The emigration of the Canadian taxpayer to the United States would have caused the shares of his wholly- owned New Brunswick corporation ("PC") to be disposed of for their fair market value under s. 128.1(4)(b), resulting in a capital gain. While he had unutilized capital losses to shelter such gain in Canada, the United States would not recognize an increase in the cost base of his shares of PC on emigration. In light of this issue, he sold his shares of PC to his brother-in-law, with his brother-in-law then engaging in transactions to extract the assets of PC largely on a tax free basis and pay the purchase price to the taxpayer.
In the course of finding that the sale price paid to the taxpayer was not deemed to be a dividend under the GAAR (or s. 84(2)), Hershfield J. found that the transactions gave rise to a tax benefit even though it was not clear that the taxpayer had in fact reduced his tax payable under the Act. But for the US tax issue, the taxpayer would have engaged in the base-case alternative, described above, resulting in essentially the same utilization of his losses (para. 93). Nevertheless, he stated (at paras. 95-96):
I have no doubt that the assessment can proceed without reliance on a comparison. This is made clear in Canada Trustco. ...
... I do not find [the statement in Trustco that a tax benefit can be established by comparison with an alternative arrangement] to be sufficient to force the analysis in this case beyond accepting the simple and clear tax benefit identified by the Respondent; namely, the creation of a capital gain enabling the use of capital losses which resulted in a reduction of tax payable.