Polarsat Inc. v. The King (2023)

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Polarsat Inc. v. The King (2023)

 Key Lessons / Points

  • Verify your organization will be considered a Canadian-Controlled Private Corporation (CCPC) before filing for tax rates which apply only to CCPCs.
  • When considering the individual(s) who has or have de jure over a corporation for purposes of determining if the corporation is a CCPC, it’s important to consider whether shareholders are public or private corporations or individuals, residents or non-residents of Canada, and the language of any shareholder or management agreements. The enhanced investment tax credit rate of 35% is available to CCPCs. 
    • If the corporation is de facto controlled by another corporation, be it through financial necessity or otherwise, the corporation may not qualify as a Canadian-controlled private corporation (CCPC). 

Fiscal Years in Question 

2011, 2012, 2013, 2014, 2015

Court Heard In 

Tax Court of Canada (Montréal, Québec)

Dates Heard 

November 21, 2022; January 25, 2023

Length of Process

12 years

Neutral Citation 

2023 TCC 10



Amount Under Dispute 

$292,331; $293,339; $293,775; $249,749; $202,418


[60] The affidavit filed in support of the Respondent’s motion is satisfactory in its present form because no new facts requiring personal knowledge by the deponent and not already mentioned in the pleadings have been advanced in the notice of motion. Furthermore, the Attorney General of Canada is not required to justify why the decision has been made to refer to the GAAR argument, an alternative argument. In my view, the Attorney General of Canada should not be precluded from adding an alternative argument in a reply because some officers of the CRA, no matter how important they are, have decided not to do so in the pre-trial steps.

[61] For all these reasons, the motion is allowed without costs and the Court grants leave for the Respondent to file the Amended Reply to the Notice of Appeal.


In this case, the Respondent requested to file an amended Reply to Notice of Appeal for the reassessments of the 2011, 2012, 2013, 2014, and 2015 taxation years of the Appellant, Polarstat Inc. The CRA denied Polarstat’s claims in part as they did not qualify as a Canadian Controlled Private Corporation (CCPC). The CRA argued the General Anti-Avoidance Rule (GAAR) to explain that Polarstat Inc. did not qualify for the enhanced credits (and as a CCPC). The CRA argued that the Appellant was controlled de facto by Polarsat Holdings Inc. (“PSat1”) which, in turn, was held by many non-resident corporations. The Appellant argued that due to their reorganization, they did qualify as a CCPC. The judge ruled that the proposed amendment in regards to the GAAR argument will assist in determining the real questions involved in the case (CCPC eligibility). The judge ruled that determining if a transaction was conducted for bona fide purposes other than to obtain the tax benefit must be determined. The motion passed and the judge granted the Respondent’s motion to file an Amended Reply to the Notice of Assessments.

Key Excerpts 

[1] This motion is for an order granting leave of the Court for the Respondent to file an amended Reply to the Notice of Appeal (the “Amended Reply”), pursuant to section 54 of the Tax Court of Canada Rules (General Procedure) (the “Rules”).

[3] On April 25 and July 15, 2016, the Minister of National Revenue (the “Minister”) issued reassessments to the Appellant for its 2011, 2012, 2013, 2014 and 2015 taxation years, to deny the enhanced investment tax credit it had claimed for those years pursuant to subsection 127(10.1) of the Income Tax Act R.S.C 1985, C.1 (5th Supp.), as amended (the “Act”) on the basis that the Appellant did not qualify as a “Canadian Controlled Private Corporation (“CCPC”).

[4] In the paragraph 7 of the Reply, the Respondent has stated the facts relied upon by the Minister in concluding that the Appellant was controlled de facto by Polarsat Holdings Inc. (“PSat1”) which, in turn, was held by many non-resident corporations.

[40] The reliance on the GAAR in this case is particularly relevant because the Appellant argues, as an alternative position that even if the Appellant was controlled de facto by PSat1 (or PSat Holdings), the Appellant would still qualify as a CPCC since PSat1 (or PSat Holdings) would not be a non resident corporation or a public corporation.

[41] The Respondent alleges that the Respondent did not establish the reassessments under appeal relying on GAAR, as a primary or alternative basis. The reassessments were solely and exclusively established based on a technical position combining specific deeming provisions and de facto control provisions in the Act.

[42] In the course of the audit, which lasted two and a half years, CRA employees, including the auditor and two tax avoidance specialists from the CRA Headquarters, concluded that GARR was not a suitable basis for reassessment in this case.

[45] The real question at issue in this appeal is whether the Appellant is a CCPC within the meaning of subsection 125(7) of the Act, and is thus entitled to the 35% refundable investment tax credit pursuant to subsection 127(10.1) of the Act? The CCPC status is a technical concept precisely defined in the Act. A corporation qualifying as a CCPC has access to a member of tax benefits and tax disadvantages. Over the last nine (9) years, the Parties always conducted this dispute on the mutual understanding that the sole issue was whether the Appellant qualified as a CCPC under subsection 125(7) of the Act.

[46] The Respondent had numerous opportunities to introduce on alternative basis of the reassessments but failed to do so.

[53] The case law on this matter is clear, the decision whether to allow an amendment to a pleading is discretionary and the controlling principle is that an amendment should be allowed at any stage of an action if it assists in determining the real questions in controversy between the parties, provided it would not result in an injustice not compensable in costs and that it would serve the interests of justice (Pomeroy).

[54] In my view, the proposal amendments in respect of the GAAR argument will assist the Court in determining the real questions in controversy between the parties and will not result in an injustice to the Appellant or fail to serve the interests of justice.

[55] The proposed amendments in respect of the GAAR argument are permissible in this case because they are consequential on the facts already alleged in the pleadings, including the Notice of Appeal and the assumptions in the Reply.

[56] The proposed amendments would not result in prejudice, non-compensable in costs, to the Appellant. The prejudice alleged by the Appellant arose from the fact that the three (3) majority shareholders whom authorized the corporate reorganization between 2003 and 2005 were at all times non-residents of Canada and were not shareholders of the Appellant in the taxation years under appeal.

[57] In this particular case, I am not convinced that the fact of not having a potential access to the shareholders who approved the reorganization constitutes a real problem because Mr. Cosimo Modafferi, as Chief Executive Officer of the Appellant since February of 2003, will be able to adduce evidence on the object and purpose of the transactions forming part of the reorganization. In his professional functions as Chief Executive Officer of the Appellant, and as President and Chief Executive Officer of 0698817 BC Ltd, 0698829 BC Ltd and of 0698824 BC Ltd and as trustee of PolarSat Financial Trust, Mr. Modafferi had a direct and personal knowledge of all the transactions that took place in the course of the reorganization and he had access to all the corporate and financial records of the parties involved in the reorganization, including corporate planning strategies, tax opinions and implementation documents. Mr. Modafferi played an active and a crucial role in the corporate reorganization.

[58] The determination if a transaction forming part of a series of transactions was undertaken for bona fide purposes other than to obtain the tax benefit must be determined by reference to all the facts and surrounding circumstances and not by the stated intention of the parties who approved it (OSFC Holdings Ltd. v. Canada, 2001 FCA 260 at para. 46).

[59] The change of mind of the Minister concerning the use of the GAAR argument is certainly very disappointing for the Appellant but it does not come as a surprise. Taxpayers entering into aggressive tax planning, as the one in this case, are normally made aware of the possibility that the plan may be attacked by the Minister by the application of the GAAR rules. The tax opinions concerning the proposed transactions usually refer to that possibility. In this case, the possible use of GAAR has been raised at the audit level and has been raised in Court in Solutions MindReady R&D Inc. v. the Queen, 2015 TCC 17, para. 39 in respect of a tax structure similar to the one used by the Appellant.

Link to Full Ruling 

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