On May 23, 2013, the Supreme Court of Canada (the "SCC") issued its highly anticipated decision in Daishowa-Marubeni International Ltd. v. The Queen, dealing with the tax treatment of future obligations that are assumed by a purchaser of assets. The Daishowa decision is important because it examines whether the cost of future obligations (i.e., non-monetized obligations) that are assumed by a purchaser of assets should be included in the seller's proceeds of disposition and subject to tax.
At issue in Daishowa was whether the estimated cost of reforestation obligations (as discussed below) assumed by a purchaser of a timber licence should be included in computing the seller's proceeds of disposition for the timber licence. The SCC held that the estimated cost of the reforestation obligations should not be included in the seller's proceeds of disposition.
The principles established in the SCC's decision are relevant to any type of asset sale; however, the SCC's decision has particular relevance for the mining industry in which a purchaser of resource properties regularly assumes reclamation obligations of the seller.
To view the SCC's decision, click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.