Principal Issues: In the given fact situation, whether expenditures incurred by corporations mainly to obtain professional advice (financial, legal and accounting) in deciding whether to combine their respective business to another, XXXXXXXXXX , in making representations to XXXXXXXXXX and in amalgamating are of a current or of a capital nature?
Position: The merger costs are expenditures or outlays of a capital nature that satisfy the definition of ECE. Subsection 20(1), except for paragraph 20(1)(b), does not apply to allow the deduction for any of the fees incurred.
Reasons: The disputed merger costs incurred from the time each corporation decided to commit to combining its business to another are of a capital nature because, regardless of the form of the business combination, the related costs (i) would result in either adding to the corporations as an entity, structure or organization, or, in acquiring or creating a business entity, structure or organization, for the earning of profit or (ii) are incurred once and for all, with a view to bringing into existence an asset or advantage for the enduring benefit of the trade of the corporations.
