Précis: The taxpayer, Keybrand Foods Inc. (Keybrand) had an investment in Vidabode Group Inc. (Vidabode). Vidabode borrowed roughly $15 million from GE Capital and that loan went into default in the Fall of 2010. Keybrand and another related company had guaranteed Vidabode’s debt to GE Capital. As a result Keybrand borrowed roughly $14 million in December of 2010 from another lender and used the funds to acquire shares of Vidabode. Vidabode in turn used the share proceeds to repay the GE Capital loan. Keybrand subsequently claimed an ABIL on the shares it acquired in 2010. CRA denied the ABIL on the basis that, since Keybrand and Vidabode dealt at less than arm’s length when the shares were acquired they had an adjusted cost base of NIL, i.e., the value of the shares at the date of acquisition, not their cost. The taxpayer was unsuccessful in the Tax Court and appealed to the Federal Court of Appeal. The Court of Appeal resolved the appeal on the simple basis that any taxpayer who paid $14 million for worthless shares was clearly not dealing at arm’s length with the issuer of the shares as a matter of fact. Accordingly the appeal was dismissed with costs in an agreed amount of $2,312. [There are smaller, peripheral issues in the appeal which I will not deal with since the lion’s share is accounted for by the ABIL issue which I regard as the more significant to practitioners.]
Keybrand Foods Inc. v. Canada – FCA: Taxpayer not entitled to ABIL on shares – not dealing at arm’s length with issuer – shares having a value of NIL (but a cost of $14 million)Plus >