The taxpayer, which was in the business of developing and selling real estate, acquired, in an arm's length transaction and for a purchase price of approximately $70,000, all the shares of a corporation ("Fraserview") whose sole asset was a parcel of land having a cost amount of approximately $7.5 million. Mara then wound-up Fraserview in accordance with s. 88(1) and immediately thereafter sold the land in an arm's length sale for approximately $3.0 million.
La Forest J., without providing detailed reasons, stated that he agreed with the conclusion of the Tax Court and of McDonald JA in his dissenting reasons in the Federal Court of Appeal that in these circumstances the property retained its character as inventory in the hands of the taxpayer with the result that it realized a non-capital loss on the sale. McDonald JA had stated:
Fraserview was in the business of developing and selling land and the land in question was a part of its inventory. Upon winding up, a subsidiary automatically distributes its assets to its parent (subsection 88(1)) and those assets should be grouped with assets of the parent of the same character. Here, both companies are in the same business and consider land as an item of inventory. Consequently, on the winding up of a Fraserview, its inventory should have merged with Mara’s inventory for income tax purposes.
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