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SUPREME COURT OF CANADA

STUBART INVESTMENTS LTD v R

RITCHIE, Beetz, Estey, MCIntyre and Wilson   JJ

7 June 1984 -

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Wilson   J (concurring in the result)    I agree with my colleague Estey   J that the transaction involved in this appeal was an effectual transaction and that it was not a sham. Indeed, I cannot see how a sham can be said to result where parties intend to create certain legal relations (in this case the purchase and sale of a business and a nominee arrangement to operate it) and are successful in creating those legal relations.

   As I understand it, a sham transaction as applied in Canadian tax cases is one that does not have the legal consequences that it purports on its face to have. For example, in Susan Hosiery Ltd v The Minister of National Revenue [1969] 2 Ex CR 408 Gibson   J found a purported employees ' pension plan to be a mere " simulate " that was " masquerading " as a pension plan; the actions of the taxpayers in question " never established a pension plan, nor any relationship of trustee, cestui que trust, nor any other legal or equitable rights or obligations in any of the parties and none of the parties intended at any material time that there should be any " (at 420-21). In The Minister of National Revenue v Shields [1963] Ex CR 91 , Cameron   J held that an alleged partnership agreement between the taxpayer and his son was " not a reality, but a mere simulate agreement " (at 114); the parties never intended that it should give rise to a partnership and in law it did not do so. And in The Minister of National Revenue v Cameron [1974] SCR 1062 , Martland   J declined to find a contract for services between an employer and a company incorporated by his former employees to be a sham because " the legal rights and obligations which it created were exactly those which the parties intended " (at 1069).

   I am also of the view that the business purpose test and the sham test are two distinct tests. A transaction may be effectual and not in any sense a sham (as in this case) but may have no business purpose other than the tax purpose. The question then is whether the Minister is entitled to ignore it on that ground alone. If he is, then a massive inroad is made into Lord Tomlin ' s dictum that " Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it would otherwise be " : IRC v Duke of Westminster [1936] AC 1 at 19. Indeed, it seems to me that the business purpose test is a complete rejection of Lord Tomlin ' s principle.

   The appellant would clearly be liable to pay tax on the income from the flavourings business if the business purpose test is part of our law since it is freely admitted that the saving of tax for the Finlayson conglomerate was the sole motivation for the transaction. In my opinion, the Federal Court of Appeal in Leon v The Minister of National Revenue (1976) 76 DTC 6299 characterised a transaction which had no business purpose other than the tax purpose as a sham and was in error in so doing. I do not view that case as introducing the business purpose test as a test distinct from that of sham into our law and, indeed, if it is to be so viewed, I do not think it should be followed. I think Lord Tomlin ' s principle is far too deeply entrenched in our tax law for the courts to reject it in the absence of clear statutory authority. No such authority has been put to us in his case.

   For these reasons I concur in my colleague ' s disposition of the appeal.