Canada China Clay Ltd. v. Hepburn

Canada China Clay Ltd. v. Hepburn

Majority held that the vendor company became the owner of the purchaser’s allotted shares (notwithstanding allotment to a trustee for shareholders), and that distribution/assignment of those taxable securities to the vendor’s shareholders constituted a change of ownership under s.2(a) and Regulation 26 of the Security Transfer Tax Act 1939 (Ont.), rendering the vendor liable for the tax; the s.5(1)(b) exemption for issue of shares did not exempt the vendor from tax.

Citation
[1945] SCR 87
Parties
Appellant/defendant: Canada China Clay, Limited; Respondent/plaintiff: Mitchell F. Hepburn, Treasurer of The Province of Ontario (for His Majesty the King in Right of The Province of Ontario)
Court
Supreme Court of Canada
Jurisdiction
Canada
Judgment Date
20 December 1944
Procedural Posture
Taxation — Security Transfer Tax / Appeal to Supreme Court of Canada From Court of Appeal for Ontario
Outcome
Appeal dismissed; majority judgment for respondent awarding tax.
Legal Topics
Security Transfer Tax, Sale of Company Assets, Issue and Allotment of Shares, Regulation Interpretation, Substance Versus Form in Tax Law
Source Language
English
Taxation Corporate Law Securities Regulation Security Transfer Tax Sale of Company Assets Issue and Allotment of Shares Regulation Interpretation Substance Versus Form in Tax Law

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Parties

Canada China Clay, Limited

Appellant/defendant

Mitchell F. Hepburn, Treasurer of The Province of Ontario (for His Majesty the King in Right of The Province of Ontario)

Respondent/plaintiff

Procedural Posture

Taxation — Security Transfer Tax / Appeal to Supreme Court of Canada From Court of Appeal for Ontario

Legal Issues

  1. 1 Whether allotment and issue of purchaser’s shares to vendor’s shareholders constituted a transfer of taxable securities under The Security Transfer Tax Act, 1939 (Ont.) and Regulation 26
  2. 2 Whether the vendor ever became owner of the purchaser’s shares such that a change of ownership occurred taxable under s.2(a)
  3. 3 Whether the form of allotment to a trustee/direct to shareholders avoids tax liability under s.5(1)(b) exemption

Ratio Decidendi

Majority held that the vendor company became the owner of the purchaser’s allotted shares (notwithstanding allotment to a trustee for shareholders), and that distribution/assignment of those taxable securities to the vendor’s shareholders constituted a change of ownership under s.2(a) and Regulation 26 of the Security Transfer Tax Act 1939 (Ont.), rendering the vendor liable for the tax; the s.5(1)(b) exemption for issue of shares did not exempt the vendor from tax.

Court Disposition

Appeal dismissed; majority judgment for respondent awarding tax.

Orders

  • Appellant liable to pay tax of $1,449.50 plus penalties as claimed by respondent