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Canada: Supreme Court Of Canada Declines To Hear An Appeal On Whether An Expenditure In The Course Of A Corporate Reorganization Was On Capital Or Income Account
Earlier today, the Supreme Court of Canada (The Chief Justice,
Justice Rothstein and Justice Moldaver) dismissed an application
for leave to appeal by Imperial Tobacco dealing with the classic
distinction between deductible corporate expenditures on income
account and non-deductible corporate expenditures on capital
account.
In brief, the taxpayer made a payment to extinguish an employee
stock option plan (suggesting that the payment was made on income
account) but made the payment during the course of a corporate
reorganization (suggesting that the payment was made on capital
account).
The taxpayer's argument for deductibility was supported by
the Tax Court decision in
Shoppers Drug Mart Limited v. The Queen (dealing with the very
same transaction) while the Crown's argument for
non-deductibility was supported by the earlier Federal Court of
Appeal decision in
Kaiser Petroleum Ltd. v. The Queen.
Both the
Tax Court of Canada and
Federal Court of Appeal followed the reasoning of the Federal
Court of Appeal in Kaiser and sided with the Crown, holding that
the payment was on capital account. The decision of the Federal
Court of Appeal is now final and binding.
For a brief description of the reasoning of the Federal Court of
Appeal, see our earlier
blog post.
About Fraser Milner Casgrain LLP (FMC)
FMC is one of Canada's leading business and litigation law
firms with more than 500 lawyers in six full-service offices
located in the country's key business centres. We focus on
providing outstanding service and value to our clients, and we
strive to excel as a workplace of choice for our people. Regardless
of where you choose to do business in Canada, our strong team of
professionals possess knowledge and expertise on regional, national
and cross-border matters. FMC's well-earned reputation for
consistently delivering the highest quality legal services and
counsel to our clients is complemented by an ongoing commitment to
diversity and inclusion to broaden our insight and perspective on
our clients' needs. Visit:
www.fmc-law.com
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