In early 2008, the sale of resource properties by an arm’s length vendor (Transglobe) to the parent (Direct Energy) of the taxpayer (DEML) was structured on the basis that Transglobe transferred 99% and 1% of the resource properties to two wholly-owned Newcos (137 and 138, respectively), at a s. 85(1) elected amount of around $34.9 million in the case of the transfer to 137, which then transferred the resource properties on an s. 97(2) rollover basis to a newly-formed partnership (DERP 2) for nominal elected amounts, with no effect on the addition to the CCOGPE balance of 137 from the first transaction of $34.9 million (consistent with the ITA scheme for the CCOGPE being maintained at the partner, not the partnership, level). Direct Energy then acquired the shares of 137 and 138 from Transglobe for $51 million and $0.5 million, respectively.

A year later, Direct Energy transferred the shares of 137 to DEML on an s. 85(1) rollover basis, with 137 then distributing its partnership interest in DERP 2 to DEML on its winding up, with the ACB of that partnership interest being bumped under s. 88(1)(d).

DERP 2 then distributed its resource properties to DEML as a return of capital, thereby increasing the CCOGPE balance of DEML and reducing the ACB of DEML’s partnership interest by the FMV of the resource properties – but with these items effectively being approximately reversed at the partnership year end as a result of DERP 2’s proceeds of the distribution of the resource properties being allocated to its partners.

After then reseeding DERP 2 with a small resource property that was of interest to a third-party purchaser, DEML sold its partnership interest to that purchaser, thereby realizing a capital loss.

Before finding that the GAAR applied to deny that portion of the above capital loss that was attributable to the s. 88(1)(d) bump, Webb JA first found that the rationale of the bump provisions was to allow the parent to add some or all of ACB lost on winding-up a sub to the ACB of non-depreciable capital property acquired by it on the sub’s winding-up, but that, “as noted in Oxford Properties, the property to which the ACB is effectively transferred must be a non-depreciable capital property that would be taxed at the same rate of inclusion as the shares of the subsidiary that will disappear on the winding-up of the subsidiary.”

Furthermore:

The use of a partnership to bump up the ACB of the partnership interest when the partnership holds a Canadian resource property frustrates the distinction between a non-depreciable capital property and a Canadian resource property as it results in a bump in the ACB of a partnership interest when the underlying value of that partnership interest is attributable to a Canadian resource property.

After further observing that the transactions here entailed a “doubling up of tax attributes” in that there was a bump to the ACB in the partnership interest attributable to the value of DERP 2’s resource properties, yet at the same time DEML maintained a significant balance in its CCOPGE account ($34.9 million) in relation to the same Canadian resource properties, Webb JA stated (at para. 74):

The rationale of these provisions is not to allow a corporate parent to have access to both an increased ACB of a partnership interest held by that subsidiary and also access to the CCOGPE of the subsidiary maintained for the Canadian resource properties that are owned by that partnership.

Neal Armstrong. Summary of DEML Investments Limited v. Canada, 2025 FCA 204 under s. 245(4).

The taxpayer failed to establish that a public corporation was controlled by the independent trustee of two family trusts rather than by him.

The assumptions pleaded by the Crown did not establish de jure control by the taxpayer, nor did the evidence adduced establish such control. However, the evidence was sufficient to establish that the taxpayer had de facto control of the corporation and its successor. In particular, the circulars issued by the corporation and its successor repeatedly and specifically stated that the taxpayer had indirect control of it through his shareholdings of group companies. Thus, the taxpayer had sufficiently significant influence and control over it to constitute de facto control.

Accordingly, the denial of his s. 110(1)(d) deduction regarding his exercise of stock options that had been granted to him by the corporation was confirmed by Hill J.

Neal Armstrong. Summary of Homburg v. The King, 2025 TCC 162 under s. 251(1)(c).

S. 12(14) provides that a taxpayer’s loss from a business in respect of a flipped property is deemed to be nil.

CRA found that s. 12(14) does not deem a loss on the disposition of a housing unit to be nil, irrespective of whether the housing unit was held as inventory or capital property. If held as inventory, a flipped property by definition excludes inventory. If held as capital property, deeming a loss from a business to be nil does not have the effect of deeming a capital loss to be nil.

Although not stated by CRA, the implication appears to be that s. 12(14) only denies the deduction of net operating losses from the fictional flipped-property business.

Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.6 under s. 12(14).

Coréalis entered into “service agreements” with pharmaceutical companies pursuant to which it would develop and manufacture clinical lots of solid oral dosage forms (tablets, capsules and granules) containing an active pharmaceutical ingredient (API) provided by the companies. These along with placebos, which were also manufactured and provided by Coréalis, were used in clinical trials of the drugs by the companies.

Hamilton JCA affirmed the trial judge’s finding below that the equipment which Coréalis had purchased and used in manufacturing the clinical lots qualified for Quebec investment tax credits based on its having satisfied the requirement under the description of a Class 29 property that the equipment had been acquired “to be used directly or indirectly by him in Canada primarily in the manufacturing or processing of goods for sale.”

First, the production of clinical batches for the drug companies were distinct transactions from the services of Coréalis in formulating the product so that (subject to the second point below) the capsules were to be considered as sold to those companies rather than being assimilated to a provision of services to them.

Second, although the API was a specialized high-value product, the trial judge had made a non-reversible finding that it represented only a small part of the total property provided by Coréalis to the drug companies, so that the property in the capsules was transferred to them by sale rather than by accession to the API.

Neal Armstrong. Summary of Agence du revenu du Québec v. Pharma Coréalis Inc., 2025 QCCA 1346 under Class 29.