the taxpayer’s intention for entering into the transaction” (my emphasis), I find that that analysis …is circumscribed by the “economic realities” of the transaction(s) at issue and is limited to an enquiry as to whether “the legal relations were bona fide”: Singleton.
Although the Court has concluded that the Income Funds were not qualified investments for RRSP purposes, and while it certainly finds that the Appellant had ulterior motives in connection with his RRSP, that is not sufficient to reach a finding that the Income Funds were “window dressing”.