In Paul Antle and Renee Marquis-Antle Spousal Trust v. The Queen, the Tax Court considered a series of transactions implemented by a Canadian resident taxpayer known as a “capital property step-up strategy”. The strategy involved the following steps: the transfer by the taxpayer of shares (the “Shares”) of PM Environmental Holdings Ltd. (“PM”) with an accrued gain to a Barbados spousal trust (the “Trust”) settled by the taxpayer for the benefit of his wife; the Trust’s sale of the Shares to the wife; the wife’s sale of the Shares to a third party purchaser and payment of the sale proceeds to the Trust for the Share purchase; the Trust’s distribution of the Share sale proceeds as capital to the wife; and the dissolution of the Trust. If successful, the strategy would have resulted in no Canadian tax either on the taxpayer’s disposition of the Shares to the Trust, or on the Trust’s subsequent sale of the Shares to the wife, or on the wife’s sale of the Shares to the third party purchaser. The capital gain on the sale of the Shares by the Trust was not subject to tax in Barbados.

type Tax Law Bulletin – October 2009 – Barbados Spousal Trust Strategy Fails Canadian Trust and GAAR Tests