On February 20, 2026, the Federal Court of Appeal (the “FCA”) released its long-awaited decision of Canada v DAC Investment Holdings Inc., 2026 FCA 35 (“DAC”). The FCA overturned the decision of the Tax Court of Canada (the “TCC”) and held that the transactions undertaken to effect the taxpayer’s continuance to the British Virgin Islands (“BVI”) in order to lose its Canadian-controlled private corporation (“CCPC”) status, were abusive and subject to the general anti-avoidance rule (the “GAAR”) under section 245 of the Income Tax Act (Canada) (the “Tax Act”).
Background Facts
The taxpayer was incorporated in Ontario and was taxed as a CCPC from its inception until its continuance to the BVI.
Prior to the continuance, the taxpayer owned shares of Soberlink Inc. (the “Shares”). In anticipation of a disposition of the Shares to a third party, the taxpayer continued under the laws of the BVI. By virtue of the continuance, the taxpayer ceased to be a “Canadian corporation” (as defined in the Tax Act) and, consequently, was no longer a CCPC.
After the continuance, the taxpayer sold the Shares and reported a taxable capital gain of $1,179,648 for its 2016 taxation year. The taxpayer filed its return on the basis that it was a corporation resident in Canada, was a “private corporation” (as defined in the Tax Act), and was not a CCPC under the Tax Act.
As a result of the taxpayer’s loss of CCPC status, the taxpayer was not subject to the refundable tax applicable on certain investment income of a CCPC and was entitled to claim the 13% general rate reduction in respect of its investment income.
By notice of reassessment dated December 23, 2020, the Minister of National Revenue (the “Minister”) reassessed the taxpayer to deny these benefits, thereby increasing its tax liability and assessing arrears interest on the basis that the GAAR applied.