Executive summary: key legal and evidentiary issues

• The appeal concerns over $160 million in non-capital losses carried forward by Onni arising from a 2014 real estate restructuring involving debt parking and bankruptcy assignments.

• CRA denied the loss carry-forwards, arguing the assignment of liabilities to a numbered company constitutes debt parking under the debt forgiveness rules in section 80 of the Income Tax Act.

• Application of the General Anti-Avoidance Rule (GAAR) under section 245 is the central dispute, with the Crown alleging abuse of the section 80 bankruptcy exception.

• Onni contends the primary purpose of the Colwood Project Restructuring was acquiring a real estate project, not obtaining tax attributes, thereby negating the existence of an avoidance transaction under the GAAR.

• Several disputed discovery inquiries were dismissed as fishing expeditions for seeking information about unrelated past transactions without a sufficient pleaded connection to the issues on appeal.

• Mixed results on the motion led the Court to order each party to bear its own costs, with no reattendance of Onni's nominee required.

Background to the dispute

Onni Development (RMG-1) Ltd. ("Onni") was the general partner and the limited partner of Colwood City Centre Limited Partnership ("Colwood LP"), which was the developer of a real estate development project known as the Colwood Project. By October 2013, the Colwood Project had run into financial difficulty, as it had significant debts owing to various arm's length secured and unsecured creditors. On October 3, 2014, a Restructuring Agreement was entered into by, among others, the Onni Group, the League Group, and PricewaterhouseCoopers' insolvency arm ("PwC Insolvency"), as monitor for the League Group. The Restructuring Agreement contemplated a restructuring of the Colwood Project, including its liabilities.

The series of transactions and bankruptcy assignments

In accordance with the Restructuring Agreement, Onni and the Colwood LP were assigned into bankruptcy on November 17, 2014, and two days later a consolidated proposal was filed by PwC Insolvency under the Bankruptcy and Insolvency Act. On November 26, 2014, 1019250 BC Ltd., a newly incorporated corporation owned by Mr. Marty Dohm, purchased certain of the outstanding loans owing by Colwood LP to one of its major creditors. The consolidated proposal was presented to a creditors' meeting on December 1, 2014, and was approved on that date. The British Columbia Supreme Court then approved such proposal on December 5, 2014, under which further liabilities of the Colwood LP were acquired by 1019250 BC Ltd. The Onni Group then acquired all the shares of Onni (previously called Colwood City Centre GP Inc.) on December 19, 2014. As a result, Onni claimed non-capital losses totalling over $160 million, arising almost entirely due to an inventory write-down under subsection 10(1) of the Income Tax Act, which it carried forward and utilized in its 2018, 2019, 2020 and 2021 taxation years.

CRA's reassessment and the GAAR challenge

The Canada Revenue Agency denied Onni's carry-forwards of the non-capital losses on the basis that the assignment of liabilities to 1019250 BC Ltd. constitutes debt parking, which under the debt forgiveness rules contained in the Act would lead to an offsetting income inclusion under subsection 80(13), if not for the assignment of Onni and the Colwood LP into bankruptcy. The debt forgiveness regime in section 80 has an exception available for bankrupt debtors. It is the Crown's position that even if the transactions avoided the debt forgiveness rules, they resulted in an abuse of the section 80 bankruptcy exception, and therefore the General Anti-Avoidance Rule contained in section 245 should apply. Onni's position is that the GAAR should not be applied because the transactions comprising the Colwood Project Restructuring do not constitute an avoidance transaction, as the primary purpose for such transactions was the acquisition of a real estate project as opposed to the acquisition of the tax attributes associated with the real estate project's legal structure.

The motion to compel discovery answers

The Respondent (the Crown) brought a motion before Justice J. Scott Bodie of the Tax Court of Canada seeking to compel Onni to answer 17 questions and 29 requests arising from the three-day examination for discovery of Onni's nominee, Mr. Salvatore Parrotta, the chief financial officer of the Onni Group. Several of the disputed inquiries had been either refused, mainly on the basis of relevancy during these examinations, or were taken under advisement. The motion was heard on December 16, 2025, in Vancouver, British Columbia.

Legal framework applied by the Court

Justice Bodie outlined the applicable legal principles. Under subsection 95(1) of the Tax Court of Canada Rules (General Procedure), the main consideration in testing the propriety of a question or request at an examination for discovery is relevancy, which should be interpreted liberally and broadly. At the same time, the Court must ensure that the exercise does not become a fishing expedition. The threshold for relevance on a motion to compel is low, and when in doubt, the motions judge should err on the side of allowing the question. In GAAR cases, the scope of discovery is applied more broadly, as recognized in Madison Pacific Properties Inc. v. Canada, 2019 FCA 19, because the third step in the GAAR analysis requires consideration of the Minister's mental process leading up to an assessment and an understanding of the policy at issue. The same principle applies to the second step, which requires consideration of the taxpayer's mental processes to determine the primary purpose of a transaction. Justice Bodie relied on the structured three-step GAAR test as set out in Deans Knight Income Corporation v. The King, 2023 SCC 16: (1) Was there a tax benefit? (2) Was the transaction giving rise to the tax benefit an avoidance transaction? (3) Was the avoidance transaction giving rise to the tax benefit abusive?

Rulings on individual disputed inquiries

The Court addressed each disputed inquiry against this framework. Several requests were found to have been sufficiently answered by Onni, including Request 6 regarding the meaning of "RPMG Group of Companies," Request 64 concerning privilege claims over legal correspondence relating to the Monitor's 23rd report, Request 78 regarding the Debtor-in-Possession Loan Agreement, Request 85 about a numbered company's appearance in draft Schedule B, Request 97 about the reasons for the bankruptcy assignment date of November 17, 2014, and Request 109 about the incorporation of Onni Development (RMG) Ltd. In each case, the Court found Onni's existing responses adequate.

Other requests were dismissed as improper fishing expeditions. Request 7, seeking examples of past asset assignments to entities other than newly incorporated ones, was rejected because the Respondent had not pled anything that would bring a past pattern of dealings or transactions by the Onni Group into issue. Requests 10 and 11, seeking information about PwC's broader tax due diligence and engagement letters for unrelated transactions between 2010 and 2014, were similarly dismissed. Most questions about the Evelyn Project (also known as Taylor Way) and the Marine Drive Entities were also rejected as fishing expeditions because the Respondent failed to establish a sufficient pleaded connection between those transactions and the Colwood Project Restructuring.

However, the Court ordered Onni to answer several inquiries. Request 18, seeking information about the existence of any general practices or policies applicable in 2014 that relate to the acquisition of real estate assets within the wider Onni Group, was deemed relevant given the low threshold for relevancy and its connection to the transactions at issue. Request 29, about prior business interactions or dealings between the Onni Group or Rossano De Cotiis and Mr. Dohm or Coal Harbour Realty Advisors, was proper because Mr. Dohm clearly played a role in the Colwood Project Restructuring, though the Court noted the request asks for information regarding the nature of the relationship and past dealings, not details or specifics of any particular past transaction. Questions 971 and 972 and Requests 71 and 72 regarding the closing index for the Colwood Project Restructuring were ordered answered, as questions regarding the documentation by which the Colwood Project Restructuring is memorialized and the process by which it was created clear the relevancy threshold. Question 1452, asking how the Onni Group's participation previously in the Evelyn Project structure informed its understanding of what PwC was bringing in September of 2014, was found to draw a sufficient connection to Onni's mental processes in entering into the Colwood Project Restructuring. Question 1461, about whether there were any other transactions happening over the same time as the Colwood development that would have helped inform understanding of the underlying objectives of the series of transactions, was similarly deemed proper. Request 54 regarding conversations and discussions relating to the change of control rules under the Income Tax Act was ordered to be either confirmed as fully answered or, if not, fully answered in accordance with the terms of the Order. Requests 131 and 132, concerning the reasons behind the payment to unsecured creditors going out on December 22, 2014, were ordered fully answered because the reasoning for setting up the transactions of any series in the order contemplated is relevant to the appeal.

The ruling and outcome

Justice Bodie denied the Respondent's request to have Onni's nominee reattend for further examination, noting that Mr. Parrotta had already been extensively examined for three full days, the relatively few questions that remained to be answered, and the procedure ingrained in general principles of the discovery process which allows for follow-up questions. The Court ordered Onni to serve full written answers to Questions 971, 972, 1452, and 1461 and full responses to Requests 18, 29, 71, 72, 54, 131, and 132 on the Respondent on or before May 5, 2026. The Respondent was permitted to serve written follow-up questions on or before June 5, 2026, with answers due on or before July 20, 2026. On or before November 2, 2026, the parties shall file one of the following with the Court: a joint application to fix a time and place for the hearing, a letter requesting a settlement conference, or a letter confirming that the appeal will settle and the anticipated date of settlement. As each of the parties had mixed success in this motion, each party shall bear its own costs. No specific monetary amount was awarded or ordered in favour of either party.