Jacques St-Onge Inc. v. The Queen, 2003 DTC 153 (TCC)

Archambault T.C.J. referred, with approval, to the statement of Rip T.C.J. in Bailey v. The Queen, [1989] T.C.J. 602 that: "what is 'reasonable' is not the subjective view of either the respondent or appellant but the view of an objective observer with a knowledge of all the pertinent facts", and went on to find that it was reasonable to expect that a subsidiary of the taxpayer would be wound-up notwithstanding that the proprietor of the taxpayer had indicated that, in fact, he had no intention to wind-up the subsidiary.

The taxpayer was able to claim an allowable business investment loss with respect to its investment in a subsidiary that had been incorporated to engage in a speculative business activity that was unsuccessful, notwithstanding that the subsidiary was not wound-up and was amalgamated with the taxpayer more than three years after the year-end at which the allowable business investment loss was claimed. The company was not wound-up or dissolved because of the threat of legal proceedings against the subsidiary, and the double-tax benefit to be derived from a winding-up (i.e., both an allowable business investment loss, and access to the non-capital losses of the subsidiary) made it reasonable to expect that a winding-up would occur notwithstanding that, the proprietor of the taxpayer indicated that, in fact, he never had any intention to have the subsidiary wound-up.