[2013] 1 F.C.R. D-2
Income Tax
Income Calculation
Deductions
Losses—Tax avoidance—Appeal from Tax Court of Canada (T.C.C.) decision (2011 TCC 507) allowing respondent’s (Global Equity Fund Ltd.) appeal regarding reassessments for 1999, 2000, 2001 taxation years issued by Minister of National Revenue—Minister relying on general anti-avoidance rule (GAAR) pursuant to Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, to disallow business loss claimed by respondent following disposition of shares held thereby—Respondent incorporated to invest in credit facilities, private placements—Implementing “value shift” technique to generate losses, trigger significant tax benefit—While T.C.C. finding transactions at issue highly artificial, concluding not resulting in misuse, abuse of Act’s provisions under s. 245(4)—Respondent relying on Act, ss. 3, 4, 9, 111 to achieve tax benefit—Whether appellant can rely on new arguments not raised before T.C.C. or by Minister when assessing respondent; whether transactions in issue resulting in misuse or abuse of provisions relied on by respondent within meaning of Act, s. 245(4)—Act, s. 152(9) governing Minister’s right to advance alternative argument in support of assessment—Arguments raised by appellant (Canada) for which evidentiary basis not established in T.C.C. causing evidentiary prejudice to respondent; therefore new arguments disregarded—Appellant’s other new arguments based on existing evidentiary record allowed—Inquiry under Act, s. 245(4) involving two-steps: determining object, spirit or purpose of Act’s provisions relied on for tax benefit; examining factual context to determine whether avoidance transactions defeating object, spirit or purpose of provisions at issue—Fundamental rationale underlying provisions at issue being that business losses must be grounded in economic or business reality to be used for taxation purposes—While concept of business loss flexible, interpretation of Act, ss. 3, 4, 9, 111 as relating to loss requiring at minimum air of economic or business reality associated with loss—Loss generated by respondent resulting from value shift between one class of shares held thereby to another class of shares; constituting paper loss—Transactions at issue vacuous, highly artificial; loss in question lacking air of economic or business reality associated therewith—Therefore, transactions creating loss defeating underlying rationale of Act, ss. 3, 4, 9, 111 to extent provisions allowing for use of business losses for income tax purposes—Appeal allowed.
Global Equity Fund Ltd. v. Canada (A-445-11, 2012 FCA 272, Mainville J.A., judgment dated October 30, 2012, 26 pp.)