Manrell v. Canada, 2003 FCA 128 (2003)

Extract

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Manrell v. Canada, 2003 FCA 128 (2003)

Federal Court Reports

Manrell v. Canada (C.A.) [2003] 3 F.C. 727

Date: 20030311

Docket: A-662-01

Neutral citation: 2003 FCA 128

CORAM: STRAYER J.A.

SEXTON J.A.

SHARLOW J.A.

BETWEEN:

TOD T. MANRELL

Appellant

and

HER MAJESTY THE QUEEN

Respondent

Heard at Vancouver, British Columbia on January 15, 2003.

Judgment delivered at Ottawa, Ontario on March 11, 2003.

REASONS FOR JUDGMENT BY: SHARLOW J.A.

CONCURRED IN BY: STRAYER J.A.

SEXTON J.A.

Date: 20030311

Docket: A-662-01

Neutral citation: 2003FCA 128

CORAM: STRAYER J.A.

SEXTON J.A.

SHARLOW J.A.

BETWEEN:

TOD T. MANRELL

Appellant

and

HER MAJESTY THE QUEEN

Respondent

REASONS FOR JUDGMENT

SHARLOW J.A.

[1] The issue in this case is whether, for the purposes of the Income Tax Act , R.S.C. 1985 (5 th Supp.), c. 1, a taxable capital gain arises when an individual receives a payment from the purchaser of the shares of a corporation as consideration for a promise not to compete with that corporation for a specified period within a specified territory.

Background

[2] The events that gave rise to this appeal occurred in 1995 when the shares of three corporations, Alberta Plastic Industries Ltd., B.C. Plastic Industries Ltd. and Canada Cap Snap Corporation, were sold. Alberta Plastic Industries Ltd. and B.C. Plastic Industries Ltd. manufacture plastic moulds. Canada Cap Snap Corporation manufactures caps for those moulds. I will refer to the three corporations as the "operating companies".

[3] Before June 16, 1995, the appellant Mr. Manrell owned or controlled substantial interests in all three operating companies. He owned 70% of the shares of Alberta Plastic Industries Ltd. He owned all of the shares of Llernam Holdings Ltd., which owned all of the shares of Allwest Industries Incorporated, which in turn owned all of the shares of B.C. Plastic Industries Ltd. Llernam Holdings Ltd. also owned 80% of the shares of 322597 B.C. Ltd., which owned 50% of the shares of Canada Cap Snap Corporation.

[4] Minority interests in Alberta Plastic Industries Ltd. and 322597 B.C. Ltd. were owned by two other individuals, Bob Williamson and Bruce Gallop. A Delaware corporation called Portola Packaging Inc. owned 50% of the shares of Canada Cap Snap Corporation.

[5] In 1995, a corporation called 3154823 Canada Inc. agreed to purchase the shares and shareholder debt of the three operating companies (excluding the shares owned by Portola Packaging Inc.). The terms of the agreement are set out in a document entitled "Share Purchase Agreement" dated June 16, 1995. The total purchase price of the shares and shareholder debt was $14,626,000 (subject to certain adjustments that are not now relevant), to be allocated among the selling shareholders as stipulated by the Share Purchase Agreement.

[6...

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