A week before realizing a $119 million capital gain, the taxpayer, which until then was wholly-owned by a Canadian-resident individual, issued voting preference shares to his non-resident children (who thereby acquired de jure control), but not to a resident son. CRA had decided not to take the position that the taxpayer had remained a CCPC by virtue of continued de facto control by the resident individual, but that GAAR should instead be applied. CRA assessed the taxable capital gain on sale, so as to deny the general rate reduction under s. 123.4 and impose refundable tax under s. 123.3, on this basis.
Based on the Crown’s submissions at the hearing of this motion, its position appeared to be that, although Lark was no longer a CCPC because of the de jure control of the non-resident children, there was a GAAR abuse because de facto control was maintained in Canada. However, this position was not reflected in the Reply, which instead contained vague references to the integration system and abuse of ss. 123.3 and 123.4, and did not refer to de facto control.
St-Hilaire J found (at para. 60) that the relevant part of the Reply “may prejudice the fair hearing of the appeal and is an abuse of process” and should be struck – but with leave to the Crown to amend its pleadings.
After noting (at para. 43) that the taxpayer “appears to complain that there was no GAAR analysis conducted by the GAAR Committee specifically for Lark’s case” and that the GAAR Committee minutes provided to the taxpayer instead referred to a continuance of the corporation as a non-Canadian corporation, St-Hilaire J stated (at para. 45) that she adopted the view in Aikman “that there is no requirement that the Minister consult the GAAR Committee.”