International Colin Energy Corp. v. The Queen, 2002 DTC 2185, 2002 CanLII 47015 (TCC)

The taxpayer paid a fee to a financial advisor, calculated as 0.7% of the market value of its equity and of the amount of its long-term debt net of working capital, in consideration for advice provided in connection with considering alternatives to maximize shareholders' value, with an emphasis on merger possibilities. The transaction ultimately implemented entailed the taxpayer's shareholders selling their shares, pursuant to a plan of arrangement, to another publicly-traded oil and gas company in consideration for treasury shares of that purchaser.

In finding that the fee had been incurred by the taxpayer for an income-producing purpose, Bowman A.C.J. noted that the taxpayer was in a downward spiral (its assets were being sold in order to pay down a loan which, in turn, reduced its income-producing capacity and risked breach of its covenants to long-term creditors) and that retaining the advisor "was intended to improve the ability of the appellant to earn income by combining its resources with that of another entity".

The taxpayer paid a fee to a financial advisor, calculated as 0.7% of the market value of its equity and of the amount of its long-term debt net of working capital, in consideration for advice provided in connection with considering alternatives to maximize shareholders' value, with an emphasis on merger possibilities. The transaction ultimately implemented entailed the taxpayer's shareholders selling their shares, pursuant to a plan of arrangement, to another publicly-traded oil and gas company in consideration for treasury shares of that purchaser.

After noting that the Crown was precluded from arguing that the fees were a capital expenditure because the manner in which the case had been pleaded, Bowman A.C.J. noted that, in any event, "here no capital asset was acquired, nothing of an enduring benefit came into existence nor was any capital asset preserved".

The taxpayer paid a fee to a financial advisor, calculated as 0.7% of the market value of its equity and of the amount of its long-term debt net of working capital, in consideration for advice provided in connection with considering alternatives to maximize shareholders' value, with an emphasis on merger possibilities. The transaction ultimately implemented entailed the taxpayer's shareholders selling their shares, pursuant to a plan of arrangement, to another publicly-traded oil and gas company in consideration for treasury shares of that purchaser.

After finding that the fee was deductible in computing the taxpayer's income, Bowman A.C.J. went on to indicate that he found "attractive" the argument that the word "sale" in s. 20(1)(e)(i) did not refer to a sale by the taxpayer company itself (as such an event was covered by the word "issuance") and that "therefore 'sale' must imply something else and the only thing it can refer to is a sale by the shareholders in the course of a corporate transaction of the type involved here where the interests of the corporation are affected".

The taxpayer paid a fee to a financial advisor, calculated as 0.7% of the market value of its equity and of the amount of its long-term debt net of working capital, in consideration for advice provided in connection with considering alternatives to maximize shareholders' value, with an emphasis on merger possibilities. The transaction ultimately implemented entailed the taxpayer's shareholders selling their shares, pursuant to a plan of arrangement, to another publicly-traded oil and gas company in consideration for treasury shares of that purchaser.

After finding that the fee was deductible in computing the taxpayer's income, Bowman A.C.J. went on to indicate that he found "attractive" the argument that the word "sale" in s. 20(1)(e)(i) did not refer to a sale by the taxpayer company itself (as such an event was covered by the word "issuance") and that "therefore 'sale' must imply something else and the only thing it can refer to is a sale by the shareholders in the course of a corporate transaction of the type involved here where the interests of the corporation are affected".