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Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

The facts of this case are as per Rothstein J.A. of the Federal Court of Appeal. This case is a consolidation of appeals from the decision of the Tax Court of Canada in which the Appellants’ appeals from notices of reassessment issued by the Minister of National Revenue were denied. The facts in this appeal were found to be the same as in OSFC Holdings Ltd. v. The Queen, [2002] 2 F.C. 288, 2001 FCA 260 and in oral argument, counsel agreed that the Appellants are essentially in the same position as OSFC Holdings Ltd. In this case, Standard Trust Company lent money on the security of mortgages on real property. Standard became insolvent and in 1991 the Ontario Court of Justice ordered that Standard be wound up and appointed a liquidator for the company. In order to maximize the recovery from the disposition of Standard’s assets, the liquidator caused a series of transactions to take place, which, through the operation of s. 18(13) and the Partnership Rules in s. 96 of the Income Tax Act, allowed the Appellants to use the losses that had accrued on a portfolio of Standard’s mortgages. The Appellants deducted their shares of the partnership loss in computing their 1993 and 1994 taxable incomes.

The Minister disallowed the deduction of the losses, relying on s. 245 of the Act (the General Anti-Avoidance Rule – GAAR). The Appellants appealed to the Tax Court of Canada where the appeal was denied. It was held, following the decision in OSFC, that the transactions were a series of avoidance transactions that conferred a tax benefit on the Appellants and that the transactions were an abuse of the Act as a whole and the GAAR was properly applied by the Minister. Further, the Appellants’ constitutional arguments were also rejected. The Federal Court of Appeal dismissed the appeal.