Principal Issues: Whether fees incurred by a given public corporation with respect to a "fairness opinion" relating to the redemption of shares of its capital stock are deductible as current expenses. Whether similar "fairness opinion" fees incurred with respect to the amalgamation of two corporations are deductible as current expenses.
Position: Since these fees would be incurred in connection with transactions of a capital nature, the said fees would generally constitute expenditures or outlays of a capital nature and their deduction as current expenses would be precluded by paragraph 18(1)(b) of the Act. The redemption of shares is a transaction of a capital nature because it generally results in the reshaping of the corporation's capital structure. Furthermore, any expenses in connection with the redemption of shares can be viewed as being made "once and for all", at least with respect to the shares being redeemed. Merger costs are generally on account of capital as they are incurred for the creation of a business entity, structure or organization, for the earning of profit, or for the modification or the development of such entity, structure or organization. The merger costs may also be viewed as being expended on the structure within which the profits are earned, as opposed to amounts expended as part of the money-earning process. Finally, the merger costs are expenditures made once and for all, with a view to bringing into existence an advantage of enduring benefit. The decisions in Boulangerie St-Augustin, International Colin Energy and BJ Services (which dealt with the tax treatment of take-over bid costs incurred by a target) can be distinguished from the two given situations. However, if the amalgamation is part of a series of transactions relating to the acquisition of a target, expenses incurred by such target to meet obligations imposed under a Securities Act and/or Business Corporations Act in producing circulars for shareholders concerning take-over bids (which would normally include fees relating to fairness opinions) would generally be deductible pursuant to subsection 9(1), and not be precluded by paragraphs 18(1)(a) and (b). As for the fees incurred by a purchaser in such a case, they would be considered as capital expenditures.
Reasons: Wording of the Act and previous positions.