Praxair Canada Inc. v. M.N.R.
T-1570-89
Walsh D.J.
26/1/93
24 pp.
Appeal from Tax Court decision upholding Minister's assessment of taxes for 1978-Plaintiff, large producer of plastics, manufacturing large quantities of polyethylene-Requires steady supply of ethylene-Entering joint venture to construct and own petrochemical manufacturing facility (Petrosar) to produce, inter alia, ethylene-Plaintiff holding 20% of common shares-$300,000,000 of $371,000,000 estimated cost to be financed by banks-Shareholders guaranteeing bank financing, agreeing to fund interest and mandatory principal repayments if necessary until Petrosar meeting certain financial ratios-If further funds required, shareholders agreed to furnish them by subscribing to subordinated debentures of Petrosar-Subordinated debentures subordinated to bank loans-Banks demanding refinancing-Capital structure changed in 1978-Three classes of non-voting preferred shares created-Bank loans exchanged for Class A preference shares-Subordinated debentures and interest due exchanged for Class C shares-Class C shares of par value of $100 each would only receive dividends if Petrosar current re: Class A dividends and specified working capital requirements met-Redeemed only if Petrosar current in redemption obligations re: Class A shares, par value more than half that of Class A shares, and working capital conditions met-Plaintiff receiving 282,135 Class C shares for $25,122,600 as capital, plus $3,090,900 contingent accrued interest-Cancellation only consideration received by Petrosar for issue of Class C shares, and Class C shares only consideration for shareholders for surrendering debentures and accrued interest-Income Tax Act, s. 12(1)(c) requiring inclusion of any amount received by taxpayer in year as, on account of or in lieu of interest-Issue: valuation of Class C shares-Plaintiff contending shares worthless and "amount" in s. 12(1)(c) value in monetary terms of right or thing actual value-S. 248(1) defining "amount" as "money, rights or things expressed in terms of the amount of money or value in terms of money of the right or thing"-American case holding where taxpayer receiving payment of debt by issuance of par value shares income calculated based on real value of shares: Commissioner of Internal Revenue v. Capento Securities Corporation, 140 F.2d 382 (1st Cir. 1944) considered-As in Capento case, Petrosar simply substituted preferred stock claim for debt claim-Action allowed-Plaintiff meeting onus-Cases referred to as indicating how actual or real value should be dealt with from taxation standpoint distinguished as dealing with how issuing corporation must deal with them-Cases suggesting real or actual value of shares must be considered, not par value, even if issuing corporation agreed to issue them at par value as fully paid-Notice of reassessment vacated and referred back to Minister for reassessment on basis no interest received on Class C shares in 1978-Income Tax Act, S.C. 1970-71-72, c. 63, ss. 12(1)(c), 248.