Précis: The taxpayer (formerly known as Look Communications Inc. and sometimes referred to in the decision as “Look”) commenced proceedings to recover $14,700,000 in what were alleged to be excessive payments made to former executives. The proceedings were commenced after it terminated its telecommunications business and was no longer making taxable supplies. The sole issue before the tax court was whether subparagraph 141.1(3)(a) of the Excise Tax Act (the “Act”) deemed the litigation costs to have been incurred in the course of a commercial activity. The question was posed to the Tax Court in an application under Rule 58 of the Tax Court of Canada Rules (General Procedure) (“Rule 58”). The Tax Court answered in the negative and the taxpayer appealed to the Federal Court of Appeal. The Federal Court of Appeal held that there was a direct connection between the sale and winding up of the taxpayer’s business and the litigation expenses. As a result the appeal was allowed with costs since the Tax Court should have answered the question posed in the affirmative.
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