See Also
Graphic Packaging Canada Corp. v. The Queen, 2001 DTC 861 (TCC), aff'd 2003 DTC 5007 (FCA)
In applying the version of the definition of superficial loss that applied to 1988 transactions, Archambault T.C.J. rejected the argument on behalf of the taxpayer that once a corporation controlled by the taxpayer in (i) of the definition had been identified, there was no requirement to determine whether that corporation was still controlled by the taxpayer at the end of the relevant period. Because, instead, there had been an intervening change of control of a corporation controlled by the taxpayer, the superficial loss definition did not apply to the transactions.
IRC v. Beveridge, [1979] T.R. 305
Shares transferable at will which were acquired in place of shares which had been subject to restrictions on the right to transfer, were not of the "same class" within the meaning of a particular provision of the Finance Act, 1965.
Administrative Policy
7 July 2014 T.I. 2014-0518561E5 F - Superficial loss
Brothers A and B, who each hold 50% of the shares of Opco, dispose of those shares for their FMV to Holdco, another taxable Canadian corporation which is wholly-owned by Brother A, at a loss. In Scenario 1, Opco is wound-up into Holdco under s. 88(1) and dissolved before the end of the period terminating 30 days after the disposition (the "Period"). In Scenario 2, although the winding-up occurs within the Period (i.e., all assets are distributed and debts settled), all indications are that Opco will be dissolved in short order after the Period. Is the capital loss sustained by Brother A a superficial loss (on the basis that Holdco shares were identical property or that the Opco shares were not disposed of within the Period)? CRA stated (TaxInterpretations translation):
[I]nsofar as the shares in the capital of Holdco were received by Brother A…were substituted property, the capital loss sustained by Brother A would be a superficial loss… .[P]aragraph 1 of…IT-387R2…states that identical properties are properties which are the same in all material respects, so that a prospective buyer would not have a preference for one as opposed to another. …
Insofar as the shares…of Holdco were not received…as substituted property…[in Scenario 1] Holdco would be deemed by virtue of paragraph 88(1)(b) to dispose of the shares…of Opco at the moment of the dissolution of Opco, being within the Period. Therefore, neither Brother A nor Holdco was the owner of substituted property at the end of the Period. …
Scenario 2: …[W]hen the particular requirements of paragraphs 5 and 9 of…IT-126R2 are satisfied and the capital loss sustained by Brother A is a real economic loss and not a theoretical or artificial loss…Holdco would be deemed to dispose of the shares...of Opco at the moment of the liquidation, being before the end of the Period.
There was insufficient information for a GAAR analysis.
22 September 2004 T.I. 2004-007301 -
A taxpayer owning 60 shares disposes of 50 shares at a loss, with 10 of the 60 shares owned prior to the disposition having been acquired during the period of 30 days before the disposition and with there being a further 10 shares acquired during the period of 30 days after the disposition.
A loss on the disposition of 20 shares would be considered to be a "superficial loss".
15 January 2003 T.I. 2002-017850 -
A definition of superficial loss would apply where Mr. A acquired 200 shares of ACO for $100 per share on January 15, 2002, disposed of shares of ACO for $50 per share on June 30, 2002, and purchased 100 additional shares of ACO at a cost of $25 per share on July 15, 2002.
30 October 1996 T.I. 963248 (C.T.O. "Superficial Losses and Non-Taxable Entities")
As the cost amount of property is relevant for Part XI purposes, a pension fund that is exempt from tax under s. 149(1)(o) nonetheless is required to keep track of adjustments, such as superficial losses, to the adjusted cost base of properties owned by it.
IT387R2 "Meaning of Identical Properties" 14 July 1989
1. "Identical properties"...are properties which are the same in all material respects, so that a prospective buyer would not have a preference for one as opposed to another. To determine whether properties are identical, it is necessary to compare the inherent qualities or elements which give each property its identity. ...
2. The identical nature of properties is not affected by the fact that ownership is evidenced by means of certificates which may represent different quantities of the properties, as in the case of share certificates or gold certificates.
4. Gold bullion and gold certificates (or bullion and certificates of the same precious metal) are considered... to be identical properties. Furthermore...a particular certificate and the bullion to which it relates are the same property, with the result that an exchange of a certificate for bullion or bullion for a certificate will not be considered a disposition.
7. ...Class X common shares of a corporation and Class Y common shares of the same corporation are the same in all respects, except that the Class X shares are voting and the Class Y shares are non-voting, and that the holders of the Class X shares are entitled to exchange them for Class Y shares. ...[T]he right or privilege of conversion or exchange attached to the Class X shares constitutes a right to acquire a property and that such a right is deemed to be a property that is identical to the Class Y shares... . The individual disposes of his or her Class Y shares. A loss arises on such disposition. Within the period described in paragraph (a) of the definition of "superficial loss" in section 54 of the Act, the individual acquires Class X shares. In such a case, the individual's loss from the disposition of the Class Y shares would be a "superficial loss"... .
8. ...[F]utures contracts for the same standard amount of the same commodity for delivery in the same month are considered to be identical.
17 March 1992 T.I. 920379
Discussion of RC formula for determining quantum of superficial loss where identical items are both disposed of and bought during the 60-day period.
89 C.R. - Q.41
s. 245 will not be applied where a taxpayer sells property to sustain a loss and then repurchases the property 31 days later. "Since this transaction would have been subject to the scrutiny of a specific provision of the Act, but would clearly be outside of its stated ambit, it would not result in a misuse."
IT-387R2 "Meaning of 'Identical Properties'"
Identical properties are the same in all material respects, so that a perspective buyer would not have a preference for one as opposed to another.