Madison Pacific – Federal Court of Appeal finds that Deans Knight applied to a corporate restart plan

Madison Pacific spun out its existing mining assets so that it was a shell with only tax losses, and then the B.C. real estate companies of two individuals transferred various real estate assets, including jointly owned properties, to Madison Pacific and received shares that resulted in them having a combined total of 46.56% of the votes and 92.82% of the equity.

Woods JA found no reversible error in the application by the Tax Court of Deans Knight to deny the carryforward of capital losses by Madison Pacific to the taxation years at issue.

However, the Tax Court had erred in determining that the series only included the transactions comprising the above corporate transformation. Under s. 248(10), the losses were part of the series since their claiming was contemplated in the corporate transformation (and, in fact, had been found to be its sole purpose). Thus, the Tax Court had not erred in finding that there was an avoidance transaction since the series of transactions included the loss utilization.

Summaries of Madison Pacific Properties Inc. v. Canada, 2025 FCA 20 under s. 245(4) and s. 248(10).