Ontario Civil


Notional corporate tax rate was appropriate for purposes of share valuation

Company owned one-quarter interest in rental property that had apartment building. Shareholders JL, ML and P collectively owned one-third of company’s shares while their uncle, shareholder K, owned another one-third of company’s shares. K wanted to purchase other three-quarter interest in rental property. K notionally acquired shares from JL, ML and P for financing purposes pursuant to memorandum of understanding (MOU). JL, ML and P were given option of selling their shares to K once rental property transaction closed. After transaction closed, K denied owing JL, ML and P anything for their shares. JL, ML and P brought application for order requiring company to pay them outstanding dividends and requiring K to purchase their shares at fair value. Application granted. K was required to purchase shares of JL, ML and P in accordance with their expert’s valuation after it was adjusted in accordance with judgment. Value of company’s interest in rental property was to be adjusted to account for notional disposition costs, which were reduced by 50 per cent since rental property would probably be held indefinitely. K was not permitted to deduct $300,000 as deferred compensation since no such obligation had previously been brought to attention of JL, ML and P. Deduction for legal fees was reduced since some legal fees had not been paid and there was no intention to pay them. Notional corporate tax rate of 26.5 per cent was appropriate for purposes of share valuation. Actual corporate tax rate of 46.16 per cent was offset by refundable dividend tax pool. No minority discount was allowed since MOU called for “fair value” rather than fair market value, and K received benefits of financing for rental property and two-thirds interest in company.

Levine v. 1751060 Ontario Inc. (Jun. 29, 2016, Ont. S.C.J. [Commercial List], Swinton J., CV-14-10413-OOCL) 269 A.C.W.S. (3d) 681.

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