Case information

Taxation — Income tax — Assessment — Tax avoidance — Application of general anti avoidance rule — Applicant alleging that acquisition and disposition transaction by respondent was intended to deceive and alleging misrepresentation of transactions entered into by parties — Lower court holding that abuse could not be established and that acquisition and disposition transaction and resulting tax benefit were in keeping with and consistent with object and spirit of legislation — Court of Appeal finding no palpable and overriding error in trial judge’s analysis — Whether Court of Appeal erred in law in interpreting legislation and in applying general anti avoidance rule —Taxation Act, CQLR, c. I 3, ss. 127.6 and 1079.9 to 1079.16.

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.

Kone Inc. (“KQI”) challenged assessments by which the Agence du revenu du Québec (“ARQ”) imputed additional interest income to it and disallowed its non capital losses for certain taxation years. The ARQ based its arguments on the application of the “sham” concept to a preferred share acquisition and disposition transaction carried out by KQI and Kone B.V., another company in the Kone Inc. group, and, alternatively, on the application of the general anti avoidance rule (GAAR).

The trial court rejected those arguments, allowed the appeal from KQI’s assessments and found that the ARQ had failed to establish that the “sham” concept and the GAAR applied to the transaction carried out. The Court of Appeal dismissed the appeal and found that the ARQ had not shown a palpable and overriding error in the trial judge’s analysis.