winding-up

The appellant was a secured debentureholder who, following default by the debtor (“Xyloid”), obtained a court order for the appointment of a receiver. Xyloid had paid only the net amount of wages to employees prior to the appointment of the receiver, and did not have the funds to remit the required amount of source deductions. S.

The general contracting company (“CIA”) of two brothers was dissolved in January of 2008 (the “Dissolution Date”) for failure to file Ontario corporate tax returns. Although “upon such dissolution, the property of CIA technically and legally escheated to the provincial Crown” (para. 40), in fact, a CIA bank account was thereafter used to pay various CIA creditors. In addition to being assessed under s. 160 on the basis of alleged property transfers to them after the Dissolution Date, they were treated as having received a deemed dividend under s. 84(2).

The taxpayer was the sole individual shareholder of a personal corporation ("LVG") which, in turn, owned approximately 1/3 of the common shares of another corporation ("Trident") which was engaged in the oil business through holding controlling shareholdings in three corporations. Trident realized proceeds as a result of a sale of the most valuable of these subsidiaries and distributed the proceeds to its shareholders, including LVG, on March 22, 1971 and on August 3, 1971 in anticipation of the liquidation and winding-up of Trident.

The Premier Trust Company ("Premier") acquired all the shares of the taxpayer and other shareholders of the Security Loan and Savings Company ("Security") in consideration for (at the option of the shareholder) 1.5 shares of Premier for each Security share, or a combination of cash of $102 and 0.5 shares of Premier for each Security share. The taxpayer opted to receive cash and shares. Security then amalgamated with Premier. The Minister assessed under s. 19(1) of the Income War Tax Act, which provided that:

The taxpayers were shareholders of a company (the "old company") who effectively converted its assets to cash through a series of transactions: those assets were sold to a related company owned in essentially the same manner (the "new company") in consideration for a promissory note; the note was paid-off through bank borrowings of the new company; the old company used those cash proceeds to invest in preference shares of two unrelated companies (the "dividend-stripping companies"); and the taxpayers sold the shares of the old company to the dividend-stripping companies for a cash amount ba

A substantial dividend was not paid on the "winding-up, discontinuance or reorganization" of a company's business because, following the payment (and the sale of one of the company's two plants), the company continued to carry on business for over a year, "albeit on a reduced scale". (p. 6277) (s.81(1) of the old Act)