iArchambault J found that s. 160(1) did not apply to the transfer of funds to the taxpayer by a friend of its shareholder as they had a mandator-mandatary relationship.
Although it was unnecessary to decide whether the parties were at arm's length, Archambault J suggested that they were. The friendship was likely not enough to constitute a non-arm's length relationship given the mandatary relationship. Archambault J stated ( at para. 83):
Under such circumstances, there is no reason to be concerned with the concept of non-arm's length relationship because, by definition, a mandatary must always follow his mandator's instructions and because, for income tax purposes, no transfer has been made between the mandator and the mandatary.