A Canadian subsidiary ("Greenleaf") of Ford U.S. paid down to $9,750,000 (including accrued interest) a debt of $24,369,439 (plus accrued interest) owing by it to Ford U.S. through the application of share subscription proceeds of $14,843,596 received by it from Ford U.S.A. and the application of a small amount of cash on hand of $100,706. Eighteen days later, a predecessor of the taxpayer ("392"), which was at arm's length with Ford U.S., purchased all the shares of Greenleaf from Ford U.S. for consideration of $1, and purchased the debt at only a slight discount to the amount owing, so that the debt-parking rules in ss. 80.01(6) to (8) did not apply. The Minister applied s. 245(2) on the basis that Greenleaf had sustained a debt forgiveness in the amount of the debt-paydown.
After finding that the debt-paydown transactions were part of the same series of transactions as the sale as they would have occurred either for the tax related reasons of Ford U.S. (to realize a loss for U.S. tax purposes) or for those of Greenleaf (to avoid application of the debt forgiveness rules) on the subsequent sale transaction, Bédard J went on to find that it was implausible that the taxpayer did not have a hand in the debt-paydown transactions so as to avoid the application of the debt forgiveness rules. Accordingly, the debt-paydown transactions were avoidance transactions.
Bédard J proceeded to find abuse.