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.
In finding that s. 56(2) did not apply to deem the amounts paid by the Partnership for the preferred shares to be boot received by the taxpayer, Bonner J. noted that the Crown had admitted in the pleading that the total value of the (actual) boot and Class F units received by the taxpayer on the transfer of the business assets was equal to the price for which the business assets were sold to the partnership so that "there was no room for the additional consideration of which the Appellant is said to have diverted to Holdings".