Wuswig, a CBCA corporation, wholly owned a U.S. holding company (“Southridge Holdings”), whose shares had an accrued capital loss that was exceeded by the total of exempt dividends previously received by Wuswig on those shares. That accrued capital loss was realized pursuant to transactions under which:

• Southridge Holdings was merged into a newly incorporated Delaware subsidiary of Wuswig, with the surviving entity being continued into Canada pursuant to s. 128.1.;
• The continued corporation then issued preferred shares to a Wuswig shareholder so that it ceased to be a wholly-owned subsidiary of Wuswig; and
• The continued corporation then was wound up into Wuswig pursuant to ss. 69(5) and s. 88(2), with ss. 93(2) and (2.01) not denying recognition of the loss because the continued corporation had ceased to be a foreign affiliate of Wuswig.

Ouimet J concluded that this capital loss recognition “frustrated and defeated the underlying rationale” of ss. 93(2) and (2.01), which were “meant to limit the realization of a capital loss on shares of a foreign affiliate of a Canadian taxpayer when the latter has received tax-free dividends from the foreign affiliate” i.e., the series “allowed Wuswig to extract corporate value on a tax-free basis by the payment of tax-free dividends” without those dividends being “subtracted from the capital loss realized.”

Wuswig pleaded that a similar result could have been achieved with clearly non-abusive transactions, namely, Wuswig using dividends received from Southridge Holdings, less 5% withholding tax, to make loans to the underlying U.S. operating subsidiary, with a capital loss later being claimed under s. 50(1) when that debtor became insolvent. However, Ouimet J found that this alternative did not satisfy two of the tests in 3295940 for considering an alternative transaction for abuse-analysis purposes, namely, these alternative transaction did not have a high degree of commercial and economic similarity to the transactions under review, and would not have generated tax consequences approximately as favourable as the transactions under review (because the loans made by Wuswig to the operating subsidiary and, thus, the s. 50(1) loss, would have been an estimated 15% lower).

Neal Armstrong. Summaries of Wuswig Inc. v. The King, 2025 TCC 147 under s. 245(4) and s. 152(1.11).

As a result of the taxpayer’s wife contracting cancer, the taxpayer, his wife, and their child moved from their principal residence in Gatineau, Quebec to a home in Alexandria, Ontario, a small town which was a 45-minutes drive from Ottawa. After the move, their child began attending the local school, and they transferred their driver's licence registrations, vehicle registrations, and health insurance to Ontario. He, and she while able, continued to work in the Ottawa-Gatineau area.

In assessing on the basis that the couple had continued their Quebec residency, the ARQ focused on their retention of their residence in Gatineau, which was somewhat larger than the Alexandria home, and records suggesting significant numbers of telephone calls and purchases made outside of Alexandria. Philippe JCQ accepted that this was largely related to the taxpayer's duties of employment, which involved travel in the Quebec area, time spent visiting his sister (who needed assistance) in the Gatineau area, in addition to staying at the Gatineau residence four or five days a month (which the taxpayer explained needed work before it could be sold at a good price).

The appeals of the taxpayer, and of the estate of his wife, were allowed.

Neal Armstrong. Summary of Yasari v. Agence du revenu du Québec, 2025 QCCQ 5184 under s. 2(1).

A mutual fund trust (the “Trust”) which intended to qualify as a closed-end unit trust described in s. 108(2)(b) was indirectly invested (through a subsidiary trust) in a Canadian partnership (the “Fund”) that entered into hedging contracts from time to time (the “Fund Hedges”) under which the currency of Fund investments were hedged back to US dollars. The Trust (which maintained its accounts in Canadian dollars) wished to neutralize the effects on it of the Fund Hedges while not at the same time realizing any significant income from doing so, keeping in mind that FX hedging gains are not “good” income for purposes of the 95% income test in s. 108(2)(b)(iv).

To this end, a restructuring was completed so that the Trust held its Fund investment through a subsidiary limited partnership (“Feeder Partnership”) rather than through a subtrust; then:

The Feeder Partnership will enter into hedging contracts (the “Off-Setting Hedges”) that are intended to hedge the Fund Hedges and result in the Feeder Partnership realizing a capital loss (or gain) in an amount equivalent to the Feeder Partnership’s indirect share of any capital gain (or loss) realized by the Fund from the Fund Hedges.

CRA provided an opinion that for purposes of the 95% income test in s. 108(2)(b)(iv), “the Trust’s share of any capital gains or capital losses realized by the Fund from the disposition of the Fund Hedges will be netted against the Trust’s share of any capital losses or capital gains realized by the Feeder Partnership from the disposition of the Off-Setting Hedges.”

Neal Armstrong. Summary of 2025 Ruling 2022-0943251R3 under s. 108(2)(b)(iv).

It is common for unrelated shareholders of Opco to hold their shares through respective Holdcos in order to access the capital gains exemption on a subsequent sale of their Holdco shares. However, this requires that Opco be connected with Holdco. Assuming that each Holdco would not control Opco, as per s. 186(4)(a), connected status would require either that Holdco own shares of Opco representing more than 10% of the votes and value of Opco (as per s. 186(4)(a)(b)) or (under s. 186(2)) that Holdco, along with any other persons with which it did not deal at arm’s length, own at least 50% of the voting shares of Opco.

It may be difficult for minority shareholders to satisfy these tests. For example, suppose that Opco had two unrelated individual shareholders holding 85%, in the case of the majority shareholder, and 15% in the case of the minority shareholder, of its only outstanding shares, being common shares. Those individuals then exchanged their Opco common shares for frozen voting preferred shares. Each shareholder then established a family trust—the majority trust and the minority trust—which incorporated its own Holdco (“Majority Holdco” and “Minority Holdco”), with each Holdco subscribing a nominal amount for Opco common shares.

Neither Holdco would control Opco, and initially, neither Holdco would satisfy the votes and value test. However, Majority Holdco would not deal at arm’s length with the majority shareholder and, together with the majority shareholder, would own shares representing more than 50% of Opco’s voting rights, so that Majority Holdco would pass the s. 186(2) test.

The minority shareholder, which would deal at arm’s length with the majority shareholder, would fail the s. 186(2) test.

Neal Armstrong. Summary of David Carolin, Marissa Halil, and Manu Kakkar, “Not so connected for the capital gains exemption,” Tax for the Owner-Manager, Vol. 25, No. 4, October 2025, p. 4 under s. 186(4).