Madison Pacific (2023 TCC 180) held that there was a GAAR abuse of s. 111(4) when two unrelated companies acted in concert to acquire 46.6% of the voting rights and 92.8% of the taxpayer’s equity (through being issued inter alia Class C non-voting shares) so as to access the taxpayer’s losses. Graham J granted the Crown’s request for costs of $408,834, being 35% of its actual legal costs, plus disbursements. Of the factors listed in Rule 147(3), those arguing for increased costs were:
- the costs at issue ($2.2 million for the taxation year at issue, similar amounts for two other taxation years, and $10 million in a number of related appeals);
- the complexity of the issue (including taking into account reported proceedings in Deans Knight, requiring the parties to “regularly … rework their arguments” (para. 14); and
- the taxpayer’s failure to concede until oral argument that there was an avoidance purpose for the creation of Class C non-voting shares.
Regarding the last factor, Graham J stated (at para. 22):
[W]here the weakness of the evidence in support of an argument are as apparent as they were in this case, it is appropriate to deal with the pursuit of that argument through costs. Significant trial time (in particular, significant time spent preparing for and conducting cross-examinations) could have been saved had the Appellant conceded this issue up front.
Although “this factor argue[d] for significantly higher costs” (para. 24) of approaching 40%, the Crown had only requested 35% of its legal costs (para. 32).