ARTICLE · 26 APRIL 2019

Deans Knight Wins Precedent-Setting "Recap And Restart" Case

Burnet, Duckworth & Palmer LLP

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The Tax Court of Canada has ruled in favour of Deans Knight in its dispute with the Minister of National Revenue, finding that "recapitalization and restart" transactions do not offend the general anti-avoidance rule.

CanadaTax

Heather DiGregorio

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The Tax Court of Canada has ruled in favour of Deans Knight in its dispute with the Minister of National Revenue, finding that "recapitalization and restart" transactions do not offend the general anti-avoidance rule (the "GAAR"). The Court held that the Minister was wrong to deny the company from applying its tax losses resulting from one failed business against its income from a newly-started, successful, business.

The Deans Knight Income Corporation v. R. ("Deans Knight") case confirms that the de jure control test is the critical criteria for determining when loss trading has occurred in recapitalization transactions. An acquisition of de jure control occurs when a person acquires ownership of such a number of shares as carries with it the right to a majority of the votes in the election of the board of directors.

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