Before a Canadian public corporation (“Husky”) paid a dividend on its shares, two significant shareholders of Husky resident in Barbados (the “Barbcos”) transferred their shares under securities lending agreements to companies resident in Luxembourg with which they did not deal at arm’s length (the “Luxcos”). On payment to the Luxcos of the dividends on those shares, Husky withheld at the Luxembourg treaty-reduced rate of 5%. The Barbcos were assessed under s. 245(5) for having avoided Part XIII tax at a 15% rate.
As to whether there were avoidance transactions, Owen J rejected submissions that the transactions were carried out primarily to avoid the risk of Barbados income tax to the Barbcos on the dividends, and found that the purpose of the arrangements was primarily to reduce Part XIII tax.