Digests

Income Tax

Income Calculation

Terminal loss

Appeal and cross-appeal from Tax Court of Canada decision (2008 TCC 274) allowing respondent’s appeal from reassessment issued by M.N.R. denying deduction of terminal loss in computing income—Respondent subscribing for partnership unit in limited partnership—Real estate prices declining, fair market value of condominium units standing below undepreciated capital cost—Assets transferred to new limited partnership at fair market value, triggering terminal loss—Respondent selling unit, deducting pro rata share of terminal loss—M.N.R. relying on general anti-avoidance rule (GAAR) set out in Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 245—Tax Court Judge concluding transaction in issue not giving rise to misuse, abuse of provisions of Act—Object, spirit, purpose of terminal loss provision (Act, s. 20(16)) being to adjust aggregate of annual deductions of capital cost allowance taken by taxpayer on depreciable property when property undepreciated, taxpayer no longer owning property of that class at end of taxation year—Flowing of terminal loss to limited partners herein according with purpose of partnership rules embodied in Act, s. 96—Stop-loss provisions (anti-avoidance rules) in Act (including Act, s. 85(5.1) of limited scope) not applicable on present facts—Tax Court Judge correctly holding tax benefit arising as consequence of interaction of s. 20(16) with s. 96(1), not s. 85(5.1)—M.N.R. not establishing abusive tax avoidance—Transactions not frustrating object of s. 20(16), not resulting in misuse, abuse—As to cross-appeal, evidence supporting conclusion transactions primarily motivated by tax benefit—Appeal, cross-appeal dismissed.

Landrus v. Canada (A-265-08, 2009 FCA 113, Noël J.A., judgment dated April 16, 2009, 30 pp.)