Elizabeth Diane Chasson

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.

The Aubrey Dan Family Trust (ADFT) brought a summary judgment motion to allow its income tax appeal for the 2007 taxation year and vacate a reassessment issued by the Minister of Finance.

The motion focused on whether the reassessment was issued outside the statutory limitation period and, if so, whether the limitation period was properly waived.

The court found that the original notice of assessment triggered the normal reassessment period, which expired before the reassessment was issued.

However, the court also found that the T2029 waiver form signed by ADFT was valid under the Ontario Income Tax Act, deeming it a prescribed form and thus effectively waiving the limitation period.

Consequently, ADFT's motion for summary judgment was dismissed.