All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

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

The UN’s decision to seek a leadership role in global tax policy could be a crucial turning point but won’t be the end of the OECD, say tax experts.
The UN may be set to assume a global role in tax policy that would rival the OECD, while automakers lobby the US to change its tax rules on Chinese materials.
Companies including Valentino and EveryMatrix say the early adoption of EU public CbCR rules could boost transparency of local and foreign MNEs, despite the short notice.
ITR invites tax firms, in-house teams, and tax professionals to make submissions for the 2023 ITR Tax Awards in Asia-Pacific, Europe Middle East & Africa, and the Americas.
Tax authorities and customs are failing multinationals by creating uncertainty with contradictory assessment and guidance, say in-house tax directors.
The CJEU said the General Court erred in law when it ruled that both companies benefitted from Italian state aid.
An OECD report reveals multinationals have continued to shift profits to low-tax jurisdictions, reinforcing the case for strong multilateral action in response.
The UK government announced plans to increase taxes on oil and gas profits, while the Irish government considers its next move on tax reform.
War and COVID have highlighted companies’ unpreparedness to deal with sudden geo-political changes, say TP specialists.
A source who has seen the draft law said it brings clarity on intangibles and other areas of TP including tax planning.