http://decision.tcc-cci.gc.ca/site/tcc-cci/decisions/en/item/64364/index.do 
D&D Livestock Ltd. v. The Queen[1] (October 22, 2013) involved an extremely complex corporate reorganization:
1. At all material times to this appeal, the Appellant was a taxable Canadian corporation as defined in s. 89(1) of the
Income Tax Act (the “Act”).
2. Prior to May 27, 2005, the Appellant held 300 of 600 Class A Common Shares in Roberge Transport Inc. (“RTI”) with an adjusted cost base (“ACB”) of $501,231.
3. Prior to May 27, 2005:
a) Hetherington Livestock Ltd. (“HLL”) owned 2,250,000 Class D Preferred Shares in the Appellant;
b) Hetherington Family Trust (“Trust”) owned 750 Class A Common Shares in the Appellant;
c) Robert Dougall (“Dougall”) owned 250 Class A Common Shares in the Appellant;
d) Douglas Hetherington (“Douglas”) owned 100% of the Preferred Shares in HLL; and
e) Douglas was the trustee of the Trust.
4. On May 27, 2005, Hetherington Livestock (Alberta) Ltd. (“HLAL”) was incorporated, with the result that:
a) HLL owned all of the 100 Common Shares in HLAL;
b) the ACB of the 100 Common Shares was $1; and
c) the PUC of the 100 Common Shares was $1.
5. On May 29, 2005 at 9:00 a.m., Dougall sold his 250 Class A shares in the Appellant to HLL for $1,250,000, and:
a) HLL paid Dougall the $1,250,000 by a promissory note;
b) the 250 Class A shares purchased by HLL had an ACB of $1,250,000 and PUC of $25; and
c) the Trust’s 750 Class A shares in the Appellant had an ACB of $75 and PUC of $75.
6. On May 29, 2005 at 10:00 a.m., the Trust disposed of its 750 Class A shares in the Appellant to HLL for $3,750,000, paid for by the issuance of 3,750,000 Class D Preferred Shares. A joint election was filed pursuant to s. 85(1) of the Income Tax Act in respect of this transaction, with an elected amount equal to the Trust’s ACB of $75.00. As a result of this transaction:
a) HLL now owned 1000 Class A shares in the Appellant with an ACB of $1,250,075.
b) The PUC of the 1000 Class A shares in the Appellant was $100.
7. On May 29, 2005 at 11:00 a.m., the Appellant declared and paid a stock dividend in the stated amount of $1,465,465 and resolved to pay the dividend by issuing 1,000 Class A shares to HLL (“Stock Dividend 1”). As a result of this transaction:
a) HLL now owned 2000 Class A shares and 2,250,000 Class D Preferred Shares in the Appellant;
b) the ACB of the newly acquired 1,000 Class A shares was $1,465,465;
c) the PUC of the newly acquired 1,000 Class A shares was $1,465,465;
d) the total ACB of the 2000 Class A shares was $2,715,540; and
e) the total PUC of the 2000 Class A shares was $1,465,565.
8. For the purposes of subsection 55(2) of the Income Tax Act, the portion of a capital gain that would have been realized on a disposition of the Appellant’s capital stock owned by HLL that could reasonably be considered to be attributable to income earned or realized by any corporation after 1971 and immediately before payment of the First Dividend[1] (“safe income”) was $1,493,364. This safe income balance included the following amounts:
a) safe income earned or realized by the Appellant in the amount of $975,876; and
b) safe income in the amount of $517,488 earned or realized by RTI.
9. On May 29, 2005 at 12:00 noon, HLL transferred all of its shares in the Appellant, being the 2000 Class A common and 2,250,000 Class D Preferred Shares, to 1138278 Alberta Ltd (“Newco”) for combined proceeds of $7,050,000.
a) The total ACB to HLL of the 2000 Class A shares was $2,715,540;
b) the total PUC of the 2000 Class A shares was $1,465,565;
c) the ACB to HLL of the 2,250,000 Class D Preferred Shares in the Appellant was $750,000;
d) the PUC of the 2,250,000 Class D Preferred Shares in the Appellant was $2;
e) as consideration for all of the shares in the Appellant, Newco issued 3,465,000 Class D Preferred Shares and 99 Class A Common Shares to HLL; and
f) the parties filed a joint election pursuant to s. 85(1) of the Income Tax Act in respect of this transaction, with a total elected amount of $3,465,465.
10. On May 29, 2005 at 1:00 p.m., HLL disposed of 3,465,000 Newco Class D Preferred Shares to 1138313 Alberta Ltd. (“Newco 2”) for proceeds of $3,465,000, paid for by the issuance of 100 Class A Common Shares. The parties filed a joint election pursuant to s. 85(1) of the Income Tax Act in respect of this transaction, with an elected amount equal to HLL’s ACB of $3,465,000.
11. On May 29, 2005 at 2:00 p.m., Newco 2 declared and paid a dividend in kind on its Class A Common Shares to HLL in the amount of $3,465,000. The dividend in kind was comprised of the 3,465,000 Class D Preferred Shares of Newco.
12. On May 30, 2005 at 3:00 p.m., the Appellant disposed of its 300 Class A Common Shares in RTI to Hetherington Holdings Alberta Ltd. (“Newco 3”) for $7,050,000, paid for by the issuance of 100 Class A Common Shares by Newco 3, after which the Appellant became the sole shareholder of Newco 3. The parties filed a joint election pursuant to s. 85(1) of the Income Tax Act in respect of this transaction with an elected amount equal to the Appellant’s ACB of $501,231.
13. On May 30, 2005 at 4:00 p.m., Newco 3 paid a stock dividend to the Appellant in the amount of $517,427, paid by issuing 900 Class A Common Shares (“Stock Dividend 2”). A designation under paragraph 55(5)(f) of the Income Tax Act was made in respect of this transaction.
14. The Appellant filed a designation in respect of Stock Dividend 2 under paragraph 55(5)(f) of the Act, pursuant to which the Stock Dividend 2 was deemed by the Appellant to be ten separate taxable dividends in the following amounts:
a) $150,000
b) $100,000
c) $100,000
d) $75,000
e) $50,000
f) $25,000
g) $10,000
h) $5,000
i) $2,000
j) $427
15. On May 31, 2005 at 8:00 a.m. and 9:00 a.m. respectively, Newco and the Appellant were wound up.
16. On May 31, 2005 at 10:00 a.m., HLL disposed of 1000 Class A Common Shares in Newco 3 to Newco 2 for $7,050,000, paid for by the issuance of 1000 Class A Common Shares by Newco 2.
a) HLL’s ACB of the 1000 Class A Common Shares in Newco 3 was reported to be $1,018,658;
b) the PUC of the 1000 Class A Common Shares in Newco 3 was reported to be $517,727; and
c) the parties filed a joint election pursuant to s.85(1) of the Income Tax Act in respect of this transaction with an elected amount equal to HLL’s reported ACB of $1,018,658.
17. On May 31, 2005 at 11:00 a.m., Newco 3 was wound up and its assets were transferred in the course of the wind-up at that time. Newco 3 was dissolved on September 16, 2005.
18. On May 31, 2005 at 12:00 noon, HLL disposed of 1,100 Class A Common Shares of Newco 2 to HLAL for $7,050,000, paid for by the issuance of 9,900 Class A Common Shares by HLAL.
a) HLL’s ACB of the 1,100 Class A Common Shares of Newco 2 was reported to be $4,483,658;
b) the PUC of the shares was reported to be $1,983,293; and
c) the parties filed a joint election pursuant to s. 85(1) of the Income Tax Act in respect of this transaction with an elected amount equal to HLAL’s reported ACB of $4,483,658.
19. On June 1, 2005 at 9:00 a.m., Newco 2’s only asset was the 300 RTI Class A Common Shares originally held by the Appellant.
20. On June 1, 2005 at 9:00 a.m., HLAL sold Newco 2 to RBTL[2] for $7,050,000. HLAL reported its disposition of Newco 2 as follows:
Proceeds: $7,050,000
ACB: $4,483,658
Capital Gain $2,566,342
At the end of the day however the issue between the parties was a very narrow one: what was the safe income on hand in the appellant’s shares of Newco 3 immediately before the declaration of Stock Dividend 2:
[18] Where the parties disagree is on what the amount of that safe income on hand in the Appellant’s shares in Newco 3 was immediately before the declaration of Stock Dividend 2. The Appellant says that it had $517,488 in safe income on hand in its shares in Newco 3 immediately before the declaration of Stock Dividend 2 calculated as follows:
safe income earned or realized by RTI – $517,488
less: safe income earned or realized by RTI that was used up in Stock Dividend 1 – $0
Appellant’s safe income on hand immediately before Stock Dividend 2 – $517,488
[19] The Respondent says that the Appellant had only $27,427 of safe income on hand on its shares in Newco 3 immediately before the declaration of Stock Dividend 2 calculated as follows:
safe income earned or realized by RTI – $517,488
less: safe income used up in Stock Dividend 1 – ($489,589)
less: immaterial unexplained difference – ($472)
Appellant’s safe income on hand immediately before Stock Dividend 2 – $27,427
The appellant’s position was straightforward:
[22] The Appellant takes the position that the dividend reduction principle only applies to reduce the safe income on hand of the shares of the company that declared a stock dividend, not the shares of any subsidiary company even if the safe income of that subsidiary company contributed to the safe income on hand that covered the stock dividend. The Appellant submits that the gain on the Appellant’s shares in Newco 3 can reasonably be considered to be attributable to the income earned by RTI after 1971 because RTI has not done anything to distribute that income. The declaration of Stock Dividend 1 reduced the Appellant’s assets. It did nothing to reduce RTI’s assets. In the Appellant’s view, there is nothing else to which that portion of the gain on the Appellant’s shares in Newco 3 could be attributed. The gain in the shares of RTI was attributable to its income earned after 1971 before Stock Dividend 1 was declared. That same gain remained after Stock Dividend 1 was declared and was still attributable to RTI’s income earned after 1971. The Appellant acknowledges that by taking this position it is arguing that it should have the benefit of using the same safe income twice, but it submits that that is the only interpretation that subsection 55(2) allows in the circumstances.
Ultimately the court rejected the “remedial” construction urged by the Crown and allowed the appeal:
[32] The Respondent is asking me to interpret subsection 55(2) in a way that prevents the Appellant from using the same safe income twice, but the Respondent has failed to show me how I should do so. What word or phrase should I interpret differently in order to achieve the result that the Respondent desires? The Respondent is, in essence, asking me to give effect to the purpose of the subsection in spite of its wording rather than interpreting its wording in a manner which gives effect to its purpose.
[33] Canada Trustco requires me to use a textual, contextual and purposive analysis, but it also says that “[w]hen the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process.” Applying the facts of this case to the phrase, “could reasonably be considered to be attributable”, I am unable to discern any imprecision or equivocation. In the absence of any ambiguity in, or alternative interpretation of, the phrase “could reasonably be considered to be attributable”, despite the fact that I recognize that the Appellant’s actions have defeated the purpose of subsection 55(2), I do not believe that Canada Trustco gives me the authority to simply re-write the subsection to give effect to its purpose. As stated at paragraph 12 of that decision:
The provisions of the Income Tax Act must be interpreted in order to achieve consistency, predictability and fairness so that taxpayers may manage their affairs intelligently. As stated at para. 45 of Shell Canada Ltd. v. R., [1999] 3 S.C.R. 622 (S.C.C.):
[A]bsent a specific provision to the contrary, it is not the courts’ role to prevent taxpayers from relying on the sophisticated structure of their transactions, arranged in such a way that the particular provisions of the Act are met, on the basis that it would be inequitable to those taxpayers who have not chosen to structure their transactions that way. [Emphasis added.]
See also 65302 British Columbia, at para. 51, per Iacobucci J. citing P.W. Hogg and J.E. Magee, Principles of Canadian Income Tax Law (2nd ed. 1997), at pp. 475-76:
It would introduce intolerable uncertainty into the Income Tax Act if clear language in a detailed provision of the Act were to be qualified by unexpressed exceptions derived from a court’s view of the object and purpose of the provision.
[34] If the Minister finds transactions such as the Appellant’s to be abusive, she can always attack them using the general anti-avoidance rule or recommend that Parliament amend the Act.
[1] 2013 TCC 318.