Whether the sale by the taxpayers (a couple) of their shares of a private corporation (CCM) with producing Canadian oil wells and a Canadian financial services business constituted a sale of qualified small business corporation shares (QSBCS) turned on whether their CCM shares satisfied the test in the QSBCS definition of more than 50% of the fair market value (FMV), over the 24 months preceding the disposition, of their shares being attributable to assets used principally in CCM’s active business. Given that CCM had substantial cash holdings, this issue turned on whether at least $710,000 of this cash was so used in the business on the basis of being required by the oil and gas business as a reserve against prospective future well decommissioning costs.
Esri J rejected this proposition on the basis that the evidence indicated that the prospect of decommissioning costs being at this high a level was something quite remote (“no more than $52,000 would have been required as reserves to maintain compliance with provincial requirements” (par. 77)) and stated (at para. 71):
[I]t is a foregone conclusion that sooner or later decommissioning costs will become due, but that is not enough. The case law requires a rational connection between the reasonably determined risk and the amount of the reserves. It does not permit an appellant to set aside virtually unlimited amounts of property on the theory that there is a small and remote risk of an unlimited liability at an unspecified future date.