Consider each of the following independent fact situations:
(1) An individual transfers his or her unincorporated business to a corporation primarily to obtain the benefit of the small business deduction.
(2) An individual provides services to a corporation with which he or she does not deal at arm's length. The company does not pay a salary to the individual because payment of a salary would increase the amount of a loss that the company will incur in the year.
(3) A taxable Canadian corporation, which is profitable, has a wholly owned taxable Canadian corporation that is sustaining losses and needs additional capital to carry on its business. The subsidiary could borrow the monies from its bank but the subsidiary could not obtain any tax saving in the current year by deducting the interest expense. Therefore, the parent corporation borrows the money from its bank and subscribes for additional common shares of the subsidiary and reduces its net income by deducting the interest from its business.
(4) Profitco and Lossco are taxable Canadian corporations. Lossco is a wholly owned subsidiary of Profitco. Lossco has non-capital losses that would be deductible if Lossco had income. In order to generate income in Lossco from which its non-capital losses may be deducted, Profitco borrows from its bank and uses the monies to subscribe for common shares of Lossco. Lossco lends these monies to Profitco at a commercial rate of interest. Profitco repays the bank. The amount of share subscription is not in excess of the amount of monies that Lossco could reasonably be expected to be able to borrow for use in its business on the basis solely of its credit from an arm's length lender.
(5) Each of two private corporations owns less than 10% of the common shares of a payer corporation that is to pay a substantial taxable dividend. The payer corporation will not be entitled to a dividend refund on the payment of the dividend. None of the corporations is related to any of the others. The private corporations form a corporation, Newco, transfer their shares of the payer corporation to Newco in exchange for common shares of Newco, and elect under subsection 85(1) (assume that this is done correctly to avoid tax on the transfer) in respect of the transfer. Following the transfer of the payer corporation's shares to Newco, Newco will be connected with the payer corporation. The payer corporation pays the dividend to Newco, free of Part IV tax. Newco pays the same amount to the private corporations as a dividend, free of Part IV tax. The primary purpose of the transfer of the shares is to avoid the Part IV tax which would be payable if the dividend were received directly by the private corporations.
(6) The owner of land inventory has agreed to sell the property to an arm's length purchaser. The purchaser wants to buy the property for cash, but the owner does not want to have the profits recognized in the year of sale. The owner sells the land inventory to an intermediary company deferring receipt of the proceeds of disposition of the land for several years after the date of sale. In this way, a reserve can be claimed under paragraph 20(1) (n). The intermediary sells the land to the third party for cash. The owner receives interest from the intermediary in respect of the monies received by the intermediary from the third party.
REQUIRED
Discuss whether the part of the general anti-avoidance rule (GAAR) that asks the question "can it reasonably be considered that the transaction would not result, directly or indirectly, in a misuse of the provisions of the Act or an abuse having regard to the provisions of the Act read as a whole" applies to the above situations.