The taxpayer who owned a portion of the shares of a holding company ("GH") which, in turn, owned an operating company ("GBC") which was engaged in a cement construction business. GBC owned a cement plant which produced all of the cement needed by GBC, with its remaining output (approximately 1/3) being sold to third parties. Following a determination that the cement plant would be sold to an arm's length purchaser ("Lafarge") in transactions which sought to utilize the enhanced capital gains exemption, the following transactions were implemented: the taxpayer and the other shareholders of GH transferred a portion of their shares of GH to a newly-incorporated company ("Newco") in consideration for shares of Newco having a value of $500,000; GBC paid a dividend-in-kind of most of the cement plant assets (having a value of $1 million) to GH; GH redeemed the common shares held in its capital by Newco by transferring to Newco the assets which it had received from GBC; and the shareholders of Newco sold their interests in Newco to the Lafarge (who also purchased the remaining cement-plant assets directly from GBC).
Bowman T.C.J. found that s. 84(2) did not apply to deem the taxpayer to have received a dividend: there was no discontinuance, winding-up or reorganization of any company's business, as both GH and GBC continued to do what they had done before (Bowman TCJ having previously found that the cement construction and cement production activities of GBC were one business given the integration of personnel and operations); the taxpayer was a shareholder only of GH and not of GBC, and the only "business" of GH was the holding of shares of GBC, which state of affairs was not altered by the reorganization; and under the transactions no funds or property of either GBC or GH ended up in the taxpayer's hands.