Tax Loss Trading In Quicksand Case

Although Cliff may have valid business reasons to acquire the remaining shares of Quicksand, it is important to note that Quicksand’s considerable tax pools, losses, accumulated donations, and investment tax credits may be used to shelter the profits of RB E&P; thereby reducing tax revenues for the government. This is commonly referred to as “tax loss trading”. From Parliament’s perspective, it is evident that tax policy seeks to strike a balance of competing interests. On one end, the Income Tax Act (“Act”) seeks to limit or restrict the continued availability of unused tax deductions, losses, and credits. This objective flows logically that tax deductions, losses, and credits are personal to the taxpayer or the economic unit that earned them.

In the case of NRT Technology Corp v. The Queen the courts concluded that one receipt and one maintenance call being the only activities of the purported business during a year caused the business operations to effectively be ceased and were deemed not carried on throughout the year. RB E&P has zero intentions of interrupting Quicksand’s business, however, in the current commodity price environment, RB E&P may consider shutting in limited Quicksand production which is deemed uneconomic due to higher associated lifting and operating costs. As commodity prices gain strength, RB E&P expects to continue profitably developing Quicksand’s land base, focusing on plays that meet its investment return criteria and growing production over the long term. Notwithstanding that, Quicksand will continue to produce from its economic asset plays. RB E&P will also continue to exploit horizontal well drilling techniques and drop-ball/perf and plug multi-state fracturing completion methods from Quicksand’s proven reservoir engineering expertise and operational staff. A key synergy between RB E&P and Quicksand is primarily the sharing of infrastructure gathering and mainline pipeline systems and processing facilities which will safeguard continued full scale commercial development in order accelerate all economic plays. It can strongly be argued that Quicksand’s anticipated continued operations are more than just a mere hobby and that the source of income, just by its sheer capital

As for the same or similar business test, there are no set guidelines that can support this test – it is fact specific and determined on a case by case basis. The CRA interprets the word “similar” as “of the same or general nature or character” as per paragraph 14 of IT-302R3. This is further supported in a 1996 Income Tax Ruling where CRA place reliance on the following passage from Barnwell Consolidated School District No. 15 v. Canadian Western Natural Gas, Light, Heat, & Power Co. “… the choice ranges from the one extreme of saying that it means “exactly alike” or “similar” in the sense of being completely the same, or to the other extreme of saying that it would apply wherever there is any quality of likeness at all, although all qualities or elements in the tax may be quite unlike…” in the court’s opinion… “the proper way to interpret the expression is to treat it as meaning “of the same or general nature or character”; this way both extremes would be avoided”. This ruling also went on to indicate that in the past it had regarded the following properties or services to be similar: system software and applications software; trucking of sand and gravel, and trucking of poultry and lumber; mining and sale of metallurgical coal, and mining and sale of other minerals; operating a hotel which includes a restaurant and lounge, and operating a restaurant and lounge; operating a hotel or motel with no restaurant, operating a restaurant, and operating a hotel or motel with a