Procon – Federal Court of Appeal doubts that “losses incurred by disposing of property that is ‘inextricably linked’ to the ongoing operation of the business are on income account”

The appellant, a mining contractor, subscribed for shares of two junior mining companies in connection with being awarded mine development work by each company. It later realized losses on sales of those shares to a related corporation after the companies failed to proceed with the mines, which the Tax Court found to be capital losses.

Monaghan JA found no reversible errors in the following findings of the Tax Court:

[T]he shares “were acquired and held …in connection with [the appellant’s] business”, “were not acquired for trading purposes”, and “constituted an investment …in the equity of the [mining companies]… intentionally [made]…with a view to further strategically enhancing its future growth, and recoveries/cash flow generated from its business.”

Furthermore, she did not find significant support for the proposition advanced by the appellant that “losses incurred by disposing of property that is ‘inextricably linked’ to the ongoing operation of the business are on income account”.

Neal Armstrong. Summary of Procon Mining and Tunnelling Ltd. v. The King, 2024 FCA 1 under s. 18(1)(b) – capital loss v. loss.