Case information

Taxation — Income tax — Assessment — General Anti-Avoidance Rule (GAAR) — Minister of National Revenue issued assessments imposing tax on basis that all capital dividends paid in 2006 were excess dividends — What is remedy for taxpayer when Minister for eight years deliberately fails to assess, contrary to “with all due dispatch” requirement — Whether GAAR can be used to reduce income — Where GAAR does apply, is strict application of Income Tax Act, in every circumstance, a “reasonable” tax consequence — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)

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In 2006, three corporations controlled by James Grenon paid dividends aggregating more than $110 million, and filed elections so that they would be capital dividends. Capital dividends are not taxable to the recipient. However, where a corporation pays a capital dividend in excess of the balance of its capital dividend account, the corporation is liable for tax.

The respondent Minister of National Revenue concluded that the three corporations did exactly that. Accordingly, the Minister issued assessments imposing tax on the basis that all of the capital dividends those corporations paid in 2006 were excess dividends. The three corporations that paid the capital dividends no longer exist as separate entities; the applicants are their successors by amalgamation.

The Tax Court of Canada dismissed the appeals of those assessments. The Federal Court dismissed the appeals.