[2013] 1 F.C.R. D-2
Income Tax
Income Calculation
Capital Gains and Losses
Tax avoidance—Appeal from Tax Court of Canada (T.C.C.) decision (2011 TCC 383) dismissing appellant’s appeal of assessment made under general anti-avoidance rule (GAAR) in Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 245, in which capital loss denied—Appeal heard immediately after appeal in Triad Gestco Ltd. v. Canada (2012 FCA 258), similar GAAR case, to be reported in F.C.R.—Appellant, corporation controlled by individual taxpayer, selling shares held in other corporation to arm’s length purchaser; resulting in capital gain—In new risky business venture, taxpayer mindful of achieving creditor protection; following accountant’s transaction plan to achieve goal—New subsidiary incorporated whereby taxpayer sole director thereof—Appellant then transferring property having fair market value equal to capital loss incurred to new subsidiary in exchange for shares of like value—Appellant then selling shares in new subsidiary for less than cost to trust established for benefit of taxpayer’s family; using resulting capital loss to offset capital gain realized in prior arm’s length transaction—Whether appellant’s admitted tax benefit (capital loss) resulting from avoidance transaction as defined in Act, s. 245(3); whether misuse or abuse rule applying herein—T.C.C. correctly concluding that entire series of transactions having bona fide non-tax purpose (protection against creditors)—Applying correct test when considering whether one or more transactions at issue having as principal purpose achievement of admitted tax benefit—No evidence creditor protection objective requiring issuance of common shares of new subsidiary to appellant; absence of evidence thereof leading T.C.C. to find that issuance of common shares not done primarily for bona fide non-tax purpose—T.C.C. following correct approach when determining purpose of series of transactions on objective basis rather than on basis of taxpayer’s subjective motivation or taxpayer’s understanding of what may or may not have been required to achieve creditor protection—Therefore, open to T.C.C. to conclude that principal purpose of transactions to achieve admitted tax benefit; that saving provision in Act, s. 245(4) not applying herein to justify reversal of GAAR reassessment—Appeal dismissed.
1207192 Ontario Limited v. Canada (A-359-11, 2012 FCA 259, Sharlow J.A., judgment dated October 15, 2012, 10 pp.)