Shareholder Assistance

After receiving an unsolicited hostile bid from another public company (BJ"), the taxpayer retained legal and accounting advisers (whose fees were admitted to be deductible) and financial advisers, and after it secured a higher bid from another public company ("GLCC") after agreeing to pay fees to GLCC (including a "break" fee), BJ responded with a higher bid, which was accepted, with the result that ultimately all the shares of the taxpayer were acquired by BJ, which merged with it.

Campbell J. accepted the taxpayer's submission that it obtained no enduring benefit when it incurred the expenditure, that they did not relate to any prior or subsequent taxation year of the company, and that they were deducted against current income according to well established business principles.

The taxpayer paid a fee to a financial advisor, calculated as 0.7% of the market value of its equity and of the amount of its long-term debt net of working capital, in consideration for advice provided in connection with considering alternatives to maximize shareholders' value, with an emphasis on merger possibilities. The transaction ultimately implemented entailed the taxpayer's shareholders selling their shares, pursuant to a plan of arrangement, to another publicly-traded oil and gas company in consideration for treasury shares of that purchaser.

After noting that the Crown was precluded from arguing that the fees were a capital expenditure because the manner in which the case had been pleaded, Bowman A.C.J. noted that, in any event, "here no capital asset was acquired, nothing of an enduring benefit came into existence nor was any capital asset preserved".