The taxpayer transferred assets of a business to a partnership in what was intended to be an s. 97(2) rollover transactions in consideration for cash, promissory notes and assumption of debt ("boot") totalling an amount less than the cost amount of the transferred assets, and a Class "F" partnership interest stipulated to have a value equal to the balance of the purchase price. The partnership used cash (derived in part from a third party who had subscribed for ¾ of the equity in the partnership) to subscribe for preferred shares of a sister company of the taxpayer ("Holdings"), with Holdings in turn using the proceeds to subscribe for preferred shares of holding companies ("Holdcos") for the various indirect individual shareholders of the taxpayer. A "back-flow preventor" clause in the Partnership Agreement provided that in the event that the partnership received any payments in respect of preferred securities held by the partnership, the partnership would make distributions to the holders of Class F units equalling such payments received.
After noting (at p. 3015) that "in the real world" the Class F partnership unit "represented nothing more than an undertaking to pay $18.7 million for Holdings preference shares, which were of no practical value to the Partnership by reason of the Partnership Agreement", Bonner J. went on to find that the transactions were abusive in that in substance it could be said that the supposed "tax deferred proceeds" for the sale (represented by the Class F units) had reached the Holdcos. The Minister had been substantially correct in reassessing the taxpayer on the basis that it had received additional boot of $18.6 million.