Canada v. McLarty

Canada v. McLarty

The promissory note created an immediate legal obligation to pay $85,000 plus interest at signing and contained express repayment mechanisms including recourse to the acquired seismic data at maturity; the existence of the obligation did not depend on the occurrence of an uncertain event and therefore was an absolute liability deductible as CEE under s.66.1(6); similarly, the trial judge did not err in finding McLarty dealt at arm's length with Compton on the facts, so the purchase price is respected and the Tax Court's decision restoring the $100,000 deduction is affirmed.

Citation
2008 SCC 26
Parties
Appellant / Respondent on Cross Appeal: Her Majesty The Queen; Respondent / Appellant on Cross Appeal: Allan McLarty
Court
Supreme Court of Canada
Jurisdiction
Canada
Judgment Date
22 May 2008
Procedural Posture
Taxation Income Tax Appeal / Supreme Court of Canada Appeal and Cross Appeal (final)
Outcome
Appeal dismissed; cross-appeal allowed; decision of Federal Court of Appeal set aside and Tax Court decision restored
Legal Topics
Canadian Exploration Expense, Contingent Liability, Limited Recourse Debt, Arm's Length Transactions, Fair Market Value, Income Tax Act S.66.1(6)
Source Language
English
Taxation Income Tax Contract Law Property/security Interests Canadian Exploration Expense Contingent Liability Limited Recourse Debt Arm's Length Transactions +2 more

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Parties

Her Majesty The Queen

Appellant / Respondent on Cross Appeal

Allan McLarty

Respondent / Appellant on Cross Appeal

Procedural Posture

Taxation Income Tax Appeal / Supreme Court of Canada Appeal and Cross Appeal (final)

Legal Issues

  1. 1 Whether the promissory note liability was absolute or contingent under s.66.1(6)
  2. 2 Whether the purchaser was dealing with the vendor at arm's length for s.69(1)(a) purposes
  3. 3 Whether the full $100,000 purchase price could be deducted as Canadian exploration expense

Ratio Decidendi

The promissory note created an immediate legal obligation to pay $85,000 plus interest at signing and contained express repayment mechanisms including recourse to the acquired seismic data at maturity; the existence of the obligation did not depend on the occurrence of an uncertain event and therefore was an absolute liability deductible as CEE under s.66.1(6); similarly, the trial judge did not err in finding McLarty dealt at arm's length with Compton on the facts, so the purchase price is respected and the Tax Court's decision restoring the $100,000 deduction is affirmed.

Court Disposition

Appeal dismissed; cross-appeal allowed; decision of Federal Court of Appeal set aside and Tax Court decision restored

Orders

  • Appeal dismissed with costs throughout
  • Cross-appeal allowed with costs