Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
Issue link: https://digital.carswellmedia.com/i/1511709
36 www.lexpert.ca Top 10 Business Decisions CO-WRITTEN BY AIDAN MACNAB, BERNISE CAROLINO IN THIS tax case, the Supreme Court of Canada found that a company used a com- plex series of transactions to evade Income Tax Act restrictions, which were aimed at preventing companies from making acquisi- tions solely to use the target's business losses to reduce its tax burden. Forbes Medi-Tech had $90 million in non-capital losses, scientific R&D tax expendi- tures, and investment tax credits. e venture capital firm Matco agreed with Forbes to shi its assets and liabilities into a new parent com- pany called Newco. Matco bought debentures that would convert into voting shares and all of Newco's non-voting shares in Forbes, and Newco promised to sell Matco a certain num- ber of shares. Matco founded Deans Knight Capital Management, which used Forbes to raise money in an IPO, and Forbes changed the Tax Court agreed they were tax-avoidance transactions, it found they were not abusive. e Federal Court of Appeal set aside the Tax Court's judgment and ruled that the transactions were abusive and the general anti-avoidance rule, under s. 245 of the Act, applied to deny the tax benefits. e SCC dis- missed the appeal and clarified the application of the general anti-avoidance rule. "In making this determination, the court provided guidance on how to determine what the object, spirit, and purpose of an Income Tax Act provision are, which may be of assis- tance to tax professionals in structuring their business affairs," says Meehan. its name to Deans Knight, which used Forbes' non-capital losses to reduce its tax liability in the 2009 and 2012 tax years. e case dealt with the general anti- avoidance rule and s. 111(1)(a) of the Income Tax Act. e provision allows taxpayers to offset income with non-capital losses to low- er their tax rate in another tax year. Under s. 111(1)(a), to capitalize on an acquired compa- ny's non-capital losses, the acquiror must carry on the same or similar business as the compa- ny that incurred the losses. Aer the minister of national revenue reas- sessed Deans Knight and denied deductions from non-capital losses, the company appealed to the Tax Court. e minister had found that the transactions by which Deans Knight acquired $90 million in non-capital losses amounted to abusive tax avoidance. While DEANS KNIGHT INCOME CORP. V. CANADA, 2023 SCC 16 • Deans Knight Income Corporation > Burnet, Duckworth & Palmer LLP > Barry R. Crump, Heather DiGregorio, Robert Martz • His Majesty the King > Attorney General of Canada Department of Justice > Michael Taylor, Perry Derksen CLIENTS > FIRMS > LAWYERS