INCOME TAX |
Income Calculation |
Deductions |
Teleglobe Inc. v. Canada
A-642-00
2002 FCA 408, Pelletier J.A.
25/10/02
17 pp.
Appeal of Minister's decision disallowing deductions regarding expense or outlay of $130,000,000 with respect to goodwill made or incurred by appellant--In 1987, Government of Canada decided to privatize number of Crown corporations, including Teleglobe Canada, Canada's exclu-sive overseas telecommunications carrier--Privatization accomplished by sale of assets of Teleglobe Canada (old Teleglobe) to Teleglobe Inc., (new Teleglobe), corporation with share capital--Main issue in appeal related to determina-tion of cost of shares issued in partial payment of assets-- Appellant claimed cost for all assets of old Teleglobe $660,000,000 while Minister said price approximately $530,000,000--Appellant argued new Teleglobe made eligible capital expenditures within meaning of Income Tax Act, s. 14(5)(b)--Appellant contended eligible capital expenditures included in cumulative eligible capital as defined in ITA, s. 14(5)(a), therefore portion of cumulative eligible capital deductible from income pursuant to ITA, s. 20(1)(b)-- Appellant claimed as deduction amount for cumulative eligible capital based upon dividend paid with respect to special shares--In 1993, following change of advisors, appellant asserted cost of shares issued as part of asset purchase not $231,397,979 indicated in corporate minutes and financial statements but rather approximately $344,885,000, thus entitling appellant to treat excess as payment for goodwill, thereby increasing amount of cumulative eligible capital, amount of deduction--Appellant's opening balance sheet showing assets of $530,547,000 without allowance for goodwill--Purchase price fully allocated thus no amount to allocate to acquisition of goodwill --Regarding issue of excess profit dividend, same principle applied--Cost to company reflected in stated capital of class of special shares, therefore, cost not amount of dividend--Consequently, no outlay or expense in respect of goodwill in relation to dividend-- Evident from purchase agreement parties had agreed on purchase price for shares--By statute, corporation bound to reflect true consideration received for issuance of shares in capital accounts--As result, while one can say capital accounts indication of agreement between parties, only agreement of parties determinative of cost--Consequently, Trial Judge correct in saying consideration received for issuance of shares amount agreed between parties, reflected in director's resolution, in increase stated capital of classes of shares issued--Consequently, purchase price of assets equal to value of tangible assets, so appellant made or incurred no outlay or expense to acquire goodwill--Appeal dismissed--Income Tax Act, R.S.C., 1985 (5th Supp), c. 1, ss. 14(5)(a) (as am. by S.C. 1994, c. 7, Sch. II, s. 10; 1995, c. 3, s. 5; c. 21, s. 3; 2001, c. 17, ss. 7, 197), (b) (as am. idem), 20(1)(b).