The King v. MMV Capital Partners Inc. — Federal Court of Appeal Applies the GAAR to a Series of Loss Utilization Transactions

In The King v. MMV Capital Partners Inc.,[1] the Federal Court of Appeal (FCA) found that the general anti-avoidance rule (GAAR), section 245 of the Income Tax Act (Act), applied to a series of loss utilization transactions. According to the FCA, the transactions were structured to allow a third-party purchaser to access the taxpayer’s losses, and the GAAR applied because the transactions frustrated the object, spirit, and purpose of the loss restriction rules in subsection 111(5) of the Act.

This decision is the first application of the Supreme Court of Canada’s (SCC’s) precedent-setting decision in Deans Knight Income Corp. v. Canada.[2]