the meaning of “series of transactions” as disclosed by a ... · ils entreprennent ensuite une...

canadian tax journal / revue fiscale canadienne (2010) vol. 58, no 2, 277 - 330

277

The Meaning of “Series of Transactions” as Disclosed by a Unified Textual, Contextual, and Purposive Analysis

Michael Kandev, Brian Bloom, and Olivier Fournier*

P R É C I S

L’expression « série d’opérations » est utilisée couramment dans la Loi même si elle n’y est pas définie expressément. Même de nombreuses années après la promulgation du paragraphe 248(10), la question de ce que constitue à juste titre une série d’opérations demeure toujours hautement controversée en droit fiscal canadien, et elle est encore au cœur d’un litige sur lequel se penchera la Cour suprême du Canada dans l’affaire Copthorne Holdings Ltd. c. Canada. Le présent article propose de réexaminer la définition de « série » et l’interprétation du paragraphe 248(10) que les tribunaux canadiens ont établies jusqu’à maintenant de façon à donner à « série » le sens que les auteurs estiment être juste au sens de la Loi. Essentiellement, le point de vue soutenu par les auteurs est qu’il n’y a pas de série au sens de la common law ou de série élargie présumée en vertu de la Loi, mais qu’on y trouve plutôt une seule notion de série. À l’appui de leur point de vue, les auteurs remettent tout d’abord en question la prémisse de base sur laquelle repose l’interprétation actuelle de la notion de « série » par un examen de la jurisprudence pertinente. Ils entreprennent ensuite une analyse textuelle, contextuelle et téléologique unifiée afin de déterminer le sens approprié à attribuer au concept de la série au sens de la Loi ainsi que l’interprétation appropriée du paragraphe 248(10). Pour terminer, les auteurs mettent à l’épreuve la définition qu’ils proposent de la série au regard des faits établis dans les principales causes au Canada en cette matière.

* OfDaviesWardPhillips&VinebergLLP,Montreal.WewouldliketothankourpartnerNathanBoidmanforhisextensiveandinsightfulcommentswithrespecttothisarticleinparticularandregardingthenotionof“series”ingeneral.WewouldalsoliketothankJohnAveryJones(retiredjudgeoftheUKFirstTierTaxTribunal)forhisinputregardingUKtaxlawandourNewYorkpartnerAbeLeitnerforhisinputregardingUStaxlaw.Ofcourse,anyerrorsoromissionsremainourresponsibility.MichaelKandevcanbereachedatmkandev@dwpv.com,[email protected],[email protected].

278 n canadian tax journal / revue fiscale canadienne (2010) vol. 58, no 2

A B S T R A C T

The expression “series of transactions” is prevalent in the Act but is not explicitly defined therein. Many years after the enactment of subsection 248(10), the question of what properly constitutes a series of transactions remains highly controversial in Canadian tax law, and it will again be the subject of debate before the Supreme Court of Canada in Copthorne Holdings Ltd. v. Canada. The purpose of this article is to reconsider the definition of “series” and the interpretation of subsection 248(10) provided thus far by Canadian courts, in order to establish what the authors believe to be the correct meaning of “series” under the Act. In essence, the thesis of this article is that there is no “common-law” series or “deemed” extended series under the Act; there is just the single notion of series. To demonstrate their views, the authors first deconstruct the basic premise upon which the current interpretation of the notion of “series” rests, by reviewing the relevant jurisprudence. They then undertake a unified textual, contextual, and purposive analysis to determine the proper meaning to be ascribed to the concept of series under the Act and the proper construction of subsection 248(10). Finally, the authors test their suggested definition of “series” against the facts of Canada’s main cases in this area.

KEYWORDS: SERIES OF TRANSACTIONS n STATUTORY INTERPRETATION n CASES

C O N T E N T S

Introduction 279Background 280Deconstructing “Series” 282

Critical Review of the Jurisprudence 282OSFC 282Canutilities 286Canada Trustco and Mathew 288MIL 290Copthorne 291

Conclusion 294Reconstructing “Series” 295

Principles of Interpretation 295“Series of Transactions” 295

Text 295Context 296Purpose 308

Subsection 248(10) 308“The Series Shall Be Deemed To Include” 308“Related” 312“In Contemplation of ” 313

Conclusion 322The Canadian Case Law on “Series” Redux 324Conclusion 325Appendix 1 Summary of Facts in Copthorne 327Appendix 2 Series Spectrum 330

the meaning of “series of transactions” n 279

INTRO DUC TIO N

Theexpression“seriesoftransactions”isastandardfeatureofanti-avoidancerulesthroughout theIncomeTaxAct.1This is inrecognitionof the fact thatplannedtransactions,regardlessoftheirintendedresult,rarelyoccurasasinglestep.Forex-ample,asaleofsharesofacorporationcommonlytakesplaceintandemwithrelatedstepsto“purify”thecorporationinordertoaccessthecapitalgainsexemption,orwithtransactionsintendedtostepupthetaxcostofthesharesbycrystallizingthecorporation’ssafeincome.

Althoughtheexpression“seriesoftransactions”isprevalentintheAct,itisnotexplicitlydefinedtherein;rather,Parliamenthas, forthemostpart, left it tothecourtstodetermineitsmeaning.Thecourtshave,understandably,struggledwiththistask,sincetheyarefacedwithapplyingtheseriesconcepttoanalmostunlimit-edvarietyoffactpatterns.Thisstrugglehasculminatedinagenericdefinitionof“series”thatisbasedonaUKjudicialanti-avoidancerule,andisreferredtobythecourtsasa“common-lawseries.”TheadoptionbyCanadiancourtsofthecommon-lawseriesconcepthasled,inturn,totheconstructionofsubsection248(10)asgivingrisetoa“deemed”or“extended”series—thatis,anaggregationoftransactionsoreventsthatisbroaderthanthatwhichwouldotherwiseresultunderthecommon-lawmeaningofseries.

Many years after the enactment of subsection 248(10), the question of whatproperlyconstitutesa seriesof transactionsremainshighlycontroversial.2 ItwillagainbethesubjectofdebatewhentheSupremeCourtofCanadahearstheCop-thornecase.3Indecidingthiscase,theSupremeCourtwillhavetheopportunitytoredefinethenotionofseriesand,inparticular,torevisitpriordecisionsinterpretingsubsection248(10).

Thepurposeof thisarticle is toreconsiderthedefinitionof“series”andtheinterpretationof subsection248(10)provided thus farby thecourts, inorder toestablishwhatwebelieve is the correctmeaningof “series”under theAct.Thethesisofthisarticle,simplyput,isthatthereisno“common-law”seriesor“deemed”seriesunder theAct; there is just the singlenotionof series.Aswillbedemon-strated,theselectionofaUKjudge-madegeneralanti-avoidanceruleasthebasisforadefinitionof“series”undertheActhasresultedinanundulynarrowconceptofseries,effectivelycompellingthecourtstoadoptanunnecessarilybroadconstruc-tionof the rule in subsection248(10) inorder toarriveat satisfactory results indifficultcases.

1 RSC1985,c.1(5thSupp.),asamended(hereinreferredtoas“theAct.”)Unlessotherwisestated,statutoryreferencesinthisarticlearetotheAct.

2 SeeBrianR.CarrandDuaneR.Milot,“Copthorne:SeriesofTransactionsRevisited,”CorporateTaxPlanningfeature(2008)vol.56,no.1Canadian Tax Journal243-68;andMarkD.Brender,“SeriesofTransactions:ACaseforaPurposiveInterpretation,”CorporateTaxPlanningfeature(2007)vol.55,no.1Canadian Tax Journal210-34.

3 2009DTC5101(FCA);aff ’g.2007DTC1230(TCC);leavetoappealtotheSupremeCourtofCanadagrantedJanuary28,2010(Case33283).


Intheanalysisthatfollows,wefirstdeconstructthebasicpremiseuponwhichthecurrentinterpretationoftheterm“series”rests,byreviewingtherelevantjuris-prudence.Wethenundertakeaunifiedtextual,contextual,andpurposiveanalysistodeterminethepropermeaningtobeascribedtotheconceptofseriesundertheActandtheproperconstructionofsubsection248(10).Finally,wetestourproposeddefinitionof“series”againstthefactsofCanada’smaincasesinthisarea,toestab-lishwhetheritmeasuresupintherealworldandwhetheritconstitutesapracticalandpredictabledefinitionforthepurposesoftheAct.

B ACKGRO UND

The expression “series of transactions” and its variants4 populate a significantnumberofprovisionsintheAct.5Theexpressionismostnotablyfoundinspecificanti-avoidancerules,suchasthosecontainedinsections55,85.1,88,and94,and,ofcourse,insection245,thegeneralanti-avoidancerule(GAAR).Itisalsoacom-ponentofthetransfer-pricingrulesinsection247.

For example, the anti-capital-gains-stripping rule in subsection 55(2) deemsproceedsofdispositionoracapitalgaintoarise,insteadofatax-deductibleinter-corporatedividend,

4 Inthisarticle,theterm“series”and“seriesoftransactions”areusedinterchangeably(although,asnotedintheintroduction,ourfocusisonthemeaningoftheterm“series”).Thenotionofaseriesoftransactionsisoftenextendedtoinclude“events,”butinthisarticle,forthesakeofbrevity,wedonotreferto“events,”nordoweaddressthemeaningofeitheran“event”ora“transaction.”However,wenotethatveryinterestingissuesmayariseinthisregard.Forexample,inarecenttechnicalinterpretation,theCanadaRevenueAgency(CRA)dealtwiththequestionofwhetherataxelectionmaybea“transaction”forthepurposesofthegeneralanti-avoidancerule(GAAR).TheCRAopinedthat“whenadesignationoranelectionprovidedintheITAismadebyoneormoretaxpayers,thisconstitutesatransactionforthepurposesoftheapplicationofsection245.”SeeCRAdocumentno.2009-0329981C6,October9,2009.

5 Theterm“seriesoftransactions”isusedinsections20.3,82,83,89,107.4,110.6,112,129,132.11,181.2,188,188.1,233.1,245,247,248,and256.Theterm“seriesoftransactionsorevents”isusedinsections44.1,53,55,69,85,85.1,88,95,104,110.6,112,127,132.11,149.1,149.2,183.1,191,193,195,207.01,209,212.2,233.2,245(throughstatutoryextension),247(throughstatutoryextension),256,and261.Theterm“series”isalsousedbyreferencetocertainspecifictransactionsoreventsinthefollowingsections:13(ofextensionsorrenewals),15(ofloansorothertransactionsandrepayments),20(ofborrowingsorothertransactionsandrepayments,orofpaymentsandrefundsofcontributions),40(ofcontributions),60(ofperiodicpayments),60.01(ofperiodicpayments),96(ofloansorothertransactionsandrepayments),104(ofperiodicpayments),110.2(ofperiodicpayments),143.2(ofloansorotherindebtednessandrepayments),146(ofperiodicpayments),146.1(ofloansorothertransactionsandrepayments),147(ofappropriationsandrepayments),147.1(ofperiodicpayments),207.5(ofpaymentsandrefundsofcontributions),207.6(ofperiodicpayments),212(ofsecuritieslendingarrangements,loans,orothertransactions),227(ofloansorothertransactionsandrepayments),233.2(ofloansorothertransactionsandrepayments),259(ofloansorothertransactionsandrepayments),and260(ofsecuritieslendingarrangements,loans,orothertransactions).


[w]hereacorporationresidentinCanadahasreceivedataxabledividendinrespectofwhichitisentitledtoadeductionundersubsection112(1)or(2)or138(6)aspartofatransactionoreventoraseries of transactions or events,oneofthepurposesofwhich(or,inthecaseofadividendundersubsection84(3),oneoftheresultsofwhich)wastoeffectasignificantreductionintheportionofthecapitalgainthat,butforthedivi-dend,wouldhavebeenrealizedonadispositionatfairmarketvalueofanyshareofcapitalstockimmediatelybeforethedividendandthatcouldreasonablybeconsideredtobeattributabletoanythingotherthanincomeearnedorrealizedbyanycorporationafter1971andbeforethesafe-incomedeterminationtimeforthetransaction,eventorseries[emphasisadded].

Subsection245(3),whichdefinestheterm“avoidancetransaction”(oneoftheconditionsfortheapplicationofGAAR),readsinpartasfollows:

Anavoidancetransactionmeansanytransaction...(b) that ispart of a series of transactions,whichseries,but forthissection,would

result,directlyorindirectly,inataxbenefit,unlessthetransactionmayreasonablybeconsideredtohavebeenundertakenorarrangedprimarilyforbona fidepurposesotherthantoobtainthetaxbenefit[emphasisadded].

Aswehavenoted,theexpression“seriesoftransactions”isnotdefinedintheAct;however,subsection248(10)states:

ForthepurposesofthisAct,wherethereisareferencetoaseriesoftransactionsorevents,theseriesshallbedeemedtoincludeanyrelatedtransactionsoreventscom-pletedincontemplationoftheseries.6

Withrespecttotheordinarymeaningoftheexpression“seriesoftransactions,”courtshaveadoptedthebasicformulationthataseriesoftransactionsinvolvesanumberoftransactionsthatarepreordainedinordertoproduceagivenresult,withnopracticallikelihoodthatthepreplannedeventswouldnottakeplaceintheorderordained.

Withrespecttosubsection248(10),aswillbeseenbelow,thereremainsasig-nificantlevelofcontroversyregardingthepropermeaningofthe“incontemplation

6 Weareoftheviewthattheapplicationofsubsection248(10)isnotlimitedonlytothoseinstanceswheretheexactexpression“seriesoftransactionsorevents”appearsintheAct.Significantly,thisexpressionisthebroadestofthe“series”referencesintheActandshouldbeseentoincludethenarrowerreferencesinotherprovisions.Inthisregard,seethedecisionoftheFederalCourtofAppealinOSFC,infranote7,whereRothsteinJstated,atparagraph37,“Ireadsubsection248(10)toapplywhetheraseriesisaseriesoftransactions,aseriesofevents,oraseriesoftransactionsandevents.”Alsoconsiderthatsubsection248(10),asdiscussedindetailbelow,isintendedtoclarifythemeaningoftheword“series”andnotthemeaningofthewords“transaction”and“event.”Therefore,subsection248(10)shouldapplytoall“series”referencesintheAct.


of ”requirement.Canadiancourtsappeartohaveacceptedthatcontemplationcanbeappliedbothprospectivelyandretrospectively.

WenextreviewthemainCanadiancasesonthenotionof“seriesoftransactions”withaview todeconstructing the seriesconceptascurrentlyunderstoodbyourcourts.

DECO NS TRUC TING “ SERIE S”

Critical Review of the Jurisprudence

OSFCThecurrentseriestestoriginatesinthe2001FederalCourtofAppealdecisioninOSFC Holdings Ltd. v. The Queen.7InthisGAARcase,amortgagelender,StandardTrustCompany(Standard),becameinsolvent.InordertomaximizetherecoveryfromthedispositionofStandard’sassets,itsliquidatordevisedaplantosellStandard’smortgageportfolioandmonetizeStandard’ssubstantialaccruedtaxlosses.Pursuanttotheplan,inOctober1992,Standardimplementedaseriesoftransactionswhere-byittransferredonatax-deferredbasisitsSTILIImortgageportfoliototheSTILIIPartnershipinconsiderationfora99percentinterest.8Byreasonofsubsection18(13)(asitthenread),theportfoliowouldberecordedbythepartnership,forincometaxpurposes,atStandard’scost ($85,368,872)notwithstandingthat the thencurrentmarket value (approximately $33,262,000) was significantly inferior.9 In January1993,negotiationsbeganbetweentheappellantandtheliquidator,withtheSTILIIportfoliotogetherwithaccruedtaxlossesofsome$52millionbeingofferedasapackagedeal.Finally,onMay31,1993,theappellantpurchasedStandard’s99percentinterestintheSTILIIPartnership.10Intransactionsprearrangedbeforetheclosingofthepurchase,thetaxpayerthensyndicateditsSTILIIPartnershipinterestintoanotherpartnership,SRMP,inwhichitretaineda24percentinterest.Asplanned,

7 2001DTC5471(FCA);aff’g.99DTC1044(TCC);leavetoappealtotheSupremeCourtofCanadarefused294NR398.

8 AwhollyownedsubsidiaryofStandardpurchaseda1percentinterest.

9 Therefore,attheendofitsfirstfiscalyear,theSTILIIPartnershipwouldincuranetlossforincometaxpurposesofsome$52millionbyreasonofthesaleofpropertiesattheirfairmarketvalueandthewritedownoftheremaininginventorypropertiesfromStandard’soriginalinvestmenttotheirfairmarketvalue.

10 Theconsiderationforthepurchasewasasfollows:n $17.5millionpayabletoStandard,ofwhich$14.5millionwasintheformofa

promissorynoteandthebalancewascashpayableonclosing;n anadditionalamount,referredtoas“theearn-out,”whichwastobedeterminedbya

formulawherebytheappellantandStandardwouldshareanyproceedsfromthedispositionoftheSTILIIportfolioinexcessof$17.5million,withtheappellant’sproportionateshareincreasingastheproceedsincreased;and

n anamount,uptoamaximumof$5million,payabletoStandardforthetaxlossestoberecognizedbythepartnership,contingentonthepartnersbeingsuccessfulindeductingthoselossesfromtheirotherincome.


thetaxpayerultimatelyclaimedanon-capital-lossdeductionof$12,572,274fromthedispositionofthemortgageportfolio.TheFederalCourtofAppealheldthatGAARdeniedthebenefitofthislosstothetaxpayer.

Centraltothecourt’sGAARanalysiswasthediscussionoftheseriestestinpara-graph245(3)(b).Withrespecttotheordinarymeaningoftheundefinedterm“series,”veryearlyinhisreasons,RothsteinJ(ashethenwas)placedrelianceonthe“pre-ordainedseries”test,developedbytheUKHouseofLordsinFurniss v. Dawson11andCraven v. White12inthecontextofarticulatingits“newapproach”totaxavoidance.Rothstein Jalsoreferredto the“mutual interdependence”and“endresult” testsdevelopedbyUScourtsforthepurposesoftheUSsteptransactiondoctrine.AftercitingcommentarybyMichaelHiltz(formerlythedirectoroftheReorganizationsandNon-ResidentsDivision,SpecialtyRulingsDirectorate,RevenueCanada,Tax-ation)13andbyDavidA.Dodge(formerlytheseniorassistantdeputyministerintheDepartmentofFinance),14RothsteinJconcluded:

InviewofMr.Dodge’sexpressreferencetoFurniss v. Dawson,IthinkitmayreasonablybeinferredthatParliament,inenactingparagraph245(3)(b),adoptedtheapproachtoa“seriesoftransactions”developedbytheHouseofLords.Forthatreason,Idonotthinkthe“mutualinterdependence”or“endresults”testsareapplicableandIwould,subjecttosubsection248(10),adopttheHouseofLordsapproach.Thus, for there to be a series of transactions, each transaction in the series must be pre-ordained to produce a final result. Pre-ordination means that when the first transaction of the series is implemented, all essential features of the subsequent transaction or transactions are determined by persons who have the firm intention and ability to implement them. That is, there must be no practical likelihood that the subsequent transaction or transactions will not take place.15

Onthebasisofthisanalysis,RothsteinJwentontoruleasfollows:

IhavenodifficultyconcludingthatthethreeStandardtransactionswerepre-ordained.AlltheiressentialfeatureswereplannedbyE&Y[theliquidator]who,withcourtap-proval,hadtheintentionandabilitytoimplementthem.TheywereimplementedoveraperiodofoneweekinOctober1992.TheresulttheywereintendedtoproducewasthetransferoftheSTILIIportfoliofromStandardtotheSTILIIPartnership,whichwouldberecordedbythepartnershipatStandard’scost,i.e.,thepricepaidbythepart-nershiptowhichwasaddedStandard’sloss,byreasonofsubsection18(13)oftheIncome Tax Act.Inotherwords,theintendedresultwasthepackagingofStandard’slossina

11 [1984]AC474(HL).

12 [1989]AC398(HL).

13 MichaelHiltz,“Section245oftheIncomeTaxAct,”inReport of Proceedings of the Fortieth Tax Conference,1988ConferenceReport(Toronto:CanadianTaxFoundation,1989),7:1-9,at7:7.

14 DavidA.Dodge,“ANewandMoreCoherentApproachtoTaxAvoidance”(1988)vol.36,no.1Canadian Tax Journal1-22,at15.

15 Supranote7(FCA),atparagraph24(emphasisadded).


formthatwouldbemarketabletoanarm’slengthpurchaser.TheyclearlyconstitutedaseriesundertheHouseofLords’definition.

Thatthenleavestheappellant’sacquisitionofitsSTILIIPartnershipinterestfromStandard.This transactionwasnotcompleteduntilMay31,1993withtheclosingoccurringonJune29,1993.TheappellantdidnotcomeonthesceneuntilJanuary1993andthenegotiationsleadingtothetransactionswere“difficult.”Under the House of Lords’ definition, this fourth transaction would not be part of a series with the Standard transactions since the fourth transaction was not pre-ordained and was not practically certain to occur when the Standard transactions were implemented.16

RothsteinJthenwentontoconcludethat,byvirtueofthedeemingruleinsubsec-tion248(10),thepurchaseofthepartnershipinterestbythetaxpayerwasincludedintheinitial“common-law”series.Toreachthisresult,heinterpretedsubsection248(10)asfollows:

Iamoftheopinionthatsubsection248(10)broadens the meaning of series from that de-fined by the House of Lords.

Subsection248(10)requiresthreethings:first,aseriesoftransactionswithinthecommonlawmeaning;second,atransactionrelatedtothatseries;andthird,thecom-pletionoftherelatedtransactionincontemplationofthatseries.

Thus,beforeapplyingsubsection248(10),“series”mustbeconstruedaccordingtoitscommonlawmeaning,whichIhavefoundtobepre-ordainedtransactionswhicharepracticallycertaintooccur.Tothatisadded“anyrelatedtransactionsoreventscompletedincontemplationoftheseries.”Subsection248(10)doesnotrequirethattherelatedtransactionbepre-ordained.Nordoesitsaywhentherelatedtransactionmustbecompleted.Aslongasthetransactionhassomeconnectionwiththecommonlawseries,itwill,ifitwascompletedincontemplationofthecommonlawseries,beincludedintheseriesbyreasonofthedeemingeffectofsubsection248(10).Whether the related transaction is completed in contemplation of the common law series requires an assessment of whether the parties to the transactionknew of the common law series, such that it could be said that they took it into account when deciding to complete the transaction.Ifso,the transaction can be said to be completed in contemplation of the common lawseries.17

Onthisbasis,theFederalCourtofAppealheldthatthemortgagecompanyandtheappellant,beingthepartiestotheacquisitiontransaction,“knewof ”thepriorpack-agingseriesand“tookitintoaccount”whendecidingtocompletetheacquisitiontransaction.Therefore,theappellant’sacquisitionofitspartnershipinterestwasatransactionthatwasrelatedtotheinitialseriesandwas,inthecourt’sview,com-pletedincontemplationofthatseries.

OSFCwasadifficultcaseinthatitpresentedthecourtwithhardchoicesintermsofthefundamentalapproachtothetransactionsatissue.Oneapproachwouldhave

16 Ibid.,atparagraphs25-26(emphasisadded).

17 Ibid.,atparagraphs34-36(emphasisadded).


beentoanalyzethesituationsolelyfromOSFC’sperspective.Inotherwords,thecourtcouldhaveanalyzedthepresenceofan“avoidancetransaction”fromthestand-pointofthetaxpayeronlyandignoredthetransactionsimplementedbyStandard.Inthisrespect,fromthetaxpayer’sperspective,therewasonlyonetransaction:thepurchaseofStandard’s99percentinterestintheSTILIIPartnership.18Forthepur-posesofparagraph245(3)(a),thispurchasewasarrangedprimarilyfortaxpurposes—OSFC sought mainly to (indirectly) acquire the accrued losses in the STIL IIPartnership—andthereforeconstitutedanavoidancetransactionthatcouldgiverisetotheapplicationofGAAR.However,RothsteinJmayhaveforeseendifficultiesinthecontextoftheabuseanalysisundersubsection245(4),inthatitwasnotobviouswhichprovisionhadbeenabusedbythemerepurchaseofapartnershipinterest.Thisprobablyexplainswhythecourtchoseanotherapproach.

RothsteinJeffectivelyanalyzedthetransactionsfromtheperspectivesofbothStandardandOSFC.Itisimplicitinthecourt’sapproachthatbecauseOSFC“boughtinto”theStandardseries,iteffectivelyratifiedthetransactionsasitsown.Thisviewisreasonableconsideringthattheloss-packagingtransactionsatissuewereintendedtobenefitbothparties;wererelieduponbybothpartiestoachievetheirsharedob-jective; and, from both Standard’s and OSFC’s perspectives, were interdependentwiththepurchaseofthepartnershipinterest,tothepointthateitheroneofthesetransactionswouldhavebeenmeaninglesswithouttheother.Onthispremise,webelievethattheFederalCourtofAppealreachedthecorrectresultinfindingaseriesforthepurposesofparagraph245(3)(b).

However, inreaching therightconclusion, thecourt,werespectfully submit,misconstrued the Act’s notion of series and the role of subsection 248(10). Thecourtheldthatsubsection248(10)requires,first,“aseriesoftransactionswithinthecommonlawmeaning”and,second,atransactionrelatedtothatcommon-lawseries.Wewillargue,instead,thatsubsection248(10)servesmerelytoclarify,andcannotbedissociatedfrom,theordinarymeaningoftheterm“series”andthatitdoesnotrequiretheidentificationofaseparatecommon-lawseriestooperate.Furthermore,indefiningwhatitcalleda“commonlawseries,”19thecourtadoptedthenotionofapreordainedseriesoftransactions,whichisacomponentofaUKjudge-madeanti-avoidancerule.Wewillarguethatthisapproachtodefining“series”maynothavebeenappropriate,because theconsiderations involved incraftingageneralanti-avoidancerulearenotthesameasthoseinvolvedindefining“series,”andbecausea“preordainedseries”ismerelyasubsetoftheconceptofseriesundertheActandthushasanarrowermeaningthantheunqualifiedterm“series.”Havingselectedanundulynarrowmeaningof“series,”theFederalCourtofAppeal,inordertoreach

18 Thisignoresthesubsequentsyndication,whichinanyeventwasacceptedtohaveformedaserieswiththeinitialpurchaseofthepartnershipinterest.

19 Theexpression“common-lawseries”isinfactamisnomerbecausethereisnocommonlawofseries.Asdiscussedbelow,theHouseofLordscaselawarticulatesaninterpretiveanti-avoidancerule,acomponentofwhichistheexistenceofa“preordainedseries.”


what is admittedly the right result,mayhave felt compelled to stretch theplainmeaningoftheexpression“incontemplationof ”beyonditsnormalbounds,inorderto hold that it requires an assessment of whether the parties to the later (non-common-lawseries)transaction“knewof ”theearliercommon-lawseries,suchthatitcouldbesaidthatthey“tookitintoaccount”whendecidingtocompletethelatertransaction.Wewillarguethatthisinterpretationisinconsistentwiththetextualmeaningoftheword“contemplate”andwithacontextualandpurposiveinterpret-ationofsubsection248(10).

CanutilitiesThattheFederalCourtofAppealwasarguablyofftoafalsestartinOSFC,whenitadoptedaseriestestbasedonaUKjudge-madeanti-avoidancerule,issuggestedby thecourt’scorrectionof the“series” test in its2004decision inThe Queen v. Canutilities Holdings Limited et al.20

Thiscaseinvolvedthreepubliccorporations—ATCO,CanadianUtilitiesHold-ingsLimited(“CUH”),andCanadianUtilitiesLimited(“CU”)—whichenteredintoaseriesoftransactionstoselltheircontrollinginterest(approximately87percentofthevotingshares)inanotherpubliccorporation(“ATCOR”)toanarm’s-lengthpur-chaser(“Forest”).21Inconnectionwiththesale,ATCORandanewlyformedsubsidiaryofATCOamalgamatedtoformanewcorporation(“Amalco”).Upontheamalgam-ation,allofthesharesofATCORwereconvertedintoclassA,classB,andclassCredeemable-retractablesharesofAmalco,withCUobtainingclassAsharesandCUHandATCObothreceivingclassB shares.Thepurchaser,Forest, then subscribed,througha subsidiary, for1millioncommonsharesofAmalco forapproximately$130million,andsubsequentlycausedAmalcotoredeemallofitsclassAandclassBsharesforproceedstotallingapproximately$130million.22Asaresultoftheredemp-tionoftheAmalcoshares,incomputingtheirtaxliabilityforthe1996taxationyear,CUincludedadeemeddividendundersubsection84(3)ofapproximately$26millionandCUHincludedadeemeddividendofapproximately$19million.BothCUandCUHdeductedtheamountofthedeemeddividendsundersubsection112(1).ThedeemeddividendstobothCUandCUHweretreatedasbeingsubjecttopartIVtax.However,inpayingnormalcoursedividends23followingtheredemptions,CUand

20 2004DTC6475(FCA);rev’g.(inpart)2003DTC1029(TCC);leavetoappealtotheSupremeCourtofCanadarefused334NR199.

21 Priortothesharesale,ATCOowned100percentofthevotingsharesofCUH;ATCOandCUHtogetherowned67percentofthevotingsharesofCU;andATCO,CU,andCUHtogetherownedapproximately87percentofthevotingsharesofATCOR,thusholdingacontrollinginterest.

22 TheForestsubsidiarythenacquiredalloftheoutstandingClassCsharesofAmalcoforaggregateproceedsofapproximately$57million.

23 Historically,CUhadpaiddividendsonitscommonandpreferredsharesvirtuallyeveryyearsince1950.Furthermore,ithadincreaseditscommonsharedividendseveryyearfor30consecutiveyears.CUHhadpaiddividendssince1994onitspreferredshares.


CUHclaimeddividendrefundsundersubsection129(1),thusoffsettingallorpartoftheirpartIVtaxliability.TheCanadaRevenueAgency(CRA)reassessedCUandCUHonthebasisoftheapplicationofsubsection55(2),thustreatingtheamountsofthedeemeddividendsreceivedbyCUandCUHupontheredemptionoftheirrespectiveclassAandclassBsharesofAmalcoasproceedsofdisposition.Asaresult,thepartIVtaxliabilityandthedividendrefundsclaimedbyCUandCUHwerenullifiedbythereassessments.

ThemainissueinCanutilitieswaswhetherthepaymentofthenormalcoursedividendsformedpartofaseriesoftransactions,oneoftheresultsofwhichwastoeffectasignificantreductioninthecapitalgainthatwouldhavebeenrealizedonadispositionatfairmarketvalueoftheclassAandclassBsharesofAmalcobyCUandCUH,respectively.Ifsuchnormalcoursedividendsdidformpartofthesameseriesastheredemptions,subsection55(2)wouldapply.

ThetaxpayersandtheCRAappearedtoacceptthataseriesoftransactionsexist-ed,comprisingatleasttheconversionoftheATCORsharesheldbyCUandCUHinto class A and class B redeemable shares of Amalco, as well as the funding ofAmalcobytheForestsubsidiaryandthesubsequentredemptionoftheclassAandclassBsharesofAmalcoresultinginthedeemeddividends(“thebasicseries”).Thecontentiouselementwaswhetherthedeclarationandpaymentofthenormalcoursedividendsformedpartofthebasicseries.

Onthispoint,theTaxCourtofCanadafoundthatthenormalcoursedividendsdidnotformpartofthebasicseries.Inreversingthisdecision,theFederalCourtofAppealrevisitedthepreordinationtestthatithadadoptedinOSFC.Inthisregard,RothsteinJstated:

Inendorsingthepreordinationtest,thecourtinOSFCusedtheterm“adopt[ing]theHouseofLordsapproach.”Thiswasareference toa statementbyLordOliverofAylmertoninCraven v. Whiteat514:

As the lawcurrently stands, theessentialsemerging fromFurniss v. Dawson,[1984]A.C.474appeartometobefourinnumber:(1)thattheseriesoftrans-actionswas,atthetimewhentheintermediatetransactionwasenteredinto,pre-ordainedinordertoproduceagivenresult;(2)thatthetransactionhadnootherpurposethantaxmitigation;(3)thattherewasatthattimenopracticallikelihoodthatthepre-plannedeventswouldnottakeplaceintheorderordained,sothattheintermediatetransactionwasnotevencontemplatedpracticallyashavinganindependentlife,and(4)thatthepre-ordainedeventsdidinfacttakeplace.

ThetrialjudgemayhavethoughtthatOSFCadoptedallfourfactorsdescribedinCraven v. Whiteasthecommonlawtestforseriesoftransactionsorevents.However,Iagreewithappellant’scounselthatthiscannotbeso.The four factors listed in Craven v. White do more than define a series.24

24 Supranote20(FCA),atparagraphs51-52(emphasisadded).


RothsteinJwentontoacknowledgethattheUKdecisionsdidmuchmorethantopositaseriestest,inthattheycreatedajudicialanti-avoidancemeasure.HethenstatedthatthesecondandthirdpartsofthetestarticulatedbyLordOliverinCraven v. White

arenotconcernedwithwhenindividualtransactionsaresufficientlyconnectedthatthecourtmayconsiderthemashavingthecompositeeffect theywere intendedtohave.Rather,theyareconcernedwithwhetheronetransactioninthatserieswasin-sertedsolelyfortaxpurposes,and,asamatterofjudicialanti-avoidance,shouldnotbegivenwhatwouldotherwisebeitslegaleffect.25

Accordingly,theFederalCourtofAppealheldthatapplyingthosetestswouldbeinappropriateinthecontextofCanada’sstatutoryanti-avoidancerules.Thecourtfurtherstatedthatthefactthattheparticulartransactionhasagenuineindependentpurposeandexistenceisnotsufficienttoconcludethatitwasnotpreordainedtoproduceagivencomposite result.Thus,onthebasisofthefindingsoffactoftheTaxCourt,theCourtofAppealconcludedthatboththeseriesoftransactionsinvolvingtheredemptionoftheclassAandclassBsharesofAmalcoandthenormalcoursedividendswerepreordained toproduce a single composite result. It accordinglyfoundthat thenormalcoursedividends formedpartof thesame“common-law”seriesthatincludedtheredemptionswithouthavingtoresorttosubsection248(10)and,asaresult,itconcludedthatsubsection55(2)applied.

IndecidingCanutilities,Rothstein J, correctly inourview,qualifiedwhatwasperceivedtobethewholesaleadoptioninOSFCofLordOliver’sfour-parttestinCraven v. White.Indeed,theacceptanceofthesecondelementofLordOliver’sver-sionoftheUKjudge-madeanti-avoidanceruleasacomponentofthenotionofseriesintheActwouldeffectivelyincorporateataxpurposetestintothoseprovisionsoftheActthatdonotcontainone,andwouldappeartorendersuperfluoustheexist-ingpurposetestsinthoseprovisionsthatdocontainone.AsforLordOliver’sthirdelement,itappearsthatRothsteinJretainedthe“nopracticallikelihood”require-mentwhileabandoningthe“noindependentlife”criterion.Inanyevent,wewillarguefurtherbelowthattheadoptionofthepreordinationtestinourtaxlawisnotconsistentwithParliament’sintendedmeaningof“series,”asreflectedintheenact-mentofsubsection248(10).

Canada Trustco and MathewCanada Trustco Mortgage Co. v. Canada26andMathew v. Canada27werethefirsttwoGAARcasestoreachtheSupremeCourtofCanada,in2005.Canada Trustcoinvolvedacircularsetoftransactionsthatresultedinthetaxpayerclaimingsubstantialcapital

25 Ibid.,atparagraph55.

26 2005DTC5523(SCC);aff’g.2004DTC6119(FCA);aff’g.2003DTC587(TCC).

27 Subnom.Kaulius v. The Queen,2005DTC5538;aff’g.2003DTC5644(FCA);aff’g.2002DTC1637(TCC).


costallowance.TheMathewcasewasrelatedtoOSFCinthatitinvolvedthetaxpay-erswhohadboughtinterestsintheSRMPpartnership,whichwasusedbyOSFCtosyndicateitsinterestintheSTILIIPartnership.Itisnotablethat,inbothcases,theexistence of an “avoidance transaction,” and hence the application of the seriescriterion,wasconcededbeforetheSupremeCourt.Therefore,theonlymatterinissuewaswhethertheavoidancetransactionresultedinabusivetaxavoidancepursu-anttosubsection245(4).Nonetheless,thecourtundertooktoexplainandprovideguidanceinrespectofalltheelementsofGAAR.Unfortunately,andwithrespect,inourviewthecourtpaidonlypassingattentiontothedifficult“series” issueandultimatelyreinforcedthefalsepremisesonwhichtheformulationofthenotionofserieshadthusfarbeenbasedinCanadianjurisprudence.Inthisregard,McLachlinandMajorJJstatedthefollowing:

Themeaningoftheexpression“seriesoftransactions”unders.245(2)and(3)isnotclearonitsface.We agree with the majority of the Federal Court of Appeal in OSFC and endorse the test for a series of transactions as adopted by the House of Lords that a series of transactions involves a number of transactions that are “pre-ordained in order to produce a given result” with “no practical likelihood that the pre-planned events would not take place in the order ordained”:Craven v. White,[1989]A.C.398,atp.514,perLordOliver;seealsoW.T. Ramsay Ltd. v. Inland Revenue Commissioners,[1981]1AllE.R.865.

Section248(10)extendsthemeaningof“seriesoftransactions”toinclude“relatedtransactionsoreventscompletedincontemplationoftheseries.”TheFederalCourtofAppealheld,atpara.36ofOSFC,thatthisoccurswherethepartiestothetransaction“knewofthe...series,suchthatitcouldbesaidthattheytookitintoaccountwhendecidingtocompletethetransaction.”Wewouldelaboratethat“incontemplation”isreadnotinthesenseofactualknowledgebutinthebroadersenseof“because of ”or“in relation to” the series. The phrase can be applied to events either before or after the basic avoid-ance transaction found under s. 245(3).Ashasbeennoted:

ItishighlyunlikelythatParliamentcouldhaveintendedtoincludeinthestatu-tory definition of “series of transactions” related transactions completed incontemplation of a subsequent series of transactions, but not related trans-actions in the contemplationofwhich taxpayers completed aprior seriesoftransactions.

(D.G. Duff, “Judicial Application of the General Anti-Avoidance Rule in Canada:OSFC Holdings Ltd. v. The Queen,”57I.B.F.D.Bulletin278,atp.287).28

Arguably,Canada TrustcofurtherconfoundedthealreadyconfusingCanadiancaselawon“series.”First,asstatedabove,wewillarguethatthe“preordainedseries”componentoftheanti-avoidancerulearticulatedinCraven v. Whiteisnotanap-propriatechoiceforthedefinitionof“series”undertheAct.29Second,withrespect

28 Canada Trustco,supranote26(SCC),atparagraphs25and26(emphasisadded).

29 Asweshallsee,theHouseofLordsinRamsay,infranote47,didnotapplythispreordinationrequirement.ItshouldalsobenotedthattheSupremeCourtinCanada Trustcodidnotrefertothequalificationofthe“preordainedseries”testbytheFederalCourtofAppealinCanutilities.


tosubsection248(10),theexpression“becauseof ”suggestsarelationshipofcauseandeffect,whereastheexpression“inrelationto”hasamuchbroaderandvaguermeaning.Also,theSupremeCourtregrettablychosetoentrenchthefundamentalmisapprehensionregardingthepropermeaningoftheexpression“incontempla-tionof ”instatingthat“[t]hephrasecanbeappliedtoeventseither before or afterthebasicavoidancetransactionfoundunders.245(3).”30

Asweshallsee,theabovestatementsinCanada Trustcoresultedinagreatdealofuncertaintyinsubsequentcasesand,inparticular,forcedCanadiancourtstostrugglewithwaystoqualifyandadapttheSupremeCourt’sconceptionofthe“contempla-tion”requirementinsubsection248(10).

MILThedifficultywith theCanadian“series” test, asdeveloped inOSFC andCanada Trustco,becameplaininMIL (Investments) SA v. The Queen.31This2006decisionoftheTaxCourtofCanadadealtwithaclaimforanexemptionfromCanadiantaxundertheCanada-Luxembourgtaxtreatyinrespectofacapitalgainonasaleofshares.Thetaxpayer,MIL(Investments)SA(“MIL”),hadownedsharesinDiamondFieldResourcesLtd.(“DFR”),whichhaddiscoveredoneoftheworld’slargestnickelminesatVoiseyBay,Labrador.In1996,DFRagreedtoatakeoverbyInco,andMILsolditsshares,realizingacapitalgainofapproximatelyCdn$425million.Themin-isterdisputedMIL’sclaimofatreatyexemptioninlightoftheseriesoftransactionsthatprecededthesharesale.

MILwasacorporationownedbyanon-residentofCanada(Boulle)andinitiallyincorporatedintheCaymanIslands.BeforeJune1995,MILowned11.9percentofDFR.OnJune8,1995,MILexchanged,onatax-deferredbasis,703,000DFRsharesfor1,401,218commonsharesofInco,therebyreducingitsshareholdingsinDFRto9.817percent.OnJuly17,1995,MILwascontinuedunderthelawsofLuxembourg.OnMay22,1996,theDFRshareholdersapprovedtheIncotakeoverofDFR,totakeeffectonAugust21,1996,withtheresultthatMILreceivedCdn$427,475,645forthedispositionofitsDFRshares(“thesale”).MILclaimedanexemptionfromCan-adiantaxontheresultingcapitalgainofCdn$425,853,942underarticle13oftheCanada-Luxembourgtaxtreaty.TheCRAdeniedtheclaimfortreatybenefitsonthisgainmainlyonthebasisofGAAR.

Initially,theminister’sGAARpositionwasbasedontheassumptionthatthetaxbenefitatissuearoseindirectlyfromaninitial“common-law”seriesoftransactionscomprising (1) the June 8, 1995 rollover of 703,000 shares of DFR to Inco for1,401,218commonsharesofInco,whichreducedthetaxpayer’sandBoulle’scom-binedownershipofDFRtobelow10percent;(2)the“finaldividend,”whichwasimplemented forLuxembourg taxpurposes;and (3) thecontinuationof the tax-payer into Luxembourg (collectively, “the series”). In other words, the Crown,

30 Canada Trustco,supranote26(SCC),atparagraph26(emphasisadded).

31 2006DTC3307(TCC);aff ’d.2007DTC5437(FCA).


somewhatsurprisingly,didnotinitiallyarguethatthesalewaspartoftheseries.Rather,itwasonlyinresponsetothetaxpayer’sargumentthatthesale,whichgaverisetothetaxbenefit,neededtobepartoftheseriesforparagraph245(3)(b)toapplythattheministeradvancedthefollowingargument,seeminglytotheeffectthattheserieswasdeemedtoincludethesalepursuanttosubsection248(10):

TheAppellantalsoassertsthattheAugust1996salewasneitherpreordainednorcontem-platedwhentheTransactionswereundertaken.However,commonsenseandevidencepointtoDFRbeingawillingtakeovertarget.32

Indecidingforthetaxpayer,theTaxCourtrefusedtofindthattheultimatesalewaspartoftheseries.First,thecourtnotedthatthefinaldividendwasrelevantonlyforLuxembourgtaxpurposes,thusimplyingthatthedividendcouldnotbepartoftheseriesforthepurposesofparagraph245(3)(b).Then,relyingonevi-dence that showed that DFR took active steps to prevent its takeover, the courtconcludedthatthesalecouldnotbeincludedintheseriesbecauseofamerepos-sibility,atthetimeoftheseries,ofafuturepotentialsaleofanyshares.

TheTaxCourt,inourview,correctlyadoptedaforward-lookingapproachtosubsection248(10),byaskingwhethertheultimatesalewascontemplatedat thetimeoftheseries.Tosupporthisconclusions,BellJrightlysuggestedthefollowingqualificationstotheSupremeCourt’sstatementsinCanada Trustcoonthenotionofseries:

Theremustbeastrong nexusbetweentransactionsinorderforthemtobeincludedina seriesof transactions. Inbroadening theword“contemplation” toberead in thesenseof“becauseof ”or“inrelationtotheseries,”the Supreme Court cannot have meant mere possibility, which would include an extreme degree of remoteness. Otherwise, legitimate tax planning would be jeopardized, thereby running afoul of that Court’s clearly expressed goals of achieving “consistency, predictability and fairness.”33

In2007,onappealby theCrown, theTaxCourt’sdecisionwas affirmedby theFederalCourtofAppealfromthebench.

The Tax Court’s decision in MIL is interesting in that, despite the SupremeCourt’sstatementsinCanada Trustco,neithertheCrownnorthecourtseemedtoresorttoretrospectivecontemplation.ItisindeedremarkablethattheCrownusedthe contemplation notion correctly, assessing whether the August 1996 sale wascontemplatedatthetimethattheserieswasimplementedin1995.

CopthorneThecourts’discomfortwith the standardsof“contemplation”prescribedby theSupremeCourtinCanada TrustcobecamereadilyapparentinCopthorne Holdings Ltd.

32 Supranote31(TCC),atparagraph61(emphasisinoriginal).

33 Ibid.,atparagraph65(emphasisadded).


v. The Queen.34Thefactsofthiscaseareverycomplex,butmaybeconceptuallysum-marizedasfollows.35TheallegedavoidancetransactiongivingrisetoachallengeunderGAARinvolvedthe“preservation”(or,somemightargue,the“manufacturing”or“enhancement”)ofpaid-upcapital(PUC)throughthesale,in1993,ofthehighPUCsharesofarelatedcorporationbyaresidentsubsidiarytoitsnon-residentparent.Thepurposeofthistransaction(referredtoas“the1993sharesale”)wastoallowahorizontal,insteadofavertical,amalgamationofthesubsidiaryandtherelatedcor-poration.Itwasimplementedasanincidentalaspectofaseriesoftransactions(“the1993series”)thatwasdesignedtooffsetcapitalgainsrealizedononeinvestmentwithcapitallossesrealizedonanotherinvestmentmadewithintheCanadiancor-porategroupcontrolledbyHongKongbusinessmanLiKa-Shingandhisfamily.Asecondseriesoftransactions(“the1995series”)wasimplementedin1995,follow-ingtheannouncementin1994ofamendmentstoCanada’sforeignaccrualpropertyincome(FAPI)regimethatwouldhaveanadverseeffectonthebusinessinterestsoftheLifamily.The1995seriesincludedaredemptionofcertainclassDpreferredshares(“theredemption”)ofapredecessorcorporationoftheappellantheldbyarelatednon-residentcorporation,whichcrystallizedthebenefitofthe“preserved”PUCbyallowingalargecross-borderreturnofcapitalfreeofwithholdingtax.

TheministerissuedaGAARassessmentforunremittedwithholdingtaxonthebasisthatthePUCofalloftheclassDpreferenceshareswasoverstatedandthusataxabledividendwasdeemed tohavebeenpaidpursuant to subsection84(3); asaresult,theCanadianpayercorporationwasrequiredtohavewithheldanamountequalto15percentofthedeemeddividend,whichwastheapplicablerateundertheCanada-Barbadosincometaxtreaty.

TheseriesoftransactionsuponwhichtheministerreliedinapplyingGAARbeganwiththealleged“avoidancetransaction”(the1993sharesale)andconcludedwiththeredemption.Thepartiesagreedthatthe1993sharesaleandtheamalgamation(whichoccurredonJanuary1,1994)werepartofoneseriesoftransactions(the1993series)andthatthetransactionsimplementedinlate1994and1995,whichincludedtheredemption,constitutedasecondseriesoftransactions(the1995series).

BoththeTaxCourtofCanadaandtheFederalCourtofAppealaffirmedtheGAARassessmentagainstthetaxpayer.Regardingthe“avoidancetransaction”issueundersubsection245(3),thequestionaddressedtotheFederalCourtofAppealwaswhethertheTaxCourthaderredinconcludingthatthe1995redemptionformedpartofthe1993series,withinthemeaningofsubsection248(10).TheCourtofAppealaffirmedtheTaxCourt’sdecision.Itbasedits“series”analysisonthepriordecisionsinOSFC,Canada Trustco,andMILanddevelopedthefollowinginterpreta-tionofsubsection248(10):

34 Supranote3.

35 Seeappendix1foramoredetaileddescriptionoftheCopthornetransactions.


Inmyview,ifaseriesisamotivating factorwithrespecttothecompletionofasubsequenttransaction,thetransactioncanbesaidtohavebeencompleted“incontemplationoftheseries”andadirectcausalrelationshipbetweentheseriesandthetransaction,asarguedbytheappellant,neednotbeestablished.Inmyopinion,thisstandardisrec-oncilablewiththetestasstatedinOSFCandasbroadenedinCanada Trustco.36

Inlightofthisinterpretation,theFederalCourtofAppealconcludedthatsubsec-tion248(10) added the redemption to the1993 series,which included the1993sharesale,toformoneextendedseries.RyerJstated:

[T]hecomplexityofthetaxlossutilizationtransactionsthatwereundertakenintheFirstSeriesbeliesanysuggestionthatthePUCthatwaspreservedinthosetransactionswasnotwithinthecontemplationoftheappellantwhenitundertookthe1995Re-demption.Thus,inmyview,theconclusionthatthePUCpreservationthatoccurredintheFirstSerieswas,tousemyformulation,amotivatingfactorinrelationtothecompletionofthe1995Redemption,isunassailable.37

On thisbasis, theCourtofAppeal affirmed theTaxCourt’s conclusion that the1995redemptionformedpartofthe1993series.

Webelievethat,fundamentally,thequestionbeforethecourtsinCopthorne—thatis,whetherthe1995redemptionwaspartofthe1993seriesbyvirtueofsub-section 248(10)—was the wrong one. Aside from the 1993 share sale, the 1993series and the1995 serieshadnothing incommonandcouldneverconstituteasingle series.Theobjectiveof the1993 serieswas theutilizationof the accruedlossesonaninvestmentheldbyonememberoftheLicorporategroupagainstthegainfromasaleofrealpropertyheldbyanothermemberofthegroup,whereastheobjectiveofthe1995serieswas,inpart,theextractionoftheLifamilyinvest-mentfromCanada.Therightquestion,inourview,iswhetherthe1993sharesaletogetherwiththe1995redemption(orthe1995series)constitutesaseries.Unfortu-nately,boththepartiesandthecourtsseemtohavemisinterpretedthestatementoftheFederalCourtofAppealinCanutilitiesthat“[i]nproposingaseries,theMinistermaychoosewhatevertransactionsheconsidersrelevant”38andtohaveacquiescedtothepositionthatsubsection248(10)allowsforretrospectivecontemplation.

Regardingthislastpoint,Copthorneexemplifiestheinappropriateresultsarisingfromaretrospectiveapplicationofsubsection248(10).Inthecontextofintragrouptransactions,suchastheonesinCopthorne,itisonlytooeasytofindthat,whena

36 Copthorne,supranote3(FCA),atparagraph46(emphasisadded).

37 Ibid.,atparagraph50.

38 Supranote20(FCA),atparagraph64.Thisstatementdoesnotmeanthataseriesis,inanyparticularcase,whatevertheministersaysitisregardlessofthelawonpoint,sincethenotionofseriesintheActnomore“belongs”totheministerthanitdoestothetaxpayer.Rather,itsimplymeansthat,asaproceduralmatter,theministerwillselectthetransactionsthat,onthebasisofhisunderstandingofthefacts,heconsiderstoformaseriesatlawwhenassessingataxpayer.


subsequenttransactioniscompleted,priortransactionswereknownandweretakenintoaccount.Afterall,onewouldexpectaprudenttaxpayertotakeintoaccountrelevantpasttransactionsbeforeengagingincurrentones.Aretrospectiveapproachwillinevitablyleadtotheconclusion,asinCopthorne,thatrelevantprecedingtrans-actionswerea“motivatingfactor”inrelationtothecompletionofthesubsequentones.Ofcourse,thisismerelyhindsightatwork.

Itissignificantthat,onJanuary28,2010,theSupremeCourtofCanadaagreedtohearthetaxpayer’sappealinCopthorne.39

Conclusion

Aswehaveseen,Canadiancourtshaveinterpretedthenotionofaseriesoftrans-actionsintheAct,onthebasisoftheUKcaselawestablishingajudicialanti-avoidancerule,tomeananumberoftransactionsthatare“pre-ordainedinordertoproduceagivenresult”with“nopracticallikelihoodthatthepre-plannedeventswouldnottakeplaceintheorderordained.”

Further,Canadiancourtshaveheldthatsubsection248(10)requiresapre-existingseriestowhichthisprovisionaddsanyrelatedtransactioncompletedincontem-plationofthepre-existingseries.Thecourtsappeartoconsideritsettledthatthecontemplationcriterioninsubsection248(10)mayoperatebothprospectivelyandretrospectively.

Finally,Canadiancourtshaveinterpretedthecontemplationcriterionsomewhatinconsistently.InOSFC,theFederalCourtofAppealthoughtthatitrequiredadeter-minationofwhetherthetaxpayer“knewof ”or“tookintoaccount”apriorseries.TheSupremeCourtinCanada Trustcoelaboratedthat“incontemplation”mustbereadnotinthesenseofactualknowledgebutinthebroadersenseof“becauseof ”or“inrelationto”theseries.InMIL,theTaxCourtofCanadastatedthat,inbroad-eningtheword“contemplation”tobereadinthesenseof“becauseof ”or“inrelationto”theseries,theSupremeCourtcannothavemeantmerepossibility,whichwouldincludeanextremedegreeofremoteness.Mostrecently,inCopthorne,theFederalCourtofAppealthoughtthatifaseriesisa“motivatingfactor”withrespecttothecompletionofasubsequenttransaction,thetransactioncanbesaidtohavebeencompletedincontemplationoftheseriesandadirectcausalrelationshipbetweentheseriesandthetransactionneednotbeestablished.

Wehavearguedthatthecourts’interpretationofthenotionofseriesintheActandsubsection248(10)hasbeenbasedonflawedpremises.Wewillnextattempttoreconstructwhatwebelieveshouldbethepropermeaningof“series”undertheAct,havingparticularregardtothecontextandpurposeofsubsection248(10).

39 ItislikelynotacoincidencethattheSupremeCourtbenchthatruledontheapplicationforleavetoappealincludedRothsteinJ,whodecidedtheOSFCandCanutilitiescasesattheFederalCourtofAppeal.


RECO NS TRUC TING “ SERIE S”

Principles of Interpretation

Inthispartofthearticle,wewillattempttodevelopacogentinterpretationoftheexpression“seriesoftransactions”intheAct.ItisappropriatetobeginwithabriefreviewoftherelevantCanadianprinciplesofstatutoryinterpretation.

It isuncontroversial that themodernruleof statutory interpretationrequiresthatallstatutesbeinterpretedaccordingtoaunifiedtextual,contextual,andpur-posiveapproach.ThisprinciplewasbestexpressedbytheSupremeCourtofCanadainCanada Trustcoasfollows:

Ithasbeenlongestablishedasamatterofstatutoryinterpretationthat“the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmo-niously with the scheme of the Act, the object of the Act, and the intention of Parliament”:see65302 British Columbia Ltd. v. Canada,[1999]3S.C.R.804,atpara.50.Theinterpretationofastatutoryprovisionmustbemadeaccordingtoatextual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole.Whenthewordsofaprovisionarepreciseandunequivocal, theordinarymeaningof thewordsplay[s]adominantroleintheinterpretiveprocess.Ontheotherhand,wherethewordscansupportmorethanonereasonablemeaning,theordinarymeaningofthewordsplaysa lesserrole.Therelativeeffectsofordinarymeaning,contextandpurposeontheinterpretiveprocessmayvary,butinallcasesthecourtmustseektoreadtheprovi-sionsofanActasaharmoniouswhole.

AsaresultoftheDukeofWestminsterprinciple(Commissioners of Inland Revenue v. Duke of Westminster,[1936]A.C.1(H.L.))thattaxpayers are entitled to arrange their affairs to minimize the amount of tax payable,Canadiantaxlegislationreceivedastrictinterpretationinaneraofmoreliteralstatutoryinterpretationthanthepresent.Thereisnodoubttodaythatallstatutes,includingtheIncome Tax Act,mustbeinterpretedinatextual,contextualandpurposiveway.However,the particularity and detail of many tax provisions have often led to an emphasis on textual interpretation. Where Parliament has specified precisely what conditions must be satisfied to achieve a particular result, it is reasonable to assume that Parliament intended that taxpayers would rely on such provisions to achieve the result they prescribe.

The provisions of the Income Tax Act must be interpreted in order to achieve consistency, predictability and fairness so that taxpayers may manage their affairs intelligently.40

Againstthisbackground,wesetoutouranalysisofthetext,context,andpurposeoftheexpression“seriesoftransactions”intheActandsubsection248(10).

“Series of Transactions”

TextTheterm“series”isnotdefinedintheActandisnotatermofart.Therefore,atextual,contextual,andpurposiveanalysisofitsmeaningundertheActmuststart

40 Supranote26(SCC),atparagraphs10-12(emphasisadded).


withanexaminationoftherelevantdictionarydefinitions.TheConcise Oxford Dic-tionary,8thed.,defines“series”mainlyasfollows:“anumberofthingsofwhicheachissimilartotheprecedingorinwhicheachsuccessivepairaresimilarlyrelated;asequence,succession,order,row,orset.”Webster’s Ninth New Collegiate Dictionaryprovidesthefollowingprincipalmeaningof“series”:“anumberofthingsoreventsofthesameclasscomingoneafteranotherinspatialortemporalsuccession.”

Inlightofthesedefinitions,wethinktheordinarymeaningoftheterm“series”includesthefollowingelements:

n First,a“series”requiresthepresenceof“anumberofthings.”Thissuggeststhepresenceoftwoormoreelements.Conversely,asingleitemcannotcon-stituteaseries.

n Second,theelementsoftheseriesmustbe“similar,”“related,”“ofthesameclass,”ora“set.”Thissuggestsa logicalconnectionoradegreeofdepen-denceamongtheelementsoftheseries,inthesensethattheyarecomponentpartsofalargerwhole.41

n Third,theitemsmustcome“oneafteranotherinspatialortemporalsucces-sion.”Inotherwords,thecomponentsoftheseriesmustbeorderedsuchthatthey followeachother inapredetermined sequence.This indicates that aseriesissomethingthatisplanned.

Whatisnotevidentfromanexaminationofthedictionarydefinitionsisthelevelordegreeofnexus thatmustexistbetweentwoormorerelated transactions forthemtoproperlyconstitutea“series”forthepurposesoftheAct.ThisiswherethecontextandpurposeofthenotionofseriesundertheActbecomesignificant.

ContextLiterary Context: Accompanying Purpose or Result Test

Aspreviouslystated,thenotionofseriesisastandardfeatureofanti-avoidancerulesintheAct.Anexaminationoftheimmediateliterarycontext42revealsthattheex-pression“seriesoftransactions”isalmostinvariablyaccompaniedbyapurposeorresulttest.Forexample,subsection55(2)istriggeredwhereacorporationresidentinCanadahasreceivedatax-freeintercorporatedividend“aspartofatransactionoreventoraseriesoftransactionsorevents,oneofthepurposesofwhich(or,inthe

41 InMeeuse v. The Queen,94DTC1397,atparagraph16(TCC),BowmanJconfirmedthiselementoftheterm“series”withrespecttowhatconstitutesa“seriesofloansandrepayments,”stating,“Idonotthinkthatameresuccessionofloansissufficienttoconstitutethemaserieswithoutmore.”

42 AsdefinedinSullivan and Driedger,“[t]heliterarycontextconsistsofanylegislativetextthatmaybelookedatforthepurposeofcarryingoutatextualanalysis.Thisincludestheimmediatecontext,theActasawholeandthestatutebookasawhole.”RuthSullivan,Sullivan and Driedger on the Construction of Statutes,4thed.(Markham,ON:Butterworths,2002),260.


caseofadividendundersubsection84(3),oneoftheresultsofwhich)”wastoeffecta significant reductionof thenon-safe-incomecapitalgain thatwouldotherwisehavebeenrealizedonadispositionatfairmarketvalueofanyshareofcapitalstockimmediatelybeforethedividend.Similarly,paragraph245(3)(b)provides thatanavoidance transaction is a transaction “that is part of a series of transactions,which...wouldresult,directlyorindirectly,inataxbenefit.”

The purpose and result tests43 accompanying the expression “series of trans-actions”confirmourtextualanalysisthataseriesisaplanned,logicalwhole.Theyalsorevealtherequisitelogicallinkbetweenthetransactionsofaseriesbyrequiringthatthecompositewholethatistheseriesmusthaveeitheracommonpurposeoracommonresult—inthecaseofanti-avoidancerules,onethattheActidentifiesasundesirable.Thus,itfollowsthat,tobepartofaseries,transactionsmustworkto-getherorcombinetoachieveacommonpurposeorresult.

Legal Context: The UK Preordained Series Test

Aswehaveseen,ininterpretingthenotionofseriesundertheAct,CanadiancourtshavereliedheavilyonUKcaselawofthe1980s44thatdepartedfromastrictadherencetotheDuke of Westminsterprinciple45andshapedtheUnitedKingdom’sjudge-madeapproachtotaxavoidance.Therefore,thatUKcaselawispartofthelegalcontext46

43 Itisbeyondthepurposeofthisarticletodiscussthedistinctionbetweentheresultandpurposetests.Ostensibly,aresulttestsuggestsapurelyobjectiveexamination,whereasapurposetest,whichoperatesbyreferencetotheseries(andnottothetaxpayer),arguablysuggestsadualsubjective-objectivecriterion.

44 AlsoseethestatementsbyDavidDodgeandMichaelHiltz,supranotes13and14,referredtoinOSFC,supranote7(FCA),atparagraphs22and23.TheUKtax-avoidancecaseshavespawnedavoluminousliterature,including,notably,thefollowing:P.J.Millett,“ANewApproachtoTaxAvoidanceSchemes”(1982)98Law Quarterly Review209-28;MalcolmGammie,“TheImplicationsofFurnissvDawson”(1985)vol.6,no.3Fiscal Studies52-65;SpecialCommitteeofTaxLawConsultativeBodies,Tax Law After Furniss v Dawson(London:TheLawSocietyofEnglandandWales,1988);JohnTiley,“JudicialAnti-AvoidanceDoctrines:TheU.S.Alternatives—PartI”[1987]no.5British Tax Review180-97and“...PartII”[1987]no.6British Tax Review220-44;theRt.Hon.LordOliverofAylmerton,“AJudicialViewofModernLegislation”(1993)vol.14,no.1Statute Law Review1-11;[1998]no.2British Tax Review(taxavoidanceissue);theRt.Hon.LordTempleman,“TaxandtheTaxpayer”(2001)vol.117,no.4Law Quarterly Review575-88;RobertWalker,“Ramsay25Yearson:SomeReflectionsonTaxAvoidance”(2004)vol.120,no.3Law Quarterly Review412-27;[2004],no.4British Tax Review(taxavoidanceissue);andJudithFreedman,“InterpretingTaxStatutes:TaxAvoidanceandtheIntentionofParliament”(2007)vol.23,no.1Law Quarterly Review53-90.

45 Commissioners of Inland Revenue v. Westminster (Duke),[1936]AC1,at19(HL):“EverymanisentitledifhecantoorderhisaffairssothatthetaxattachingundertheappropriateActsislessthanitotherwisewouldbe.”

46 AsdefinedbySullivan and Driedger,“[t]helegalcontextconsistsofthebodyofsubstantivelawthatmaybelookedatforthepurposeofinferringlegislativeintent.Itincludesthestatutelawofthejurisdiction,relevantcaselaw,thecommonlaw...andinternationallaw.On occasion it includes the law of a foreign jurisdiction.”Sullivan,supranote42,at260(emphasisadded).


ofournotionofseriesandmustbecarefullyexamined.Anintroductorywordofcaution is important though.Thesecasesdidnot involve the interpretationofastatutoryseriesconceptliketheoneintheAct;instead,theysoughttoarticulateacogentinterpretationalapproachtotaxavoidanceintheabsenceofastatutorygeneral anti-avoidance rule.Accordingly, asonemightexpect, the statementsofprinciplecontainedinthesecasesvaryandare,ofnecessity,afunctionofthepar-ticularfactsineachinstance.

W.T. Ramsay v. Inland Revenue Comrs.47istheleadingdecisionoftheHouseofLordsonthe“newapproach”totaxavoidanceintheUnitedKingdom.48Inthis1981case,theHouseofLordsstruckdownaplanwherebyafarmingcompanythathadrealizedachargeablegainonthesaleoffarmlandsoughttomitigatethetaxpayable by implementing a series of circular and self-cancelling loan and sharetransactionsthatweredesignedtomanufactureapaperloss.The“Ramsayprinci-ple”iscontainedinthefollowingstatementbyLordWilberforce,whowrotetheleadingspeech:

Ifitcanbeseenthata document or transaction wasintended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole,thereisnothinginthedoctrinetopreventitbeingsoregarded:todosoisnottopreferformtosubstance,orsubstancetoform.Itisthetaskofthecourttoascertainthelegalnatureofanytransactiontowhichitissoughttoattachataxorataxconsequenceandifthatemergesfroma series or combination of transactions,intended to operate as such,itisthatseriesorcombinationwhichmayberegarded....

Toforcethecourtstoadopt,inrelationtoclosely integrated situations,astepbystep,dissecting,approachwhichthepartiesthemselvesmayhavenegated,wouldbeadenialratherthananaffirmationofthetruejudicialprocess.Ineachcasethefactsmustbeestablished,andalegalanalysismade:legislationcannotberequiredorevenbedesir-abletoenablethecourtstoarriveataconclusionwhichcorrespondswiththeparties’ownintentions.49

Withreferencetothestatementthatthecourtsarenotboundtoconsiderindivid-uallyeachstepinacompositetransaction,LordWilberforcewentontosaythat

47 [1982]AC300(HL).

48 BeforeRamsay,thewindsofchangehadalreadybeenfeltinthreeothertax-avoidancecases.InBlack Nominees Ltd. v. Nicol(1975),50TC229(HCJ(Ch.Div.)),thecourtheldthatthetaxpayer—anactress—couldnotavoidincometaxbyundertakingtransactionsthathadnobusinesspurposeapartfromtheavoidanceofsuchtaxpayableonherfutureearnings.InFloor v. Davis,[1978]Ch.295(CA),thedissentingjudgmentofEveleighLJheldthatthetaxpayerfailedtoavoidataxoncapitalgainsinrespectofataxabletransactionbyundertakinganexchangeofshareswithacompanyintheIsleofMan,becausethetransactionhadnobusinesspurposeapartfromavoidingthattax.InChinn v. Hochstrasser,[1981]AC533,theHouseofLordsheldthatataxpayerfailedtoavoidataxoncapitalgainsinrespectofataxabletransactionbymeansofthesaleofareversiontoandpurchaseofsharesfromacompanyintheChannelIslands,becausethosetransactionshadnobusinesspurposeapartfromtheavoidanceoftax.

49 Supranote47,at323-24,and325(emphasisadded).


thisisparticularlyso“where...itisprovedthattherewasanaccepted obligationonceaschemeissetinmotion,tocarryitthroughitssuccessivesteps,”andthatitmaybesowhere“thereisanexpectationthat[theseries]willbesocarriedthrough,andno likelihood in practicethatitwillnot.”50

Asnoted,Ramsayintroducedaninterpretationalapproachtotaxavoidance.Thefundamentalcharacteristicofthisso-callednewapproachisasteptransactiontest.Inhisreasoning,LordWilberforcedidnotseektodefineexhaustivelythenotionsof“seriesoftransactions,”“widertransaction,”“aseriesorcombinationoftrans-actions,”and“closelyintegratedsituations.”Itwasnotstrictlynecessaryforhimtodososincehewasnotinterpretingastatutoryseriestestand,moreover,thetransactionsinRamsayweresocloselyintegratedthattheyobviouslyconstitutedaseries.Never-theless,twodefinitionalelementsstandout:therequirementofintentiontocreateaseries;andthestatement,regardingevidenceoftheintentiontocreateaseries,that,in particular,aserieswillexistwhereeverystephasbeenprecontractedorwherethereisno likelihood in practicethatthestepsoftheserieswillnotbecarriedout.

TheRamsayprinciplewasextendedtoalinearseriesoftransactionsinthe1982HouseofLordsdecisioninIRC v. Burmah Oil.51Inthiscase,theHouseofLordsstruckdownaschemeimplementedbythetaxpayertoconvertabaddebtowingtoitbyasubsidiarycompany,whichwasanon-deductibleloss,intoalossrealizedonthe liquidation of that subsidiary, which would be tax-deductible. Lord DiplockcommentedontheRamsaydecisionasfollows:

Itwouldbedisingenuoustosuggest,anddangerousonthepartofthosewhoadviseonelaboratetax-avoidanceschemestoassume,thatRamsay’scasedidnotmarkasignifi-cantchangeintheapproachadoptedbythisHouseinitsjudicialroletoa pre-ordained series of transactions(whetherornottheyincludetheachievementofalegitimatecom-mercialend)intowhichthereareinsertedstepsthathavenocommercialpurposeapartfromtheavoidanceofaliabilitytotaxwhichintheabsenceofthoseparticularstepswouldhavebeenpayable.Thedifferenceisinapproach.ItdoesnotnecessitatetheoverrulingofanyearlierdecisionsofthisHouse;butitdoesinvolverecognisingthatLordTomlin’soft-quoteddictuminIRCv.Duke of Westminster...,“Everymanisen-titledifhecantoorderhisaffairssothatthetaxattachingundertheappropriateActsislessthanitotherwisewouldbe,”tellsuslittleornothingastowhatmethodsoforder-ingone’saffairswillberecognisedbythecourtsaseffectivetolessenthetaxthatwouldattachtothemifbusinesstransactionswereconductedinastraightforwardway.52

Burmahissignificantinthatitfirstqualifiedtheexpression“seriesoftransactions”byaddingtheword“preordained,”anelementthat,asweshallsee,haslivedoninthe subsequent UK case law. It is not clear what was meant by the term “pre-ordained”:DidtheLawLordsmeanmerely“preordered”or“preplanned,”ordid

50 Ibid.,at324.

51 [1982]STC30(HL).

52 Ibid.,at32(emphasisadded).


theyusetheword’snarrowermeaningof“predestined”?Asweshallsee,thisbe-camethecrucialissueinresolvingsubsequentcases.

The decision in Burmah was followed by the 1984 Furniss v. Dawson case53(which,togetherwithCraven v. White,wasreliedonbytheFederalCourtofAppealin OSFC). In Furniss v. Dawson, the taxpayers held shares in two companies thatmanufacturedclothing(“theoperatingcompanies”).InSeptember1971,Dawsonagreed,inprinciple,toselltoWoodBastowHoldingsLtd.(“WoodBastow”)hisfamily’sentire shareholding in theoperatingcompanies.Becauseadirect sale toWoodBastowwouldhaveattractedimmediatecapitalgainstaxation,Dawsonandhisadvisersdevisedaplanwherebycapitalgainstaxwouldbedeferredbycarryingout,beforethesaletoWoodBastow,atax-deferredtransferofthesharesintheoper-atingcompaniestoanewlyincorporatedIsleofMancorporation(“Greenjacket”)inexchangeforsharesofthelatter.54Theshare-for-shareexchangewaseffectedonDecember16,1971.ThesaleoftheoperatingcompaniestoWoodBastowtookplace,asplanned,onDecember20,withthedifferencethatitwasGreenjacket,nottheDawsons,thatwasthevendor.Althoughthiswasachargeabledisposal,theex-pectedresultwasthatnogainwouldaccruetoGreenjacket.However,theHouseofLordsfoundthattheinsertionofGreenjacketwasnoteffectiveinavoidingimmedi-atecapitalgainstax.LordBrightmanwrotetheleadingspeechandexplainedthecourt’sreasoningasfollows:

TheformulationbyLordDiplockinInland Revenue Commissioners v. Burmah Oil Co. Ltd....expressesthelimitationsoftheRamsayprinciple.First, there must be a pre-ordained series of transactions; or, if one likes, one single composite transaction.Thiscompositetransactionmayormaynotincludetheachievementofalegitimatecommercial(i.e.business)end.Thecompositetransactiondoes,intheinstantcase;itachievedasaleofthesharesintheoperatingcompaniesbytheDawsonstoWoodBastow.ItdidnotinRamsay.Secondly,theremustbestepsinsertedwhichhavenocommercial(business)purposeapartfromtheavoidanceofaliabilitytotax—not“nobusinesseffect.”Ifthosetwoingredientsexist,theinsertedstepsaretobedisregardedforfiscalpurposes.Thecourtmustthenlookattheendresult.Preciselyhowtheendresultwillbetaxedwilldependonthetermsofthetaxingstatutesoughttobeapplied.

IntheinstantcasetheinsertedstepwastheintroductionofGreenjacketasabuyerfromtheDawsonsandasasellertoWoodBastow.Thatinsertedstephadnobusinesspurposeapartfromthedefermentoftax,althoughithadabusinesseffect.Ifthesalehadtakenplacein1964beforecapitalgainstaxwasintroduced,therewouldhavebeennoGreenjacket....

TheresultofcorrectlyapplyingtheRamsayprincipletothefactsofthiscaseisthattherewasadisposalbytheDawsonsinfavourofWoodBastowinconsiderationofasumofmoneypaidwiththeconcurrenceoftheDawsonstoGreenjacket.Capitalgainstaxispayableaccordingly.Iwouldthereforeallowtheappeals.55

53 Supranote11.

54 ThisplanhadpreviouslybeenconsideredinFloor v. Davis,supranote48.

55 Furniss v. Dawson,supranote11,at527-28(emphasisadded).


AlthoughLordBrightmanmadereferencetoa“pre-ordainedseriesoftransactions”and“one singlecomposite transaction,”Furniss v. Dawsondoesnotenlightenuswithrespecttotheexactmeaningofthoseterms.Presumably,thisisbecause,asinRamsay andBurmah, theHouseofLordswasnot interpreting a statutory seriesconceptbutrather formulatingageneral interpretiveapproachtotaxavoidance,andbecausethetransactionsatissueweresocloselyintegratedthatitisdifficulttoseehowtheycouldnotconstituteaseries.

ThetruerelevanceandimportanceoftheseriestestcametotheforestageinthreesistercasesdecidedtogetherbytheHouseofLordsin1988:Craven v. White,IRC v. Bowater,andBaylis v. Gregory.56Thethreecaseshadcertainfeaturesincom-mon.Ineachcase,therehadbeenadispositionbythetaxpayersofassetstooneormorecompanies,followedbyadispositionofthoseassetsbythecompanyorcom-paniestoanultimatethird-partypurchaser.Thefirstdispositionhadnocommercialpurpose other than the avoidance of tax (though this was disputed in Craven v. White).Innoneofthecaseswasthereacontractualobligationtoeffecttheseconddispositionatthetimethefirstwasmade.Ineachcase,theCrown,relyingontheRamsayprinciple,assertedthat,forthepurposeofascertainingthefiscalconsequences,thetwostepsortransactionsinvolvedshouldbetreatedasasingle,compositetrans-actionunderwhichtherewasa“disposal”bythetaxpayersinfavouroftheultimatepurchaser.Eachofthethreecaseswasdecidedinfavourofthetaxpayerbecausethetransactionsatissuecouldnotbeintegratedintoapreordainedseries.Inessence,themajorityoftheHouseofLordsreasonedthatasequenceofstepswouldconstituteapreordainedseriesonlywhenitispracticallycertainthatallstepswouldoccur.Ofparticularnoteisthatthethreecasesinvolvedadifferentdegreeofnexusbetweenthetransactions.

Craven v. Whiteinvolvedafirsttypeofnexus:atthetimeofthefirsttransaction,anothertransactionwasanticipated,butitwasnotcertaintomaterialize.Craven v. WhiteinvolvedthesamebasictaxplanasthatinFurniss v. Dawson,butotherwisethetwocasesarefundamentallydifferent.InCraven v. White,thetaxpayersheldsharesinacompany(“Queensferry”).In1976,theywerenegotiating,atthesametimeandinparallel,twopossibledeals:amergerofthebusinesswithacompany(“Cee-N-Cee”) and, in the alternative, a sale to another company’s subsidiary(“Oriel”).ThetaxpayersacquiredanIsleofMancompany(“Millor”),whichwouldbeusedasavehicleeitherforthemergerwithCee-N-CeeorforthesaletoOriel.AsinFurniss v. Dawson,thetaxpayerseffectedashare-for-shareexchangewiththeManxcompany,whichoccurredonJuly19,1976.However,incontrasttoFurniss v. Dawson,atthetimeofthetransfertoMilloritwasuncertainwhetheratransactionwouldtakeplacewithCee-N-CeeorOriel.Ultimately,afterdifficultnegotiation,thesaletoOrielwentaheadandwascompletedonAugust19,1976,withMillorbeingthevendor.ThemajorityoftheHouseofLordsheldthatalthoughonJuly19,

56 Supranote12.


1976therewasastrongpossibilitythatthesalewouldgoahead,therewasnoprac-ticalcertaintythatitwould.Therefore,therolldowntoMillorandthesaletoOrielhadtobetreatedseparatelyfortaxpurposes,withtheeffectthatthetaxpayerssuc-cessfullyavoidedimmediatecapitalgainstax.

TheBowatercaserepresentsasecondtypeofnexus:atthetimeofthefirsttrans-action, a further transaction that was not certain to materialize was anticipated,subsequentlycollapsed,butwasultimatelycompleted.Bowaterconcernedtheprop-erapplicationofadevelopmentlandtax.Thattaxwasimposedontheamountofdevelopmentvaluerealizedwithinafinancialyear.Amaterialfeatureofthetaxwasanexemptiononthefirst£50,000ofvalue.Also,therewasnorulerestrictingthisexemptionwhenatransferwithinarelatedgroupofcompanieswasinvolved.InNov-ember1978,apieceoflandwasownedbyasistercompanyofthetaxpayer.Atthattime,theownerofthelandenteredintonegotiationswithathird-partypurchaser,MiltonPipes.Afirmpricewasagreedupon,butclosingwassubjecttosatisfactoryagreements and planning permission. There were problems with obtaining theplanningpermissionandso,inJuly1980,thepurchaserwithdrew.Meanwhile,onMarch7,1979,thesistercompanyhadsoldthelandtothetaxpayer,whichhadthensoldthelandonMarch25,onataxablebasisandinequalshares,tofiveothercom-paniesinthegroup.InFebruary1981,MiltonPipesreopenednegotiations,andthelandwasultimatelysoldtoitinOctober1981.TheInlandRevenuesoughttowith-holdthe£50,000exemptionforeachofthefivecompaniesthatownedthelandbytreatingthesaletoMiltonPipesashavingbeenmadedirectlybythetaxpayer.TheHouseofLordsheldforthetaxpayeronthebasisthat,onMarch25,1979,thesaletoMiltonPipeswasnotpreordained.

Finally,Baylis v. Gregorybelongstoathirdcategoryofnexus:atthetimeoftheplanningofthefirsttransaction,afurthertransactionwasanticipated,butitcol-lapsedbeforethefirsttransactionwascompleted;ultimately,asimilartransactioninvolvingadifferentpartywaseffectedatalatertime.Inthiscase,thetaxpayersheldthemajorityofthesharesofacompanycalledPGI.In1973,asaleofthesharesofPGIwasbeingnegotiatedwithathirdparty,Cannon.AsinFurniss v. DawsonandCraven v. White,itwasplannedthatanIsleofMancompanywouldbeinterposedbeforethesale.OnFebruary13,1974,negotiationswithCannonbrokeoff.None-theless,onFebruary19,1974,anIsleofMancompanywassetupand,onMarch11,ashare-for-shareexchangewaseffectedbetweenthetaxpayersandthatcompany.Twoyearslater,adifferentpurchaser,Hawtin,appeared,andonJanuary30,1976,thesharesinPGIweresoldbytheManxcompanytoHawtinforcash.TheInlandRevenueassessedthetaxpayersonthebasisthattheyhadsoldthesharesinPGIdir-ectlytoHawtin.TheHouseofLordsaffirmedthedecisionsofthelowercourtsinfavourofthetaxpayers.

TheHouseofLordsdecidedthethreeappealstogether.Inessence,thecrucialissuebeforetheirLordshipsconcernedthepropermeaningofthepreordinationrequirementthathadbeenintroducedinBurmah.

Craven v. Whitewasthemostcontroversialofthethreecases;intheothertwo,counselfortheCrownstoppedjustshortofconcedingthecase.WhereastheHouse


ofLordswasunanimousinitsdecisionforthetaxpayersinBowaterandBaylis v. Gregory,twoLawLordsdissentedinCraven v. White.

LordOliver,withwhomLordKeithofKinkelagreed,wrotetheleadingspeechforthemajority.Inholdingforthetaxpayers,LordOlivernow-famouslysummar-izedtheHouseofLords’approachtotaxavoidanceasfollows:

Asthelawcurrentlystands,theessentialsemergingfromFurniss v. Dawson[1984]A.C.474appeartometobefourinnumber:(1)thattheseriesoftransactionswas,atthetimewhentheintermediatetransactionwasenteredinto,pre-ordained in order to pro-duce a given result; (2) that that transactionhadno other purpose than tax mitigation;(3)thattherewasatthattimeno practical likelihood that the preplanned events would not take place in the order ordained,sothattheintermediatetransactionwasnotevencon-templatedpracticallyashavinganindependentlife,and(4)thatthe pre-ordained events did in fact take place.57

Significantly, in developing these four criteria, Lord Oliver took up the pre-ordinationrequirementfromFurniss v. DawsonandBurmah,butrestricteditsscopebyaddingthethirdrequirementsetoutabove.LordOliver’sexplanationofhisap-proachisalsorevealing:

Idonot,formypart,thinkthatFurniss v. Dawsongoesfurtherthanthat.Theintel-lectualbasis for thedecisionwasRamsay and thecriteria for theapplicationof theRamsaydoctrinewerethoseenunciatedbyLordBrightman.Onthosecriteria,IseenoescapefromtheconclusionreachedinallthethreeappealsintheHighCourtandintheCourtofAppealthattheappellantsmustfail.NordoIreadilyseethatthecriteriaare logically capable of expansion so as to apply to any similar case except one inwhich, when the intermediate transaction or transactions take place, the end result which in fact occurs is so certain of fulfilment that it is intellectually and practically possible to conclude that there has indeed taken place one single and indivisible process.Topermitthisitseemstomeessentialthattheintermediatetransactionbearsthe stamp of interdependence at the time when it takes place.Atransactiondoesnotchangeitsnaturebecauseofanevent,thenuncertain,whichsubsequentlyoccursandRamsayisconcernednotwithre-formingtransactionsbutwithascertainingtheirreality.There is a real and not merely a metaphysical distinction between something that is done as a preparatory step towards a pos-sible but uncertain contemplated future action and something which is done as an integral and interdependent part of a transaction already agreed and, effectively, predestined to take place. In the latter case, to link the end to the beginning involves no more than recognising the reality of what is effectively a single operation ab initio. In the former it involves quite a different process, viz. that of imputing to the parties, ex post facto, an obligation (either contractual or quasi contractual) which did not exist at the material time but which is to be attributed from the occurrence or juxtaposition of events which subsequently took place.Thatcannotbeex-tractedfromFurniss v. DawsonasitstandsnorcanitbejustifiedbyanyrationalextensionoftheRamsayapproach.It involves the invocation of a different principle altogether, that is

57 Ibid.,at514(emphasisadded).Asnotedearlier,thisstatementwasreliedonbyRothsteinJinOSFCandlaterqualifiedinCanutilities:seesupranotes24and25andtherelatedtext.


to say, the reconstruction of events into something that they were not, either in fact or in inten-tion, not because they in fact constituted a single composite whole but because, and only because, one or more of them was motivated by a desire to avoid or minimise tax. That may be a very beneficial objective but it has to be recognised that the rational basis of Ramsay and Furniss v. Dawson then becomes irrelevant and is replaced by a principle of nullifying a tax advantage derived from any “associated operation.”58

ThemajorityinCraven v. WhitealsoincludedLordJauncey,whoexpressedaslightlymorenuancedapproach:

Theremightbecircumstancesinwhichatthetimeofthefirsttransactionarrange-mentsfortheeffectingofthesecondtransactionhadreachedastageatwhichitcouldproperlybefoundasafactthatthefirsttransactionwasinterdependentalthoughafinalpriceorspecificbuyerhadnotthenbeenidentified.Arrangementsforasalebyauctionmightbesuchasituation.59

LordsTemplemanandGoffdissentedfromthemajoritydecisioninCraven v. White. Inessence,bothdisagreedwiththemajority’snarrowconstructionof thepreordinationcriterion.Inparticular,LordGoffsaid:

The word “pre-ordained” in the expression “pre-ordained series of transactions”meanssimply“decidedinadvance”or,toadoptthewordsofLordFraserofTullybeltoninFurniss v. Dawson,atp.513,“plannedasasinglescheme.”Ofcourse,inacompositetransactioneachstepmust,bydefinition,beplannedinadvance;butwhereonerefersnottothecompositetransactionbuttotheseriesoftransactionswhichconstituteit,theword“pre-ordained”isaddedtoshowthatthatseriesoftransactionsdoesindeedconstituteacompositetransaction....

Idonotregardthe“practicalcertainty”testasapposite.Thisisbecause“pre-ordained”doesnotmean“pre-destined”;itmeansdecidedorplannedinadvance,butnotforedoomed—unlesstheexpressionisusedinconnectionwithadecisionbysomesupernaturalagency,suchasfate.60

Insummary,thereviewoftheUKcaselawaboveindicatesthat,after initiallyadoptingasimpleconceptofseriesforthe“newapproach”totaxavoidance(Ram-say),theHouseofLordsgraduallyrestrictedthisnotion,firstbyqualifyingitwiththeterm“preordained”(BurmahandFurniss v. Dawson),andthenbyinterpreting“preordained”tomean“nopracticallikelihoodthatthepreplannedeventswouldnottakeplaceintheorderordained”(Craven v. White).ItseemsclearthattheUKcaselawultimatelyadoptedanotionofseriesthatrequiresaveryhighlevelofnexusbetweenthecomponenttransactions,andmostlikelyhasanarrowermeaningthantheexpression“seriesoftransactions”simpliciter.

58 Craven v. White,supranote12,at514-15(emphasisadded).

59 Ibid.,at532.

60 Ibid.,at523and524.


TheUKcaselawdoes,however,confirmsomeofthedefiningcharacteristicsofthenotionofseries,asrevealedbythedictionarydefinitionsdiscussedabove.Thus,inCraven v. White,LordOliverconfirmedthatthecomponentpartsoftheseriesmustberelatedsuchthattheseriesoperatesasalogicalwholetoproduceagivenresult.LordOliveralsoconfirmedthatforaseriestoexist,itmustbecomplete,inthatallofthenecessaryandsufficientcomponentsoftheseriesmustinfacttakeplace.

Legal Context: The US Step Transaction Doctrine

Aswehaveseen,inthecontextofthe“series”analysisinOSFC,theFederalCourtofAppealconsidered,butrefusedtoapply,the“mutualinterdependence”and“endresult” testsdevelopedbyUScourts for thepurposesof theUSstep transactionanti-avoidancedoctrine.Nonetheless,wefeelitisinstructive,ininterpretingtheCanadiannotionofseries,tobrieflyreviewtheUSlawonsteptransaction.61

LiketheUnitedKingdom,theUnitedStateshasnot(yet)enactedacomprehen-sivestatutorygeneralanti-avoidancerule.Instead,sincethelandmarkdecisioninGregory v. Helvering,62 US courts have been applying various, often overlapping,judge-madedoctrines,suchassubstanceoverform,steptransaction,businesspurpose,shamtransaction,andeconomicsubstance,tochallengetax-motivatedtransactions.

TheUSsteptransactiondoctrineisconsideredtohavebeendevelopedaspartofthe substance-over-form doctrine, which US courts have applied in order to taxtransactionson thebasisof theireconomic substance rather than theirapparentlegalform.63Thesteptransactiondoctrinewillthereforenotbeappliedunlessthesubstanceofaparticulartransactionisfoundtodifferfromitsform.64

Theoriginsofthesteptransactiondoctrinecanbetracedbacktothe1938deci-sionoftheUSSupremeCourtinMinnesota Tea Co. v. Helvering,whichsynthesizedtheprincipleinthefollowingterms:“[A]givenresultattheendofastraightpathisnotmadeadifferentresultbecausereachedbyfollowingadeviouspath.”65Indeed,underthesteptransactiondoctrine,separatetransactionsorstepsmaybecollapsedandtreatedasoneoveralltransactioninsituationswherethemechanicalapplicationofthetaxrulestoeachindividualstepwouldnotresultinthepropertaxationoftheoveralltransaction,inlightofitstruesubstance.

61 ForamoredetailedanalysisoftheUSsteptransactiondoctrine,seeYoramKeinan,“RethinkingtheRoleoftheJudicialStepTransactionPrincipleandaProposalforCodification”(2007)vol.22Akron Tax Journal45-100.Keinan’sarticlewasausefulreferenceindraftingthissection.SeealsoSeymourS.MintzandWilliamT.PlumbJr.,“StepTransactionsinCorporateReorganizations,”inProceedings of the New York University Twelfth Annual Institute on Federal Taxation(NewYork:MathewBender,1954).

62 293US465(1935).

63 SeeAssociated Wholesale Grocers, Inc. v. US,927F.2d1517(10thCir.1991).

64 SeeTurner Broadcasting System, Inc.,111TC315(1998);MAS One L.P. v. United States,271F.Supp.2d1061(S.D.Ohio2003);aff’d.MAS One L.P. v. United States,390F.3d427(6thCir.2004).

65 302US609,at613(1938).


Inmostcases,theresultoftheapplicationofthesteptransactiondoctrinebyacourtwillbeacollapsingofthevariousstepsinordertodisregardcertainunneces-sarytransactions.Alternatively,theorderofthestepscanbevaried.Interestingly,however,UScourtshavecautionedthatthesteptransactiondoctrinecannotbeusedto recharacterize transactions soas to“manufacture facts thatneveroccurred tocreateanotherwisenon-existenttaxliability.”66

Anadditionalinterestingaspectofthesteptransactiondoctrineisthat,whileitisoftenusedasananti-avoidancemeasure,itcanalsobereliedonbyataxpayerforthetaxpayer’sownbenefit.ThisisaninterestingdistinctionfromCanadiananti-avoidanceconcepts,suchasGAAR,whichcannotbeusedbyCanadiantaxpayerstoself-assessandthus“self-recharacterize”theirowntransactions.

UScourtshaveretainedthreedifferentandalternativeformulationsofthebasicpremises necessary in order to apply the step transaction doctrine. These threethresholdtestsareknownasthe“bindingcommitment”test,the“endresult”test,andthe“mutualinterdependence”test.Asmentionedabove,onlythelasttwowerereferredtoinOSFC.

Underthebindingcommitmenttest,thesteptransactiondoctrinewillbeappliedif,atthetimethefirststeptakesplace,thereisabindingcommitmentoragreementtocompletetheremainingsteps.67Nevertheless,theexistenceofaformalagree-mentisnotaprerequisite;theUSTaxCourthasheldthat

[a]bindingcommitmentorevenanagreementinprinciplethateachstepofaplanwilloccurisnotaprerequisiteforfindingthatafirmandfixedplanexisted,althoughun-certaintyregardingoneormorestepsoftheplanisafactorwemustconsider.68

The US Tax Court has indicated that the binding commitment test is the mostrigorousofthethree.Itisseldomusedbythegovernment69andisapplicableonlywhereasubstantialperiodoftimehaspassedbetweenthestepsthataresubjecttoscrutiny.70Obviously,thisbindingcommitmenttestissubstantiallysimilartotheUKpreordainedseriesoftransactionstest.

Theendresulttestwilltreatindividualstepsasasinglecompositetransactionwhereeveryoneofthosestepsreflectsasingleintenttoachieveaparticularresult.

66 Greene v. US,13F.3d577,at583(2dCir.1994).SeealsoGrove v. CIR,490F.2d241(2dCir.1973).

67 ThistestisdescribedinthedecisionoftheUSSupremeCourtinCommissioner v. Gordon,391US83(1968).

68 SeeMerrill Lynch & Co. v. Comm’r,120TC12,at100(2003).

69 However,since,aspreviouslystated,thesteptransactiondoctrinecanbeusedtoataxpayer’sadvantage,thebindingcommitmenttestmayproveparticularlyusefultotaxpayersinachievingagreaterlevelofcertaintythatthesteptransactiondoctrinewillapplywherethesubstanceofthetransactionsinquestiondiffersfromtheirform.

70 SeeAndantech L.L.C. v. Comm’r,83TCM1476,at1504(2002).


Thistestfocusesonthesubjectiveintentoftheparties,atthetimethefirststepwaseffected, to achieve a single end result.This test is described inGreene v. US asfollows:

Undertheendresulttest,thesteptransactiondoctrinewillbeinvokedifitappearsthataseriesofseparatetransactionswereprearrangedpartsofwhatwasasingletrans-action,castfromtheoutsettoachievetheultimateresult.71

Accordingly,underthistest,eachintermediatestepthatisintendedbythepartiestoservetheaccomplishmentofaparticularendresultwillbedisregarded.

Underthemutualinterdependencetest,individualstepswillbedisregardedandcollapsedintoasingletransactionifthosestepsaresointerdependentthat,takenindividually,eachstepwouldbemeaninglesswithouttheothers.Theinterdepend-ence test isanobjective test that focusesontheparticularrelationshipbetweenindividualsteps.Itseekstodetermine

whetherunderareasonablyobjectiveviewthestepsweresointerdependentthatthelegalrelationscreatedbyoneofthetransactionsseemfruitlesswithoutthecompletionoftheseries.72

RegardingthethreetestsfortheUSsteptransactiondoctrine,Keinanmakesaparticularlythoughtfulobservation,arguingthat,ineffect,theyconstituteonlyone,two-prongedsteptransactiontest:

Inmyview,whilemostcourtsincasesinvolvingthesteptransactionprinciplestatethat thereare three [alternative] tests, as apracticalmatter, there isonlyone two-prongtest.Assetforthabove,thebindingcommitmenttestisrarelyusedandtheIRS[Internal Revenue Service] clearly avoids using it in its argument because it is thehardesttoprove.Inmyview,thistestshouldnotbeenumeratedasoneofthreetestsandcouldsimplybecomeastrongindicatorthatthesteptransaction[doctrine]oughttoapply.Astotheothertwotests,inmyview,theyshouldbecomeatwo-prongtestpursuanttowhichthesteptransactiondoctrinewouldapplytocollapsecertainstepsifbothtestsaremet.73

AccordingtoKeinan,thistwo-prongedtesthasasubjectiveelement,representedbytheendresulttest,andanobjectiveelement,representedbythemutualinter-dependencetest.Hence,theendresultisacombinedsubjective-objectivetest.WewillarguebelowthattheCanadianseriestestis,inthisrespect,similartotheUSsteptransactiondoctrine.

71 Green,supranote66,at583.

72 Kornfeld v. CIR,137F.3d1231,at1235(10thCir.1998).

73 Keinan,supranote61,at74.


PurposeInOSFC,RothsteinJbeganhisanalysisoftheseriesissueasfollows:

InThe Fundamentals of Canadian Income Tax,6thed.(Scarborough:Carswell,2000),atpage888,ProfessorKrishnaexplains that for thepurposesof the GAARa seriesoftransactions:

.. .referstotheintegrationofindividualandseparatestepsintoacompositetransaction.Thelinkageoftheseparatestepsintoa“series”resultsfromtheirinterdependenceandthemanner in which the transactions are structured.Thus,wemustdetermine:whenisasequenceofevents(e.g.,AtoB,thenBtoC)consid-eredasinglecomposite[transaction],suchasAtoC?74

Indeed,thesimplepurposeofthenotionofseries,asitisemployedintheAct,is to identify situationswhereaparticular transactionandoneormore,usuallytax-motivated,othertransaction(s)aresufficientlyintegratedandrelatedtobecon-sideredtogether,ratherthanonatransaction-by-transactionbasis,inascertainingthetaxconsequencesof thetransactions.Forexample,wheretheanti-avoidanceruleinsubsection55(2)applies,thenormaltaxconsequencesofanintercorporatedividendaresetasideandthedividendistreatedasproceedsofdispositionfromthesaleofthesharewithwhichithasbeenaggregatedintoaseries,inordertothwartthecapital-gains-strippingmischiefatwhichthisprovision isdirected.Similarly,paragraph245(3)(b)applieswhereatax-driventransaction75issufficientlyintegratedwithoneormoreothertransactionssothat,togetherasaseries,theywouldresult,directlyorindirectly,inataxbenefit.Therefore,putsimply,thepurposeoftheseriesconcept,inourview,istoidentifyaplan, scheme, or arrangementtowhichtheActisintendedtoapplyasawhole(ratherthanapplyingtoeachtransactionindividually,which is thenorm).This conclusion is supportedby the textualmeaningof theword“series”readincontext,asdiscussedabove.

Naturally,thepurposeoftheparticularanti-avoidanceruleinwhichtheseriesconceptisusedwillbeinstructiveinestablishingwhichtransactionsarerelevanttothepossibleseries.However,itisinestablishingthedegreeofconnectionbetweenthesetransactionsthatsubsection248(10)playsanessentialroleinclarifyingtheordinarymeaningoftheterm“series.”Thisiswhatwefocusonnext.

Subsection 248(10)

“The Series Shall Be Deemed To Include”Subsection 248(10) was proposed in November 1985 and enacted in 1986.76 Itreads,initscurrentEnglishandFrenchversions,asfollows:

74 Supranote7(FCA),atparagraph18(emphasisadded).

75 Thatis,atransactionthatmaynotreasonablybeconsideredtohavebeenundertakenorarrangedprimarilyforbonafidepurposesotherthantoobtainataxbenefit.

76 SC1986,c.6,section126(6).


(10) For the purposes of this Act,wherethereisareferencetoaseriesoftransactionsorevents,theseriesshallbe deemed to include any relatedtransactions or events completed incontemplationoftheseries.

(10) Pourl’applicationdelaprésenteloi,lamentiond’uneséried’opérationsou d’événements vaut mention desopérationsetévénementsliésterminésenvuederéaliserlasérie.

Thisprovisionhasbeendescribedas“inelegant . . .andunhelpful”77and“notamodelofclarity.”78Thefundamentaluncertaintyaboutsubsection248(10)concernsitsfunction.Twotextualelementsofthisprovisionseem,inourview,tohavemisledCanadiancourtsinthisregard.Thefirstdifficultyinidentifyingtheobjectofsub-section248(10)lieswiththeconfusinguseoftheword“series”intheprovision.Asdiscussedearlier,inOSFC,theFederalCourtofAppealfeltthatsubsection248(10)requiresanexistingpreordainedseriesoftransactions,towhichthisprovisioncouldaddarelatedtransactioncompletedincontemplationofthatpre-existingseries.79

Inaddition,thefactthatsubsection248(10)isframedasadeemingprovisionappearstohavemisledthecourtsintobelievingthatitwasintendedtoextendthemeaningof“series”beyonditsnormallimits,ratherthanmerelytoclarifyitsbasicelements.Thus,inOSFC,theFederalCourtofAppealsaidthat“[t]hedeemingna-tureofsubsection248(10)impliesanenlargementofthecommonlawseries.”80

Thecontroversyastowhethertherelatedtransactionistobeaddedtoanexistingseriesorwhetheritcanformaseriestogetherwithoneothertransactionwasiden-tifiedbyTileyatthe1988annualconferenceoftheCanadianTaxFoundation:

Second(andthisisthepossiblyseriousflawIreferredtoearlier),theseriesincludesrelatedtransactionsthatare“completedincontemplationofthe series.”Yet,asIhavesaid,theconceptof“theseries”or“aseries”itselfremainsundefined.Subsection248(10)doesnotexplainwhethertherelated(andcompleted)transactionistobeaddedtoanexistingseriesorwhetheritcanbeaddedtooneothertransactiontomakeaseries.Twosituationsmustbedistinguished.Inone,therelatedtransactionisfollowedbytwoothers,whichtogethermakeaseries;clearly,therelatedtransactionisdeemedtobeincludedintheseries.Intheothersituation,therelatedtransactionisfollowedbyoneother,whichtherefore,asasingletransaction,cannotitselfbeaseries.Can the related transaction be added to the other single transaction to make a series? That is, when a trans-action is completed in contemplation of the series, is the series what results from the addition of the deemed inclusion? I do not know the answer, but I assume that it will be yes; otherwise, the provision will not work as the draftsmen hope (which may be different from what the legislators are taken in law to intend), but it is going to matter.81

77 JohnTiley,“SeriesofTransactions,”in1988ConferenceReport,supranote13,8:1-22,at8:4.

78 OSFC,supranote7(FCA),atparagraph28.

79 Seethetextaccompanyingnote17,supra.

80 OSFC,supranote7(FCA),atparagraph33.

81 Supranote77,at8:4-5(emphasisadded).


WeagreewithTileythatsubsection248(10)mustoperatetoallowatransactiontobeaddedtooneothertransactiontoformaseries.Thisisbecausesubsection248(10)merelytriestoclarifythemeaningof“series”undertheAct,nottomanufactureaseriesthatwouldnototherwiseexist.Thetextofsubsection248(10)confirmsthisinterpretation.

First,regardingtheuseoftheword“series,”subsection248(10)operates“wherethereisareferencetoaseriesoftransactionsorevents[emphasisadded].”Thisfirstuseoftheworddenotesatextualreferencetotheconceptofseriesasusedinapar-ticularprovisionoftheAct,notanactualseries.Significantly,thetwosubsequentusesoftheword“series”areprecededbythedefinitearticle:“the seriesshallbedeemedtoincludeanyrelatedtransactionsoreventscompletedincontemplationoftheseries[emphasisadded].”Inourview,thesesubsequentreferencesaremerelyreferencestothenotionalseriesfirstreferredto,andnotapre-existingseries.Alessambiguousversionofsubsection248(10)could,inourview,readasfollows:

ForthepurposesofthisAct,wherethereisareferencetoaseriesoftransactionsorevents[inaprovision,inapplyingthatprovision]theseries[soreferredto]shallbedeemedtoincludeanyrelatedtransactionsoreventscompletedincontemplationoftheseries.

Thisminor reformulationof subsection248(10)helps tomake it clear that it ismerelyaruleofapplicationthatservestoensurethattheproperscopeisgiventotheterm“seriesoftransactions”whereveritappearsintheAct;theruleisnotintendedtomanufactureaseriesthatwouldnototherwiseexist,byaddinganotherwisein-dependenttransactiontoanexistingseries.Indeed,whatpurposewouldthatserve?

Second,asRothsteinJcorrectlypointedoutinOSFC,subsection248(10)isnotadefinitionprovision,82butneitherisitatypicaldeemingrule:thephrasing“wherethereisareferencetoaseriesoftransactionsorevents,theseriesshallbedeemedtoinclude”isunusual;amoretypicaldeemingprovisionwouldhaveread“aseriesoftransactionsoreventsshallbedeemedtoinclude.”Webelievethatframingsub-section248(10) as aquasi-deeming rulewas thebestoption for thedrafter.AnexhaustivedefinitionwasinappropriatesinceParliament’sclearintentionwastoletthecourtsfleshoutsuchafact-dependenttermonacase-by-casebasis.Aninclusivedefinitionwasriskybecause itwouldbedependentontheordinarymeaningof“series,”whichwashighlyuncertain, considering the lackofCanadian jurispru-denceonpointatthetimethatsubsection248(10)wasenactedandtheongoingupheavalsintheUKcaselaw.This,inourview,explainsthequasi-deemingnatureofsubsection248(10):itwasthebestsolutionavailabletotheDepartmentofFinanceinclarifyingthekeyelementsofthenotionofseries,asitperceivedthem.

82 OSFC,supranote7(FCA),atparagraphs28-33.


Arguably,thecorrectnessofthisinterpretationisalsoconfirmedbytheFrenchversionoftheprovision,whichreadssomewhatdifferentlyfromtheEnglishver-sion.83Indirecttranslation,itstates:

ForthepurposesofthisAct,wherethereisareferencetoaseriesoftransactionsorevents,theseriesshallbedeemedtoincludeanyrelatedtransactionsoreventscom-pletedin order to realize the series[emphasisadded].

Thiswordingsuggeststhattheseriesisrealizedorcompletedonlyoncealltherelatedtransactionsoreventshavebeenincludedintheseries.Thisisperfectlylogicalandconsistentwiththeordinarymeaningof“series”asdiscussedearlierinthisarticle.

Consideringtheforegoing,webelievethattheintendedfunctionofsubsection248(10)istoclarify.ThisisconfirmedbytheDepartmentofFinancetechnicalnotesissuedatthetimetheprovisionwasenacted.Thetechnicalnotesexplainthat“[n]ewsubsection248(10)clarifiesthatareferenceintheActtoaseriesoftransactionsoreventsincludesanyrelatedtransactionoreventcompletedincontemplationoftheseries.”84

Contrary to theholding inOSFC, thepurposeof subsection248(10) isnot toexpandtheordinarymeaningof“series”byaddingtoapre-existingseriesoneormoretransactionsthatwouldnormallynotbepartofthatseries,buttoconfirmtheessentialelementsoftheordinarymeaningoftheword“series.”Inourrespectfulview,whatOSFCfailedtorecognizeisthattheUKdecisionsinFurniss v. DawsonandCraven v. Whitedidnotestablishtheordinarymeaningof theword“series”butinsteadusedthenarrowernotionofapreordained seriesof transactions,which isreallyjustatypeofseries.ThattheUKcourtswouldadoptanarrowviewofseriesinthiscontextisnotsurprising,consideringthattheirobjectivewasnottodefine“series”buttofashionageneralapproachtotaxavoidance,ofwhich“series”wouldbeonecomponent.Theconsiderationsinvolvedincraftingsuchanapproach,par-ticularlyinataxregimethathasadoptedtheDuke of Westminsterprincipleasoneofitspillars,aredifferentfromthoseinvolvedindefiningtheterm“series”and,spe-cifically,fromthoserelevanttodefiningthattermunder the Act.Indeed,the“series”conceptisnot,inandofitself,atax-avoidancecomponentofthethree-factortest

83 Ofcourse,bothversionsoftheActareofficialandmustbeconsideredininterpretingaparticularprovision.Givingapropermeaningtobilinguallegislation,suchastheAct,givesrisetoadifferentsetofinterpretationalissues,consideringthatthetextsoftheEnglishandFrenchversionsoftheActmaynotbeentirelyconsistentwitheachother.Thebasicprinciplegoverningtheinterpretationofbilinguallegislationisknownastheshared-orcommon-meaningrule.TheleadingcaseoninterpretingbilinguallegislationisThe Queen v. Cie Imm. BCN Ltée,[1979]1SCR865.Inthatcase,theSupremeCourtofCanadaadoptedacommonmeaningoftheexpressions“disposedof ”and“aliénés,”asfoundintheEnglishandFrenchversionsofregulation1100(2)respectively,basedonacontextualandpurposiveinterpretationoftheAct.

84 Canada,DepartmentofFinance,Technical Notes to a Bill Amending the Income Tax Act and Related Statutes(Ottawa:DepartmentofFinance,November1985),clause126(6)(emphasisadded).


inGAARbutrather—asinthecaseofasingletransaction—merelysomethingthetaxresultsofwhichcanbedeniedbyGAAR.

Inthisrespect,itisrelevanttopointout,asRothsteinJdidinOSFC,thatatthetimethatsubsection248(10)wasenacted,therewasnoCanadiancaselawonpoint.Atthesametime,however,asnotedabove,therewasanupheavalinUKtaxlaw.WhileRamsayinitiallyseemedtoadoptanunqualifiedversionofaseriestestforits“newapproach”totaxavoidance,subsequentdecisions,startingwithBurmahandFurniss v. Dawson,introducedthepreordinationrequirement,whichultimatelynar-rowedtheoverallscopeoftheconcept.InNovember1985,whensubsection248(10)wasfirstproposed(overfouryearsafterRamsayandalmosttwoyearsafterFurniss v. Dawson),theDepartmentofFinanceandCRAmusthavebeenawareofandsensi-tivetothedevelopmentsintheUKcaselaw,particularlythecasesofCraven v. White,Bowater,andBaylis v. Gregory,whichin1985-86weremakingtheirwaythroughtheUKcourtsystem.85

Accordingly,itisourviewthattheDepartmentofFinanceintroducedsubsec-tion248(10)inordertopre-emptthepossibleimportationintoCanadiantaxlawofanarrowerversionofthenotionofseries,suchastheoneultimatelyadoptedbyamajorityoftheHouseofLordsinCraven v. White.Wesubmitthatthisprovidesacogentexplanationofthefunctionofsubsection248(10).Itisperhaps,therefore,somewhatironicthatCanadiancourtsadoptedthe“preordainedseries”test,whichistheverythingthatsubsection248(10)soughttoprevent.

Consideringtheabove,wenextfocusonthetwokeynotionscontainedinsub-section248(10):the“related”and“incontemplationof ”criteria.

“Related”Subsection 248(10) clarifies that transactions that form part of a series must be“related.”Whenaretransactions“related”forthepurposesofsubsection248(10)?Theterm“related” isnotdefined in thiscontext.86According toWebster’s Ninth New Collegiate Dictionary,“related”means“connectedbyreasonofanestablishedordiscoverablerelation.”Arguably, therefore, thereferencetotransactionsthatare“related”merelyconfirmsthesecondcharacteristicoftheconceptofseriesdiscussedabove.Inotherwords,inordertoformpartofaseries,transactionsmustbelogically

85 Seesupranotes13and14.UnlikeIRC v. BowaterandBaylis v. Gregory,Craven v. WhitehadbeenwonbytheCrownbeforethespecialcommissioners.However,in1985-86,theHighCourtheldforthetaxpayerineachofthethreecases:seethejudgmentdatedMay24,1985inCraven v. White,[1985]1WLR1024(Ch.Div.),perGibsonJ;thejudgmentdatedOctober18,1985inIRC v. Bowater Property Developments,[1985]STC783(Ch.Div.),perWarnerJ;andthejudgmentinBaylis v. Gregory,[1986]1WLR624(Ch.Div.),perVinelottJ.Aftersubsection248(10)wasenacted,in1987theUKCourtofAppealaffirmedtheHighCourt’sdecisions([1987]3AllER27),andin1989theHouseofLordsinturnaffirmedtheCourtofAppeal’sdecision(supranote12).

86 Theexpression“relatedpersons”isdefinedinsubsection251(2),whichprovidesthatindividualsconnectedbyblood,marriage,common-lawpartnership,oradoptionarerelatedtoeachotherforthepurposesoftheAct.


andspecificallyconnectedtoeachother.The“finaldividend”inMIL,forexample,wasconsideredtobenotsufficientlyconnectedorinterrelatedwiththeothertrans-actionstobepartofthesameseries.

“In Contemplation of ”Subsection248(10)statesthat,foratransactiontoformpartofaseries,itmustbecompleted“incontemplationof ”theseries.Asthecourtshaveimplicitlyrecog-nized,thecontemplationcriterionisthekeyfeatureofthisprovision.This issobecausetheexpression“incontemplationof ”isintendedtoclarifythedegreeofnexusthatmustbesatisfiedfortwoormorerelatedtransactionstoconstituteaser-ies;thatis,thethresholddegreeofnexusis“contemplation.”

But what is the meaning of the “contemplation” requirement in subsection248(10)?ThistermisnotdefinedintheAct.TheConcise Oxford Dictionary,8thed.,definestheverb“contemplate”tomean“regardaspossible;intend;haveasone’spurpose”;Webster’s Ninth Collegiate Dictionarydefinesittomean“toviewascontin-gentorprobableorasanendorintention.”Thesedefinitionssuggestamoreorlessactiveconsiderationoforintentiontoundertakefuturetransactions.

Consideringtheabovedictionarydefinitionsandinlightoftherelevantcontextandpurposeofsubsection248(10),inourview,twoprincipalelementscomprisethemeaningoftheword“contemplate”:(1)prospectivityand(2)intentiontocompletetheseriesoftransactions.

Contemplation Is Not Retrospective

ContrarytotheCanadianjurisprudenceonpoint,itisunambiguousthattheactofcontemplationisprospectiveinnatureonlyand,hence,subsection248(10)requiresthatat the time of the initial transaction,adeterminationwasmadebythetaxpayerastowhetherthetransactionwasbeingcompletedincontemplationofaseries,suchthatthetaxpayerintendedatthattimethatthetransactionwouldbeapartofalarger,compositewhole.Thisisconfirmedbythevarioususesoftheverb“tocontemplate”anditsvariantsinprovisionsoftheActotherthansubsection248(10).87Thisinterpret-ationisalsoconsistentwiththeCRA’sviewsexpressedatthetimeGAARwasenacted:

IntheviewofRevenueCanada,apreliminarytransactionwillformpartofaseriesdeterminedwithreferencetosubsection248(10)if,at the time the preliminary transaction is carried out, the taxpayer intends to implement the subsequent transactions constituting the series, and the subsequent transactions are eventually carried out.88

87 See,forexample,sections15,55,80,88,126,and207.6,andsubsection248(21).Inthisregard,itisrevealingthatsubsection207.6(2)usestheterm“contemplation”inthecontextof“benefitsthataretobereceivedorenjoyedbyanypersonon, after or in contemplation of[emphasisadded].”Paragraph55(3.1)(a)isalsonotableforitsarguablyredundantwording:“incontemplationofand before[emphasisadded].”

88 Hiltz,supranote13,at7:6(emphasisadded).Remarkably,thisexcerptwascited,thoughnotfollowed,byRothsteinJinOSFC,supranote7(FCA),atparagraph22.


ThefollowingexcerptfromthespeechofLordJaunceyinCraven v. Whiteisalsoapposite:

Thecharacterofthefirsttransactionfallstobedeterminedat the time when it takes place.Wasitthenanindependenttransactionorwasitaninterdependentpartofacompositetransaction?I do not consider that a transaction which was initially independent in fact could properly be rendered interdependent ex post facto by subsequent events although it is possible that a transaction which judged at the time had the character of an interdependent transaction could lose that character by the subsequent and unexpected failure to materialise of the second transaction.89

HadParliamentsoughttogivesubsection248(10)aretrospectiveeffect,aswellasaprospectiveone,itwouldnothavechosenthewords“completedincontemplationof,”whichinnormalparlancerefertothingsdoneinviewofthingsthatmayhappenlater.Rather,itwouldhaveselectedmoreneutrallanguage,suchas“relatedtrans-actions...enteredintobecauseof ”theseries.However,giventhatthiswasnotthelanguagechosenbyParliament,thejudicialreformulationoftheexpression“incon-templationof ”tomean“inrelationto”or“becauseof,”ortoconnotea“motivatingfactor,”comesdangerouslyclosetoanexerciseinredraftingsubsection248(10)tomakeitslanguagebettercorrespondwitharetrospectivefunction.Withrespect,notonlyisthisinappropriate,but,aswediscussnext,itleadstoanunintendedenlarge-mentof theanti-avoidancerules in theActandmakes itdifficult—that is,moredifficultthanitalreadyis—fortaxpayerstointelligentlymanagetheiraffairs.

Asnoted,theseriesconceptisprevalentinanumberofanti-avoidancerulesintheAct.Theoperationoftheserulesoftendependsonwhetherataxpayerhastherequisitepurposeincarryingoutaseries,whichpurposeisestablishedatthetimetheseriesisenteredinto,basedonwhatthetaxpayerintendedandknewatthattime.However,ifaseriesundertheActcouldbeestablishedbyconnectingatransactionoccurringatalatertimewithacommon-lawseriesthathappenedatanearliertime,onthebasisthatthetaxpayerhadtheanteriorcommon-lawseriesinhiscontempla-tionwhenhecarriedoutthelatertransaction,thetaxpayer’spurposefortheextendedseriescouldbedeterminedattheendoftheseries,notatitsbeginning.Sincethelawpresumesthatpersonsintendthereasonableandprobableconsequencesoftheirac-tions,andsinceprudenttaxpayerswouldbeexpectedtobecognizantoftheirpasttransactionswhenengagingincurrentones,anexaminationofataxpayer’spurposeattheendoftheserieseffectivelytransformsthepurposetest,intheseanti-avoidancerules,intoaresulttest,oratleastcreatesapresumptionofseries,whichthetaxpayermustthenrebut.Thisisaratherastonishingenlargementoftheseanti-avoidancerules—onemadeevenmoreremarkablebythefactthattheDepartmentofFinancetechnicalnotesindicatethatsubsection248(10)wasmerelyaclarifyingamendment,enactedtoensurethattheexpression“seriesoftransactions”wasgivenitsintendedscope.Onewouldexpectaclarifyingamendmenttopreservethenormalambitoftheanti-avoidancerulesinwhichtheterm“series”isused,nottoenlargeit.

89 Supranote12,at532(emphasisadded).


Thefactthatsubsection248(10)maybeappliedretrospectivelyisalsoincompat-iblewith thegoals of “consistency, predictability and fairness”promotedby theSupremeCourtofCanadainCanada Trustco.Inlightoftheacceptanceofretro-spectivecontemplationinthatcase,itappearsthatthetaxconsequencesofacurrenttransactionmaybeundonemerelyonthebasisthatthetransactionisbeingcarriedout“becauseof ”apasttransaction;however,inasense,allcurrenttransactionsareaccomplished“becauseof ”sometransaction(s)thatoccurredinthepast.Asaprac-tical matter, how can taxpayers discern which past transactions are relevant andwhicharenot?Muchmoretroubling,though,isthefactthat,underthisretrospectiveapproach,thetaxeffectsofpasttransactionscanconceivablybeundonebecauseofcurrenttransactionsthatthetaxpayerhadnointentionofcarryingoutatthetimeofthosepasttransactions.

Consider the following example. Mr. A is a Canadian resident who owns aCanadian-resident corporation,Canco1,whichhas twodivisions, D1 and D2.Mr.AwishestosegregatetheoperationsofD1fromthoseofD2forcommercial,liability,andestate-planningreasons,andtohaveD2carriedonthroughanewcor-porationthatheowns,Canco2.Tothisend,Mr.Apurportedlyeffectsatax-deferredspinoffofD2fromCanco1toCanco2undertheparagraph55(3)(a)exceptiontothe anti-avoidance rule in subsection55(2).Threeyears later,Mr. A receives anunsolicitedofferforD2(nowcarriedonthroughCanco2)fromanarm’s-lengthparty,Mr.B.BecauseD2’sassetshavesignificantaccruedrecapture,Mr.ApreferstosellthesharesofCanco2,andadealisstruckwherebyMr.BwillacquirethesharesofCanco2.Fortheexceptioninparagraph55(3)(a)tooperate,thesaletoMr.Bmaynotbepartofthesameseriesthatincludesthedeemeddividendsarisingaspartoftheearlierspinoff.SinceMr.AdidnotintendtosellhissharesinCanco2toMr.B(ortoanyotherunrelatedparty,forthatmatter)atthetimeofthespinoff,onewouldexpectthatthesaleofCanco2’sshareswouldnotbepartofthesameseriesasthedeemeddividends.However,thiseminentlyreasonableexpectationisnotaforegoneconclusionunderthecurrentlaw.

AccordingtotheSupremeCourt’sdecisioninCanada Trustco,theexpression“incontemplationof ” insubsection248(10)mustbereadnot inthesenseofactualknowledgebutinthebroadersenseof“becauseof ”or“inrelationto”theseries.Thephrasecanbeappliedtoeventseitherbeforeorafterthebasicavoidancetrans-actionfoundundersubsection245(3).Underthisformulationofthecontemplationcriterion,thesaleofthesharesofCanco2wasnotpossiblebut fortheearlierspin-off,andMr.Aobviouslyknew oftheearlierspinoffand,therefore,presumablytook it into accountwhensellingthesharesofCanco2.

This innocent, everyday situation demonstrates the tremendous uncertaintycreated by attributing a retrospective application to subsection 248(10).90 This

90 Thisisoneoftheaggravatingfactorsthatprompttaxpayerstoregularlyseekadvancetaxrulingsforcommonplacetransactionssuchastheonedescribedaboveandsimilarbutterflyreorganizations.Thepossibilitythatsubsection248(10)maybeappliedretroactivelyalsomakesitvirtuallyimpossibletoopinethatnoseriesoftransactionsexistsonanyparticularsetoffacts.


uncertainty,werespectfullysubmit,underminestheDuke of Westminsterprinciple,sincetaxpayers,suchasMr.Aabove,mustbeabletoreasonablypredictthetaxcon-sequencesoftheiractions,inordertoorganizetheiraffairsinanintelligentmannerfromday1.Moreover,theymustbeabletoselectanefficientmannerofconductingtheiraffairsinthepresent,andnotbeconsigned,asMr.Awouldbe,toadoptingacourseofactionthatmaximizestheircurrenttaxes,lesttheybevisitedwithpoten-tiallyharmfultaxconsequencesattributabletosomepasteventthat,fromabusinessandpracticalpointofview,hasnoconnectionwiththecurrenttransactions.(Ofcourse,thisassumesthatMr.Ahasbeenapprisedofthetrapthatpotentiallyawaitshim,anunlikely scenario tobeginwith.) In this regard, theAct’santi-avoidancerulesareintendedtoserveasadeterrenttoabusivetax-planningschemes.However,theirdeterrent effectmaybequestioned if they canoperatewhetherornot thetaxpayerhastheintentiontocommitthemischiefthattherulesseektoforestall.

Iftheanswer,inMr.A’scase,istonotengageinthetransactionatallortosellassetsinstead,thenitiscertainlyanunsatisfactoryone,sincewecanseenotaxpol-icyjustificationforinterferingwithMr.A’slaterchoicetosellthesharesofCanco2toathirdparty.ItisanacceptedprincipleoftaxpolicythattheActshouldbeneu-tralintermsofitsinfluenceonthebusinessdecisionsthattaxpayersmake,unlessParliamenthasclearlysoughttoencourage(ordiscourage)aparticularactivity.TheAct’sneutralitywillcertainlybeputtothetestifthetaxconsequencesofpresentbusinessdecisionsturnonpasteventssimplybecauseataxpayerknewofthemandtookthemintoaccountinconductinghispresentaffairs.Thisconstraintoncurrentchoiceswillinevitablyhaveanegativeimpactontheallocationofresourcesinourmarket-basedeconomy.

Aretrospectiveapplicationofsubsection248(10)isalsoincompatiblewithourself-assessmentsystem,sinceataxpayercannotself-assessadeemedseriesresultingfromthelookbackapplicationofsubsection248(10)wherethesubsequenttrans-action(aswilloftenbethecase)takesplaceafterthereturnswerefiledfortheperiodduringwhichthe“common-law”seriesoccurred.Ifataxpayercannotself-assess,howcanheavoidlateinterestchargesandpenalties?Fundamentally,wethinkthataself-assessmentsystempresupposesacontemplationthatisprospectiveonly,andbasedonafirmpresentintentiontotransact,sothattaxpayersarecapableofself-assessment.

Retrospectivitycanalsoresultinmischief.Forexample,intheoryatleast,atax-payerwhohasbeenreassessedonthebasisofaninitialseriescouldarguethatafuturetransactionwascompleted“becauseof ”andthus“incontemplationof ”the(reassessed)initialseries,andaccordinglyresultsinanew,deemedseriesthathasadifferentpurpose/resultfromtheoriginalseries;thus,thetaxpayercouldargue,thereassessmentshouldbequashed.Indeed,whobetterthanthetaxpayertoclaimthatafuturetransactionwasdoneinrelationtoapreviousone?Whatifataxpayermanu-facturedafuturetransactiontochangetheresultofanearlierseriesthatfellsquarelywithin the confinesof an anti-avoidance rule?Presumably, suchamanufacturedtransactionwouldbedone“becauseof ”and“inrelationto”thepriorseries.

Inconsideringtheissueofretrospectivity,itshouldberecalledthattheconceptsoftransactionandseriesoftransactionsaremerelyneutralfactstowhichanti-avoidance


rulescanapply;theyarenotthemselvesanti-avoidancefeaturesoftheAct,andtheyarecertainlynottoolsdesignedtothwartunacceptabletaxplanning.Yet,theretro-spectiveapplicationofsubsection248(10)seemstohavebeenmotivatedpreciselybythataim.Respectfully,caremustbetakennottobiasthemeaningof“series,”whetherbyadoptinganundulynarrowmeaning,suchastheoneresultingfromthepreordinationrequirement,oranundulybroadmeaning,suchastheoneresultingfrom a retrospective application of subsection 248(10), given the unsatisfactoryconsequencesthateitherdefinitionwouldhaveforbothtaxpayersandthegovern-ment.Themeaningof“series”shouldbeelucidatedviaaunifiedtextual,contextual,andpurposiveanalysis,asprescribedbytheSupremeCourtofCanada.Aswillbeseenbelow,thisapproachdisclosesameaningof“series”thatiswellcalibratedtothelargercontextoftheCanadiantaxregimeinwhichitisused.

Tosummarizethisfirstpoint,given(1)thedictionarymeaningoftheverb“con-template,”(2)thecontextinwhichtheexpression“incontemplationof ”isused—namely,aself-assessmentsystemthatrestsonthebedrockoftheDuke of Westminsterprincipleandthatseekstopromoteconsistency,predictability,andfairnessfortax-payers—and(3)theclarifyingpurposeforwhichsubsection248(10)wasenacted,werespectfullysubmitthatretrospectivityhasnoplaceinaproperconstructionofsubsection248(10),andweurgethecourtstorevisitthisissue.

Contemplation Requires a Firm Present Intention To Implement the Series

The act of contemplation is inherently subjective. In the context of subsection248(10),itrequiresanelementofconsiderationof,orintentioninrespectof,futuretransactions.Thisimpliesthatwhatwascontemplatedmustbeanalyzedfromtheperspectiveofthetaxpayer(ortheminddirectingthetaxpayer)whocarriedoutthetransactionsatissue.91However,subsection248(10)referstocontemplationbyreferencetoatransaction,notataxpayer.Thissuggeststousthatthetaxpayer’scon-templationmustbeestablishedonthebasisofobjectivelyascertainablefacts.Thus,webelievethatthecontemplationcriterionimpliesadualsubjective-objectivetest,similartoKeinan’stwo-prongedtestinregardtotheUSsteptransactiondoctrine.

Thecriticalissue,inourview,is:How definite or specific must the taxpayer’s object-ively ascertainable intention be, at the time of the first transaction, in order to constitute “contemplation” for the purposes of subsection 248(10) and thus the notion of series under the Act?Thisquestionmustbeansweredtakingintoaccountthegoalsof“consistency,predictabilityandfairness”:atthetimeofimplementingaparticulartransaction,ataxpayershouldhaveaclearideaofthetaximplicationsofthetransaction,takingintoaccountthetaxpayer’sfutureplansatthattime.

91 Inthisrespect,wementionedearlierthatanotherapproachtothefactsinOSFCwouldhavebeentoanalyzemattersonlyfromOSFC’sperspectiveandtoignorethestandpointofStandard(anditstrustee);however,inourview,RothsteinJ’sapproachintheparticularcircumstancesofthecasewasreasonable.


Belowarefourdegreesofconnectionornexusbetweentransactions.Eachcorres-pondstoalevelofintentionthatcouldpossiblyserveastherequisite“contemplation”atthetimethefirsttransactioniscompletedtoestablishaseriesundertheAct.

1. Nexus 1: Preordination.Atthetimethefirsttransactiontakesplace,allthetermsofthesubsequenttransaction(s)requiredtocompletetheserieshavebeenagreed in principle or formally in the form of a contract.Thislevelofnexuscorres-pondstotheUKpreordainedseriesoftransactionstest.ItalsoreflectstheUSbindingcommitmenttest.Itindicatesadefiniteandclearintentiontoenterintotherelevanttransactionsthatcomprisetheseriestothepointwherethereisnopractical likelihoodthatoneormoreof the transactionswillnotbeimplemented.Inotherwords,nexus1correspondsto“donedeal”situations.

2. Nexus 2: Specific intention.Atthetimethefirsttransactiontakesplace, thetaxpayer has a genuine and specific intention to enter into the subsequenttransaction(s)requiredtocompletetheseries,andsuchintentionissufficientlyclear in terms of the essential elements of the subsequent transaction(s).Those elementswill typically include the specific typeof transaction, thesubjectproperty,theparties,theconsideration,andthetimeframeinwhichthetransactionwillbecompleted.Notalloftheseelementswillalwaysbeessential.Forexample,inthecontextofasalebyformalauction,theidentityofthepurchaserwilltypicallynotbematerialorknown.ThefactsinCraven v. White,whereoneof twowell-defined transactionswashighly likely tohappen,correspondtonexus2.Inotherwords,nexus2correspondstositu-ationswherethetaxpayerisready,willing,andabletocompletetheseries.

3. Nexus 3: General intention.Atthetimethefirsttransactiontakesplace,thetaxpayerhasagenuine, but only general, intentiontoenterintothesubsequenttransaction(s)inthatsuchintentionisnotsufficientlydefinite,developed,orspecifictoserveasthegluethatbindsthetransactionsofaseries;thatis,thetaxpayer has not yet ascertained the essential elements of the subsequenttransaction(s), such as the subject property, the possible parties, and therangeofacceptableconsideration.Inotherwords,nexus3correspondstosituationswherethefirsttransactiontakesplaceatanexploratorystage.

4. Nexus 4: Strategic planning.Thefirsttransactionismerelypartofastra-tegic tax-planning exercise in that, at the time the first transaction takesplace, the taxpayer has no genuine intention to enter into any particularsubsequenttransaction.

Thesecategoriesareonlyconvenient,successiverangesonacontinuumorspec-trum,extendingfromstrictpreordinationonthenarrowendtostrategicplanningonthebroadend.92Thisspectrumisillustratedinappendix2.Nexus1definitely

92 OurinspirationforthefourlevelsofnexuswastheargumentoftheCrowninCraven v. White,supranote12,at465.Inthatcase,theCrownarguedtheextremepositionthattheUKpreordainedseriestestshouldapplytonexus1,nexus2,nexus3,and,possibly,nexus4situations.


indicatesaseries.Inaddition,webelievethatthepurposeofsubsection248(10)istoclarifythatanexus2situationalsoconstitutesaseriesforthepurposesoftheAct(contrarytotheoutcomeunderthepreordainedseriestestdevelopedaspartoftheUKapproachtotaxavoidance).Inthecontextofaself-assessmentsystemthatsub-scribestotheDuke of Westminsterprincipleandthatseekstopromoteconsistency,predictability,andfairnessfortaxpayers,nexus3andnexus4situationsshouldnotbeconsideredtoresultinaseriesundertheAct.Nexus3andnexus4areincompatiblewiththesebasictenetsofourtaxregimeinthattheyrequiretheuseofhindsighttoestablishaseries.Thisisthe“hindsightbarrier”thatwerefertoinappendix2:itisabarrierthat,ifcrossed,riskschallengingthebasicassumptionsunderwhichourtax system operates. Admittedly, hard cases will arise on the threshold betweennexus2andnexus3.

The following examples, broadly inspired by the UK “offshoring” cases likeFurniss v. Dawsonbutbasedonsubsections85.1(3)and(4),illustrateouranalysis.Bywayofbackground,subsection85.1(3)allowsataxpayertotransfersharesofafor-eign affiliate to another foreign affiliate of the taxpayer on a tax-deferred basis.Subsection85.1(4)isananti-avoidancerulethatoperatestodenysucharolloverinthefollowingcircumstances:

Subsection(3)isnotapplicableinrespectofadispositionatanytimebyataxpayerofashareofthecapitalstockofaforeignaffiliate,allorsubstantiallyallofthepropertyofwhichatthattimewasexcludedproperty(withinthemeaningassignedbysubsec-tion95(1)),toanotherforeignaffiliateofthetaxpayerwhere the disposition is part of a series of transactions or events for the purpose of disposing of the share to a person who, immedi-ately after the series of transactions or events, was a person (other than a foreign affiliate of the taxpayer) with whom the taxpayer was dealing at arm’s length[emphasisadded].

Theobjectiveofsubsection85.1(4)isclear.IfaCanadianresidentsellssharesinanoperatingforeignaffiliate93directlytoathirdparty,anycapitalgainwillbeim-mediatelytaxableinCanada,whereasifthesharesoftheaffiliateareinsteadsoldbyanotherforeignaffiliateoftheCanadianresident,thegainwillnotbeFAPIand,thus,taxationofthetaxableportionofthegaincanbedeferredindefinitely.Consequently,subsection85.1(4)deniestherolloverconferredbysubsection85.1(3)where,aspartofaseries,aCanadianresidenttransfersthesharesinanoperatingforeignaffiliatetoanotherforeignaffiliateandthetransfereeforeignaffiliatesellsthetransferredsharestoanarm’s-lengthparty.Thefollowingfourscenariosexemplifytheapplica-tionoftheseprovisionstothefourdegreesofnexusdiscussedabove.

Scenario 1 Nexus 1: Preordination.A Canadian-resident corporation (Canco) owns all of the issued and outstandingsharesinaforeignaffiliatethatcarriesonanactivebusiness(CFA1).Cancohasentered

93 Thatis,sharesofthecapitalstockofaforeignaffiliate,allorsubstantiallyallofthepropertyofwhichisexcludedproperty.


intoanagreementtosellthesharesofCFA1toanarm’s-lengthpurchaser.Thesaleofthesharesisscheduledtoclosethreemonthsaftertheexecutionoftheagreement.Thesaleissubjecttocustomaryconditionsprecedent,includingduediligenceandfinan-cing.Aftersigningtheagreementandbeforetheclosingofthesale,CancotransfersitssharesofCFA1toanotherwhollyownedforeignsubsidiary(CFA2)inconsiderationforsharesofCFA2.Thesaleclosesasplanned,andCFA2sellsthesharesinCFA1tothearm’s-lengthpurchaser.

Comment.Thisisatypicalnexus1situation,verysimilartotheoneinFurniss v. Dawson.TherollovertoCFA2formspartofaserieswiththesaleoftheCFA1sharestothearm’s-lengthpurchaser,andsubsection85.1(4)shouldnormallyapplytodenytherolloverotherwiseaffordedbysubsection85.1(3).

Scenario 2 Nexus 2: Specific intention.CancoownsallofthesharesofCFA1.CancowishestosellthesharesofCFA1,butnoagreementinprincipleorbindingcontracthasbeenenteredintowithapurchaser.Cancohasengagedprofessionalstoworkontheintendedtransactionand,inparticular,todeterminethepreferredmannerofeffectingthesaleandapricerangeacceptabletoCanco.Canco’sbrokerhas identified twopotential arm’s-lengthpurchasers for theCFA 1 shares, and Canco has begun negotiations with one of them (purchaser 1).Cancohasalsomadeovertures,asyetunanswered,totheotherpotentialpurchaser(purchaser2),inanattempttostimulateanauctionprocess.Inthiscontext,Canco’staxcounselhasadvisedthatitispreferable,fromaCanadiantaxstandpoint,forCancotofirsttransferitsCFA1sharestoanewlycreatedforeignholdingcompany,CFA2.Thistransferiseffectedbeforeapurchaseagreementofanysortisenteredinto.Afterprotractednegotiationswithpurchaser1andsomeback-and-forthwithpurchaser2,acontractofsaleisconcludedwithpurchaser1.Thesaleultimatelyclosesonemonthafterthecontractissigned,wherebyCFA2sellsthesharesofCFA1topurchaser1.

Comment.Thisisatypicalnexus2situation,verysimilartotheoneinCraven v. White.AlthoughtheultimatesaleisnotpreordainedatthetimeofthetransferbyCancotoCFA2,Cancohasdemonstrateda strong specific intention todisposeof theCFA1shares toa thirdparty.Thisparticular intention is reflectedby the following facts:professionalswereengagedandadvisedCancowithrespecttothesubjectproperty,thetypeofsale,andthepricerange;abrokeridentifiedpossiblepurchasers;andnegotia-tionscommencedwithonepossiblepurchaserwhileoverturesweremadetoanother.AllofthesefactsobjectivelyindicateCanco’sspecificintentiontoselltheCFA1sharesatthetimethatittransferredthesharestoCFA2.Therefore,therollovertoCFA2formspartofaserieswiththesaleoftheCFA1sharestothearm’s-lengthpurchaser,andsubsection85.1(4)shouldnormallyapplytodenytherolloverotherwiseaffordedbysubsection85.1(3).

Scenario 3 Nexus 3: General intention.CancoownsallofthesharesofCFA1andhasrecentlybeguntoconsiderapossiblesale of the shares. During one of the initial planning sessions, tax counsel advisesCancothatitcouldbeadvantageous,fromaCanadiantaxstandpoint,forCancotofirsttransferitsCFA1sharestoanewlycreatedforeignholdingcompany,CFA2,andeffectthesalethroughCFA2.Thistransactionisimplementedshortlythereafter.One


monthlater,Canco’sbrokerpresentsashortlistofpossiblepurchasersforthesharesofCFA1.Oneyearlater,afterstop-and-gonegotiationswithseveralpossiblepurchas-ers,thesaleoftheCFA1sharesbyCFA2isclosed.

Comment. This is a typical nexus 3 situation. Although Canco has an intention to“transact”withrespecttoCFA1,whichisreflectedinthehiringofprofessionalsandthecommencementofdiscussionandplanningofatransaction,atthetimeofthesubsec-tion85.1(3)rolloverthereistoolittlespecificityandtoomuchobjectiveuncertaintyregardingthepossiblefuturesaleofthesharesofCFA1toathirdpartyforthetransfertoCFA2toformaserieswiththefuturesale.Indeed,howcanCancointendto“sell”CFA1’ssharestoathirdpartywithoutfirstascertainingthemaindeterminantsofsuchasale,suchasthedesiredprice;and,asapracticalmatter,howcanCancoascertainsuchthingsinavacuum—thatis,outsidetheimmediatecontextinwhichasalemaytake place one or more years later? It would be neither prudent nor practical forCancotoselectthedesiredpriceonthebasisofdatedfinancialinformationandwith-outreferenceto,forexample,prevailingcreditmarketconditions,interestratesandexchangerates,andanydevelopmentsaffectingCanco(suchaslawsuits,labourstrife,andinventoryobsolescence)andCanco’s industry(suchasnewentrants,newtech-nologies,andnewlaws,includingnewtaxlaws).Withoutthebenefitofthiscontext,itisunlikelythatataxpayerinCanco’spositioncouldhaveformedtheintentionto“sell”thesharesofCFA1toathirdparty.Thisisalsowhythemerelapseoftimeisgenerallyanimportantfactorinestablishingwhetheraseriesexists:itisdifficult,fromabusi-nessandpracticalpointofview,toproperlyevaluatethemaintermsofatransactionoutsidetheimmediatecontextinwhichthetransactionoccurs.Whiletimingmaynotbeeverything,itiscertainlyanimportantfactorinvirtuallyeverybusinessdealthattakesplacetoday.Therefore,themorethanone-yeardelaybetweenthetransferofthesharesofCFA1toCFA2andthesalealsosuggeststhat,bythetimethesaleoccurred,theinitialrolldownwas“oldandcold.”Consequently,therollovertoCFA2doesnotformpartofa serieswith theultimatesaleof theCFA1shares to thearm’s-lengthpurchaser,andsubsection85.1(4)shouldnormallynotapplytodenytherolloveraf-fordedbysubsection85.1(3).

Scenario 4 Nexus 4: Strategic planning.Cancoformsandinvestsinaforeigncorporation,CFA1.ThisisdoneinfurtheranceofCanco’sstrategicobjectivestoexpanditsoperationsoutsideCanada.Aftertheone-yearstartupperiod,itisclearthatCFA1’sactivebusinessisviable.Atthattime,Canco’staxcounseladvisesthatitisgoodcommercialandtaxpracticetoholdCFA1’ssharesthroughaforeignholdingcorporation.Onthebasisofthisadvice,CancotransfersallofitssharesinCFA1toanewlyincorporatedforeignsubsidiary,CFA2.Overthenextthreeyears,CFA1’soperationscontinuetogrowandprovetobeagreatsuccess,andanarm’s-lengthpartymakesanunsolicitedbidforCanco’sforeignoperations.Ultim-ately,CFA2sellsthesharesofCFA1tothebidder.

Comment.Thisisaclearnexus4situation.Atthetimeofthesubsection85.1(3)roll-over,CancohadnointentiontosellthesharesofCFA1toathirdparty.Therefore,therollovertoCFA2doesnotformpartofaserieswiththeultimatesaleoftheCFA1sharestothearm’s-lengthpurchaser,andsubsection85.1(4)shouldnormallynotapplytodenytherolloveraffordedbysubsection85.1(3).


Conclusion

In summary, we believe that subsection 248(10) does not extend a pre-existing“common-law”seriesbyaddingtoitanindependentbutrelatedtransactionthatiscompletedincontemplationofthatseries.Instead,thisprovisionismerelyaclarifica-tionoftheordinarymeaningof“series,”asconceivedbyParliament.Inthisrespect,theordinarymeaningof“series”mustalwaysbedeterminedwithreferencetosubsec-tion248(10)and,inourview,thedefiningcharacteristicsofthisnotionareasfollows:

1. Therearetwoormorecompletedtransactions. 2. Eachtransactionmustbeinterrelatedwiththeothertransaction(s)thatform

partoftheseriesinthateachofthemmustbeplannedbythetaxpayer(ortheminddirectingthetaxpayer) tocombinewiththeother(s) inordertoformawholethatisintendedtoachieveaparticularpurposeorproduceagivenresult.

3. Thetransactionsthatformpartoftheseriesmustoccurinasequencepre-determinedbythetaxpayer(ortheminddirectingthetaxpayer).

Withrespecttotheabovecharacteristics,thefollowingimportantpointsmustbemade.

First,fortwoormorerelatedtransactionstoformpartofaseries,therequisitelevelofnexus,asclarifiedbysubsection248(10),isthatatthetimeofenteringintothe initial transaction, therelevant taxpayer (or theminddirectingthe taxpayer)must “contemplate” any subsequent transaction(s) thatwould, togetherwith theinitialtransaction,completetheseries.Suchcontemplationwillbeconsideredtoexist,onthebasisofobjectivelyascertainablefacts,either(1)wheretheserieshasbeenprecontractedorhasbeenagreeduponinprinciplesothatthereisnopracticallikelihoodthattheserieswillnotbecompleted(nexus1),or(2)wherethetaxpayer’sintentiontocompleteanyremainingtransaction(s)isgenuineandspecific(nexus2).Inneitherofthesecasesishindsightrequiredtoestablishtheseries.

Second,whetherthetaxpayer’sintentiontocompleteanyremainingtransaction(s)issufficientlyspecifictoresultinaseriesforthepurposesofnexus2will,naturally,varyaccordingtotheparticularcircumstancesofeachcase.Nevertheless,adistinctionshouldbemadedependingonwhetherthesubsequenttransactionoccurswitharm’s-lengthornon-arm’s-lengthpersons.Therequisitedegreeofspecificityofintentionmaybeattenuatedinrespectofnon-arm’s-lengthtransactions,sincesomeofthetermsandconditionsthataretypicallynegotiatedin,andarematerialtotheconclusionof,anarm’s-lengthtransactionmaynotnecessarilybeessentialinanon-arm’s-lengthsituation.Thisisbecauseanon-arm’s-lengthtransactionnormallyinvolvesadirectingmindforwhomcertainusuallyimportantelementsofthetransactionmaybeviewedasmeredetails(sincethedeterminationofsuchelementswillbeunderitscontrol).94

94 Preplannedintragrouptransactions,oncecompleted,willoftenconstituteanexus1seriesbecauseatthetimeofthefirsttransaction,therewouldnormallybenopracticallikelihoodthat


Conversely, absent exceptional circumstances (such as, possibly, a formal auctionprocess),arm’slengthtransactionswillrequireahigherdegreeofspecificityofinten-tiontosatisfythestandardofcontemplationundernexus2.Forexample,ifatthetimeofcompletingthefirsttransaction,ataxpayerintendstoeffectasecondtrans-actionconsistingofthesaleofthesharesofawhollyownedoperatingsubsidiarytoanarm’s-lengthpurchaser,thetaxpayer’sintentionwithrespecttothesubsequenttransactionwillbesufficientlyspecificonlyifthetaxpayerhasenteredintonegotia-tionswithapurchaserbasedonasetofessentialtermsandif,althoughthereisnoagreementinprinciple,thereisnoreasontobelieve,atthattime,thatthenegotia-tionswillimminentlybreakdown.Thisisbecauseitgenerallycannotbesaidthatataxpayerintendstocarryoutthestepsofaplan,atthetimethefirsttransactioniscompleted,unlesstheessentialelementsofthetransactionwiththethirdpartyhavebeenidentifiedbythetaxpayer.

Third,andsomewhatobviously,aparticularserieswillexistonlywhenthespe-cificobjectivethatisultimatelyachievedistheonethatwasinitiallycontemplated,andnotsomeotherobjectivethatbecamecontemplated inthecourseofevents.Thefollowingexample(basedonthepreviousones)bestillustratesthispoint.Cancoownsallofthesharesofaforeignoperatingsubsidiary,CFA1.Cancospecificallyintendstoattractaparticulararm’s-lengthparty(Forco)asaminoritylocalpartnerfor its foreignoperations.For thispurpose,Canco transfers its shares in CFA1,pursuanttosubsection85.1(3),toanewforeignholdingcorporation,CFA2.CancointendsthatCFA2willserveasthejointventureentityforitselfandForco.IntheprocessofnegotiationswithForco,thediscussionsevolvetothepointwhereForcomakesanunsolicitedoffertoCancotopurchaseallofthesharesofCFA1.Initially,Cancorejectsthisoffer,butafterfurthernegotiations,Cancorealizesthatthisisaviablealternative.Ultimately,CFA2(whichwasinitiallyintendedtoserveasajointventureentity)disposesoftheCFA1sharestoForco.Inthiscase,therolloveroftheCFA1sharestoCFA2andtheultimatesaleofthesharesofCFA1toForcoshouldnotformaseries,becausethesalewasnotcontemplatedwhentherolloverwasef-fected.Therefore,theanti-avoidanceruleinsubsection85.1(4)shouldnotapply.

Fourth,whererelatedtransactionsfollowinaclosetemporalsequence,thiswillnormallybeindicativeofthepresenceofaseries.Conversely,thelongerthelapseoftimebetweentwotransactions,thestrongertheinferencewillbethattheprecedingtransactionwas“oldandcold”bythetimethesubsequenttransactionwasultimatelycompleted.InCopthorne,theFederalCourtofAppealremarkedonthe“relativelyclosetemporalconnectionbetweenthe1993ShareSaleandthe1995Redemption”95andstated that,althoughnotdeterminative, theone-yeargapbetween the1993sharesaleandthe1995redemptionmilitatedagainstacceptinganassertionthat

thestepsoftheplanwouldnotbecompletedasplannedbythecommondirectingmind.Inothernon-arm’s-lengthsituations,therequisitedegreeofspecificityofintentionwilldependonadeterminationofthefactorsthatarematerialtothecompletionoftheplan.

95 Supranote3(FCA),atparagraph51.


therewasan“extremedegreeofremoteness”betweenthetwo.96Although,inourviewandcontrarytowhattheFederalCourtofAppealthought,theperiodoftimeseparatingthe1993sharesaleandthe1995redemptionsuggeststhatthetwotrans-actionswerenotrelated,webelievethatthecourtwascorrecttoremarkonthismatterasanon-determinativebutneverthelessimportantindicatorofthepresenceorabsenceofaseries.

Finally, therequirement that the transactions formingpartof theseriesmustoccurinapreplannedsequencesuggeststhelackofagenuineinterruptionintheflowofoccurrenceofthecomponenttransactionsoftheseries.Agenuineinterrup-tionwillhappenwhenaneventthatisbeyondthetaxpayer’scontrol(thatis,thatcannotbecontrived)causesanupsetinthetaxpayer’sintention.Forexample,whereaseries isplannedinaparticularwaybutacomponenttransactionsubsequentlyfails,suchastheultimatearm’s-lengthsaleintheUKBowatercase,thiswillsuggesttheabsenceofaseries,evenifthefailedcomponenttransactionisultimatelyre-suscitatedandimplemented.

Inlightofthenotionsdevelopedabove,wenextbrieflyre-examinetherelevantCanadiancaselawonseries.

THE C A N A DI A N C A SE L AW O N “ SERIE S” REDUX

WebelievethattheFederalCourtofAppealwouldhavereachedthesameresultinOSFChaditemployedtheapproachsuggestedhereintotheinterpretationof“series”intheAct.OSFCinvolvedanexus1seriesfromthepointofviewofthetaxpayer.WhenthetaxpayercontractedtobuythepartnershipinterestintheSTILIIPartner-ship,iteffectivelyratifiedtheloss-packagingtransactionsimplementedbyStandardandmadethemitsown.ThisisbecausetheStandardserieswasplannedforthedualbenefitofStandardandanybuyer,includingOSFC,97andbecauseOSFCsoughtandnegotiatedforthebenefitsofthepackagingtransactions,reliedonthosetransactionsto shape thenatureof its transactionswithStandard, andpaid for suchbenefits(albeitonaconditionalbasis).98Therefore,OSFCwaseffectivelyinthesamepositionasifithadprecontractedwithStandardtoimplementthepackagingtransactionsandthenbuythepartnershipinterest.

Similarly,Canutilitieswouldhaveyieldedthesameresultunder thesuggestedapproach.Thesituationinthatcasewaseitheranexus1oranexus2situation.Of

96 Also,inOSFC,supranote7(FCA),RothsteinJnoted,atparagraph25,thatthetransactionsformingpartoftheinitialStandardseries“wereimplementedoveraperiodofoneweekinOctober1992.”

97 FromthepointofviewofStandard,thetransactionsalsoconstitutedaseriesbecauseStandardspecificallyintendedtheseries.Tospecificallyintendtheseries,StandarddidnotneedtoknowtheidentityofthepurchaseroftheSTILIIPartnershipinterestbecausethiswasirrelevantforpracticalpurposes.

98 ThefactthatOSFCpaidforthelossesonaconditionalbasisstronglysuggeststhatitratifiedthepackagingtransactionsand,ultimately,revealsOSFC’sprimarypurposeineffectingthetransactions,forthepurposesofsubsection245(3).


course,theordinarycoursedividendscouldnotbe“precontracted,”becauseaboardofdirectorscannotbinditselfastothefuturedeclarationofadividend.However,atthetimethatthebasicserieswasimplemented,itwaspracticallycertainor,atleast,specificallyintendedthattheordinarycoursedividendswouldbedeclaredandpaidbyCUandCUHandthatthesedividendswould,togetherwiththepriortransactions,completetheseriesinthattheapplicationofsubsection55(2)wouldbeavoided.

Inourview,MILwouldlikewisehavebeendecidednodifferentlyunderthesug-gested approach, in light of the Tax Court’s findings of fact. Considering theCrown’simplicitacceptancethat“theAugust1996salewasneitherpreordainednorcontemplatedwhenthe[initialserieswas]undertaken,”99apparently,fromtheCrown’sperspective,MILwasanexus3situation.Inthisrespect,thecaseisimportantbecausetheCrown’sattempttoextendthenotionofseriestonexus3situationsbyarguingthatDFRwasawillingtakeovertargetwasrejected.Infact,itappearsthat,intheeyesofBellJ,thecaseinvolvedanexus4situation.Inthisrespect,theTaxCourtacceptedthetaxpayer’sevidencethat,atthetimeoftheinitialseries,therewasnointentionthatDFRwouldbesold.Therefore,onthebasisofthecourt’sdecision,theinitialseriesconstitutedmerelystepsinastrategicplan.

Finally,andwithduerespect,theinterpretationof“series”suggestedhereinwouldbeatoddswiththeresultreachedbytheFederalCourtofAppealinCopthorne,inlightof theevidenceacceptedby theTaxCourt.Asdiscussed, thequestion thatshouldhavebeenconsideredbytheCourtofAppealwaswhetherthe1995redemp-tion(orthe1995series)wascontemplatedbythetaxpayerwhenthe1993sharesalewaseffected.Itissignificantthatthecourtansweredthisquestioninthenegative:“therecordindicatesthattheredemptionwascontemplatedshortlyaftertheintro-ductionoftheProposedFAPIAmendments[in1994].”100Therefore,itseemsthatin1993,whenthePUCpreservationtransactionwaseffected,the1995redemptionwasnotyetcontemplatedbythetaxpayer.ThiswouldmakeCopthorneanexus3or,morelikely,anexus4case.Inthisregard,everytaxpractitionerknowsthat“PUCisyourfriend”;hence,the1993sharesaleappearstohavebeenmerelygoodstrategicplanningdesignedtopreserveapotentiallyvaluabletaxattribute.

CO NCLUSIO N

Canadiancourtshaveinterpretedthenotionof“seriesoftransactions”intheAct,onthebasisoftheUKHouseofLordscaselaw,tomeananumberoftransactionsthatarepreordainedinordertoproduceagivenresult,withnopracticallikelihoodthat thepreplannedeventswouldnot takeplace in theorderordained.Further,Canadiancourtshaveheldthatsubsection248(10)requiresapre-existingseries,towhichthisprovisionaddsanyrelatedtransactioncompletedincontemplationofthepre-existingseries.Thecourtsconsideritsettledthatthecontemplationinsubsec-tion248(10)mayoperatebothprospectivelyandretrospectively.Wehaveargued

99 MIL,supranote31(TCC),atparagraph61(emphasisinoriginal).

100 Copthorne,supranote3(FCA),atparagraph51(emphasisadded).


thatthis interpretationofthenotionofseries intheAct isnotconsistentwithaunified textual, contextual, and purposive analysis of the term “series” andsubsection248(10).

Ourconclusionsmaybesummarizedasfollows:

1. There is no “common-law” series and no “deemed” or “extended” seriesundertheAct;thereisjustaseries.

2. Subsection248(10)doesnotconnectatransactiontoapre-existing(common-law)series;itmerelyclarifiesorelaboratesonthebasicelementsofaseries,asunderstoodbyParliament,forthepurposesofapplyingtheprovisionsoftheActthatrefertothenotionofseries.

3. Thekey“incontemplationof ”elementofsubsection248(10)establishesthedegree of connection required between “related” transactions in order toconstituteaseries.Aunifiedtextual,contextual,andpurposiveanalysisofthisrequirementrevealsthata. therequisitedegreeofconnectionforsubsection248(10)exists

i.whentheserieshasbeenprecontractedorhasbeenagreeduponinprinciple,sothatthereisnopracticallikelihoodthattheserieswillnotbecompleted(nexus1),or

ii.whenthetaxpayer’sintentiontocompleteanyremainingtransaction(s)isgenuineandspecific(nexus2);and

b. suchconnectioncannotbemadeusinghindsight(suchasinnexus3andnexus4situations) inthelargercontextofaself-assessmenttaxregimethatsubscribestotheDuke of Westminsterprincipleandthatseekstopro-moteconsistency,predictability,andfairnessfortaxpayers.

Onthebasisofaunifiedtextual,contextual,andpurposiveanalysisoftheseriesconceptandtheaboveconclusions,wesuggestthattheexpression“seriesoftrans-actions”maybeinterpretedasfollowsforthepurposesoftheAct:

A series of transactions comprises two or more related transactionsplannedby the taxpayer (or theminddirecting the taxpayer) asonelogicalwholeandcompletedinapredeterminedsequenceandwithoutgenuineinterruptionwiththeintentionofachievingaparticularcom-monobjective,purpose,orresult.Aninitialtransactionwillformpartofaseriesif,atthetimethatthetransactioniscarriedout,itiscontem-platedthatthesubsequenttransactionsconstitutingtheserieswillbeimplemented, and the subsequent transactionsareeventually carriedout.Suchcontemplationwillbeconsidered toexist,on thebasisofobjectivelyascertainablefacts,either(1)wheretheserieshasbeenpre-contracted or has been agreed upon in principle so that there is nopracticallikelihoodthattheserieswillnotbecompleted,or(2)wherethe taxpayer’s intention to complete any remaining transaction(s) isgenuineandspecific.


Webelievethatthisdefinitionisconsistentwiththeordinarymeaningoftheex-pression“seriesoftransactions,”theanti-avoidancecontextinwhichitistypicallyused,andthepurposeitfulfillsintheAct.Itproduces,inourview,thecorrectresultindifficultcases,suchasOSFCandCanutilities,anditprovidestaxpayerswiththepredictabilityandconsistencytheyneedinordertointelligentlymanagetheiraffairs.Aunifiedtextual,contextual,andpurposiveapproachtostatutoryinterpretationisthemethodprescribedbytheSupremeCourtofCanada,andweareconfidentthatitwillilluminatethepathtowardaproperresolutionoftheseriesissueintheup-comingCopthornecase.

A PPENDI X 1 SUMM A RY O F FAC T S IN CO P THO RNE

Theparties inCopthorne Holdings Ltd. v. The Queen101fileda JointStatementofFactsandLaw,therelevantpartsofwhichmaybesummarizedasfollows.

In1981,LiKa-Shing,aHongKongbusinessman,establishedacorporatestructuretoacquiretheTorontoHarbourCastleHotel.Specifically,anOntariocorporation,CopthorneHoldingsLtd. (“Copthorne I”), apredecessorof the appellant andawhollyownedsubsidiaryofaNetherlandscorporation,BigCityProjectCorpora-tion(“BigCity”),wasestablishedforthispurpose.In1989,CopthorneIsoldtheTorontoHarbourCastleHotelatasubstantialcapitalgain.Theproceedswerein-vestedinawhollyownedBarbadossubsidiary,CopthorneOverseasInvestmentLtd.(“COIL”),whichcarriedonasuccessfulbondtradingbusinessthroughitsSingaporebranch.

Asecondcorporate structurecontrolledbyLiKa-Shing’s son,VictorLi,wasestablishedin1987toinvestinsharesofHuskyOilLimited(“HOL”),aCanadianoilandgascompany.ThisstructurewasmadeupofachainofOntariocorpora-tions:VHHCInvestmentsInc.(“VHHCInvestments”);VHHCHoldingsLtd.(“VHHCHoldings”),awhollyownedsubsidiaryofVHHCInvestments;andVHSUBHoldings(“VHSUB”),awhollyownedsubsidiaryofVHHCHoldings.Between1987and1991,VictorLi,AshfieldBV(“Ashfield,”aNetherlandscorporationthatwas indirectlyownedbyatrustwhoseprincipalbeneficiarywasVictorLi),andL.F.Holdings(aBarbadoscorporationcontrolledbyLiKa-Shing)investedcapitalinVHHCInvest-ments.Attheendof1991,sharesinVHHCInvestmentshadaggregatepaid-upcapital(PUC)of$96,736,845.Duringthisperiod,VHHCInvestmentsused$67,401,279ofitscapital to invest insharesofVHHCHoldings,whichusedthefundsto invest,directlyorindirectly, inHOL.Attheendof1991,sharesinVHHCHoldingshadaggregatePUCof$67,401,279.Attheendof1991,becauseofthefallinthevalueoftheHOLinvestmentresultingfromdecliningoilandgaspricesintheearly1990s,VHHCInvestmentshadasubstantialaccruedlossonitssharesofVHHCHoldings.

Thus,by1992,CopthorneIhadrealizedasubstantialcapitalgain(fromthesaleofthehotelin1989)whileVHSUBownedsharesinHOLwithasubstantialaccrued

101 Supranote3.


capitalloss.Atthattime,itwasdecidedto“marry”therealizedcapitalgainofCop-thorne Iwith theaccruedcapital lossof VHSUB.Toachieve thisoffset, in1992,VHHCInvestmentssoldits67,401,279commonsharesinVHHCHoldingstoCop-thorneIfor$1,000,apricethatreflectedthefairmarketvalueofthesharesatthetime.VHHCHoldingsthensoldpartofitsVHSUBcommonsharestoCopthorneIfortheirestimatedfairmarketvalueof$1,245.77.Becausethestop-lossrulesap-plied,CopthorneIinheritedthehighadjustedcostbaseoftheVHSUBshares.Finally,CopthorneIandVHHCHoldingssoldtheirVHSUBsharestoanunrelatedpurchaserfor their lowfairmarketvalue, therebytriggeringtheaccruedcapital loss.Cop-thorneIcarriedbackthiscapitallossto1989,toshelterthecapitalgainfromthehotelsale.ThepartiesagreedthatthepurposeofthesetransactionswastoshifttheinherentcapitallossonthesharesofVHHCHoldingsinVHSUBtoCopthorneIandwasunrelatedtothePUCoftheshares.AfterthesharesalebyVHHCInvestmentstoCopthorneI,thePUCofthesharesofVHHCHoldingsremainedat$67,401,279.

In1993,itwasdecidedtoamalgamateCopthorneI,VHHCHoldings,andtwootherCanadiancorporationssothatthelossesincurredbyoneormorecorporationscouldbeusedtoshelterincomeearnedbyothers,andsothatthecorporatestructureoftheLifamily’sCanadianholdingswouldbesimplified.BecauseVHHCHoldingsbecameasubsidiaryofCopthorneI,afterthesalebyVHHCInvestments,thePUCinthesharesofVHHCHoldingswouldbeeliminateduponaverticalamalgamationofVHHCHoldingswithCopthorneI.Thus,topreservethePUCof$67,401,279inthesharesofVHHCHoldings,CopthorneIsoldthosesharesfor$1,000toitsparentcorporation,BigCity, in July1993,prior to theamalgamation (“the1993 sharesale”).ThepartiesagreedthatthePUCoftheVHHCHoldingsshareswasperceivedinageneralsenseaspotentiallyvaluable.Theappellant’spositionwasthatinJuly1993,therewasnoplantoreturnalloranypartofthePUConthesharesofVHHCHoldings.Subsequently,onJanuary1,1994,CopthorneI,VHHCHoldings,andtwootherCanadiancorporationsownedbytheLifamilywereamalgamatedtoformCopthorneHoldingsLtd.(“CopthorneII”).

Subsequenttothesetransactions,in1994,theDepartmentofFinancereleasedrevisedamendmentstotheforeignaccrualpropertyincome(FAPI)regime.TheseamendmentswouldhaveadverselyaffectedCOIL,bymakingallofCOIL’sincomeFAPI;theLifamilythereforedecidedtosellCOIL’sbondtradingbusinessasagoingconcerntoanewcorporationresidentintheBritishVirginIslands,andtorepatri-atetheproceedsfromthedispositionforinvestmentoutsideCanada.TheLifamilyalsodecidedtosimplifyitsCanadiancorporatestructureandconsolidateitunderasingleoffshorecompany.Aspartofthisplan,L.F.InvestmentswasincorporatedinBarbadosinNovember1994.InDecember1994,theshareholdersofVHHCInvest-mentssoldtheirsharestoL.F.Investments.Inaddition,BigCitysolditssharesinCopthorneIItoL.F.Investments.Consequently,L.F.InvestmentsownedthesharesofCopthorneIIwithPUCof$67,401,280andthesharesofVHHCInvestmentswithPUCof$96,736,845,foranaggregatePUCof$164,138,125.ThePUCof$67,401,280inrespectofthesharesofCopthorneIIcouldbetracedbacktotheoriginalinvest-mentinVHHCInvestments,whichwasreflectedinthePUCofthesharesofVHHC


Investmentsintheamountof$96,736,845.EffectiveJanuary1,1995,CopthorneII,VHHC Investments, and two other Canadian corporations were amalgamated toformCopthorneHoldingsLtd.(“CopthorneIII”).Ontheamalgamation,PUCof$164,138,125wasallocatedtoclassDpreferencesharesofCopthorneIII.Immedi-ately following the amalgamation, Copthorne III redeemed 142,035,895 of theclassDpreferredsharesheldbyL.F.Investments(“theredemption”).NoamountwaswithheldbyCopthorneIII inrespectof thisredemptionbecausetheclassDpreferencesharesofCopthorneIIIhadanallegedaggregatePUCof$164,138,125andthereforenodeemeddividendarose.OnJanuary1,2002,CopthorneIIIamal-gamatedwithfiveothercompaniesandwascontinuedasCopthorneHoldingsLtd.,theappellantbeforetheTaxCourtofCanada.

330 n canadian tax journal / revue fiscale canadienne (2010) vol. 58, no 2A

PP

EN

DIX

2

SE

RIE

S S

PE

CT

RU

MD

egre

e of

Inte

ntio

n at

the

Tim

e Th

at th

e Fi

rst T

rans

acti

on Is

Com

plet

ed (

Tim

e 1)

A s

erie

s un

der

the

Act

OSF

C fr

om

pers

pect

ive

of b

uyer

(in

eff

ect)

OSF

C fr

om

pers

pect

ive

of s

elle

r (s

imila

r to

au

ctio

n)

Can

utili

ties

Furn

iss v

. D

awso

n

Cra

ven

v. W

hite

Cop

thor

ne

MIL

Nex

us 1

P

reor

dain

edN

exus

2

Spe

cific

inte

ntio

nN

exus

3

Gen

eral

inte

ntio

nN

exus

4

Str

ateg

ic p

lann

ing

248(

10) c

lari

ficat

ion

No

seri

es u

nder

the

Act

Hin

dsig

ht b

arri

er

Con

trac

t co

nclu

ded;

th

at is

, all

subs

eque

nt

tran

sact

ions

st

rict

ly

preo

rdai

ned

at

time

1

No

sign

ed

cont

ract

at

time

1 bu

t no

prac

tical

lik

elih

ood

that

su

bseq

uent

tr

ansa

ctio

ns w

ill

not b

e ef

fect

ed

as p

lann

ed a

t tim

e 1

Spec

ific

inte

nt

to c

ompl

ete

subs

eque

nt

tran

sact

ions

w

ith id

entif

ied

pers

on a

t tim

e 1,

but

pr

actic

al

likel

ihoo

d ex

ists

th

at s

ubse

quen

t tr

ansa

ctio

ns

may

not

occ

ur

as p

lann

ed a

t tim

e 1

Spec

ific

inte

nt

to c

ompl

ete

subs

eque

nt

tran

sact

ions

at

time

1; id

entit

y of

con

trac

ting

part

y no

t kno

wn

but n

ot m

ater

ial

to c

ompl

etio

n of

sub

sequ

ent

tran

sact

ions

Gen

eral

inte

nt to

“t

rans

act”

at t

ime

1;

rele

vant

fact

ors

affe

ctin

g in

tent

to

cont

ract

not

yet

as

cert

aine

d at

tim

e 1

No

inte

ntio

n to

ent

er in

to

any

furt

her

tran

sact

ions

at

time

1/

stra

tegi

c pl

anni

ng

the meaning of “series of transactions” as disclosed by a ... · ils entreprennent ensuite une...

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