Gerbro Holdings – Tax Court of Canada finds that offshore hedge fund investments were chosen in the main for commercial reasons (e.g., manager reputation), so that s. 94.1 did not apply

The investment guidelines governing a privately-held Canadian investment company mandated its holding up to 60% of its funds in hedge funds. Although the hedge funds in which the company invested were in low tax-rate jurisdictions, Lamarre ACJ accepted that tax deferral was not “one of the main reasons” for acquiring these investments and that there instead was an “overarching commercial reason for investing" in these funds, e.g., the reputation of the hedge fund managers – and these offshore funds were selected as being the best choices. Accordingly, those investments were not subject to the offshore investment fund rules in s. 94.1.

Neal Armstrong. Summary of Gerbro Holdings Co. v. The Queen, 2016 TCC 173 under s. 94.1(1).