The taxpayer bought an 80% share of a partnership from his wife's business corporation for $1 million and then reported 80% of the partnership's $7.5 million loss. The minister disputed the loss under ss. 103(1) and (1.1).
Subsection 103(1) applies to agreements where apportionment of income or loss is distorted for tax purposes. There was no such distortion here - the $1 million the taxpayer paid represented 80% of the partnership at the time of purchase, so he was entitled to claim 80% of the loss.