Cineplex: A Payment To Cease Operations Was Deductible

Overview

In Cineplex Inc. v The King,¹ the Tax Court of Canada confirmed that a payment made to cease business operations was a deductible business expense under subsection 9(1) of the Income Tax Act (Canada) (the "Act").² The Tax Court also addressed the question of whether proceeds of disposition ("POD") can have a negative value. The Tax Court ruled that POD is an inherently positive concept, with Parliament likely not intending for it to be a negative.

Background

Between 1993 and 2013, the American theatre chain AMC operated 8 movie theatres in Canada through a subsidiary named Ventures. The operations were financially unsuccessful and in 2004, AMC decided to end its Canadian operations. As part of its exit form Canada, AMC negotiated a share purchase of Ventures with Cineplex. A key term of the share purchase agreement was that Cineplex would acquire the shares of Ventures after Ventures divested itself of its interest in the Kennedy Commons 20 and