Denial of CDA access for non-CCPCs is recommended

In an expanded version of an op-ed piece in the Financial Post, Allan Lanthier notes the following pending Tax Court appeals involving allegedly abusive avoidance of status as a Canadian-controlled private corporation so as to be subject to a lower corporate tax rate on taxable capital gains:

• two involving a transfer of appreciated property on a s. 85(1) rollover basis to a CCPC followed by its continuance to the BVI, and realization of the capital gain after such loss of CCPC status;
• a third involving such continuance and realization without a prior s. 85(1) rollover; and
• a fourth where, shortly before realizing a substantial capital gain, the CCPC had issued voting, redeemable preferred shares to three non-resident family members giving them 50.89% of the votes.

It is quite unclear whether the Minister’s position in these appeals - that a deliberate flipping out from the CCPC rules to avoid tax frustrates the rationale underpinning ss. 123.3 and 123.4 - will prevail. Accordingly, he recommends that the Minister of Finance act immediately to:

• amend GAAR “so that any transaction or series of transactions whose dominant purpose is the avoidance of tax is struck down, without giving taxpayers an exit ramp based on the fuzzy notion of ‘abuse’.”
• “deny the capital dividend account to private corporations that are not CCPCs.”

Neal Armstrong. Summary of Allan Lanthier, “The latest Canadian tax scam has a Caribbean flavour,” Canadian Accountant, January 21, 2022 under s. 123.3.