In order to make use of available capital losses before emigrating to the United States, the taxpayer sold the shares of his former professional corporation ("PC") to his brother-in-law ("JS") for a $525,000 promissory note, which was $10,000 less than the net asset value of PC (in the form of liquid assets). JS then transferred his shares of PC to a newly-incorporated holding company ("601") in consideration for a promissory note of 601 in the same amount and for the issue of common shares. The assets of PC were distributed within the following several months to 601, with $525,000 of such assets being applied to repay the two promissory notes in succession; and PC was dissolved.
Hershfield J found that s. 84(2) did not apply because the taxpayer was not a shareholder at the time he received the distributed funds - he found that "the McNichol approach which was to look to section 245 when subsection 84(2) does not apply on a strict construction of its language, is the correct approach" (TCC para. 59).
Near JA granted the Minister's appeal. The trial judge's approach "led him to fail to give effect to the statutory phrase 'in any manner whatever,'" and "[was] not consistent with Merritt, Smythe, or RMM" (para. 28). McNichol was distinguishable. Near JA stated (at para. 29):
In this case, at the end of the winding up, all of PC's money... ended up through circuitous means in the hands of Dr. MacDonald, the original and sole shareholder of PC who was both the driving force behind, and the beneficiary of, the transactions.