Deans Knight Intersects Bill C-208: The Meaning Of Control And Implications For Intergenerational Transfers

Deans Knight and the Question of Control

In the recent case of Canada v. Deans Knight Income Corporation, 2021 FCA 160, the Federal Court of Appeal addressed the object, spirit, and purpose of subsection 111(5) of the Income Tax Act in the context of determining whether there had been abuse for the purposes of the GAAR. The factual background of the case was summarized in issue 2581 of Tax Topics.

The wording of subsection 111(5) itself refers to a de jure control test. It is one of the provisions known as the stop-loss rules which restrict a corporation's ability to deduct losses when there has been an acquisition of control. There have been a number of amendments to the stop loss rules over the years; however, none of them sanction the replacement of a de jure control test with a de facto control test. Prior jurisprudence had indicated that using de jure control was a deliberate choice by Parliament to provide certainty. Whatever certainty the wording of the