With a view to its imminent disposition of the shares of a subsidiary which it had acquired on a rollover basis, the taxpayer continued to the British Virgin Islands, with the result that it ceased to be a Canadian-controlled private corporation (CCPC) and became a private corporation that was not a CCPC (its central management and control remained in Canada). CRA assessed on the basis that the resulting non-application of s. 123.3 (imposing refundable tax) and s. 123.4 (denying the general rate reduction on aggregate investment income) was an abuse of those provisions and of s. 250(5.1) (which deemed the taxpayer on its continuance to have been incorporated outside Canada).
In finding no abuse of those provisions, D’Arcy J first turned to s. 123.3 and stated (at paras. 212, 226-227):
Parliament has chosen, for policy reasons, to have different sets of rules for different corporations. …
The object, spirit and purpose of the definition of CCPC is to provide a dividing line between those corporations that are taxed under the specific regime for CCPCs and those corporations that are not taxed under this regime. Prior to being continued in the British Virgin Islands, the Appellant was on one side of the dividing line and, after it was continued, it was on the other side of the dividing line. This is exactly what Parliament intended. …
[T]he Appellant’s choice to be taxed as a non-CCPC did not abuse section 123.3 since Parliament only intended it to apply to a corporation’s investment income that is taxed under the regime for CCPCs.
After having indicated that the absence of a rate reduction under s. 123.4 for aggregate investment income reflected that it was subject to a low rate of tax once distributed as dividends, D’Arcy J noted that there was no abuse regarding the s. 123.4 rate reduction, stating (at para. 228):
Since the income was not eligible for any other special tax preferences, section 123.4, as intended by Parliament, lowered the tax rate to 15%, which Parliament intended to be the highest non-refundable tax rate levied under the Act.
Finally, the application of s. 250(5.1) accorded with its rationale, which was “to equate the place of continuance of a corporation with its place of incorporation” (para. 229).