Abrametz v. Canada, 2009 DTC 5828, 2009 FCA 111 -- summary under Subsection 40(1)

The taxpayer would have established that he realized a capital loss if he had established the following:

1. a fellow shareholder ("Paulhus") of the corporation in question had paid a sum of money to the holders of defaulted mortgage debt of the corporation pursuant to a settlement agreement that also contemplated that the taxpayer would transfer to Paulhus all of his shares of another corporation ("Placid") in order to pay to Paulhus his share of the settlement payment;
2. the taxpayer satisfied this payment obligation to Paulhus;
3. as a consequence of the law of subrogation, Paulhus acquired the mortgage debt; and
4. by transferring his shares of Placid to Paulhus, the taxpayer acquired ½ of the indebtedness formerly owing to the mortgage holders that Paulhus had acquired from the mortgage holders.

The Trial Judge had incorrectly found that the taxpayer had not made the payment referred to in (2) above, and the matter was referred back to the Minister for reconsideration of the third and fourth points above, together with consideration as to whether the claim by the taxpayer in his return for a business investment loss represented an election under s. 50(1).