Cadillac Fairview Corp. Ltd. v. Canada
A-282-96
McDonald J.A.
25/1/99
18 pp.
Capital losses-Appeal from T.C.C. decision ((1996), 97 DTC 405) taxpayer not disposing of property in circumstances giving rise to capital loss-Whether taxpayer can claim allowable capital loss under Income Tax Act, s. 40(2)(g)(ii) for losses incurred on guarantees made in respect of loans to subsidiary corporation for purpose of earning dividend income from subsidiary-Taxpayer large Canadian public company whose principal business purchase, development, leasing, management of commercial, retail, industrial, residential real property, sale of residential real property-Business carried on by taxpayer both directly, through subsidiaries-Appeal concerned with taxpayer's dealings with five of fifth tier subsidiaries in U.S.A., called CF subsidiaries-Taxpayer deducting $7,926,000 as allowable capital loss in 1984 taxation year, representing 50% of $15,852,000 in payments made in order to extricate interest in failed real estate ventures of CF subsidiaries-MNR disallowing deduction on basis guarantees not issued for purpose of gaining, producing income from business, property, loss suffered deemed to be nil under Act, s. 40(2)(g)(ii)-Tax Court Judge ruling taxpayer not disposing of property, not deemed to have disposed of property in circumstances giving rise to capital loss with respect to CF Prospect, CF Parkside, CF Jocelyn and CF Cleveland-Capital loss may only be claimed where actual, deemed disposition of property-Mere fact capital payment made not sufficient to give rise to capital loss-Where debtor cannot repay subrogated debt to guarantor, debt may be regarded as "bad"-Circumstances of case not sufficient to establish taxpayer acquired subrogated debt, disposed of it under Act, s. 50 or otherwise-Taxpayer guaranteed loans made to CF subsidiaries-Payments made to satisfy obligation under terms of guarantees-Advance of money in exchange for valuable consideration, namely enabling subsidiary to extricate itself from unsatisfactory partnership, not capital loss for income tax purposes-Taxpayer's rights of subrogation precluded by either structure of transaction itself, or express waiver of rights by taxpayer for valuable consideration-Appeal dismissed-Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 40(2)(g)(ii), 50(1)(a) (as am. by S.C. 1995, c. 21, s. 15).