Bosa Bros. Construction Ltd. v. The Queen, 96 DTC 6193 (FCTD)

The taxpayer acquired all the shares of a corporation ("Topaz"), whose ability to take an inventory write-down for an apartment building depended on establishing that the building had represented depreciable property to the previous parent of Topaz ("Darwai") prior to its transfer by Darwai to Topaz. Before finding that, in any event, the evidence established that the property in fact had been a depreciable property of Darwai, Nadon J. found that the burden of proof to establish that the Topaz property was not depreciable capital property rested on the Crown given that this was information that was in the Crown's power to obtain and not the taxpayer's, and given that the Crown had made an undertaking at discovery to obtain documentation regarding the characterization of the apartment building by Darwai.

Prior to the acquisition by the taxpayer of the shares of another taxable Canadian corporation ("Topaz"), Topaz acquired from its then parent ("Darwai") an apartment building having a fair market value lower than its cost amount to Darwai.

Nadon J. found on the evidence that Darwai had claimed, and Revenue Canada had allowed, the deduction of capital cost allowance on the apartment building. Accordingly, it followed that s. 85(5.1) applied to maintain the cost amount of the property to Topaz (with the result that Topaz, prior to its winding-up into the taxpayer, was able to claim a non-capital loss from an inventory write down of the apartment building).

The construction and development of properties was found to be the taxpayer's ordinary business and, accordingly, interest-free advances made by it to its U.S. subsidiary did not qualify under s. 20(1)(p)(ii).

Interest-free advances that the taxpayer made to its U.S. subsidiary were found not to have been made to earn income (e.g., acquiring a product or ensuring a source of supply) but, rather, to cover losses and protect the guarantees of the principals of the taxpayer.

The taxpayer, which owned five revenue-producing properties, entered into an agreement to purchase a property comprising two apartment towers (the Talbot property), but was unable to complete the purchase at the originally agreed closing date because of cash flow difficulty, and ultimately settled the ensuing litigation by agreeing to purchase the property at the originally-agreed price.

In finding that a gain realized by the taxpayer less than three years later, pursuant to an offer that it did not actively seek out, was realized on income account, Nadon J. stated (at p. 6200) that:

"the fact that the Plaintiff could not afford and did not want the property points to a secondary intention at the time of acquisition of disposing of the property if the right offer came along."

A residential and commercial complex (Boundaryview) owned by the same taxpayer was found to have been acquired on capital account in light of evidence that it was intended to be its "crown jewel" and was sold approximately a year following the completion of construction only because of financial difficulties. Although title to the building was stratified, it was the industry practice at the time to do so in order to satisfy financing requirements.