{"id":1174,"date":"2014-06-23T15:05:29","date_gmt":"2014-06-23T15:05:29","guid":{"rendered":"https:\/\/thor.ca\/\/blog\/?p=1174"},"modified":"2014-06-23T15:05:29","modified_gmt":"2014-06-23T15:05:29","slug":"tax-court-finds-abusive-indirect-strip-of-v-day-value","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2014\/06\/tax-court-finds-abusive-indirect-strip-of-v-day-value\/","title":{"rendered":"Tax Court Finds Abusive Indirect Strip of V-Day Value"},"content":{"rendered":"<p>In <a href=\"http:\/\/thor.ca\/blog\/wp-content\/uploads\/2014\/06\/2014-TCC-75.pdf\"><em>Lucie Descarries v. The Queen<\/em><\/a>, 2014 TCC 75, the Tax Court of Canada (TCC) held that one result of the taxpayer\u2019s share transactions was to <em>indirectly<\/em> extract from her company, on a <em>tax-free<\/em> basis, value that had accumulated before 1971 (V-Day Value) (see paragraphs 56 and 57).\u00a0 This result defeated the underlying rationale of s. 84.1, and could therefore be set aside as abusive tax planning under the general anti-avoidance rule in s. 245(1).\u00a0 Although the amounts in the judgment are difficult to follow, it appears the abusive result was achieved as follows:<\/p>\n<ul>\n<ol>\n<li>creating a capital gain in respect of <em>post<\/em>-V-Day Value, and generating stepped-up tax cost (including hard ACB), on an internal share-for-share exchange with the existing operating company (Opco) under s. 85(1);<\/li>\n<li>transferring the new Opco shares to a new holding company (Holdco) in exchange for Holdco Shares, allowing for the operation of s. 84.1 to eliminate any V-Day Value from the PUC of the Holdco Shares \u2013 but preserving all the ACB and the PUC created in respect of the hard ACB;<\/li>\n<li>redeeming the Holdco shares, resulting in a deemed dividend <em>and<\/em> a capital loss in respect of V-Day Value; and<\/li>\n<li>using the capital loss in respect of V-Day Value in 3 above to offset the capital gain in respect of <em>post<\/em>-V-Day Value in 1 above.<\/li>\n<\/ol>\n<\/ul>\n<p>Also of interest is the Court\u2019s decision that s. 84(2) could <em>not<\/em> apply on the redemption of the Holdco shares because: (A) none of Opco\u2019s assets were actually distributed at the time the Holdco shares were redeemed (paragraph 27), (B) the redemption of Holdco shares did not <em>coincide<\/em> with a winding-up, discontinuance or reorganization of Opco\u2019s business (paragraphs 29 and 34), and (C) s. 84(2) and s. 84(3) cannot be applied at the same time to the same distributions (paragraph 37).<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In <a href=\"http:\/\/thor.ca\/blog\/wp-content\/uploads\/2014\/06\/2014-TCC-75.pdf\"><em>Lucie Descarries v. The Queen<\/em><\/a>, 2014 TCC 75, the Tax Court of Canada (TCC) held that one result of the taxpayer\u2019s share transactions was to <em>indirectly<\/em> extract from her company, on a <em>tax-free<\/em> basis, value that had accumulated&hellip;<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-1174","post","type-post","status-publish","format-standard","hentry","category-corporate-tax"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/1174","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/comments?post=1174"}],"version-history":[{"count":0,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/1174\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=1174"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=1174"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=1174"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}