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Recent Cases from the Canadian Courts

Three recent cases from the Canadian Courts that will be of interest to New Zealand practitioners.

Amounts paid to employees to extinguish employee stock option plan a non-deductible capital outlay
Company made payments for exercise of employee stock options.  Minister refused to permit deductions on the ground that they were non-deductible capital outlays laid out during a corporate reorganisation to rid the taxpayer of its employee stock option plan. Taxpayer argued the amount was deductible as employee compensation paid to satisfy its obligations under its employee stock option plan. Taxpayer’s appeal dismissed. Imperial Tobacco Canada Limited, 2011 DTC 1037

Guarantee fees paid to parent company not in excess of arm’s length rates
Taxpayer’s parent guaranteed its capital market borrowings for fees.  Minister disallowed the deductions claimed on the ground that the fees were not set at arm’s length rates.  On appeal, the Tax Court of Canada found that the fees were not in excess of arm’s length rates, and vacated the Minister’s assessments. General Electric Capital Canada Inc., 2011 DTC 5011

Expenses incurred in closing retirement home business were deductible
Taxpayer incurred expenses associated with liquidating business assets upon ceasing to operate retirement home business. Minister disallowed deduction of expenses.  Taxpayer’s appeal allowed.  It was well established and a fundamental principle that expenses incurred in closing a business are deductible. Genier, 2011 DTC 1036

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