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Contracts - Sham Contracts. Magren Holdings Ltd v. Canada
In Magren Holdings Ltd v. Canada (Fed CA, 2024) the Federal Court of Appeal dismissed a appeal, this from a dismissed Tax Court appeal, this from a Ministerial assessment "imposing tax on the basis that all of the capital dividends those corporations paid in 2006 were excess dividends", and "where a corporation pays a capital dividend in excess of the balance of its capital dividend account, the corporation is liable for tax":
Here the court cites a definition of 'sham':[156] As the Tax Court there described, a sham exists when acts are done or documents are executed with the intention of giving the appearance of creating legal rights and obligations that differ from the actual legal rights and obligations that the participants intend to create. A sham involves an element of deceit in that the participants know that their actual legal rights and obligations differ from those presented to others. The necessary "“element of deceit…generally manifests itself by a misrepresentation by the parties of the actual transaction taking place between them”": 2529-1915 Québec Inc. v. Canada, 2008 FCA 398, [2009] 3 C.T.C. 77 at para. 59 [Faraggi]. . Canada v. Thompson
In Canada v. Thompson (Fed CA, 2022) the Federal Court of Appeal considered the nature of a 'sham':[27] The Supreme Court of Canada in Minister of National Revenue v. Cameron (1972), 1972 CanLII 188 (SCC), [1974] S.C.R. 1062, at page 1068, and in Stubart Investments Ltd. v. The Queen, 1984 CanLII 20 (SCC), [1984] 1 S.C.R. 536, at page 572 adopted the following definition of sham as stated by Lord Diplock in Snook v. London & West Riding Investments, Ltd., [1967] 1 All E.R. 518 (C.A.), at page 528:… it means acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. . S.A. v. A.A.
In S.A. v. A.A. (Ont CA, 2017) the Court of Appeal stated the law of 'sham' contracts as follows:[36] The most commonly cited definition of the sham doctrine is that of Lord Diplock in Snook v. London & West Riding Investments Ltd., [1967] 1 All E.R. 518 (C.A.). He stated, at p. 528, that a sham means:[A]cts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties the legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create… [F]or acts or documents to be a "sham", with whatever legal consequences follow from this, all parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. [37] This definition of a sham has been cited many times by all levels of Canadian courts, including the Supreme Court of Canada. In Stubart Investments Ltd. v. The Queen, 1984 CanLII 20 (SCC), [1984] 1 S.C.R. 536, 1984 CarswellNat 222, at para. 51 (WL Can), Estey J. described the element of “deceit” as being at the heart of the sham doctrine. In discussing the required level of deceit in Antle v. Canada, 2010 FCA 280 (CanLII), 413 N.R. 128, at para. 20, Noël J.A. held that it suffices that the parties to a transaction present it as being different from what they know it to be. The majority of cases involving the sham doctrine arise in the tax context, but the doctrine has been used in appropriate cases to strike down mortgages: see Moghimi v. Dashi, 2016 ONSC 2580 (CanLII).
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