The taxpayer held two corporations ("Tesla" and "Orion"), and Tesla Packaging held 55% of the shares of another corporation ("Phoenix"). Tesla and Phoenix were both in the business of manufacturing and marketing stretch wrap packaging equipment, while Orion was in the business of car racing. The taxpayer and all of the corporations were directed and administered by the same individual ("Mucha"), who was also the taxpayer's only shareholder and Orion's only driver. Phoenix had never paid dividends to Tesla, which in turn had never paid dividends to the taxpayer.
D'Auray J. found that, in accordance with Lyncorp, sponsorship and maintenance fees ($331,277 and $246,786 in 2005 and 2006) that the taxpayer paid to Orion to promote Phoenix were not deductible as business or property expenses. She stated (at paras. 80-81):
Simply stated, the potential receipt of dividends was too remote.
It is also difficult to understand how the payments made by Motech to Orion Racing for the race car maintenance and repairs expenses were for the purpose of gaining dividends from Tesla. There is clearly no nexus between the operating expenses of Orion Racing and the alleged dividends income from Phoenix Innotech via Tesla.
D'Auray J. also suggested that the deductions might be disallowed under s. 18(1)(h) or s. 67, but the point was moot.