3295036 Canada – Quebec Court of Appeal finds that the use, in sales years later, of ACB that was stepped up in a “Quebec shuffle,” occurred as part of the same series
In October 1996, a Quebec-taxpayer company (“329”) acquired public company shares from its parent, on two separate days, in “Quebec shuffle” transactions. The parent realized no gain because federal and Ontario s. 85(1) elections were made. However, 329 acquired the shares at full cost for Quebec purposes because no Quebec rollover election was filed. Most of the shares were sold by 329 in 2000 at a capital loss for Quebec purposes, and it claimed some of those capital losses in its 2007 and 2008 Quebec returns.
A specific Taxation Act provision (s. 529.1) effectively denied 329’s use of its stepped-up cost if its two 1996 acquisitions occurred as part of a series of transaction that ended after 18 December 1996. The Court affirmed the finding of Fournier JCQ below, who found that the two 1996 share drop-downs were a “series of transactions” and applied Copthorne to find that the subsequent sales of the shares by 329 were transactions occurring “in contemplation” of that series and, thus, were assimilated to the series by the Quebec equivalent of s. 248(10). In this regard, the Court of Appeal stated:
[T]he transactions at issue … were not known at the time the tax planning was implemented, but were undoubtedly the type of transactions contemplated in order to benefit from the tax advantage resulting from the "Quebec shuffle".
The Court also confirmed Fournier JCQ’s finding that the ARQ was not precluded from reassessing 329’s 2007 and 2008 taxation years to deny the capital losses carried forward from 2000, notwithstanding that the 2000 year was statute-barred.