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Wuswig v. HMK shows how a technically correct reorganization unraveled when economic reality and interpretive credibility were tested.
Key Takeaways
- The mechanics worked, but the Court focused on whether the reorganization produced a real economic loss or merely a paper one. That distinction shaped the GAAR outcome.
- The decisive battleground wasn't structural compliance, it was interpretation – whether the result aligned with the policy behind the stop-loss rules.
- When the record showed technical accuracy but no articulated motive, interpretation — not procedure — controls credibility.
The Situation
Wuswig Inc., a Canadian corporation part of a multigenerational corporate group holding U.S. operating and real estate affiliates, undertook a 2007 reorganization, which generated a $5 million capital loss, which was used to offset gains in 2018 and reduce its tax liability.
The CRA invoked GAAR to deny the original loss and the later carry-forward, arguing that the plan sidestepped the intent of the stop-loss rules, which apply to reduce the losses realized on the disposition of foreign affiliate shares by the amounts of tax-free dividends received on those shares. The Tax Court agreed, finding that the reorganization frustrated the purpose of those provisions and dismissed the appeal.
What Made the Difference
The transactional steps were implemented as designed, and the mechanics worked on paper, but the record did not offer a clear and credible business rationale for the outcome.
With that gap, the dispute was not about technical compliance but about whether the result aligned with the statute's underlying purpose.
Interpretation and judgement – not procedure – ultimately shaped credibility and the outcome.
The Signal for Business Leaders
In CRA disputes involving loss-generation strategies, CRA often reframes the issue through an economic-substance lens. When the CRA's narrative takes hold, outcomes tend to turn not on whether the mechanics were correct, but on whether the result appears commercially grounded.
Across comparable cases, the pivot point has been the case theory's credibility, especially when the loss emerges from a structure where the economic decline is unclear or disputed.
Case Reference
Wuswig Inc. v. The King, 2025 TCC 147
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