Madison Pacific – Tax Court of Canada indicates that the taxpayer’s pursuing a no “avoidance transaction” argument should increase its costs

Madison Pacific (2023 TCC 180) held that there was a GAAR abuse of s. 111(4) when two unrelated companies acted in concert to acquire 46.6% of the voting rights and 92.8% of the taxpayer’s equity (through being issued inter alia Class C non-voting shares) so as to access the taxpayer’s losses.

Graham J now granted the Crown’s request for costs of $408,834, being 35% of its actual legal costs, plus disbursements. Of the factors listed in Rule 147(3), a factor that in particular argued for increased costs was the taxpayer’s failure to concede until oral argument that there was an avoidance purpose for the creation of Class C non-voting shares. Graham J stated:

[W]here the weakness of the evidence in support of an argument are as apparent as they were in this case, it is appropriate to deal with the pursuit of that argument through costs. Significant trial time (in particular, significant time spent preparing for and conducting cross-examinations) could have been saved had the Appellant conceded this issue up front.

Neal Armstrong. Summary of Madison Pacific Properties Inc. v. The King, 2024 TCC 47 under Rule 147(3).