In order to defeat a claim of a bank, a tax debtor ("Garneau") deposited $305,000 with a corporation ("2310") (whose shareholder, Mr. Pratte, was his friend) to hold on his behalf and disburse as directed.
The validity of the Minister's assessment of 2310 under s. 160(1) for Garneau's $63,000 tax debt rested, in part, on the transfer of funds to 2310 being a transaction betweeen persons not dealing at arm's length. Before finding that s. 160 applied, Noël JA stated (at para. 39):
[T]he evidence could not be any clearer. Mr. Pratte, by allowing the tax debtor to use 2310's bank account to conceal the fact that the tax debtor was the true owner of the deposited funds, worked in concert with the tax debtor, acting strictly as a front ... . A non-arm's length relationship may arise from the legal relationship between the parties or from the factual situation (Swiss Bank Corporation v. M.N.R., [1974] S.C.R. 1144). Based on the facts the tax debtor was not dealing at arm's length with Mr. Pratte and his company.