On January 13, 1999, a newly-incorporated corporation ("New Supervac") was leased the assets of an unrelated corporation ("Old Supervac"), coupled with an option to acquire those assets and the right to also acquire all the shares of Old Supervac. The business was restored to profitability in short order, and New Supervac then acquired the assets on October 7, 1999, acquired the Old Supervac shares on November 17, 1999 and amalgamated with it on January 1, 2001. The amalgamated New Supervac paid a capital dividend in the fall of 2004 to one of the taxpayers (with such capital dividend being further distributed), and the Minister applied s. 83(2.1) to the capital dividends.
Boyle J accepted the taxpayers' evidence that the reasons for acquiring Old Supervac included accessing its losses and avoiding the necessity to obtain a fresh safety certification for one of its assets. However, he found that the taxpayer had not rebutted the reasonable inference that accessing Old Supervac's capital dividend account was also one of the main purposes of the series of transactions culminating in the purported capital dividend, noting that the taxpayer's evidence that it and its professional advisors had been oblivious to the capital dividend account at the time of acquisition was "surprising" (para. 32), and also noting that neither Old Supervac's former advisors nor the taxpayers' lawyer who structured the transactions had been called to testify. The taxpayer's appeal was dismissed.