If a corporation triggers a capital gain, pays a capital dividend using the resulting CDA balance and then triggers a capital loss that, in effect, offsets the gain, does the GAAR apply? In Gladwin Realty Corporation v R, 2019 TCC 62, the Court held that the GAAR applied in respect of deemed gains and losses. See A Strawson and A Bateman, “CDA Extraction After Deemed Gain Followed by Deemed Loss Held To Be Abusive” Tax for the Owner Manager 19:3 (July 2019).
The authors argue, however, that this finding should not apply generally to CDA timing strategies:
With respect to CDA timing strategies more generally, the TCC noted that the Crown did not dispute that the CDA rules allow private corporations to benefit from such strategies (for example, selling securities that are in a gain position, paying a capital dividend, and then selling securities that are in a loss position). It was only the fact that the transactions involved a deliberately triggered deemed gain and deemed loss intended to facilitate a CDA timing strategy that was offensive, according to the Crown. In our view, therefore, Gladwin Realty should not be authority for a broad proposition that all CDA timing strategies are abusive.
