Section 160 Liability – Damis Properties Inc. v. The Queen

In Damis Properties Inc. v. The Queen ("Damis"), the Tax Court of Canada ("TCC") found subsection 160(1) of the Income Tax Act ("ITA")  ¹ inapplicable because the appellants and their former subsidiaries were dealing at arm's length at the time of the transfer of the subject property. The TCC further concluded that, even if subsection 160(1) applied, the liability of the appellants under paragraph 160(1)(e) was nil because they gave fair market value consideration.

The facts in Damis may be briefly summarized as follows. The appellants each owned a general partnership. Before selling certain farmland owned by the partnerships, each appellant incorporated a subsidiary and transferred their respective general partnership interests to the subsidiaries. After the farmland sale, proceeds from the sale were allocated to the subsidiaries in the form of either cash or cash and intercompany receivables. The appellants then sold their shares to a third-party buyer ("WTC"),