Minister of National Revenue v. Nova Corp. of Alberta, (1997) 212 N.R. 321 (FCA)

• Judge: Marceau, Desjardins and McDonald, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: May 01, 1997
• Jurisdiction: Canada (Federal)
• Citations: (1997), 212 N.R. 321 (FCA)

MNR v. Alta. Nova Corp. (1997), 212 N.R. 321 (FCA)

MLB headnote and full text

Her Majesty The Queen (appellant) v. Nova Corporation of Alberta (respondent)

(A-454-95)

Indexed As: Minister of National Revenue v. Nova Corp. of Alberta

Federal Court of Appeal

Marceau, Desjardins and McDonald, JJ.A.

May 1, 1997.

Summary:

In 1986, Nova Corporation of Alberta (Nova) and corporations unrelated to Nova undertook two transactions through which Nova, for $2,237,500, acquired shares with an adjusted cost base of $42,000,000, but only nominal value. Nova disposed of the shares through a series of transactions and claimed a capital loss of $42,000,000 which it carried back to its 1985 taxation year and offset against a capital gain thus reducing its tax payable by $10,000,000. The Minister of National Revenue reassessed Nova and applied s. 55(1)(c) of the Income Tax Act (an anti-avoidance provision) to deny the losses claimed. Nova appealed.

The Tax Court of Canada allowed the appeal. The Minister appealed.

The Federal Court of Appeal, Desjardins, J.A., dissenting, dismissed the appeal.

Income Tax - Topic 1784

Capital gains and losses - Capital losses - What constitutes a capital loss - [See Income Tax - Topic 9543 ].

Income Tax - Topic 9543

Tax evasion and tax avoidance - Artificial transactions - What constitutes - In 1986, Nova and corporations unrelated to Nova undertook two transactions through which Nova, for $2,237,500, acquired shares with an adjusted cost base of $42,000,000, but only nominal value - Nova disposed of the shares and claimed a capital loss of $42,000,000 which it carried back to its 1985 taxation year and offset against a capital gain thus reducing its tax payable by $10,000,000 - The Minister of National Revenue applied s. 55(1)(c) of the Income Tax Act (an anti-avoidance provision) to deny the losses claimed - The Federal Court of Appeal concluded that s. 55(1)(c) did not apply, where Nova did nothing to affect the shares' adjusted cost base or the proceeds of disposition - Alternatively, s. 55(1)(c) would not operate against Nova where the losses actually suffered, although substantially less than that claimed, were not "artificial or undue" - See paragraphs 1 to 28.

Cases Noticed:

Friesen v. Minister of National Revenue, [1995] 3 S.C.R. 103; 186 N.R. 243, refd to. [para. 8].

Antosko v. Minister of National Revenue, [1994] 2 S.C.R. 312; 168 N.R. 16, refd to. [para. 17].

Inland Revenue Commissioners v. Fisher's Executors, [1926] A.C. 395 (H.L.), refd to. [para. 18].

Minister of National Revenue v. Mara Properties Ltd., [1995] 2 F.C. 433; 179 N.R. 363; 95 D.T.C. 5168; [1995] 2 C.T.C. 86 (F.C.A.), refd to. [para. 23].

Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241, refd to. [para. 50].

Québec (Communauté urbaine) et autres v. Corporation Notre-Dame de Bon-Secours, [1994] 3 S.C.R. 3; 171 N.R. 161; 63 Q.A.C. 161; 95 D.T.C. 5017, refd to. [para. 50].

Bronfman (Phyllis Barbara) Trust v. Min­ister of National Revenue, [1987] 1 S.C.R. 32; 71 N.R. 134; 87 D.T.C. 5059, refd to. [para. 50].

Inland Revenue Commissioners v. West­minster (Duke), [1936] A.C. 1 (H.L.), refd to. [para. 52].

Minister of National Revenue v. Mara Properties Ltd., [1996] 2 S.C.R. 161; 197 N.R. 308; [1996] 2 C.T.C. 54, refd to. [para. 64].

Minister of National Revenue v. Husky Oil Operations Ltd., [1995] 1 C.T.C. 460; 180 N.R. 325 (F.C.A.), refd to. [para. 64].

Industries S.L.M. Inc. v. Minister of National Revenue, [1996] 2 C.T.C. 2572 (Tax C.C.), refd to. [para. 73].

Daggett v. Minister of National Revenue, [1992] 2 C.T.C. 2764 (Tax C.C.), refd to. [para. 73].

Minister of National Revenue v. Fording Coal Ltd., [1996] 1 C.T.C. 230; 190 N.R. 186 (F.C.A.), refd to. [para. 73].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 55(1) [paras. 7, 64].

Authors and Works Noticed:

Driedger, Elmer A., Construction of Stat­utes (3rd Ed. 1994), p. 409 [para. 53].

Krishna, V., The Taxation of Capital Gains (1983), p. 234 [para. 65].

Sherman, D.M., Income Tax Act and regulations, Department of Finance Technical notes: a consolidation of tech­nical notes and other income tax com­mentary from the Department of Finance (7th Ed. 1995), p. 300 [para. 71].

Counsel:

Roger Taylor and David Palamar, for the appellant;

Warren J.A. Mitchell, Q.C., and Lorne A. Green, for the respondent.

Solicitors of Record:

George Thomson, Deputy Attorney Gen­eral of Canada, Ottawa, Ontario, for the appellant;

Thorsteinssons, Vancouver, British Col­umbia, for the respondent.

This appeal was heard on January 23, 1997, at Ottawa, Ontario, before Marceau, Desjardins and McDonald, JJ.A., of the Federal Court of Appeal.

The decision of the Court of Appeal was delivered on May 1, 1997, and the following opinions were filed:

McDonald, J.A. - see paragraphs 1 to 28;

Marceau, J.A. - see paragraphs 29 to 32;

Desjardins, J.A., dissenting - see para­graphs 33 to 78.