Under a “restart” plan, the appellant changed its name, spun out its existing mining assets so that it was a shell with only tax losses, and B.C. real estate companies of two individuals (Grippo and Heung) transferred various real estate assets, including jointly owned properties, to the appellant for consideration that included shares of the appellant. A dual share structure was created so that the interests of Grippo’s and Heung’s companies in the appellant resulted in them having a combined total of 46.56% of the votes and 92.82% of the equity.
Woods JA found no reversible error in the application by the Tax Court of Deans Knight to deny the carryforward of capital losses by the appellant to the taxation years at issue. However, the Tax Court had erred in determining that the series only included the transactions comprising the corporate transformation. After referring to s. 248(10), Woods JA stated (at paras. 21-22):
The claiming of the losses and the corporate transformation are certainly related transactions and events. In addition, the claiming of the losses was contemplated since, as found by the Tax Court, this was the sole purpose of the transformation.
Accordingly, the series of transactions includes the appellant’s claim of the losses that are at issue. [Thus] … there was an avoidance transaction since the series of transactions would, but for the GAAR, result in a tax benefit – a reductio