{"id":165,"date":"2012-10-22T16:27:46","date_gmt":"2012-10-22T16:27:46","guid":{"rendered":"https:\/\/thor.ca\/\/blog\/?p=165"},"modified":"2025-02-12T13:29:35","modified_gmt":"2025-02-12T21:29:35","slug":"fca-applies-the-gaar-to-deny-taxpayers-paper-loss","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2012\/10\/fca-applies-the-gaar-to-deny-taxpayers-paper-loss\/","title":{"rendered":"FCA applies the GAAR to deny taxpayer\u2019s \u201cpaper loss\u201d"},"content":{"rendered":"

During the week of October 15, 2012, the Federal Court of Appeal (FCA) applied Canada\u2019s general anti-avoidance rule (GAAR) to deny a capital loss that was \u201ca loss on paper only in the sense that no economic loss was suffered\u201d (Triad Gestco Ltd v.<\/em> The Queen<\/a><\/em> and 1207192 Ontario Limited v. The Queen<\/em><\/a>).\u00a0 In short, each taxpayer had realized a taxable capital gain and subsequently undertook transactions to generate an offsetting allowable capital loss.\u00a0 In short, the loss-generating transactions involved the following steps.\u00a0 First, the taxpayer subscribed for common shares of a subsidiary for cash and, shortly thereafter, the subsidiary declared a preferred share stock dividend having a redemption value equal to that cash subscription.\u00a0 This first step was referred to as a value-shift transaction: the effect was to shift the subscription value onto the preferred shares, and leave the taxpayer with worthless common shares having a tax cost equal to the subscription price.\u00a0 Second, the taxpayer sold the common shares to a non-affiliated trust, thereby realizing a capital loss on the common shares equal to the subscription price.\u00a0 The FCA said the underlying rationale<\/em> of Canada\u2019s capital loss provisions (s. 38(b) in particular) is to provide relief as an offset against a capital gain only where a taxpayer has suffered an economic<\/em> loss on the disposition of property.\u00a0 Here, the taxpayer \u201cwas neither richer nor poorer\u201d after the value-shift transaction and subsequent \u201cpaper loss\u201d realized on the common share sale.\u00a0 This meant that the transactions generating the paper loss were an abuse of the capital loss provisions and could be fully ignored under the GAAR (s. 245).<\/p>\n","protected":false},"excerpt":{"rendered":"

During the week of October 15, 2012, the Federal Court of Appeal (FCA) applied Canada\u2019s general anti-avoidance rule (GAAR) to deny a capital loss that was \u201ca loss on paper only in the sense that no economic loss was suffered\u201d…<\/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-165","post","type-post","status-publish","format-standard","hentry","category-corporate-tax"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/165","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=165"}],"version-history":[{"count":1,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/165\/revisions"}],"predecessor-version":[{"id":2852,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/165\/revisions\/2852"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=165"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=165"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=165"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}