{"id":227,"date":"2012-11-13T17:26:59","date_gmt":"2012-11-13T17:26:59","guid":{"rendered":"https:\/\/thor.ca\/\/blog\/?p=227"},"modified":"2025-02-12T13:29:34","modified_gmt":"2025-02-12T21:29:34","slug":"fca-denies-another-paper-loss","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2012\/11\/fca-denies-another-paper-loss\/","title":{"rendered":"FCA denies another \u201cpaper loss\u201d"},"content":{"rendered":"

In The Queen v. Global Equity Fund Ltd<\/em><\/a>., the Federal Court of Appeal (FCA) applied Canada\u2019s general anti-avoidance rule (GAAR) to deny a business loss on the basis that it had no \u201cair of economic or business reality\u201d.\u00a0 The loss was generated by a simple \u201cvalue-shift transaction\u201d.\u00a0 The taxpayer (a private company) 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 The effect was to shift the subscription value<\/em> onto the preferred shares, and leave the taxpayer with common shares having a tax cost<\/em> equal to the subscription price.\u00a0 The taxpayer then sold the common shares to a trust, thereby realizing a loss on the common shares equal to the subscription price.\u00a0 The loss was claimed as a business<\/em> loss on the basis that the taxpayer was in the business of trading securities.\u00a0 The FCA said that an underlying rationale of the business loss provisions is that there must, at the very least, be an \u201cair of economic or business reality\u201d associated with the loss.\u00a0 The FCA concluded that the loss here was a vacuous, artificial, paper loss, pulled out of thin air.\u00a0 From there it was no stretch to say that the loss had no air of economic or business reality, and accordingly, could be denied under the GAAR.\u00a0 (Readers will be aware that a similar result occurred in respect of a capital<\/em> loss generated by a value-shift transaction: see http:\/\/thor.ca\/blog\/2012\/10\/fca-applies-the-gaar-to-deny-taxpayers-paper-loss\/<\/a>.)<\/p>\n","protected":false},"excerpt":{"rendered":"

In The Queen v. Global Equity Fund Ltd<\/em><\/a>., the Federal Court of Appeal (FCA) applied Canada\u2019s general anti-avoidance rule (GAAR) to deny a business loss on the basis that it had no \u201cair of economic or business reality\u201d.\u00a0 The…<\/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-227","post","type-post","status-publish","format-standard","hentry","category-corporate-tax"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/227","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=227"}],"version-history":[{"count":1,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/227\/revisions"}],"predecessor-version":[{"id":2841,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/227\/revisions\/2841"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=227"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=227"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=227"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}