A lacquer-manufacturing corporation (“Antoni”) indirectly owned by the taxpayer’s brother imported one of its product lines from an Italian company pursuant to an exclusive distribution agreement with it, and used the services of the taxpayer’s company (“LCR”) to distribute those products in Canada and the U.S. and provide after-sales service. Shortly before the sale of all the assets of Antoni to an arm’s length purchaser (“Chemcraft”), Antoni purchased all the assets of LCR. Lamarre ACJ affirmed the Minister’s finding that as the purchased LCR assets did not include any valuable goodwill (notwithstanding that LCR earned a significant portion of the combined profits), s. 160 applied to this purchase (and to a subsequent dividend paid by LCR to the taxpayer) on the basis that Antoni, which was a tax debtor, had paid more that the purchased assets’ fair market value.
In so finding, she noted that although goodwill “is a residual category of property which can encompass various diverse elements” (para. 90, TaxInterpretations translation), there was no evidence of a distributorship agreement with LCR that could not be terminated on short notice or that the LCR name, which was acquired by Chemcraft, was of any value to it, and that the asset sale agreement between LCR and Antoni had not listed goodwill as a transferred asset