The taxpayer borrowed money from a bank, contributed the borrowed money and a shopping centre to a partnership in consideration for the assumption of indebtedness and the issuance of debt and a partnership interest. The partnership then made a distribution of capital to the taxpayer in the form of cash and the issuance of a mortgage, with the taxpayer using the cash to pay off the bank loan.
In finding that s. 85(1)(b) should be applied to increase the consideration deemed to be received by the taxpayer to an amount above that initially elected, Bell TCJ. stated (at p. 1339):
"The withdrawal of approximately 2/3 of the capital account at the time of asset transfer followed 38 days later by the withdrawal of the balance is inconsistent with the concept of a true capital account. The form of the entire transaction does not conceal its substance."