2024-1030561C6 2024 CTF Conference - Q.15 The Foix decision and hybrid sales

Principal Issues: Views of the CRA regarding the potential impact of the decision in Foix v. Canada (FCA).

Position: General comments provided.

Reasons: See below.

Author: Boychuk, Daryl
Section: Subsection 84(2)

2024 CTF Annual Tax Conference

CRA Round Table

Question 15: The Foix decision and hybrid sales


In 2023, the Federal Court of Appeal in Foix v. Canada, 2023 FCA 38 (Foix) applied subsection 84(2) to treat certain amounts received on the sale of shares of a corporation to be a dividend received by the shareholders on the distribution or appropriation of funds or property on the winding-up, discontinuance or reorganization of the business of the corporation. The deemed dividend in Foix arose in the context of a so-called hybrid sale (an arrangement involving the sale of corporate assets and shares of a target corporation).

Will the CRA apply the approach to the application of subsection 84(2) adopted in the Foix decision solely to hybrid sales that are identical to those in that case?

CRA Response

The CRA addressed this question recently at the 2024 Association de planification fiscale et financière (APFF) Conference. In our response, we stated that we would not limit the decision in Foix (leave to appeal to the Supreme Court of Canada dismissed on February 29, 2024) to hybrid sales that are identical to those implemented in that case.

Generally stated, subsection 84(2) applies on the distribution or appropriation of funds or property of a Canadian-resident corporation in any manner whatever to or for the benefit of its shareholders, on the discontinuance, winding-up or reorganization of the business of the corporation. With respect to the expression “in any manner whatever” the Federal Court of Appeal stated in Foix, at paragraph 68, that these words are “far-reaching” and are “anchored in history as they have always been part of this provision, and they faithfully reflect its anti-avoidance purpose.” The Court further stated, at paragraph 69, that “in the presence of an orchestrated attempt to extract surpluses without tax or at a reduced rate, the intention of Parliament requires a reading of subsection 84(2) that balances the words that are used, as an overly literal reading would defeat its anti-avoidance mission . . .”.

In our view, the decision in Foix confirms that subsection 84(2) is to be applied in a manner that supports its anti-avoidance purpose. With this in mind, it is incumbent on the CRA to determine whether, in any particular case, the transactions underlying a particular hybrid sale involve the distribution or appropriation of property of a corporation in circumstances where the entirety of the conditions for the application of subsection 84(2) are met.



Daryl Boychuk
2024-103056
December 3, 2024

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