Keep Your Eye On The Time: Timing Liability Under Subsection 160(1) In Eyeball Networks

In Eyeball Networks, the TCC alerted tax planners to the pitfalls of issuing and cancelling a promissory note with nominal value in the context of a tax-neutral rollover under section 85 of the ITA. The Minister applied section 160 to assess the Appellant (“Newco”) for the tax liabilities of its non-arm’s length affiliate (“Oldco”) following the set-off of two promissory notes at the conclusion of a series of transactions designed to transfer revenue-generating video technology (“Transferred Assets”) from Oldco to Newco. The TCC found that section 160 permitted the minister’s collection efforts in the context of the issuance and cancellation of promissory notes between non-arm’s length parties where the FMV of one promissory was considerable and the FMV of the promissory note tendered in exchange was nominal. The TCC’s decision reminds practitioners of the role that economic substance plays in the analysis under subparagraph 160(1)(e)(i) and the flexible timing