S. Natasha Kisilevsky

The Appellant, an insolvent mining company with significant tax losses, underwent a series of transactions to spin out its mining assets and acquire a real estate business from two corporate groups.

To avoid an acquisition of control that would restrict the use of its losses under subsection 111(4) of the Income Tax Act, the corporate groups structured their share consideration to include non-voting shares, ensuring they held less than 50% of the voting shares despite owning over 90% of the equity.

The Minister reassessed the Appellant to deny the deduction of net capital losses under the general anti-avoidance rule (GAAR).

The Tax Court of Canada dismissed the appeal, finding that the corporate groups acted in concert as a group of persons, the use of non-voting shares was an avoidance transaction that resulted in a tax benefit, and the transactions abused the object, spirit, and purpose of subsection 111(4) by fundamentally transforming the corporation to allow new shareholders to benefit from its historical losses.

The Appellant appealed a reassessment that included approximately $10.1 million in its taxable income under subsection 103(1) of the Income Tax Act.

The income was realized by a partnership on the sale of condominium units.

The partnership had allocated 95% of its income to a loss company that joined the partnership just before its year-end.

The Tax Court of Canada found that the allocation to the loss company was unreasonable and that the Minister's allocation of the vast majority of the profit to the Appellant, the only partner who actively participated in the project, was reasonable.

The appeal was dismissed with costs.