The Minister reassessed the appellant, a mutual reinsurance corporation, to disallow the deduction of non-capital losses following its acquisition of all shares of a trust company (ProCap).
The Minister argued that the acquisition triggered the loss restriction rules under subsection 111(5) of the Income Tax Act.
The appellant appealed, arguing that the relieving provision in paragraph 256(7)(d) applied to deem that control was not acquired, because the mutual general insurance associations (MGIAs) that controlled ProCap before the transaction also controlled the appellant after the transaction.
The Tax Court of Canada allowed the appeal, finding that the MGIAs formed a group of persons that exercised de jure control over both entities through their control of the federation that appointed the appellant's board of directors.
As all conditions of paragraph 256(7)(d) were met, control was deemed not to have been acquired, and the losses were deductible.
