The respondent mortgage company purchased trailers and leased them back to the vendor to claim a substantial capital cost allowance (CCA) and offset revenue from other leased assets.
The Minister of National Revenue reassessed the respondent and disallowed the CCA claim under the general anti-avoidance rule (GAAR).
The Supreme Court of Canada held that while the transaction resulted in a tax benefit and was an avoidance transaction, it was not abusive tax avoidance under s. 245(4) of the Income Tax Act.
The Court found that the transaction was consistent with the object, spirit, and purpose of the CCA provisions, which permit deductions based on the cost of assets acquired, regardless of the economic risk involved.
