Overview of facts. The two individual taxpayers devised a scheme to: generate artificial capital gains of $110 million in some home-grown companies; pay the supposedly resulting capital dividend accounts (CDAs) of $55 million to another company (1915); generate artificial capital losses in the home-grown companies to offset their capital gains; effectively sell negotiated portions of the CDA to 3rd-party purchasers by having them subscribe for preferred shares at a 21% premium to their redemption amount with the shares' redemption amounts effectively being flowed out to the 3rd parties as purported capital dividends; and then pocketing such subscription "premiums" as capital dividends paid out to them. A more detailed summary of the facts is under s. 83(2).
Share premiums were business income. In finding that the share premiums received by 1915 were business income to it, Noël JA found (at para. 64) that as the maximum value of the preferred shares was $1,000 "the premium was therefore paid for something other than the shares [and] this was obviously access to the CDAs," and stated (at para. 66):
[A]s additional amounts collected by the corporate appellants were generated in the course of successive operation the purpose of which was to produce surpluses, all the factors underlying the existence of a business are present."