Various employees of the taxpayer had been granted stock options by the taxpayer's parent ("Imasco"), a public corporation, and the option plan had been amended to provide that the employees could surrender their options for a cash payment equal to the options' accrued value. After Imasco had agreed with another corporation to support a transaction under which the other corporation would acquire the common shares of Imasco held by the public and cause a going-private transaction to occur, Imasco accelerated the vesting of the options and agreed with the taxpayer that the taxpayer would reimburse Imasco for an amount equal to all cash payments made by Imasco to employees who surrendered their options.
In finding that the payment in excess of $54 million so made by the taxpayer was not a capital expenditure, Bowman C.J. stated (at para. 22) that:
"I start from the premise that in the ordinary course a payment made by an employer to an employee for the surrender of his or her option under a stock option plan to acquire shares of the company is a deductible expenses to the company."
and (at para. 31):
"The fact that a subsidiary reimburses its parent for compensation paid to the subsidiary's employees does not turn the payment into a capital expenditure just because the parent company is in the midst of a corporate reorganization."
Bowman C.J. noted (at para. 33) that the Kaiser case was distinguishable on the basis that in this case there was no "reshaping of the capital structure" of the taxpayer.