International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Canada: Supreme Court provides guidance on treatment of assumed liabilities in asset deals



Paul Stepak

Josh Jones

The Supreme Court of Canada (SCC) tends to hear only a handful of tax cases each year. In its most recent tax decision, Daishowa-Marubeni International Ltd. v. Canada, the court offered some guidance on the treatment of assumed liabilities in the context of a Canadian asset sale. The case relates to the sale of forest tenures by the taxpayer and whether the taxpayer was required to include in its proceeds of disposition an amount for reforestation obligations assumed by the purchaser in connection with the transaction.

The Federal Court of Appeal (FCA) had held that the taxpayer's proceeds of disposition were required to include the agreed value of the reforestation obligations. In reversing the FCA, the SCC held that the reforestation obligations were not a distinct liability that could be separated from the forest tenures (the amount of which would have been included in proceeds).

Instead, they were a cost embedded in the tenures which served to depress their value. Accordingly, the assumption of those obligations by the purchaser did not give rise to additional proceeds of disposition. While not dispositive of the matter, the SCC recognised that an interpretation of the tax statute that promotes symmetry (as between the tax consequences to the purchaser and vendor) and fairness is preferred over one that results in asymmetrical treatment.

It continues to be good practice for parties to a Canadian asset deal to agree on an allocation of purchase price; a negotiated allocation between arm's-length parties should generally be respected by the Canadian tax authorities.

Parties should also be sure that the contract clearly sets out the amount of the purchase price as finally determined, including a clearly specified amount of any itemised liabilities to be assumed. Based on the SCC's decision, obligations assumed by a purchaser that are embedded in the assets purchased may not need to be separately itemised.

Paul Stepak (

Tel: +1 416 863 2457
Josh Jones (

Tel: +1 416 863 4278

Blake, Cassels & Graydon

more across site & bottom lb ros

More from across our site

Premier League football clubs are accused of avoiding paying up to £470 million in UK tax, while Malta is poised to overhaul its unique corporate tax system.
Bartosz Doroszuk of MDDP offers insights on Poland’s new tax legislation on shifted profits, as the implementation deadline looms nearer.
Four tax specialists preview the UK’s transfer pricing requirements, which come into effect on April 1.
The rise of the QDMTT will likely change how countries compete on tax and transfer pricing policy, but it may not reverse decades of falling corporate tax rates.
ITR’s latest quarterly PDF is going live today, leading on the EU’s BEFIT initiative and wider tax reforms in the bloc.
COVID-19 and an overworked HMRC may have created the ‘perfect storm’ for reduced prosecutions, according to tax professionals.
Participants in the consultation on the UN secretary-general’s report into international tax cooperation are divided – some believe UN-led structures are the way forward, while others want to improve existing ones. Ralph Cunningham reports.
The German government unveils plans to implement pillar two, while EY is reportedly still divided over ‘Project Everest’.
With the M&A market booming, ITR has partnered with correspondents from firms around the globe to provide a guide to the deal structures being employed and tax authorities' responses.
Xing Hu, partner at Hui Ye Law Firm in Shanghai, looks at the implications of the US Uyghur Forced Labor Protection Act for TP comparability analysis of China.