Background
Gilles Bénard, a commercial fisher, transferred four fishing licences to his wholly owned corporation, Expédition Cherokee Ltée, in January 2016. The transfer occurred under subsection 85(1) of the Income Tax Act at an agreed amount of $1,292,600 and generated a $1 million capital gain, of which $500,000 was taxable. Bénard initially expected to claim the capital gains deduction but later learned that the corporation’s shares did not qualify as shares of a family farm or fishing corporation.
In December 2016, the corporation sold the four licences back to Bénard for their $1.3 million fair market value. The demand notes issued in the two transactions were offset, and the shares issued during the first transfer were redeemed. Bénard then elected under subsection 14(6) to treat the December licence interests as replacement property and reported no capital gain from the January transfer.
The Canada Revenue Agency denied the election and reassessed Bénard to add the $500,000 taxable capital gain, $9,982 of additional net fishing income, and $515,532 to his cumulative eligible capital balance. The central issue was whether the December licence interests satisfied paragraph 14(7)(a), which required it to be reasonable to conclude that they were acquired to replace the former property.
The Court’s Holding
The Tax Court dismissed the appeal and upheld the reassessment, with costs to the Crown. It accepted that the December interests were acquired in direct substitution for the January interests and declined to treat paragraph 14(7)(a) as imposing a separate subjective-intention test where the taxpayer had made an election.
The election nevertheless failed because the property Bénard reacquired was the same property he had transferred, not distinct replacement property. For tax purposes, the relevant assets were the bundles of rights arising from the fishing licences—principally the rights to participate in the authorized fisheries and to own and derive revenue from the catch—not the licence documents or their administrative conditions.
The evidence showed that the same licence numbers and unchanged bundles of rights moved from Bénard to the corporation and then back to him. Paragraph 14(7)(a), unlike other Income Tax Act provisions expressly covering reacquisition of “the same property or identical property,” did not permit an asset to serve as its own replacement. Accordingly, Bénard did not satisfy the statutory conditions for the subsection 14(6) election.
Key Takeaways
- Former paragraph 14(7)(a) required distinct replacement property; a taxpayer could not dispose of an eligible capital property and later reacquire that same property as its own replacement.
- For income-tax purposes, a fishing licence represents the commercially valuable bundle of rights arising from it, rather than the physical licence document or changing administrative conditions.
- A close causal connection and direct substitution between two transactions are insufficient when the purported old and replacement properties are legally the same asset.
Why It Matters
The decision draws a firm boundary around the former replacement-property regime for eligible capital property. Even when reacquisition directly results from an earlier disposition and all use and business requirements are met, tax deferral is unavailable if the taxpayer merely reacquires the identical asset.
The Court’s analysis also provides guidance for transactions involving regulated licences. Changes in licence holders, documents, or administrative conditions do not necessarily create a new property when the underlying commercial bundle of rights remains intact.