The taxpayer (a Schedule II chartered bank) acquired preferred shares of a public company which, after five years, were convertible into common shares of the public company at a conversion price equal to the current market price at the time of the conversion (as determined in accordance with a formula) of a common share of the public company.
The conversion feature did not represent the provision of "any form of guarantee, security or similar indemnity or covenant ... with respect to" the share investment of the taxpayer.
Given that "the definition of 'term preferred share' was clearly designed to combat a particular activity prevalent amongst specific actors in a specific setting, that is, financing transactions between a small group of specified financial institutions", it was clear that the definition applied "to a specific and sophisticated segment of taxpayers" and that the terms in the definition should be given their more technical meaning derived from the laws that applies to commerce in general and public listed companies in particular, rather than their ordinary dictionary meaning (p. 6882). Further, Parliament intended to tax arrangements which were, in substance, debt arrangement whereas, here, Citibank, which had no assurance as to the value it would realize when common shares into which it converted were sold, was in substance making a share investment. Finally, the Minister's proposed interpretation ignored "the commercial context of subparagraph 248(1)(a)(iii) and would deem the Citibank conversion formula to be impermissible simply because the Minister views the possibility of Citibank's recovery as being better than under another model" (p. 6884), and the Supreme Court had consistently warned against finding unexpressed parliamentary intent in detailed and clearly worded provisions of the Act.