Québecor Inc. v. The King

Québecor Inc. v. The King
Court (s) Database
Tax Court of Canada Judgments
Date
2023-10-03
Neutral citation
2023 TCC 142
File numbers
2018-979(IT)G
Judges and Taxing Officers
Sylvain Ouimet
Subjects
Income Tax Act
Decision Content
Docket: 2018-979(IT)G
BETWEEN:
QUEBECOR INC.,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
Appeal heard by videoconference on June 29 and 30, 2021, at Ottawa, Canada.
Before: The Honourable Justice Sylvain Ouimet
Appearances:
Counsel for the Appellant:
Wilfrid Lefebvre
Catherine Dubé
Counsel for the Respondent:
Natalie Goulard
Marie-Aimée Cantin
Sara Jahanbakhsh
JUDGMENT
The appeal from the notices of determination made under the Income Tax Act for the 2007 taxation year is allowed, with costs, in accordance with the attached reasons.
Signed at Ottawa, Canada, this 3rd day of October 2023.
“Sylvain Ouimet”
Ouimet J.
Translation certified true
on this 22nd day of December 2023.
Melissa Paquette, Jurilinguist
Citation: 2023 TCC 142
Date: 20231003
Docket: 2018-979(IT)G
BETWEEN:
QUEBECOR INC.,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Ouimet J.
I. INTRODUCTION
[1] Quebecor Inc. (“Quebecor”) is appealing the notices of determination made by the Minister of National Revenue (the “Minister”) on October 17, 2012.[1] These notices were for Quebecor’s 2007 taxation year and were issued in accordance with the general anti-avoidance rule (“GAAR”) provided for in section 245 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the “ITA”).[2] By way of these notices, the Minister made three changes regarding Quebecor’s disposition of 44,821,024 common shares of Abitibi Consolidated Inc. (“Abitibi Consolidated”). The Minister made the following changes:
1-The Minister revised the adjusted cost base (“ACB”)[3] of the 44,821,024 common shares of Abitibi Consolidated. The ACB was reduced from $191,833,983 to $1;[4]
2-The Minister added a $95,916,990 capital gain to Quebecor’s income in connection with the disposition of 44,821,024 common shares of Abitibi Consolidated;[5] and
3-The Minister disallowed Quebecor’s $95,916,992 capital loss in connection with the disposition of 44,821,024 common shares of Abitibi Consolidated.[6]
II. ISSUES [2] The issues are as follows:
1-Was the Minister correct in reducing the ACB of the 44,821,024 common shares of Abitibi Consolidated held by Quebecor from $191,833,982 to $1?
2-Was the Minister correct in adding a $95,916,990 capital gain to Quebecor’s income following the disposition of its 44,821,024 common shares of Abitibi Consolidated?
3-Was the Minister correct in disallowing the $95,916,992 capital loss deduction that Quebecor claimed following the disposition of its 44,821,024 common shares of Abitibi Consolidated?
[3] In order to answer these three questions, this Court must determine whether the GAAR applies in this case. For these purposes, this Court must answer the following three questions:[7]
1-Did Quebecor receive a tax benefit resulting from a transaction or from a transaction that was part of a series of transactions?
2-Was the transaction giving rise to the tax benefit an avoidance transaction? In order to answer this question, this Court must determine whether the transaction may reasonably be considered to have been undertaken primarily for bona fide purposes other than to obtain a tax benefit.
3-Was the avoidance transaction abusive? In order to answer this question, this Court must determine whether the said transaction resulted directly or indirectly in an abuse having regard to one of the provisions of the ITA.
[4] In this case, the Court must determine whether, as the Respondent argues, there was an abuse of one of the following provisions:
-sections 3, 38 and 54 of the ITA; and
-subsections 39(1), 40(1), 69(5), 84(2), 85(1) and 88(2) of the ITA.
III. RELEVANT STATUTORY PROVISIONS [5] The relevant statutory provisions are as follows:
Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.)
PART I – Income Tax
DIVISION B – Computation of Income
Basic Rules
Income for taxation year
3 The income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer’s income for the year determined by the following rules:
(a) determine the total of all amounts each of which is the taxpayer’s income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer’s income for the year from each office, employment, business and property,
(b) determine the amount, if any, by which
(i) the total of
(A) all of the taxpayer’s taxable capital gains for the year from dispositions of property other than listed personal property, and
(B) the taxpayer’s taxable net gain for the year from dispositions of listed personal property,
exceeds
(ii) the amount, if any, by which the taxpayer’s allowable capital losses for the year from dispositions of property other than listed personal property exceed the taxpayer’s allowable business investment losses for the year,
(c) determine the amount, if any, by which the total determined under paragraph (a) plus the amount determined under paragraph (b) exceeds the total of the deductions permitted by Subdivision E in computing the taxpayer’s income for the year (except to the extent that those deductions, if any, have been taken into account in determining the total referred to in paragraph (a), and
(d) determine the amount, if any, by which the amount determined under paragraph (c) exceeds the total of all amounts each of which is the taxpayer’s loss for the year from an office, employment, business or property or the taxpayer’s allowable business investment loss for the year,
and for the purposes of this Part,
(e) where an amount is determined under paragraph (d) for the year in respect of the taxpayer, the taxpayer’s income for the year is the amount so determined, and
(f) in any other case, the taxpayer shall be deemed to have income for the year in an amount equal to zero.
SUBDIVISION C – Taxable Capital Gains and Allowable Capital Losses
Taxable capital gain and allowable capital loss
38 For the purposes of this Act,
(a) subject to paragraphs (a.1) to (a.3), a taxpayer’s taxable capital gain for a taxation year from the disposition of any property is ½ of the taxpayer’s capital gain for the year from the disposition of the property;
…
(b) a taxpayer’s allowable capital loss for a taxation year from the disposition of any property is 1/2 of the taxpayer’s capital loss for the year from the disposition of that property;
…
Meaning of capital gain and capital loss
39(1) For the purposes of this Act,
(a) a taxpayer’s capital gain for a taxation year from the disposition of any property is the taxpayer’s gain for the year determined under this Subdivision (to the extent of the amount thereof that would not, if section 3 were read without reference to the expression “other than a taxable capital gain from the disposition of a property” in paragraph 3(a) and without reference to paragraph 3(b), be included in computing the taxpayer’s income for the year or any other taxation year) from the disposition of any property of the taxpayer other than
…
(b) a taxpayer’s capital loss for a taxation year from the disposition of any property is the taxpayer’s loss for the year determined under this Subdivision (to the extent of the amount thereof that would not, if section 3 were read in the manner described in paragraph (a) of this subsection and without reference to the expression “or the taxpayer’s allowable business investment loss for the year” in paragraph 3(d), be deductible in computing the taxpayer’s income for the year or any other taxation year) from the disposition of any property of the taxpayer other than
…
General rules
40 (1) Except as otherwise expressly provided in this Part
(a) a taxpayer’s gain for a taxation year from the disposition of any property is the amount, if any, by which
(i) if the property was disposed of in the year, the amount, if any, by which the taxpayer’s proceeds of disposition exceed the total of the adjusted cost base to the taxpayer of the property immediately before the disposition and any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, or
(ii) if the property was disposed of before the year, the amount, if any, claimed by the taxpayer under subparagraph 40(1)(a)(iii) in computing the taxpayer’s gain for the immediately preceding year from the disposition of the property,
exceeds
(iii) subject to subsection 40(1.1), such amount as the taxpayer may claim
(A) in the case of an individual (other than a trust) in prescribed form filed with the taxpayer’s return of income under this Part for the year, and
(B) in any other case, in the taxpayer’s return of income under this Part for the year,
as a deduction, not exceeding the lesser of
(C) a reasonable amount as a reserve in respect of such of the proceeds of disposition of the property that are payable to the taxpayer after the end of the year as can reasonably be regarded as a portion of the amount determined under subparagraph 40(1)(a)(i) in respect of the property, and
(D) an amount equal to the product obtained when 1/5 of the amount determined under subparagraph 40(1)(a)(i) in respect of the property is multiplied by the amount, if any, by which 4 exceeds the number of preceding taxation years of the taxpayer ending after the disposition of the property; and
(b) a taxpayer’s loss for a taxation year from the disposition of any property is,
(i) if the property was disposed of in the year, the amount, if any, by which the total of the adjusted cost base to the taxpayer of the property immediately before the disposition and any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, exceeds the taxpayer’s proceeds of disposition of the property, and
(ii) in any other case, nil.
Adjustments to cost base
53 (1) In computing the adjusted cost base to a taxpayer of property at any time, there shall be added to the cost to the taxpayer of the property such of the following amounts in respect of the property as are applicable:
…
Definitions
54 In this Subdivision,
adjusted cost base to a taxpayer of any property at any time means, except as otherwise provided,
(a) where the property is depreciable property of the taxpayer, the capital cost to the taxpayer of the property as of that time, and
(b) in any other case, the cost to the taxpayer of the property adjusted, as of that time, in accordance with section 53,
except that
(c) for greater certainty, where any property (other than an interest in or a share of the capital stock of a flow-through entity within the meaning assigned by subsection 39.1(1) that was last reacquired by the taxpayer as a result of an election under subsection 110.6(19)) of the taxpayer is property that was reacquired by the taxpayer after having been previously disposed of by the taxpayer, no adjustment to the cost to the taxpayer of the property that was required to be made under section 53 before its reacquisition by the taxpayer shall be made under that section to the cost to the taxpayer of the property as reacquired property of the taxpayer, and
(d) in no case shall the adjusted cost base to a taxpayer of any property at any time be less than nil; (prix de base rajusté)
…
proceeds of disposition of property includes,
(a) the sale price of property that has been sold,
(b) compensation for property unlawfully taken,
(c) compensation for property destroyed, and any amount payable under a policy of insurance in respect of loss or destruction of property,
(d) compensation for property taken under statutory authority or the sale price of property sold to a person by whom notice of an intention to take it under statutory authority was given,
(e) compensation for property injuriously affected, whether lawfully or unlawfully or under statutory authority or otherwise,
(f) compensation for property damaged and any amount payable under a policy of insurance in respect of damage to property, except to the extent that such compensation or amount, as the case may be, has within a reasonable time after the damage been expended on repairing the damage,
(g) an amount by which the liability of a taxpayer to a mortgagee or hypothecary creditor is reduced as a result of the sale of mortgaged or hypothecated property under a provision of the mortgage or hypothec, plus any amount received by the taxpayer out of the proceeds of the sale,
(h) any amount included in computing a taxpayer’s proceeds of disposition of the property because of section 79, and
(i) in the case of a share, an amount deemed by subparagraph 88(2)(b)(ii) not to be a dividend on that share,
but notwithstanding any other provision of this Part, does not include
(j) any amount that would otherwise be proceeds of disposition of a share to the extent that the amount is deemed by subsection 84(2) or (3) to be a dividend received except to the extent the dividend is deemed
(i) by paragraph 55(2)(b) to be proceeds of disposition of the share, or
(ii) by subparagraph 88(2)(b)(ii) not to be a dividend, or
(k) any amount that would otherwise be proceeds of disposition of property of a taxpayer to the extent that the amount is deemed by subsection 84.1(1), 212.1(1) or 212.2(2) to be a dividend paid to the taxpayer or, if the taxpayer is a partnership, to a member of the taxpayer; (produit de disposition)
SUBDIVISION F – Rules Relating to Computation of Income
Inadequate considerations
69 (5) Where in a taxation year of a corporation property of the corporation has been appropriated in any manner whatever to, or for the benefit of, a shareholder, on the winding-up of the corporation, the following rules apply:
(a) the corporation is deemed, for the purpose of computing its income for the year, to have disposed of the property immediately before the winding‑up for proceeds equal to its fair market value at that time;
(b) the shareholder shall be deemed to have acquired the property at a cost equal to its fair market value immediately before the winding-up;
(c) subsections 52(1) and (2) do not apply for the purposes of determining the cost to the shareholder of the property; and
(d) subsections 13(21.2), 14(12), 18(15) and 40(3.4) and (3.6) do not apply in respect of any property disposed of on the winding-up.
…
SUBDIVISION H – Corporations Resident in Canada and their Shareholders
Distribution on winding-up, etc.
84 (2) Where funds or property of a corporation resident in Canada have at any time after March 31, 1977 been distributed or otherwise appropriated in any manner whatever to or for the benefit of the shareholders of any class of shares in its capital stock, on the winding-up, discontinuance or reorganization of its business, the corporation shall be deemed to have paid at that time a dividend on the shares of that class equal to the amount, if any, by which
(a) the amount or value of the funds or property distributed or appropriated, as the case may be,
exceeds
(b) the amount, if any, by which the paid-up capital in respect of the shares of that class is reduced on the distribution or appropriation, as the case may be,
and a dividend shall be deemed to have been received at that time by each person who held any of the issued shares at that time equal to that proportion of the amount of the excess that the number of the shares of that class held by the person immediately before that time is of the number of the issued shares of that class outstanding immediately before that time.
Redemption, etc.
84 (3) Where at any time after December 31, 1977 a corporation resident in Canada has redeemed, acquired or cancelled in any manner whatever (otherwise than by way of a transaction described in subsection 84(2)) any of the shares of any class of its capital stock,
(a) the corporation shall be deemed to have paid at that time a dividend on a separate class of shares comprising the shares so redeemed, acquired or cancelled equal to the amount, if any, by which the amount paid by the corporation on the redemption, acquisition or cancellation, as the case may be, of those shares exceeds the paid-up capital in respect of those shares immediately before that time; and
(b) a dividend shall be deemed to have been received at that time by each person who held any of the shares of that separate class at that time equal to that portion of the amount of the excess determined under paragraph 84(3)(a) that the number of those shares held by the person immediately before that time is of the total number of shares of that separate class that the corporation has redeemed, acquired or cancelled, at that time.
…
Transfer of property to corporation by shareholders
85 (1) Where a taxpayer has, in a taxation year, disposed of any of the taxpayer’s property that was eligible property to a taxable Canadian corporation for consideration that includes shares of the capital stock of the corporation, if the taxpayer and the corporation have jointly elected in prescribed form and in accordance with subsection 85(6), the following rules apply:
(a) the amount that the taxpayer and the corporation have agreed on in their election in respect of the property shall be deemed to be the taxpayer’s proceeds of disposition of the property and the corporation’s cost of the property;
(b) subject to paragraph 85(1)(c), where the amount that the taxpayer and the corporation have agreed on in their election in respect of the property is less than the fair market value, at the time of the disposition, of the consideration therefor (other than any shares of the capital stock of the corporation or a right to receive any such shares) received by the taxpayer, the amount so agreed on shall, irrespective of the amount actually so agreed on by them, be deemed to be an amount equal to that fair market value;
(c) where the amount that the taxpayer and the corporation have agreed on in their election in respect of the property is greater than the fair market value, at the time of the disposition, of the property so disposed of, the amount so agreed on shall, irrespective of the amount actually so agreed on, be deemed to be an amount equal to that fair market value;
…
(h) the cost to the taxpayer of any common shares of any class of the capital stock of the corporation receivable by the taxpayer as consideration for the disposition shall be deemed to be that proportion of the amount, if any, by which the proceeds of the disposition exceed the total of the fair market value, at the time of the disposition, of the consideration (other than shares of the capital stock of the corporation or a right to receive any such shares) received by the taxpayer for the disposition and the cost to the taxpayer of all preferred shares of the capital stock of the corporation receivable by the taxpayer as consideration for the disposition, that
(i) the fair market value, immediately after the disposition, of those common shares of that class,
is of
(ii) the fair market value, immediately after the disposition, of all common shares of the capital stock of the corporation receivable by the taxpayer as consideration for the disposition;
…
Winding-up of Canadian corporation
88 (2) Where a Canadian corporation (other than a subsidiary to the winding-up of which the rules in subsection 88(1) applied) has been wound up after 1978 and, at a particular time in the course of the winding-up, all or substantially all of the property owned by the corporation immediately before that time was distributed to the shareholders of the corporation,
(a) for the purposes of computing the corporation’s
(i) capital dividend account,
(i.1) capital gains dividend account (within the meaning assigned by subsection 131(6), where the corporation is an investment corporation,
(ii) capital gains dividend account (within the meaning assigned by section 133), and
(iii) pre-1972 capital surplus on hand,
at the time (in this paragraph referred to as the “time of computation”) immediately before the particular time,
(iv) the taxation year of the corporation that otherwise would have included the particular time shall be deemed to have ended immediately before the time of computation, and a new taxation year shall be deemed to have commenced at that time, and
(v) each property of the corporation that was so distributed at the particular time shall be deemed to have been disposed of by the corporation immediately before the end of the taxation year so deemed to have ended for proceeds equal to the fair market value of the property immediately before the particular time,
…
(b) where the corporation is, by virtue of subsection 84(2), deemed to have paid at the particular time a dividend (in this paragraph referred to as the “winding-up dividend”) on shares of any class of its capital stock, the following rules apply:
(i) such portion of the winding-up dividend as does not exceed the corporation’s capital dividend account immediately before that time or capital gains dividend account immediately before that time, as the case may be, shall be deemed, for the purposes of an election in respect thereof under subsection 83(2), 131(1) (as that subsection applies for the purposes of section 130) or 133(7.1), as the case may be, and where the corporation has so elected, for all other purposes, to be the full amount of a separate dividend,
(ii) the portion of the winding-up dividend equal to the lesser of the corporation’s pre-1972 capital surplus on hand immediately before that time and the amount by which the winding-up dividend exceeds
(A) the portion thereof in respect of which the corporation has made an election under subsection 83(2), or
(B) the portion thereof in respect of which the corporation has made an election under subsection 133(7.1),
as the case may be, shall be deemed not to be a dividend,
(iii) notwithstanding the definition taxable dividend in subsection 89(1), the winding-up dividend, to the extent that it exceeds the total of the portion thereof deemed by subparagraph 88(2)(b)(i) to be a separate dividend for all purposes and the portion deemed by subparagraph 88(2)(b)(ii) not to be a dividend, shall be deemed to be a separate dividend that is a taxable dividend, and
(iv) each person who held any of the issued shares of that class at the particular time shall be deemed to have received that proportion of any separate dividend determined under subparagraph 88(2)(b)(i) or 88(2)(b)(iii) that the number of shares of that class held by the person immediately before the particular time is of the number of issued shares of that class outstanding immediately before that time, and
(c) for the purpose of computing the income of the corporation for its taxation year that includes the particular time, paragraph 12(1)(t) shall be read as follows:
“12(1)(t) the amount deducted under subsection 127(5) or 127(6) in computing the taxpayer’s tax payable for the year or a preceding taxation year to the extent that it was not included under this paragraph in computing the taxpayer’s income for a preceding taxation year or is not included in an amount determined under paragraph 13(7.1)(e) or 37(1)(e) or subparagraph 53(2)(c)(vi) or 53(2)(h)(ii) or the amount determined for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.1(6);”.
…
DIVISION C – Computation of Taxable Income
Lump-sum Payments
Deduction of taxable dividends received by corporation resident in Canada
112 (1) Where a corporation in a taxation year has received a taxable dividend from
(a) a taxable Canadian corporation, or
(b) a corporation resident in Canada (other than a non-resident-owned investment corporation or a corporation exempt from tax under this Part) and controlled by it,
an amount equal to the dividend may be deducted from the income of the receiving corporation for the year for the purpose of computing its taxable income.
PART XVI – Tax Avoidance
Definitions
245(1) In this section,
tax benefit means a reduction, avoidance or deferral of tax or other amount payable under this Act or an increase in a refund of tax or other amount under this Act, and includes a reduction, avoidance or deferral of tax or other amount that would be payable under this Act but for a tax treaty or an increase in a refund of tax or other amount under this Act as a result of a tax treaty; (avantage fiscal)
tax consequences to a person means the amount of income, taxable income, or taxable income earned in Canada of, tax or other amount payable by or refundable to the person under this Act, or any other amount that is relevant for the purposes of computing that amount; (attribut fiscal)
transaction includes an arrangement or event. (opération)
General anti-avoidance provision
(2) Where a transaction is an avoidance transaction, the tax consequences to a person shall be determined as is reasonable in the circumstances in order to deny a tax benefit that, but for this section, would result, directly or indirectly, from that transaction or from a series of transactions that includes that transaction.
Avoidance transaction
(3) An avoidance transaction means any transaction
(a) that, but for this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit; or
(b) that is part of a series of transactions, which series, but for this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit.
Application of subsection (2)
(4) Subsection (2) applies to a transaction only if it may reasonably be considered that the transaction
(a) would, if this Act were read without reference to this section, result directly or indirectly in a misuse of the provisions of any one or more of
(i) this Act,
(ii) the Income Tax Regulations,
(iii) the Income Tax Application Rules,
(iv) a tax treaty, or
(v) any other enactment that is relevant in computing tax or any other amount payable by or refundable to a person under this Act or in determining any amount that is relevant for the purposes of that computation; or
(b) would result directly or indirectly in an abuse having regard to those provisions, other than this section, read as a whole.
Determination of tax consequences
Without restricting the generality of subsection (2), and notwithstanding any other enactment,
(a) any deduction, exemption or exclusion in computing income, taxable income, taxable income earned in Canada or tax payable or any part thereof may be allowed or disallowed in whole or in part,
(b) any such deduction, exemption or exclusion, any income, loss or other amount or part thereof may be allocated to any person,
(c) the nature of any payment or other amount may be recharacterized, and
(d) the tax effects that would otherwise result from the application of other provisions of this Act may be ignored,
in determining the tax consequences to a person as is reasonable in the circumstances in order to deny a tax benefit that would, but for this section, result, directly or indirectly, from an avoidance transaction.
…
PART XVII – Interpretation
Series of transactions
248 (10) For the purposes of this Act, where there is a reference to a series of transactions or events, the series shall be deemed to include any related transactions or events completed in contemplation of the series.
IV. FACTS A. Background
[6] Quebecor is a management company that is part of the communications industry through Quebecor Media Inc. (“Quebecor Media”) and its subsidiaries. Quebecor is a Canadian public corporation incorporated in 1965 under Part I of the Companies Act (the “QCA”)[8] and governed by the Business Corporations Act (the “BCA”).[9] Quebecor is a “taxable Canadian corporation” within the meaning of the ITA,[10] and its shares are listed on a designated stock exchange. Its taxation year ends on the last Saturday of December.[11]
Acquisition by Quebecor of 44,821,024 common shares of Abitibi Consolidated
[7] On July 7, 1987, Quebecor acquired 44,821,024 common shares of Abitibi Consolidated. Following this acquisition, Quebecor held 10.18% of the outstanding shares of Abitibi Consolidated. At this time, Abitibi Consolidated was a public corporation that was incorporated under the Canada Business Corporations Act[12] (the “CBCA”) and that was part of the forestry industry. On December 14, 2005, the fair market value (the “FMV”)[13] of these shares was $191,833,983, and their paid-up capital (“PUC”)[14] was $1. The ACB of these shares was $1.[15]
Quebecor’s and Capitale d’Amérique CDPQ Inc.’s investments in Quebecor Media
[8] Quebecor Media is a taxable Canadian corporation incorporated on August 8, 2000, under Part IA of the QCA, and it is currently governed by the BCA.[16] Capitale d’Amérique CDPQ Inc. (“Capitale d’Amérique CDPQ”) is a wholly owned subsidiary of the Caisse de dépôt et placement du Québec, and it is exempt from taxation under the ITA.[17]
[9] In October 2000, Quebecor and Capitale d’Amérique CDPQ invested large amounts in Quebecor Media. The purpose of this investment was to allow Quebecor Media to acquire all the shares of Groupe Vidéotron Ltée (“Groupe Vidéotron”). Following this investment, Quebecor directly and indirectly held 54.72% of the capital stock shares of Quebecor Media. The remaining 45.28% of Quebecor Media’s capital stock was held by Capitale d’Amérique CDPQ.[18]
Acquisition by Quebecor Media of all the outstanding shares of Groupe Vidéotron
[10] On October 23, 2000, Quebecor Media acquired all the outstanding shares of Groupe Vidéotron.[19] At the time of this acquisition, Groupe Vidéotron held the following shares of 3662527 Canada Inc.[20] (“3662527”):
ACB
PUC
10,000 common voting shares
$20,134,789
$19,775,000
90,000 common non-voting shares
$181,213,178
$177,979,000
[11] The balance of 3662527’s shares, i.e., 5,000 class “C” preferred shares, was held by the Carlyle Group.[21] The Carlyle Group is a third party operating at arm’s length from Quebecor.[22] It subscribed for class “C” preferred shares of 3662527 in November 1999 for $200,000,000.[23]
44,821,024 common shares (10.18%)
ACB: $1
PUC: $1
FMV: $191,833,983
10,000 common voting shares
ACB: $20,134,798
PUC: $19,775,000
90,000 common non‑voting shares
ACB: $181,213,178
PUC: $177,979,000
5,000 class “C” preferred shares
ACB: $200,000,000
3662527 Canada Inc.
Carlyle Group
Groupe Vidéotron Ltée
Quebecor Media Inc.
100%
Abitibi Consolidated Inc.
Quebecor Inc.
54.72%
45.28%
100%
Capital d’Amérique CDPQ Inc.
Caisse de dépôt et de placement du Québec
Transfer by Quebecor Media of its Groupe Vidéotron shares to 9071-4866 Québec Inc. and amalgamation of these two corporations
[12] On December 7, 2000, Quebecor Media transferred its shares of Groupe Vidéotron capital stock to 9071-4866 Québec Inc. (“9071-4866”). 9071-4866 Québec Inc. was a wholly owned subsidiary of Quebecor Media. The transfer was completed in accordance with subsection 85(1) of the ITA. As consideration for this transfer of shares, Quebecor Media received 9071-4866 common shares.[24]
5,000 class “C” preferred shares
ACB: $200,000,000
44,821,024 common shares (10.18%)
ACB: $1
PUC: $1
FMV: $191,833,983
10,000 common voting shares
ACB: $20,134,798
PUC: $19,775,000
90,000 common non-voting shares
ACB: $181,213,178
PUC: $177,979,000
Carlyle Group
3662527 Canada Inc.
100%
9071-4866 Québec Inc.
Groupe Vidéotron Ltée
100%
Quebecor Media Inc.
Abitibi Consolidated Inc.
54.72%
Quebecor Inc.
Capital d’Amérique CDPQ Inc.
45.28%
100%
Caisse de dépôt et de placement du Québec
[13] Subsequently, Groupe Vidéotron amalgamated with 9071-4866 in accordance with subsection 87(1) of the ITA, and the new Groupe Vidéotron Ltée (the “new Groupe Vidéotron”) was formed. This amalgamation allowed for an increase in the ACB of the 3662527 shares held by the new Groupe Vidéotron, in accordance with paragraph 88(1)(d) of the ITA.[25] The ACB was increased to a total of $400,000,000, broken down as follows:[26]
ACB
PUC
Increased ACB
10,000 common voting shares
$20,134,798,
$20,065,202
$40,200,000
90,000 common non-voting shares
$181,213,178
$178,586,822
$359,800,000
5,000 class “C” preferred shares
ACB: $200,000,000
44,821,024 common shares (10.18%)
ACB: $1
PUC: $1
FMV: $191,833,983
10,000 common voting shares
Increased ACB: $40,200,000
PUC: $19,775,000
90,000 common non-voting shares
Increased ACB: $359,800,000
PUC: $177,979,000
3662527 Canada Inc.
Carlyle Group
Groupe Vidéotron Ltée
100%
45.28%
54.72%
Abitibi Consolidated Inc.
Quebecor Media Inc.
Quebecor Inc.
Capital d’Amérique CDPQ Inc.
100%
Caisse de dépôt et de placement du Québec
Incorporation of 9101-0827 Québec Inc.
[14] On February 16, 2001, 9101-0827 Québec Inc. (“9101-0827”) was incorporated under Part IA of the QCA.[27]
Incorporation of Vidéotron Telecom Ltée
[15] On August 31, 2001, the two operating companies owned by 3662527 amalgamated to become Vidéotron Telecom Ltée (“Vidéotron Telecom”).[28]
Winding-up of the new Groupe Vidéotron into Quebecor Media
[16] In December 2002, the new Groupe Vidéotron was wound up into Quebecor Media.[29]
9101-0827 issues 100 common shares to Quebecor Media
[17] On December 9, 2003, 9101-0827 issued 100 common shares to Quebecor Media for $100.[30]
5,000 class “C” preferred shares
ACB: $200,000,000
44,821,024 common shares (10.18%)
ACB: $1
PUC: $1
FMV: $191,833,983
10,000 common voting shares
Increased ACB: $40,200,000
PUC: $19,775,000
90,000 common non-voting shares
Increased ACB: $359,800,000
PUC: $177,979,000
100 common shares
ACB: $100
PUC: $100
Carlyle Group
Vidéotron Telecom Ltée
3662527 Canada Inc.
9101-0827 Québec Inc.
Quebecor Media Inc.
54.72%
Abitibi Consolidated Inc.
45.28%
Quebecor Inc.
Capital d’Amérique CDPQ Inc.
100%
Caisse de dépôt et de placement du Québec
Quebecor Media subscribes for common shares of 9101‑0827
[18] On December 22, 2003, Quebecor Media subscribed for 55,000,000 common shares of 9101-0827 for $55,000,000.[31]
9101-0827 acquires class “C” preferred shares of 3662527 held by the Carlyle Group
[19] On December 22, 2003, 9101-0827 acquired 5,000 3662527 class “C” preferred shares held by the Carlyle Group for $125,000,000 ($55,000,000 in cash and an additional $70,000,000, which could vary and which could reach $110,000,000, to be paid no later than December 2008).[32] Following this acquisition, all 3662527 shares were held by Quebecor Media and its subsidiary 9101-0827.
10,000 common voting shares
Increased ACB: $40,200,000
PUC: $19,775,000
90,000 common non-voting shares
Increased ACB: $359,800,000
PUC: $177,979,000
44,821,024 common shares (10.18%)
ACB: $1
PUC: $1
FMV: $191,833,983
5,000 class “C” preferred shares
55,000,100 common shares
ACB: $55,000,100
PUC: $55,000,100
Vidéotron Telecom Ltée
3662527 Canada Inc.
9101-0827 Québec Inc.
Quebecor Media Inc.
Abitibi Consolidated Inc.
45.28%
54.72%
Quebecor Inc.
Capital d’Amérique CDPQ Inc.
100%
Caisse de dépôt et de placement du Québec
Reduction in Quebecor Media’s FMV
[20] As at December 31, 2004, after a slowdown in its business and a general economic downturn, Quebecor Media’s FMV decreased to $3,400,000,000.[33] Part of the decrease in Quebecor Media’s FMV was attributable to the decrease in the FMV of the 3662527 shares.[34]
FMV and ACB of 3662527 shares held by Quebecor Media
[21] As at December 13, 2005, the total FMV of the 3662527 shares was $195,600,000. The total FMV and total ACB of the voting and non-voting common shares held by Quebecor Media was $400,000,000. The 5,000 3662527 class “C” preferred shares held by 9101-0827 had an FMV of $195,600,000 and an ACB of $166,500,000.[35]
Reduction in the PUC of 3662527 class “C” preferred shares held by 9101-0827
[22] On December 14, 2005, the stated capital account relating to the 3662527 class “C” preferred shares held by 9101-0827 was reduced by $199,995,000. The PUC of these shares dropped from $200,000,000 to $5,000. The reduction in PUC was recorded in the contributed surplus.[36]
Transfer of Abitibi Consolidated shares by Quebecor to 3662527 as consideration for 1,000 class “D” preferred shares of 3662527
[23] On December 14, 2005, Quebecor disposed of its 44,821,024 common shares of Abitibi Consolidated in favour of 3662527. This disposition was carried out through a transfer made in accordance with subsection 85(1) of the ITA, namely, by “rollover”. The agreed amount, the PUC and ACB of the shares was $1. The FMV of the shares was $191,833,983. As consideration, 3662527 issued 1,000 class “D” preferred shares to Quebecor. The FMV of these shares was $191,833,983 and their PUC was $1.[37]
55,000,100 common shares
ACB: $55,000,100
PUC: $55,000,100
44,821,024 common shares
ACB: $1
PUC: $1
FMV: $191,833,983
1,000 class “D” preferred shares
ACB: $1
PUC: $1
FMV: $191,833,983
2,515,276 class “A” shares
ACB: $344,209,002
FMV: $138,141,304
2 class “C” preferred shares
ACB: $6,323,675
FMV: $11,859,696
10,000 common voting shares
Increased ACB: $40,200,000
PUC: $19,775,000
FMV: $1
90,000 common non-voting shares
Increased ACB: $359,800,000
PUC: $177,979,000
FMV: $1
5,000 class “C” preferred shares
ACB: $166,500,000
PUC: $5,000
FMV: $195,600,000
Quebecor Media Inc.
Abitibi Consolidated Inc.
9101-0827 Québec Inc.
3662527 Canada Inc.
Vidéotron Telecom Ltée
54.72%
Quebecor Inc.
45.28%
Capital d’Amérique CDPQ Inc.
Caisse de dépôt et de placement du Québec
100%
Redemption of the 1,000 3662527 class “D” preferred shares held by Quebecor as consideration for a $191,833,983 demand note
[24] On December 14, 2005, the 1,000 3662527 class “D” preferred shares held by Quebecor were immediately repurchased by 3662527. As consideration, 3662527 issued Quebecor a demand note in the amount of $191,833,983.[38]
[25] Under subsection 84(3) of the ITA, 3662527 was thus deemed to have paid Quebecor a $191,883,982 dividend. Given that 3662527 was a taxable Canadian corporation under subsection 112(1) of the ITA, this taxable dividend could be deducted from Quebecor’s income.[39] The deemed payment of this dividend therefore did not have any tax consequences for Quebecor.
Deemed dividend
$191,883,982
44,821,024 common shares
ACB: $1
PUC: $1
FMV: $191,833,983
2,515,276 class “A” shares
ACB: $344,209,002
FMV: $138,141,304
2 class “C” preferred shares
ACB: $6,323,675
FMV: $11,859,696
10,000 common voting shares
Increased ACB: $40,200,000
PUC: $19,775,000
FMV: $1
90,000 common non-voting shares
Increased ACB: $359,800,000
PUC: $177,979,000
FMV: $1
5,000 class “C” preferred shares
ACB: $166,500,000
PUC: $5,000
FMV: $195,600,000
55,000,100 common shares
ACB: $55,000,100
PUC: $55,000,100
Abitibi Consolidated Inc.
Demand note for $191,833,983
3662527 Canada Inc.
9101-0827 Québec Inc.
Vidéotron Telecom Ltée
Quebecor Media Inc.
Quebecor Inc.
54.72%
45.28%
Capital d’Amérique CDPQ Inc.
100%
Caisse de dépôt et de placement du Québec
Distribution of Abitibi Consolidated shares held by 3662527 to Quebecor as consideration for the demand note
[26] On December 14, 2005, Quebecor exchanged its $191,833,983 demand note for the 44,821,024 common shares of Abitibi Consolidated held by 3662527.[40] Through this exchange, 3662527 disposed of its Abitibi Consolidated shares and realized a $191,883,982 capital gain (the $191,833,983 proceeds of disposition minus the $1 ACB). The ACB of the Abitibi Consolidated common shares held by Quebecor was established at $191,883,982, namely, the amount that Quebecor paid for the shares, which corresponds to the va