In DEML Investments Limited v. Canada (2025 FCA 204, rev’g in part 2024 TCC 27) (“DEML Investments”), the FCA applied the GAAR to a bump transaction involving Canadian resource properties and found that it abused paragraph 88(1)(d). While the TCC applied the GAAR to deny the entire capital loss of $45,850,237 arising on a sale of partnership interest in 2010, the FCA applied the GAAR only to the portion of the capital loss attributable to the 88(1)(d) bump, which portion was in an amount of $39,402,330.
Paragraph 88(1)(c) implements the bump. It provides that on the winding up of a subsidiary, where the property was a capital property (other than an ineligible property) of the subsidiary, the parent’s cost of the property distributed from the subsidiary is the amount determined under paragraph 88(1)(d). Paragraph 88(1)(d) provides how much a taxpayer can bump, which, in general, is essentially the difference between the parent’s ACB of the subsidiary shares and the subsidiary’s tax cost of certain capital property. Subparagraphs 88(1)(c)(iii) to (vi) set out ineligible property, which includes depreciable property. In 2012, subparagraph 88(1)(d)(ii.1) was added to restrict the bump that is available for an interest in a partnership when the partnership holds depreciable property or a Canadian resource property. It was not in effect when the bump transaction in DEML Investments was implemented.