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Federal Tax - Corporations. Canada v. DAC Investment Holdings Inc.
In Canada v. DAC Investment Holdings Inc. (Fed CA, 2026) the Federal Court of Appeal allowed a Crown appeal, this brought against the Tax Court's allowing an appeal of an MNR income tax reassessment regarding "tax measures applicable to Canadian-controlled private corporations (CCPCs) that minimize any tax deferral advantage arising from holding investments through a corporation".
Here the court considers ITA s.250(5.1) ['Person deemed resident - Continued corporation'], dealing with the continuation of a extra-jurisdictional corporation:(c) Subsection 250(5.1)
[47] Subsection 250(5.1) of the ITA was amended in 1994. In general, the amendment provides that a corporation that continues into another jurisdiction by articles of continuance (or similar constitutional documents) is deemed from the time of continuance to be incorporated in the new jurisdiction.
[48] The amendment to subsection 250(5.1) was part of a new taxation regime designed to make corporate continuances fairer for taxpayers (Michael J. Flatters, "“Proposed Amendments Relating to Corporate Continuance and Residence”" (1993) 41:3 Can Tax J 567). Problems with the existing regime were well documented in several articles. In one, the authors described that the prior legislation "“yields the unappetizing result of departure tax followed by continued Canadian taxation of the corporation as a resident corporation”" (Robert Couzin & Robert J. Dart, "“Proposed Technical Amendments”" (1993) 41:2 Can Tax J 306 at 320). This is partly because, even though the corporation has continued out of Canada, it is still incorporated in Canada and is subject to tax provisions that apply to such corporations. The new regime was intended to avoid this result by having residence determine whether income or losses are subject to tax in Canada.
[49] The amended provision reads in relevant part:Continued corporation
Prorogation d’une société
250 (5.1) Where a corporation is at any time (in this subsection referred to as the “time of continuation”) granted articles of continuance (or similar constitutional documents) in a particular jurisdiction, the corporation shall
250 (5.1) Lorsqu’une société obtient, à un moment donné (appelé « moment de la prorogation » au présent paragraphe), des clauses de prorogation, ou des documents semblables concernant sa constitution, dans un ressort donné, les présomptions suivantes s’appliquent :
(a) for the purposes of applying this Act (other than subsection 250(4)) in respect of all times from the time of continuation until the time, if any, of continuation in a different jurisdiction, be deemed to have been incorporated in the particular jurisdiction and not to have been incorporated in any other jurisdiction; and
a) pour l’application de la présente loi, à l’exception du paragraphe (4), depuis le moment de la prorogation jusqu’à la prorogation, le cas échéant, de la société dans un autre ressort, la société est réputée avoir été constituée dans le ressort donné et non dans un autre;
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[50] The new regime was not perfect (Allan R. Lanthier, "“Corporate Immigration, Emigration, and Continuance”" in Tax Planning for Canada-US and International Transactions, 1993 Corporate Management Tax Conference (Toronto: Canadian Tax Foundation, 1994)). Following a technical analysis of the regime, the author concludes at 4:42:The technical amendments package represents an ambitious effort on the part of the Department of Finance to set out, for the first time, an integrated and comprehensive set of rules governing corporate immigration, emigration, and continuance. There is, however, further work to be done, and there are a number of areas where corrective or alleviating revisions would be welcome. [51] The Tax Court described the object, spirit and purpose of subsection 250(5.1) in its reasons at paragraph 185:[185] The rationale of subsection 250(5.1) is to equate the place of continuance of a corporation with its place of incorporation in order to ensure that, upon the continuation of a corporation in a different jurisdiction, the various provisions of the Act that refer to the place of incorporation, such as the residence deeming rule in subsection 250(4) and the subsection 89(1) definition of Canadian corporation, produce the results intended by Parliament with respect to the taxation of the corporation under the Act. [52] I agree with the Tax Court that the amendment to subsection 250(5.1) is intended to be part of a coherent tax scheme for corporate continuances. However, the Tax Court erred by not accurately setting out the object, spirit and purpose of the subsection because it did not describe what results Parliament intended. As stated by the Department of Finance when announcing the proposed legislation, the amendment to subsection 250(5.1) is part of an improved set of rules for all individuals and corporations moving into or leaving Canada. The rules will result in residence determining whether income or losses are subject to tax in Canada (Canada, Department of Finance, Release No. 92-098 (Ottawa: 21 December 1992) at vii-viii).
[53] In my view, the object, spirit and purpose of subsection 250(5.1) is to make tax provisions fairer for corporations moving into or leaving Canada by way of continuance. . Canada v. DAC Investment Holdings Inc. [Canadian-controlled private corporation]
In Canada v. DAC Investment Holdings Inc. (Fed CA, 2026) the Federal Court of Appeal allowed a Crown appeal, this brought against the Tax Court's allowing an appeal of an MNR income tax reassessment regarding "tax measures applicable to Canadian-controlled private corporations (CCPCs) that minimize any tax deferral advantage arising from holding investments through a corporation".
Here the court considers the test for finding a 'Canadian-controlled private corporation':(d) Canadian-controlled private corporation
[54] The term "“Canadian-controlled private corporation”" is central to this appeal. It was first introduced in 1971 and is included in subsection 125(7) of the ITA.
[55] As set out in the definition below, a CCPC must satisfy the following conditions:(a) The corporation must be a "“private corporation”", as defined in s. 89(1) of the ITA. Generally, a private corporation is one that is resident in Canada, not a public corporation, and not controlled by a public corporation.
(b) The corporation must be a "“Canadian corporation”", as defined in s. 89(1) of the ITA. Generally, a Canadian corporation is one that is resident in Canada and incorporated in Canada.
(c) The corporation must be "“Canadian-controlled”" as described in the CCPC definition in s. 125(7) of the ITA. This generally refers to a corporation that is not controlled by non-residents. [56] The definition reads in relevant part:Definitions
"Définitions"
125 (7) In this section,
"125 (7)"" Les définitions qui suivent s’appliquent au présent article."
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"[…]"
Canadian-controlled private corporation means a private corporation that is a Canadian corporation other than
"société privée sous contrôle canadien"" Société privée qui est une société canadienne, à l’exception des sociétés suivantes :"
(a) a corporation controlled, directly or indirectly in any manner whatever, by one or more non-resident persons, by one or more public corporations …
"a)"" la société contrôlée, directement ou indirectement, de quelque manière que ce soit, par une ou plusieurs personnes non-résidentes, par une ou plusieurs sociétés publiques […]"
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"[…]"
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