The other partners of the partnership consented to a reduction in the taxpayer's partnership interest from 40% to 15%, and to an increase in the partnership interest of a corporation ("WBG") of which he had voting control from 10% to 35%. WBG deposited the sum of $162,500 (representing 25% of the fair market value of the partnership assets) to the partnership, the taxpayer at the same time received a cheque for $162,500 from the partnership, and an amount of $269,812 representing 25/40ths of the taxpayer's 40% share of the partnership losses was transferred in the books of the partnership from the taxpayer to WBG.
Hugessen J.A. found that the payment of $162,500 to the taxpayer did not represent a distribution of capital to the taxpayer for purposes of s. 53(2)(c)(v) "because there [was] no change whatever in the corpus of the partnership capital or in the relative interests therein of any of the other partners" (p. 5275). Instead there was a partial disposition of the taxpayer's partnership interest to WBG, thereby giving rise to a capital gain.