This recent case is super complicated in technical terms but is simple in concept, a transaction or series of transactions that is undertaken primarily to avoid taxes is not going to fly with the CRA or the courts. The judge summarized the amounts in question in the first paragraph:

“The Appellant appeals from the Minister’s notice of reassessment dated August 27, 2015 denying the deduction of non-capital and other losses and deductions for the 2010 and 2011 taxation years on the basis of the application of the General Anti Avoidance Rules (GAAR) under s.245 of the Income Tax Act (the “Act”). More specifically the Appellant was denied the deduction of non‑capital losses of $2,878,871 in 2010 and non-capital losses of $26,196,711, SR&ED expenditures of $23,229,238 and net capital losses of $347,424 in 2011 – all being or relating to the tax attributes acquired by the Appellant from an unrelated party.”

These are staggering amounts of losses that could be used to reduce or even eliminate millions in income tax that would otherwise be payable by the acquiring taxpayer. Unfortunately for the acquiring taxpayer the GAAR was created to prevent an abuse of the tax laws in such a blatant way. As the judge said:

“In analysing the CCAA transactions it is absolutely clear that the entire purpose of most of the transactions therein was to preserve and monetize the Biomerge tax attributes. Practically speaking, what else do you do with an entity that was an empty shell that had ceased carrying on business and no longer even had a place from which to conduct business with no assets other than its tax attributes and reporting issuer status with registration on the NEX exchange, a small subboard of TSX Ventures? The only evidence of the latter was from Mr. Tonken who testified that a clean public company with reporting issuer status and exchange registration would be worth about $250,000. There was no mention of whether the lower status of the NEX exchange would affect this, but it is clear the primary remaining assets were the $75 million plus level of tax attributes at that time.”

I suppose it’s worth it from the appellant’s point of view to spend the money (tax lawyers don’t come cheap and they rarely do it on contingency) on arguing such a case because the remote chance of winning has an outsized return. However, for you and I, sometimes it’s better to just concede that the chances of winning are too remote and it would be a waste of time and money to appeal. That’s where ZheroTax’s unique value proposition comes in, the taxpayer coming to ZheroTax will always be offered two options: fixed fee and contingency fee. You can be confident that when a ZheroTax pro makes you a fixed fee option it’s a good one because it’s backed by a contingency offer that would see them earn no fee if they don’t win. It’s effectively a gut check that ensures the tax pro really does believe they will win the appeal. That’s not an offer that you’re going to get regularly outside the marketplace (if at all). If you have an assessment for tax owing and you’re within the 90 days period for appealing, take a 20 minute consultation with a tax professional and let them help you determine if appealing is likely to succeed.