Canada v. MacMillan Bloedel Ltd.
A-655-97
Strayer J.A.
28/6/99
8 pp.
Capital loss-Appeal from Tax Court judge's decision allowing respondent's appeal from assessment for taxation year ending 31/12/87 by which MNR disallowed claim, under ITA, s. 39(2), for capital loss ($24,965,399) on currency fluctuation sustained when it redeemed in US dollars preferred shares which it had issued in 1977, 1982 and 1983 in US dollars-Appeal dismissed-On appeal, respondent conceded redemption payment deemed dividend by virtue of ITA, s. 84(3)-Issue whether ss. 84(3) and 39(2) could operate concurrently-ITA, s. 84(3) providing where corporations redeeming shares at amount in excess of paid-up capital in respect of those shares, corporation deemed to have paid dividend in amount of that excess and shareholder deemed to have received dividend in that amount-Obvious tax consequence that in hands of shareholder, dividend is income-No necessary tax consequence for corporation-Provision neutral in respect of corporation with respect to characterization of deemed payment of dividend as being either of capital or income nature-Clear from language of ITA, s. 39(2) that gain or loss caused by currency fluctuation gives rise to capital gain or loss provided that amount in question would not otherwise be considered in computing taxpayer's income-Amounts paid by corporation, not otherwise being considered expenditure deductible from income, eligible for application of ITA, s. 39(2)-According to common understanding of "loss", respondent's payment to shareholders clearly qualifying-Circumstances herein not unlike those in Tahsis Co. Ltd v The Queen, [1979] C.T.C. 410 (F.C.T.D.)-Operation of ITA, s. 84(3) not limiting meaning of "loss" in ITA, s. 39(2)-Rather, two provisions deal with different sets of circumstances, both of which apply to transaction under review herein-Income Tax Act, S.C. 1970-7172, c. 63, ss. 39(2) (as am. by S.C. 1977-78, c. 1, s. 38(1)).