On Monday, June 25, 2018, the Federal Court of Appeal (FCA) handed down the much-anticipated precedent-setting case involving Rio Tinto Alcan (RTA). This decision provides taxpayer friendly clarification as to when certain expenses incurred in a corporate transaction would be deductible as current expenses.

The FCA confirmed the Tax Court of Canada decision that the fees for lawyers and investment bankers incurred by a corporation to obtain advice for its board of directors in determining whether to make a bid, as contrasted to costs incurred to implement the transaction, were deductible as current expenses. In addition to the principal issue, the FCA confirmed the trial judge’s decision with respect to a significant award of costs beyond the tariff provided for in the rules.

In summary, the Canada Revenue Agency had disallowed all these fees incurred by RTA and the Tax Court of Canada and the FCA ruled in favor of RTA allowing CA$54 million of deductions, as well as an additional CA$550,000 in costs. The FCA has indicated this appeal may be eligible for leave to appeal to the Supreme Court of Canada.

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