The taxpayer and an unrelated individual ("DeBruyn") accomplished a split-up of the business of a corporation ("DEL") of which they were equal common shareholders by transactions under which (i) DeBruyn converted his (Class A) common shares into Class B common shares, (ii) the taxpayer sold his Class A common shares of DEL to a newly-incorporated holding company for DeBruyn's wife ("114") for a purchase price of $150,000, (iii) DEL issued a promissory note to 114 in satisfaction of a $150,000 dividend declared by it on the Class A shares, (iv) 114 assigned the promissory note to the taxpayer in satisfaction of the purchase price for the Class A shares, (v) the taxpayer transferred the promissory note owing to him by DEL to a holding company ("HHCI"), and HHCI purchased assets of the Kingston branch of the business of DEL in consideration for satisfaction of the promissory note.
In finding that the transactions did not effect a reorganization of DEL's business, so that s. 84(2) did not apply, Lamarre J. found that the transactions did not result in a discontinuance of the business of DEL (it continued to operate a heating and air conditioning business (albeit at just one location rather than two locations), that the taxpayer subsequently to the transactions no longer had any dealings with DEL and that the transactions were no different than a sale to a third party.