The taxpayer ("Envision") was formed on the amalgamation under the Credit Union Incorporation Act (B.C.) (the "CUIA") of two credit unions. S. 23(b) thereof provided that "the amalgamated credit union is seized of and holds and possesses all the property ... and is subject to all the debts ... of each amalgamating credit union."
The taxpayer sought to avoid having this qualify as an amalgamation described in s. 87(1) of the Act (which required that all property of the predecessors, other than intercompany shares or debts, become property of the amalgamated corporation). To this end, a beneficial interest in some "surplus" real estate was conveyed to a numbered corporation subsidiary at the exact stipulated time for the amalgamation in the amalgamation agreement.
In finding that the taxpayers had failed to avoid the application of s. 87(1), Rothstein J stated (at para. 56):
Although there is extrinsic evidence that the predecessors intended to prevent Envision from being seized of the surplus properties, such an arrangement would be in violation of s. 23(b) of the CUIA. When a contract may be construed in two ways, a lawful interpretation ought to be preferred over an unlawful one: G. McMeel, The Construction of Contracts: Interpretation, Implication, and Rectification (2nd ed. 2011), at para. 7.31. Accordingly, the words of the contract (as opposed to the intention of the parties with respect to tax consequences) are best interpreted as merely ensuring that the surplus properties were sold at the time of the amalgamation. This interpretation is consistent with s. 23(b) of the CUIA. As a result, the amalgamation agreement is not invalid.