Federal Appeal


Income tax

Capital gains and losses

Subsidiary used credit under settlement to pay for transfer of property

Wholly-owned subsidiary of taxpayer, acting as bare trustee for taxpayer, entered into lease agreement with province. Minutes of settlement provided that province owed subsidiary additional $2.4 million and that province granted option to subsidiary to purchase property, defined as lands and lease, for $2.4 million. Subsidiary exercised option to purchase property from province, except interest would be transferred to another wholly-owned subsidiary, and surrendered lease to province. Minister reassessed taxpayer, disallowing taxpayer’s deduction of $2.24 million as lease cancellation fee, on ground that that amount was paid to acquire interest in real property and was made on capital account. Tax Court judge dismissed taxpayer’s appeal. Judge found that taxpayer had not paid lease cancellation fee to province based on taxpayer’s failure to have witness from province testify, and found that leasehold interest had merged with fee simple title. Taxpayer appealed. Appeal dismissed. If lease were surrendered immediately before property was conveyed, this would not support finding that subsidiary paid anything other than $2.4 million purchase price as contemplated by option and would not support finding that lease cancellation fee of $2.24 million was paid. More likely result was that subsidiary purchased lands for $2.4 million and it was set-off against $2.4 million owing by province under minutes of settlement. If transactions occurred simultaneously, this did not support finding that lease cancellation fee was paid. Judge did not err in concluding that subsidiary used $2.4 million credit under settlement to pay for transfer of property. Taxpayer did not establish that there was lease cancellation fee paid.

Armour Group Limited v. Canada (2018), 2018 CarswellNat 3686, 2018 FCA 134, Wyman W. Webb J.A., Donald J. Rennie J.A., and J. Woods J.A. (F.C.A.); affirmed (2017), 2017 CarswellNat 1895, 2017 TCC 65, B. Paris J. (T.C.C. [General Procedure]).

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