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.
In dismissing the taxpayer's appeal, Bédard J found (at para. 126-127) that the transactions were abusive having regard to s. 80(2)(g) (TaxInterpretations translation):
The spirit and object of paragraph 80(2)(g) are to ensure that, when a debt is settled in exchange for shares, the debt forgiveness rules apply by taking into account the actual value of the shares which are issued. ... In adopting this paragraph, the legislator sought to prevent a taxpayer from transforming a debt into shares with low value, thereby avoiding the debt forgiveness rules. ... In proceeding in two stages rather than effecting a direct conversion of debt to shares, the appellant circumvented the application of paragraph 80(2)(g) and, thus, a gain on debt settlement.