Cadillac Fairview Corp. v. Minister of National Revenue, (1999) 235 N.R. 286 (FCA)

• Judge: Stone, McDonald and Sexton, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: January 25, 1999
• Jurisdiction: Canada (Federal)
• Citations: (1999), 235 N.R. 286 (FCA)

Cadillac Fairview Corp. v. MNR (1999), 235 N.R. 286 (FCA)

MLB headnote and full text

Temp. Cite: [1999] N.R. TBEd. FE.013

The Cadillac Fairview Corporation Limited (appellant) v. Her Majesty The Queen (respondent)

(A-282-96)

Indexed As: Cadillac Fairview Corp. v. Minister of National Revenue

Federal Court of Appeal

Stone, McDonald and Sexton, JJ.A.

January 25, 1999.

Summary:

Cadillac Fairview Corp. (the taxpayer) guaranteed loans for subsidiaries involved in real estate transactions in the United States. When the ventures collapsed, the taxpayer attempted to extricate itself and the subsidi­aries from the ventures and to limit its lia­bility under the guarantees. To do this, complex arrangements were negotiated by the parties which led to the taxpayer mak­ing several payments to pay down the debt obligations of the subsidiaries as well as the sale of certain of the subsidiaries. The taxpayer claimed as an allowable capital loss 50% of what it paid to extricate its interest from the failed real estate ventures. The taxpayer argued that these payments were made pursuant to the loan guarantees that it had given in respect of the subsidiaries. The Minister of National Revenue disallowed the deduction on the basis that the guarantees were not issued for the purpose of gaining or producing income from a business or prop­erty and that accordingly, the loss suffered was deemed to be nil under s. 40(2)(g)(ii) of the Income Tax Act. The taxpayer appealed.

The Tax Court of Canada, in a decision reported 97 D.T.C. 405, dismissed the appeal. The taxpayer appealed again.

The Federal Court of Appeal dismissed the appeal. The court held that the nature of these transactions was such that the taxpayer did not acquire any debt by subrogation or otherwise which could have been disposed of within the year as required by s. 40(2)(g)(ii). The taxpayer's rights of subrogation were precluded by either: (a) the structure of the transaction itself; or (b) the express waiver of these rights by the taxpayer for valuable consideration.

Income Tax - Topic 1784

Capital gains and losses - Capital losses - What constitutes a capital loss - Cadillac Fairview Corp. (the taxpayer) guaranteed loans for subsidiaries involved in real estate transactions in the United States - When the ventures collapsed, the taxpayer attempted to extricate itself and the sub­sidiaries from the ventures and to limit its liability under the guarantees - To do this, complex arrangements were negotiated which led to the taxpayer making several payments on the subsidiaries' debt obliga­tions - The taxpayer claimed as an allow­able capital loss 50% of what it paid to extricate itself from the business ventures (Income Tax Act, s. 40(2)(g)(ii)), claiming that these payments were made pursuant to the loan guarantees - The Federal Court of Appeal affirmed the disallowance of the deduction - The nature of these transac­tions was such that the taxpayer did not acquire any debt by subrogation or other­wise which could have been disposed of within the year as required by s. 40(2)(g)(ii).

Income Tax - Topic 1803

Capital gains and losses - Capital losses - Business investment losses - What consti­tute - [See Income Tax - Topic 1784 ].

Cases Noticed:

Bosa Bros. Construction Ltd. v. Minister of National Revenue (1995), 106 F.T.R. 30; 96 D.T.C. 6193 (T.D.), refd to. [para. 25, footnote 4].

Easton v. Minister of National Revenue (1992), 53 F.T.R. 167; 92 D.T.C. 6218 (T.D.), refd to. [para. 25, footnote 4].

McHale v. Minister of National Revenue (1992), 92 D.T.C. 1781 (T.C.C.), refd to. [para. 30, footnote 6].

Drager v. Allison (1959), 19 D.L.R.(2d) 431 (S.C.C.), refd to. [para. 30, footnote 7].

Turney v. Zhilka, [1959] S.C.R. 578, refd to. [para. 32, footnote 8].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 38, sect. 39 [para. 21]; sect. 40(2)(g)(ii) [para. 17]; sect. 50(1)(a) [para. 23].

Authors and Works Noticed:

McGuinness, K., The Law of Guarantee (1996), p. 146 [para. 22, footnote 3].

Counsel:

Michael D. Templeton and Lisa Wong, for the appellant;

Susan Van Der Hout, for the respondent.

Solicitors of Record:

McMillan Binch, Toronto, Ontario, for the appellant;

Morris Rosenberg, Deputy Attorney Gen­eral of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard in Toronto, Ontario, on November 18 and 19, 1998, before Stone, McDonald and Sexton, JJ.A., of the Federal Court of Appeal. The following decision was delivered for the court by McDonald, J.A., on January 25, 1999.