An agreement between the taxpayers and an unrelated purchaser of their shares to allocate a portion of the amounts paid by the purchaser to the taxpayers' non-compete covenant was found to be a transaction between persons who were not dealing at at arm's length given that the purchaser was being paid a portion of the anticipated tax benefit to the taxpayers of the restructured transaction. Favreau J stated (at para. 43):
[T]he parties were working together and had a common interest, that is, that of minimizing as much as possible the tax consequences of the transaction and to divide among them the tax saving on the projected income.