Tusk Exploration – FCA finds that Part XII.6 tax (effectively double-taxation) was payable on CEE purportedly renounced on a look-back basis to NAL shareholders
Tusk Exploration, a Canadian exploration company, unsuccessfully argued that it was not subject to Part XII.6 tax on Canadian exploration expenses that it had purported to renounce under the look-back rule - but which were now admittedly not eligible for look back because the flow-through share investors were non-arm’s length – because the reference in Part XII.6 to CEE that it “purported” to renounce under the rule referred only to expenses which had been validly rather than invalidly renounced under the look-back rule.
The Part XII.6 tax was also argued to be a proxy for interest, and the non-arm’s length shareholders were assessed interest on their denied CEE claims for the look-back year, resulting it what was argued to be a double interest imposition. After referring to the s. 69(1) example, Webb JA stated:
[T]he potential for double taxation exists in the ITA when transactions are completed between parties who do not deal with each other at arm’s length.