Alnasir Meghji

The appellant Crown appealed a Federal Court of Appeal decision holding that the respondent's Barbadian banking subsidiary qualified for the financial institution exception to the foreign accrual property income (FAPI) regime under the Income Tax Act.

The sole issue was whether the subsidiary conducted business principally with arm's length persons.

The Supreme Court unanimously dismissed the appeal, holding that a parent corporation does not conduct business with its controlled foreign affiliate when it provides capital or exercises corporate oversight.

Excluding capital injections and corporate oversight, the subsidiary's income-earning investment activities were conducted at arm's length for at least 86 percent of its income during the years in issue.

The arm's length requirement was therefore met and the respondent was entitled to the financial institution exception.

Following a successful appeal in a complex tax case, the appellant sought costs of the trial and appeal totaling over $1.3 million.

The respondent agreed costs should follow the event but argued the amounts were excessive.

The Court of Appeal declined to apply a 25% bump-up for a non-Rule 49 settlement offer, noting the respondent's obligation to protect the public purse in a test case.

The Court awarded the appellant costs of the appeal and trial fixed at $925,000 inclusive of disbursements and HST.

The appellant challenged reassessments imposing Ontario corporate income tax and corporate minimum tax on interest received under specialty debt instruments created through an inter-corporate refinancing designed to reduce provincial tax.

The court held the interest was income from property, not income from business, because the appellant's activity was minimal and the debt instruments were not employed or risked in any separate business.

Applying GAAR principles, the court found that even if the transactions generated a tax benefit or constituted avoidance transactions, they were not abusive because the statutory scheme deliberately distinguished between business income and property income for foreign-incorporated corporations with an Ontario permanent establishment.

The court also held the specialty debt instruments were not property situated in Canada because, under the settled common law situs rule, specialty debts are located where the instruments are physically found, here the British Virgin Islands.

The appeal was allowed and the reassessments were to be vacated.

Following an appeal involving a dispute between a corporate appellant and the provincial Minister of Revenue, the court addressed the issue of costs.

The parties agreed on a fixed amount for legal fees and disbursements payable to the respondent.

The court endorsed the agreement and ordered that the respondent recover the agreed costs.

The decision reflects the court’s approval of negotiated costs following the disposition of the appeal.

The appellant corporation appealed Ontario corporate tax assessments arising from interest income earned through refinancing transactions within a corporate group.

The appellant argued the interest constituted income from property and therefore fell outside the scope of Ontario taxation under the pre‑2005 Corporations Tax Act regime applicable to non‑Canadian incorporated corporations.

The court held that the interest income formed part of a business carried on in Canada because the corporation’s core purpose was to facilitate financing transactions within the corporate group and administer the resulting debt instruments in Canada.

As a result, the interest income constituted income from a business carried on in Canada within the meaning of s. 115 of the Income Tax Act and was taxable in Ontario.

The court upheld the Minister’s assessments and found it unnecessary to conduct a full GAAR analysis.

The Court addressed transfer pricing under s. 69(2) of the Income Tax Act in a dispute over the reasonableness of amounts paid by a Canadian taxpayer to a non-arm’s length supplier for ranitidine.

It held that determining a reasonable arm’s length amount requires consideration of economically relevant circumstances, including linked agreements conferring rights and benefits beyond mere supply where those agreements affect pricing.

The Tax Court erred in excluding the Licence Agreement from the comparability analysis.

The matter was properly remitted for redetermination of the reasonable amount with regard to the linked rights and benefits.

The appeal and cross-appeal were dismissed.

The taxpayers, Imperial Oil and Inco, issued debentures in U.S. dollars and later redeemed them.

Due to the appreciation of the U.S. dollar against the Canadian dollar, they suffered foreign exchange losses.

They sought to deduct these losses under s. 20(1)(f) of the Income Tax Act.

The Minister of National Revenue disallowed the deductions, treating them as capital losses under s. 39(2).

The Supreme Court of Canada held that s. 20(1)(f) is limited to original issue discounts and does not permit the deduction of foreign exchange losses, which must be claimed as capital losses under s. 39.

The Minister of Finance appealed a decision of the Court of Appeal for Ontario which held that the definition of 'hedging' in the Mining Tax Act was restricted to contracts settled by physical delivery of gold from an Ontario mine.

The respondent, a mining company, had realized significant gains from financial hedging transactions that did not result in physical delivery, and excluded these gains from its profit computation based on the Minister's former administrative practice.

The Supreme Court of Canada allowed the appeal, holding that the statutory definition of 'hedging' extends to transactions that do not result in physical delivery.

The Court applied the modern approach to statutory interpretation, finding that the narrower interpretation would render parts of the statutory definition redundant.

The respondent mortgage company purchased trailers and leased them back to the vendor to claim a substantial capital cost allowance (CCA) and offset revenue from other leased assets.

The Minister of National Revenue reassessed the respondent and disallowed the CCA claim under the general anti-avoidance rule (GAAR).

The Supreme Court of Canada held that while the transaction resulted in a tax benefit and was an avoidance transaction, it was not abusive tax avoidance under s. 245(4) of the Income Tax Act.

The Court found that the transaction was consistent with the object, spirit, and purpose of the CCA provisions, which permit deductions based on the cost of assets acquired, regardless of the economic risk involved.

The appellant gold mining company engaged in financial hedging transactions to protect against fluctuations in the spot price of gold.

The Minister of Finance assessed the net gains from these transactions as taxable 'proceeds' under the Mining Tax Act.

The trial judge upheld the assessment, finding a sufficient nexus between the transactions and the mine's output.

The Court of Appeal allowed the appeal, holding that the statutory definition of 'hedging' is clear and unambiguous, requiring the fixing of a price for the actual output of a mine before delivery.

Since the appellant sold all its gold at spot prices and did not deliver any gold pursuant to the hedging contracts, the gains were not taxable under the Act.

The appellant and other Canadians sought to acquire potential losses from a U.S. partnership for use as an income tax deduction in Canada.

They became assignees of the interests of the original American partners and immediately disposed of the partnership's apartment complex back to the original partners, realizing accounting losses.

They also acquired a one percent interest in a Canadian oil and gas property.

The Minister disallowed the claim for partnership losses under s. 96 of the Income Tax Act.

The Supreme Court of Canada dismissed the appeal, holding that the fundamental criteria of a valid partnership—carrying on business in common with a view to profit—were not met.

The Court found no intention to profit from the apartment complex and concluded the oil and gas investment did not establish an ancillary profit-making purpose.

Furthermore, the Court held that an assignee of a partnership interest must satisfy the essential ingredients of a partnership under Canadian law to be considered a partner for tax purposes.

The appellant taxpayer entered into debenture agreements to borrow New Zealand dollars at a high interest rate, and simultaneously entered into a forward exchange contract to convert the funds to US dollars for use in its business, while hedging the exchange rate risk.

The taxpayer deducted the high interest payments under s. 20(1)(c)(i) of the Income Tax Act and reported the resulting foreign exchange gain on capital account.

The Minister reassessed the taxpayer, arguing the interest deduction should be limited to the lower rate applicable to US dollars based on the economic realities of the transaction.

The Supreme Court of Canada held that the taxpayer's legal relationships must be respected and that the borrowed New Zealand dollars were directly used to earn income.

The Court allowed the appeal, permitting the full interest deduction, and dismissed the Minister's cross-appeal, holding the foreign exchange gain was on capital account.

The applicant brought a motion for directions to determine whether the respondent was required to seek leave to cross-appeal under Rule 29 of the Rules of the Supreme Court of Canada.

The respondent sought to argue that a currency gain realized by the applicant should be characterized as income rather than a capital gain, an issue decided against the respondent in the courts below.

The Supreme Court of Canada held that because the respondent's argument would not uphold the judgment of the Court of Appeal, the respondent was required to obtain leave to cross-appeal before raising the issue.

The appellant purchased a parcel of land for the purpose of reselling it at a profit, constituting an adventure in the nature of trade.

The property substantially decreased in value, and the appellant sought to deduct the decline in fair market value as a business loss under s. 10(1) of the Income Tax Act.

The Minister disallowed the deduction, and the lower courts upheld this decision.

The Supreme Court of Canada allowed the appeal, holding that on a plain reading of the Act, the appellant's venture was a 'business' and the property was 'inventory', entitling him to use the inventory valuation method to recognize a business loss in the taxation years prior to disposition.

The respondent, Crown Forest, rented barges from Norsk, a Bahamian company with its sole office in the United States.

Crown Forest withheld 10 percent tax on the rental payments, claiming Norsk was a resident of the U.S. under the Canada-United States Income Tax Convention (1980).

The Minister assessed the withholding tax at 25 percent, arguing Norsk was not a U.S. resident.

The Supreme Court of Canada allowed the Crown's appeal, holding that Norsk's tax liability in the U.S. was based on its source income effectively connected with a U.S. trade or business, not on world-wide income.

Therefore, Norsk did not meet the criteria for residency under Article IV of the Convention, and the 25 percent withholding tax applied.