SUPREME COURT OF CANADA
Appeal Heard: May 13, 2021 Judgment Rendered: December 3, 2021 Docket: 39220
Between: Her Majesty The Queen Appellant and Loblaw Financial Holdings Inc. Respondent - and - Attorney General of Ontario and Canadian Bankers' Association Interveners Coram: Wagner C.J. and Moldaver, Karakatsanis, Côté, Brown, Martin and Kasirer JJ.
Reasons for Judgment : (paras. 1 to 75)
Côté J. (Wagner C.J. and Moldaver, Karakatsanis, Brown, Martin and Kasirer JJ. concurring)
Her Majesty The Queen Appellant
v.
Loblaw Financial Holdings Inc. Respondent
and
Attorney General of Ontario and
Canadian Bankers' Association Interveners
Indexed as: Canada v. Loblaw Financial Holdings Inc.
2021 SCC 51
File No.: 39220.
2021: May 13; 2021: December 3.
Present: Wagner C.J. and Moldaver, Karakatsanis, Côté, Brown, Martin and Kasirer JJ.
on appeal from the federal court of appeal
Taxation — Income tax — Assessment — Foreign accrual property income — Financial institution exception — Arm's length requirement — Conducting business — Canadian corporate taxpayer not including income earned by foreign subsidiary in Canadian tax return for several taxation years — Taxpayer claiming foreign subsidiary's activities covered by financial institution exception to rules for foreign accrual property income — Tax Court holding that exception does not apply because foreign subsidiary dealing principally with non‑arm's length persons — Whether foreign subsidiary's business conducted principally with persons with whom it deals at arm's length — Whether parent corporation's injection of capital or corporate oversight relevant to arm's length test — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 95(1) "investment business".
In 1992, Loblaw Financial Holdings Inc. ("Loblaw Financial"), a Canadian corporation, incorporated a subsidiary in Barbados. The Central Bank of Barbados issued a licence for the subsidiary to operate as an offshore bank named Glenhuron Bank Ltd. ("Glenhuron"). Between 1992 and 2000, important capital investments in Glenhuron were made by Loblaw Financial and affiliated companies ("Loblaw Group"). In 2013, Glenhuron was dissolved, and its assets were liquidated.
For the 2001, 2002, 2003, 2004, 2005, 2008 and 2010 taxation years, Loblaw Financial did not include income earned by Glenhuron in its Canadian tax returns as foreign accrual property income ("FAPI"). Under the FAPI regime in the Income Tax Act ("ITA"), Canadian taxpayers must include income earned by their controlled foreign affiliates ("CFAs") in their Canadian annual tax returns on an accrual basis if this income qualifies as FAPI. However, financial institutions that meet specific requirements benefit from an exception to the FAPI rules found in the definition of "investment business" at s. 95(1) of the ITA. The financial institution exception is available where the following requirements are met: (1) the CFA must be a foreign bank or another financial institution listed in the exception provision; (2) its activities must be regulated under foreign law; (3) the CFA must employ more than five full‑time employees in the active conduct of its business; and (4) its business must be conducted principally with persons with whom it deals at arm's length.
Loblaw Financial claimed that Glenhuron's activities were covered by the financial institution exception to the FAPI rules. The Minister disagreed with Loblaw Financial and reassessed it on the basis that the income earned by Glenhuron during the years in issue was FAPI. Loblaw Financial objected and appealed the reassessments. The Tax Court held that the financial institution exception did not apply, as Glenhuron's business was conducted principally with non‑arm's length persons. In reaching its decision, the court considered the scope of Glenhuron's relevant business, looking at its receipt of funds and use of funds. It included in its analysis all receipts of funds indiscriminately, treating capital injections by shareholders and lenders like any other receipt of funds. The Tax Court also viewed Glenhuron's use of funds as the management of an investment portfolio on the Loblaw Group's behalf and regarded the influence of the Loblaw Group's central management as pervading the conduct of business because of the Loblaw Group's close oversight of Glenhuron's investment activities.
The Federal Court of Appeal disagreed with the Tax Court's interpretation of the arm's length requirement and with its analysis based on receipt and use of funds. It held that only Glenhuron's income‑earning activities had to be considered. It also found that direction, support, and oversight by the Loblaw Group should not have been considered, because these interactions are not income‑earning activities and thus do not amount to conducting business with the CFA. It concluded that Glenhuron was dealing principally with arm's length persons, and that Loblaw Financial was entitled to the benefit of the financial institution exception and did not need to include Glenhuron's income as FAPI. It referred the reassessments back to the Minister for reconsideration.
Held: The appeal should be dismissed.
Loblaw Financial was entitled to rely on the financial institution exception set out in s. 95(1) of the ITA. When the precise words of the arm's length requirement — "the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm's length)" — are interpreted in accordance with the ordinary rules of statutory interpretation, it is clear that they do not encompass an assessment of capital contributions or corporate oversight. If capital and corporate oversight are excluded from consideration, Glenhuron's investment business activities were conducted principally with arm's length persons.
A parent corporation does not conduct business with its CFA when it provides capital and exercises corporate oversight. An ordinary and grammatical reading of the words "business conducted" conveys a different meaning than the word "business" alone. The addition of the verb "conducted" emphasizes Parliament's intent to focus on the active carrying out of business rather than on the establishment of prerequisite conditions that enable a foreign affiliate to conduct business. Raising capital is a necessary part of any business, and capital enables business to be conducted; but one would not generally speak of capitalization itself as the conduct of the business. The Court has repeatedly affirmed that there is a distinction between capitalization and the conduct of a business. The banking context does not change anything. There is undoubtedly a distinction between receiving funds from depositors and receiving funds from shareholders — depositors are clients of the bank, for whom the bank provides the services associated with holding their funds; shareholders are not.
The context of the FAPI regime confirms this reading. The entire function of the regime is to classify a foreign affiliate's income. The financial institution exception to the definition of "investment business" and its arm's length requirement are tied to this same function: identifying income for inclusion in FAPI. It thus makes considerable sense that Parliament intended these determinations to focus on activities more directly related to income generation than to capitalization, the distinction between income and capital being well established in tax law. The FAPI regime also shows why considering capitalization as part of conducting business for the purposes of the financial institution exception would create practical problems. The FAPI regime does not provide a method for assigning capital to the different businesses within a single corporation. Interpreting "business conducted" to include the capitalization of the business would make it necessary to somehow divide the debt and equity from various sources (some arm's length and some not) and then assign the ensuing quotient to the various businesses conducted by a foreign affiliate. Parliament's failure to provide a method for distributing capital suggests that it did not have capital in mind. A further practical difficulty arises when considering the receipt of corporate capital in relation to newly formed CFAs. Since the Canadian parent will have provided some capital to set up the CFA, in most cases, this means that the CFA will fail the test in its early years when it is trying to build a customer base, because the ratio of corporate capital to other business receipts will likely be high. If taxpayers are to act with any degree of certainty, then full effect should be given to Parliament's precise and unequivocal words. The grammatical and ordinary meaning of the words "business conducted", read in the context and light of the purpose of the FAPI regime, clearly shows that Parliament did not intend capital injections to be considered.
Furthermore, there is no basis in the text, context or purpose of the arm's length requirement to support the Tax Court's consideration of corporate oversight as part of conducting business. Fundamentally, a corporation is separate from its shareholders. Its business may be conducted using money provided by shareholders or in accordance with policies adopted by the board of directors on behalf of the shareholders, but this does not change the fact that the corporation remains the party conducting business. Treating oversight by a parent corporation as shifting the responsibility for conducting business is also incompatible with the rest of the FAPI regime. The regime applies only where there is a controlled foreign affiliate. If there is a CFA, there is necessarily corporate oversight by its parent. Parliament does not speak in vain; it would not have added an arm's length requirement if it could never be met.
Once corporate oversight and the capital investments received by Glenhuron are excluded, only Glenhuron's investment activities remain part of the business that is relevant for the application of the arm's length requirement. The most lucrative of those activities undertaken by Glenhuron were conducted at arm's length, amounting to at least 86 percent of its income during the years in issue. On the non‑arm's length, Glenhuron's combined activities do not reach the "principally" threshold. The arm's length requirement was therefore met during the years in issue.
Cases Cited
Referred to: Inland Revenue Commissioners v. Westminster (Duke of), [1936] A.C. 1; Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan, [1980] 1 S.C.R. 433; Smith v. Anderson (1880), 15 Ch. D. 247; Bennett & White Construction Co. v. Minister of National Revenue, [1949] S.C.R. 287; CIT Group Securities (Canada) Inc. v. The Queen, 2016 TCC 163, [2016] 6 C.T.C. 2013; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Michel v. Graydon, 2020 SCC 24; Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601; Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715; Tip Top Tailors Ltd. v. Minister of National Revenue, [1957] S.C.R. 703; Montreal Coke and Manufacturing Co. v. Minister of National Revenue, [1944] A.C. 126; R. v. Ulybel Enterprises Ltd., 2001 SCC 56, [2001] 2 S.C.R. 867; R. v. Cole, 2012 SCC 53, [2012] 3 S.C.R. 34; R. v. Vu, 2013 SCC 60, [2013] 3 S.C.R. 657; R. v. Friesen, 2020 SCC 9.
Statutes and Regulations Cited
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), ss. 91(1), (4), (5), 95(1) "controlled foreign affiliate", "foreign accrual property income", "foreign affiliate", "income from an active business", "income from property", "investment business", (2), (2.11), (2.4)(b), (3), 248(1) "business".
International Financial Services Act, L.R.O. 2007, c. 325, s. 4(2) "international banking business".
Off‑shore Banking Act, L.R.O. 1985, c. 325, s. 4.
Authors Cited
Benson, E. J. Proposals for Tax Reform. Ottawa: Queen's Printer, 1969.
Canada. Department of Finance. Special Report — Revised Draft Legislation and Technical Notes: Foreign Affiliates. North York, Ont.: CCH Canadian, 1995.
Canada. Department of Finance. Tax Measures: Supplementary Information. Ottawa, 1994.
Canada. Office of the Auditor General. Report of the Auditor General of Canada to the House of Commons, 1992. Ottawa, 1992.
Canada Revenue Agency. Foreign affiliates — Investment Business. Ruling No. 9509775, July 14, 1995.
Canada Revenue Agency. Foreign affiliates — Investment Business. Ruling No. 2000‑0006565, Ottawa, June 22, 2000.
Halsbury's Laws of Canada: Income Tax (International), 2019 Reissue, contributed by Vern Krishna. Toronto: LexisNexis, 2019.
Holmes, Bill, and Ian Gamble. The Foreign Affiliate Rules. Toronto: Wolters Kluwer, 2020.
Krishna, Vern. Income Tax Law, 2nd ed. Toronto: Irwin Law, 2012.
Panteleo, Nick, and Michael Smart. "International Considerations", in Heather Kerr, Ken McKenzie and Jack Mintz, eds., Tax Policy in Canada. Toronto: Canadian Tax Foundation, 2012, 12:1.
Yeung, Jayme. "Trading or Dealing in Indebtedness Offshore: Paragraph 95(2)(l) Revisited" (2011), 59 Can. Tax J. 85.
APPEAL from a judgment of the Federal Court of Appeal (Woods, Laskin and Mactavish JJ.A), 2020 FCA 79, [2020] 3 F.C.R. 481, [2020] 4 C.T.C. 1, 2020 D.T.C. 5040, [2020] F.C.J. No. 511 (QL), 2020 CarswellNat 1300 (WL Can.), setting aside a decision of Miller J., 2018 TCC 182, [2019] 2 C.T.C. 2001, 2018 D.T.C. 1128, [2018] T.C.J. No. 136 (QL), 2018 CarswellNat 5099 (WL Can.). Appeal dismissed.
Eric A. Noble and Elizabeth Chasson, for the appellant.
Al Meghji and Pooja Mihailovich, for the respondent.
Baaba Forson, for the intervener the Attorney General of Ontario.
Matthew G. Williams, for the intervener the Canadian Bankers' Association.
The judgment of the Court was delivered by
Côté J. —
I. Introduction
[ 1 ] This case concerns the foreign accrual property income ("FAPI") regime under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) ("ITA"). [1] In essence, this regime provides that Canadian taxpayers, like the respondent Loblaw Financial Holdings Inc. ("Loblaw Financial"), must include income earned by their controlled foreign affiliates ("CFAs") in their Canadian annual tax returns on an accrual basis if this income qualifies as FAPI. However, financial institutions that meet specific requirements benefit from an exception found in the definition of "investment business" at s. 95(1) of the ITA. One of these requirements is that the CFA must conduct its business principally with persons with whom it deals at arm's length, also called the "arm's length requirement". Only this requirement is at issue in this appeal.
[ 2 ] The FAPI regime is one of the most complicated statutory regimes in Canadian law. Although it has come before us after several years of diligent work by sophisticated auditors and legal counsel, the question in this appeal is remarkably straightforward. Does a parent corporation conduct business with its CFA when it provides capital and exercises corporate oversight? In my respectful view, the answer is an equally straightforward no.
[ 3 ] I wish to emphasize from the start that while the tenor of the Crown's submissions is that Loblaw Financial has engaged in tax avoidance, the Crown did not raise any argument based on the general anti-avoidance rule ("GAAR") before this Court. We are tasked only with interpreting the precise words of the arm's length requirement — "the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm's length)" — found in the financial institution exception, in accordance with the ordinary rules of statutory interpretation. When these words are read in their grammatical and ordinary sense, in harmony with their context and the ITA's objects, it becomes clear that they do not encompass an assessment of capital contributions or corporate oversight.
[ 4 ] If capital and corporate oversight are excluded from consideration, the vast majority of business was conducted between Loblaw Financial's foreign affiliate and persons with whom it was dealing at arm's length. Therefore, Loblaw Financial can avail itself of the financial institution exception. Given the text, context and purpose of the provision at issue, there is no reason for a court to deny Loblaw Financial the ability to arrange its affairs so as to minimize its tax payable. As Lord Tomlin famously said:
Every man is entitled, if he can, to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.
(Inland Revenue Commissioners v. Westminster (Duke of), [1936] A.C. 1 (H.L.), at pp. 19‑20).
II. Background
[ 5 ] Loblaw Financial is a Canadian corporation and an indirect wholly‑owned subsidiary of Loblaw Companies Ltd., a Canadian public corporation controlled by George Weston Ltd. Loblaw Companies Ltd., George Weston Ltd., and their subsidiaries ("Loblaw Group") deal with one another on a non‑arm's length basis.
[ 6 ] In 1992, Loblaw Financial incorporated a subsidiary in Barbados, Loblaw Inc. The Central Bank of Barbados issued a licence to Loblaw Inc. to operate as an offshore bank under Barbados' Off‑shore Banking Act, L.R.O. 1985, c. 325 ("Barbados OSBA"), later replaced by the International Financial Services Act, L.R.O. 2007, c. 325 ("Barbados IFSA"). Loblaw Inc. was then renamed Glenhuron Bank Limited ("Glenhuron") and was regulated by the Central Bank of Barbados. Glenhuron's activities were required to be limited to those falling within the definition of "international banking business" in s. 4(2) of the Barbados IFSA.
[ 7 ] Between 1992 and 2000, the Loblaw Group made important capital investments in Glenhuron. Loblaw Financial injected nearly $500 million by subscribing to shares, and a Dutch subsidiary invested $142 million by subscribing to shares and $133 million by providing interest-free loans.
[ 8 ] Glenhuron's activities can be broken down into the following lines of business: (1) short-term debt securities; (2) asset management for a fee; (3) intercorporate loans; (4) independent operator loans; (5) interest rate and cross‑currency swaps; and (6) equity forwards. Every party with assets under management by Glenhuron was related to it, except Waterman Insurance Inc. Nonetheless, many of Glenhuron's lines of business involved investments with third parties. For example, Glenhuron bought most of its short-term debt securities from Salomon Brothers, Merrill Lynch, and Citibank. It entered into swaps agreements with other financial institutions as well (e.g., UBS, JP Morgan, Gen Re, and ABN AMRO). Moreover, these investments in short-term debt securities and these swaps agreements involving third parties were the most lucrative of its activities by far — representing at least 86 percent of its total income during the years in issue — and mobilized the largest proportion of its assets.
[ 9 ] Due to the success of its financial activities, Glenhuron was able to grow its asset base, primarily through an increase in its retained earnings from approximately $100 million at the end of the 2000 taxation year to approximately $700 million at the end of the 2010 taxation year. Its share capital remained stable during that period, decreasing from $476 million to $443 million following capital distributions and further injections.
[ 10 ] In 2013, Glenhuron was dissolved, and its assets were liquidated to provide Loblaw Companies Ltd. with funds for a major acquisition.
[ 11 ] The dispute between Loblaw Financial and the Crown concerns the application of the FAPI regime to the income earned by Glenhuron during the 2001, 2002, 2003, 2004, 2005, 2008 and 2010 taxation years. Loblaw Financial claimed that Glenhuron's activities were covered by the financial institution exception to the FAPI rules. The Minister disagreed with Loblaw Financial.
[ 12 ] The Minister of National Revenue disagreed with Loblaw Financial. In 2015, the Minister thus reassessed Loblaw Financial for FAPI, the amounts of which are set out in the following table:
| Loblaw Financial Taxation Year | FAPI Reassessed (CAN Dollars) |
|---|---|
| 2001 | $84,145,457 |
| 2002 | $95,522,133 |
| 2003 | $63,898,088 |
| 2004 | $43,602,018 |
| 2005 | $43,468,016 |
| 2008 | $128,948,511 |
| 2010 | $13,838,390 |
(2018 TCC 182, [2019] 2 C.T.C. 2001, at para. 145)
[ 13 ] Shortly thereafter, Loblaw Financial filed a notice of objection and then appealed the reassessments to the Tax Court of Canada.
III. Decisions Below
A. Tax Court of Canada, 2018 TCC 182, [2019] 2 C.T.C. 2001 (Miller J.)
[ 14 ] The first issue before the Tax Court was whether the financial institution exception applied during the years in issue. The second issue, raised by the Crown only, was whether the general anti-avoidance rule ("GAAR") applied.
[ 15 ] On the first issue, the Tax Court judge held that the financial institution exception did not apply. Although Glenhuron met the first three requirements of the financial institution exception (being a foreign bank regulated by the Central Bank of Barbados, employing more than five full-time employees), it failed the fourth: the arm's length requirement.
[ 16 ] In order to apply the arm's length requirement, the Tax Court judge first had to determine the scope of Glenhuron's relevant "business". The Tax Court judge examined both Glenhuron's receipt and use of funds. He did not limit his assessment to Glenhuron's income-earning activities.
[ 17 ] On the receipt side, the Tax Court judge found that Glenhuron was overwhelmingly dealing with non‑arm's length persons, since most of its funds were contributed by members of the Loblaw Group.
[ 18 ] On the use side, the Tax Court judge also found that Glenhuron was principally dealing with non‑arm's length persons. He concluded that Glenhuron's investment portfolio was essentially managed on behalf of the Loblaw Group by investing in instruments that had the effects desired by the Loblaw Group.
[ 19 ] Because Glenhuron was dealing principally with non‑arm's length persons on both sides, the Tax Court judge held that the fourth requirement of the financial institution exception — the arm's length requirement — was not met.
[ 20 ] The Tax Court judge also analyzed in obiter the second issue and held that the GAAR did not apply because Glenhuron was not conducting a business principally at arm's length, as required for the financial institution exception, rather than because the transactions led to a misuse or abuse of the ITA.
B. Federal Court of Appeal, 2020 FCA 79, [2020] 3 F.C.R. 481 (Woods, Laskin and Mactavish JJ.A.)
[ 21 ] Loblaw Financial appealed the Tax Court judge's decision pertaining to the arm's length requirement. For its part, the Crown appealed only if Loblaw Financial's appeal was allowed.
[ 22 ] The Federal Court of Appeal disagreed with the Tax Court judge's interpretation of the arm's length requirement. In the court's view, the relevant "business" for the purposes of the arm's length requirement was limited to the income-earning activities of the foreign affiliate. Capital transactions were excluded from this assessment.
[ 23 ] In passing, the Federal Court of Appeal also criticized the Tax Court judge's reliance on the purpose of fostering competition as the basis for the arm's length requirement.
[ 24 ] Thus, the Federal Court of Appeal preferred to rely on the traditional definition of "business" used in tax matters: a system of profit-making activities that involve the assumption of risk. Since only income-earning activities generate income, only they can be characterized as business activities. Receipt of capital from shareholders is not a business activity.
[ 25 ] The Federal Court of Appeal added that direction, support, and oversight by the parent corporation should not have been considered because these interactions are not income-earning activities and thus do not amount to conducting business with the CFA.
[ 26 ] Having determined the scope of the business that must be considered for the purposes of the arm's length requirement, the Federal Court of Appeal concluded that Glenhuron was dealing principally with arm's length persons. Loblaw Financial was thus entitled to the benefit of the financial institution exception and did not need to include Glenhuron's income as FAPI. The Federal Court of Appeal referred the reassessments back to the Minister for reconsideration.
IV. Issue
[ 27 ] In this appeal, the sole issue is whether Glenhuron conducted business principally with persons with whom it was dealing at arm's length within the meaning of s. 95(1) of the ITA.
V. Analysis
A. FAPI Regime
[ 28 ] The FAPI regime is regarded as one of the most complex tax schemes, with hundreds of definitions, rules, and exceptions. To properly place in context the arm's length requirement at issue in this appeal, it is necessary to first provide a brief overview of the FAPI regime.
[ 29 ] Some Canadian taxpayers find it more attractive to park their passive investments in low-tax jurisdictions and earn investment income in their foreign subsidiaries, thereby deferring Canadian tax or avoiding it altogether. To address this, Parliament enacted the FAPI regime in 1972. The regime requires Canadian taxpayers to include the income earned by their CFAs in their own Canadian tax returns on an accrual basis when this income qualifies as FAPI. The regime thus effectively neutralizes the benefits of parking passive investments in low-tax jurisdictions by imputing the passive income from foreign subsidiaries back to the Canadian parent. In essence, the income is treated as if it had been earned directly in Canada.
[ 30 ] Because FAPI is calculated on an accrual basis, the regime creates an exception to the deferral approach to the taxation of international income. Under that approach, the income of a CFA is not included in the taxpayer's Canadian income until it is repatriated to the Canadian parent through a dividend.
[ 31 ] Importantly, the FAPI regime does not apply to all types of income. Broadly speaking, the ITA considers passive income more susceptible to the abuses targeted by the FAPI regime than active income. Parliament therefore exempted active business income from the reach of the FAPI regime. In general, active business income — such as business income, rental income from real property when significant services are provided, and income from insurance risks of related parties — is not treated as FAPI.
[ 32 ] However, this distinction between active and passive income is not watertight, with certain active income considered FAPI in certain circumstances. For example, in order to prevent the FAPI regime from being circumvented by interposing related companies within a corporate group, the ITA deems certain income that flows between related companies to be FAPI, even if that income would otherwise qualify as active income.
[ 33 ] FAPI encompasses four broad categories of income earned by CFAs: (1) income from property; (2) income from a business other than an active business; (3) taxable capital gains from the disposition of property; and (4) income from foreign oil and gas businesses.
[ 34 ] The category of "income from a business other than an active business" covers any business that is deemed by s. 95(2) to be something other than an active business. This provision broadly deems income from certain types of transactions between related companies, such as insurance or management fees, to be non-active business income.
[ 35 ] The main category at issue in this appeal is "income from property", which includes a CFA's income from an investment business. An "investment business" is broadly defined in s. 95(1) of the ITA as any business whose principal purpose is to derive income from property.
[ 36 ] Parliament created safe harbours or exceptions to this broad definition of "investment business", including the financial institution exception. For a foreign affiliate to benefit from the financial institution exception, four requirements must be met:
Type of financial institution: The CFA carries on business as a foreign bank, a trust company, a credit union, an insurance corporation, or a trader or dealer in securities or commodities.
Oversight by a regulatory body: The CFA's activities are regulated under foreign law.
Threshold level of activity: The CFA employs more than five full‑time employees or the equivalent thereof in the active conduct of its business.
Arm's length requirement: The CFA's business is not "conducted principally with persons with whom the [CFA] does not deal at arm's length".
(Section 95(1), definition of "investment business")
[ 37 ] When these four requirements are met, the income from the investment business retains its character as active business income and is therefore not FAPI. Parliament has consistently maintained this exception since 1995 without any modifications until 2014.
[ 38 ] In 2014, Parliament revisited the financial institution exception and preferred to toughen its requirements instead of abolishing it. For example, it added a requirement that the CFA must be "a resident of a country" whose laws have been complied with.
[ 39 ] It is not disputed that s. 95(2)(l) does not preclude Loblaw Financial from availing itself of the financial institution exception. The s. 95(2)(l) exception for trading or dealing in indebtedness is not applicable here because Glenhuron is a foreign bank.
B. Arm's Length Requirement
(1) Introduction
[ 40 ] The dispute in this case comes down to the meaning of the phrase "business conducted principally with" within the financial institution exception. Specifically, it must be determined whether a parent corporation "conducts business" with its CFA when it provides capital and exercises corporate oversight.
[ 41 ] This narrow question of statutory interpretation requires us to draw upon the well-established framework that "statutory interpretation cannot be founded on the wording of the legislation alone" (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, at para. 10). The "words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament" (Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, at para. 21).
[ 42 ] Indeed, we are concerned here with whether Glenhuron's business (other than its business of managing assets for non‑arm's length parties) was conducted principally with arm's length persons within the meaning of the arm's length requirement at s. 95(1), the relevant part of which reads as follows:
investment business of a foreign affiliate of a taxpayer means a business carried on by the affiliate in a taxation year (other than a business deemed by subsection 95(2) to be a business other than an active business carried on by the affiliate) the principal purpose of which is to derive income from property (including interest, dividends, rents, royalties or any similar returns or substitutes therefor), income from the insurance or reinsurance of risks, income from the factoring of trade accounts receivable, or profits from the disposition of investment property, unless it is established by the taxpayer or the affiliate that, throughout the period in the year during which the business was carried on by the affiliate,
(a) the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm's length) is
(i) a business carried on by it as a foreign bank, . . . the activities of which are regulated under the laws
(B) of the country in which the business is principally carried on, or
(c) the operator employs
(i) more than five employees full time in the active conduct of the business, or
(ii) the equivalent of more than five employees full time in the active conduct of the business taking into consideration only . . .
[ 43 ] The parties agree that the words "the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm's length)" describe the business that must meet the other requirements of the financial institution exception, including the type of financial institution, regulatory oversight, and threshold level of activity requirements. They also agree that the words "conducted principally with" carry the same meaning throughout the financial institution exception.
(2) Receipt of Equity and Debt Capital
[ 44 ] The Crown argues that the meaning of conducting business can be understood by reference to Barbadian law. Section 4(2) of the Barbados IFSA defines "international banking business" to include "the accepting of deposits . . . from persons resident outside Barbados . . . and the making of loans . . . to persons resident outside Barbados". The Crown thus argues that receiving capital from shareholders is conducting business.
[ 45 ] The Crown also argues that conducting business should be given a wide meaning based on s. 248 of the ITA, which provides that "business includes a profession, calling, trade, manufacture or undertaking of any kind whatever and, except for the purposes of paragraph 18(2)(c), section 54.2, subsection 95(1) and paragraph 110.6(14)(f), an adventure or concern in the nature of trade but does not include an office or employment".
[ 46 ] Raising capital is a necessary part of any business, and capital enables business to be conducted. But one would not generally speak of capitalization itself as the conduct of the business. This is consistent with the Canada Revenue Agency's ("CRA") position in a 2000 ruling:
. . . we consider business generally to be conducted with business clients and business clients are generally persons for whom a business provides goods or services.
(Foreign Affiliates — Investment Business, Ruling No. 2000-0006565, June 22, 2000)
[ 47 ] The Crown also argues that the fact that Glenhuron is a bank changes the meaning of conducting business in this case. I cannot accept this argument. There is undoubtedly a distinction between receiving funds from depositors and receiving funds from shareholders — depositors are clients of the bank, for whom the bank provides the services associated with holding their funds; shareholders are not. The Court has repeatedly affirmed that there is a distinction between capitalization and the conduct of a business. As the Court stated in Bennett & White Construction Co. v. Minister of National Revenue, [1949] S.C.R. 287, at p. 299: "There is a clear distinction between that which a man has in his business and that with which he carries on his business." In Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan, [1980] 1 S.C.R. 433, at p. 449, the Court was clear that receiving capital from shareholders was not conducting business: "the raising of capital for use in the business is not 'carrying on the business' itself."
[ 48 ] The context of the FAPI regime puts my reading beyond doubt since the entire function of the regime is to classify a foreign affiliate's income. The financial institution exception to the definition of "investment business" and its arm's length requirement are tied to this same function: identifying income for inclusion in FAPI. It thus makes considerable sense that Parliament intended these determinations to focus on activities more directly related to income generation than to capitalization, the distinction between income and capital being well established in tax law. As this Court explained in Montreal Coke and Manufacturing Co. v. Minister of National Revenue, [1944] A.C. 126 (P.C.), at p. 131 (aff'd on appeal), a company "raises money" when it borrows and "employs money" when it does business.
[ 49 ] The FAPI regime also shows why considering capitalization as part of conducting business for the purposes of the financial institution exception would create practical problems. The FAPI regime does not provide a method for assigning capital to the different businesses within a single corporation. Interpreting "business conducted" to include the capitalization of the business would make it necessary to somehow divide the debt and equity from various sources (some arm's length and some not) and then assign the ensuing quotient to the various businesses conducted by a foreign affiliate. Parliament's failure to provide a method for distributing capital suggests that it did not have capital in mind.
[ 50 ] A further practical difficulty arises when considering the receipt of corporate capital in relation to newly formed CFAs. Since the Canadian parent will have provided some capital to set up the CFA, in most cases, this means that the CFA will fail the test in its early years when it is trying to build a customer base, because the ratio of corporate capital to other business receipts will likely be high. If taxpayers are to act with any degree of certainty, then full effect should be given to Parliament's precise and unequivocal words. The grammatical and ordinary meaning of the words "business conducted", read in the context and light of the purpose of the FAPI regime, clearly shows that Parliament did not intend capital injections to be considered.
[ 51 ] Turning to the purpose of the arm's length requirement, the Crown argues that the FAPI regime is primarily a series of anti-avoidance rules and that the financial institution exception and its arm's length requirement reflect Parliament's anti-avoidance purpose. In the Crown's submission, the goal of the arm's length requirement is to ensure that "legitimate" foreign affiliates benefit from the financial institution exception and not shell companies. The arm's length requirement is therefore important to determine whether Glenhuron is conducting genuine financial activities with real clients.
[ 52 ] The Tax Court judge adopted a slightly different understanding of the purpose of the arm's length requirement. He understood it as a means of identifying foreign affiliates that compete in local markets and provide services to local clientele, who would deal at arm's length with the affiliate.
[ 53 ] The Federal Court of Appeal adopted yet another understanding of the purpose of the arm's length requirement. Rather than focusing on competition and market penetration, it focused on the importance of the exception for international competitiveness and capital export neutrality. In its view, the purpose of the financial institution exception is to allow Canadian financial institutions to compete internationally, not to give domestic banks an advantage in foreign markets.
[ 54 ] Unsurprisingly, there is no direct evidence concerning the purpose of the arm's length requirement. But all the evidence is consistent with the Federal Court of Appeal's interpretation. Historically, Parliament has been confronted with two competing goals in designing the FAPI regime: capital import neutrality and capital export neutrality. As Justice Benson explained in 1969:
[ 55 ] In 1992, the Department of Finance reaffirmed these two conflicting goals in response to a report by the Auditor General. The Department of Finance stated:
. . . Canada has had to struggle with two conflicting goals. The goal of economic efficiency argues for a system which produces capital import neutrality . . . and capital export neutrality . . . .
In a world where countries maintain different tax systems, it is impossible to achieve both capital import and capital export neutrality simultaneously. . . .
Conversely, in order to preserve the international competitiveness of Canadian businesses, active business income that is earned in low-tax countries should generally not be taxed in Canada until it is repatriated. . . .
(Office of the Auditor General, at pp. 51‑52)
[ 56 ] Similarly, in announcing the 1995 amendments to s. 95(1) and the introduction of the "investment business" definition and the financial institution exception, the Minister of Finance did not suggest that the financial institution exception was intended to target shell companies. Instead, the Minister of Finance emphasized that the goal of the exception was to allow Canadian financial institutions and their foreign affiliates to compete internationally.
[ 57 ] I thus agree with the Federal Court of Appeal that to the extent that the Tax Court judge's analysis imposed a requirement of competition with local markets, it went beyond what the arm's length requirement requires. There is no evidence that Parliament intended to target competition with local markets. Parliament chose to use the term "arm's length" to describe the types of transactions that the financial institution exception is meant to favour, not the term "local competition" or any other term that would point to competition as the animating purpose.
[ 58 ] Had Parliament desired to focus more extensively on competition, it had the opportunity to say so. As the Federal Court of Appeal pointed out, Parliament included specific provisions targeting competition in s. 95(2)(l) of the ITA, which deals with trading or dealing in indebtedness. These provisions were not applied here because Glenhuron is a foreign bank. There is thus no reason to import an anti-competition purpose into the arm's length requirement through the backdoor.
[ 59 ] The language of s. 95(2.4)(b) reinforces that there is no reason to believe competition for customers is a necessary element of the arm's length requirement. That provision permits a CFA to use another CFA's employees to count towards the five employee requirement. However, this provision expressly requires that these employees deal at arm's length with the CFA whose activities they are conducting. This shows that Parliament knows how to expressly require an arm's length relationship between the employees and the CFA when it desires to do so. This also shows that Parliament does not read "arm's length" as necessarily requiring arm's length competition with third parties.
[ 60 ] As for the Crown's allegation that the purpose of the arm's length requirement is anti-avoidance, this similarly does not find support in the text, context or purpose of the provision. The Crown's argument that the financial institution exception was intended to avoid rewarding shell companies is not consistent with the historical approach to the design of the exception. As noted above, Parliament chose to use the term "arm's length" in the financial institution exception, and this term does not in and of itself include an anti-avoidance purpose in the present context.
[ 61 ] I again reiterate that if taxpayers are to act with any degree of certainty, then full effect should be given to Parliament's precise and unequivocal words. The grammatical and ordinary meaning of the term "arm's length" in the context of the financial institution exception does not include an assessment of whether the foreign affiliate is a genuine financial institution. Even if the Crown's proposed interpretation were correct, it would not follow that Glenhuron's receipt of capital from related parties or the oversight exercised by the parent corporation would be relevant to the arm's length assessment. This is because capital is not conducting business, and the oversight of a parent is not a business activity.
[ 62 ] Before moving on to consider corporate oversight, I pause here to note that even if I accepted the Crown's argument that capital should be included as part of conducting business, I would not agree that it follows that Glenhuron was conducting its business principally with non‑arm's length persons. The issue of capital in the context of the arm's length requirement must be examined in the context of when Glenhuron was actually conducting its business — i.e., during the years in issue (2001, 2002, 2003, 2004, 2005, 2008 and 2010). During those years, Glenhuron's capital base was relatively stable. The Loblaw Group had injected capital in Glenhuron before the years in issue (between 1992 and 2000). There were a few further capital injections and some capital repatriations during those years, but these were of modest scale. As the Tax Court judge found, Glenhuron's share capital remained relatively stable during the years in issue, decreasing from $476 million to $443 million. In contrast, Glenhuron's total assets grew from $1.3 billion to $2.4 billion, the difference being attributable mainly to its retained earnings. During the years in issue, most of Glenhuron's assets were deployed in its investment activities with arm's length parties.
(3) Corporate Oversight by a Parent
[ 63 ] The Tax Court judge found that corporate oversight of Glenhuron by its parent transformed Glenhuron's interactions with third parties into activities conducted with persons not at arm's length. In particular, he found that the Loblaw Group exercised close oversight of Glenhuron's investment activities via derivative policies, regular reporting requirements, and regular attendance at Glenhuron's board meetings. In his view, "Loblaw influence pervades the conduct of business" (para. 247).
[ 64 ] I cannot find any basis in the text, context or purpose of the arm's length requirement to support the Tax Court judge's consideration of corporate oversight as part of conducting business. Fundamentally, a corporation is separate from its shareholders. Its business may be conducted using money provided by shareholders or in accordance with policies adopted by the board of directors on behalf of the shareholders, but this does not change the fact that the corporation remains the party conducting business. Treating oversight by a parent corporation as shifting the responsibility for conducting business is also incompatible with the rest of the FAPI regime. As discussed above, the regime applies only where there is a controlled foreign affiliate. If there is a CFA, there is necessarily corporate oversight by its parent. Considering whether corporate oversight has been exercised at arm's length with a CFA is asking a question to which one already knows the answer. Parliament does not speak in vain; it would not have added an arm's length requirement if it could never be met. The intervener the Canadian Bankers' Association aptly encapsulates this situation:
It is incongruous to posit that Parliament has consistently provided a safe harbour for Canada's largest multinational financial enterprises since 1995, yet intended to undermine that safe harbour if the oversight, cooperation, and coordination that is to be expected in such a group is present.
(I.F., at para. 37)
C. Application
[ 65 ] Since the Tax Court judge erred in his interpretation of the arm's length requirement, this Court can apply afresh the correct interpretation of this requirement to the detailed findings of fact made by the courts below, findings that the parties do not challenge (see R. v. Cole, 2012 SCC 53, [2012] 3 S.C.R. 34, at para. 82; R. v. Vu, 2013 SCC 60, [2013] 3 S.C.R. 657, at para. 67; R. v. Friesen, 2020 SCC 9, at para. 27).
[ 66 ] This Court must determine whether Glenhuron's investment business activities were conducted principally with arm's length persons or with non‑arm's length persons. In 1995, the Minister of Finance suggested that the analysis should be done on a "business by business basis" in order "[t]o accommodate multiple foreign affiliate activities" (Department of Finance, Special Report — Revised Draft Legislation and Technical Notes: Foreign Affiliates (1995), at p. vi). However, both parties treat the relevant business as Glenhuron's investment business taken as a whole rather than segmenting the analysis into the different lines of investment business conducted by Glenhuron (e.g., swaps, intercorporate loans, equity forwards). The parties also agree that this determination requires balancing all activities on both sides — arm's length and non‑arm's length — to assess which side is more prevalent. Therefore, although a different approach could perhaps also be warranted, I will leave this question for another day when the Court has the benefit of competing arguments. My application of the arm's length requirement will thus be based on the approach proposed by the parties.
[ 67 ] Once corporate oversight and the capital investments received by Glenhuron are excluded, only Glenhuron's investment activities remain part of the business that is relevant for the application of the arm's length requirement. The vast majority of these activities were conducted with arm's length persons. Therefore, I conclude that this requirement was met during the years in issue and that Loblaw Financial was thus entitled to rely on the financial institution exception. The appeal should be dismissed.
[ 68 ] On the arm's length side, Glenhuron invested in short-term debt securities, cross-currency swaps, and interest swaps. These were by far the most lucrative activities undertaken by Glenhuron, amounting to at least 86 percent of its income during the years in issue. The breakdown year by year is as follows:
| Taxation Year | Short-term debt securities | Cross-currency and interest swaps | Total |
|---|---|---|---|
| 2001 | 72% | 21% | 93% |
| 2002 | 32% | 54% | 86% |
| 2003 | 15% | 73% | 88% |
| 2004 | 16% | 70% | 86% |
| 2005 | 38% | 55% | 93% |
| 2008 | 27% | 66% | 93% |
| 2010 | 3% | 92% | 95% |
(C.A. reasons, at Appendix A)
[ 69 ] Moreover, these activities mobilized the vast majority of Glenhuron's assets. Investments in short-term debt securities ranged from $653 million to $977 million and investments in swaps from $200 million to $1.3 billion.
[ 70 ] Glenhuron also made loans to individual truck drivers. The Federal Court of Appeal found that this part of its business was substantially conducted with both arm's length and non‑arm's length parties (paras. 75-76). The loans were more of a side business than Glenhuron's primary business. In 2001, Glenhuron acquired approximately 1,875 loans for $86 million. These loans had been made to individual drivers to finance the purchase of rights to distribute food produced by a related U.S. corporation, Best Foods Baking Co. Glenhuron subsequently made 700 to 800 new loans per year with an average value ranging between $40,000 and $50,000. Another related corporation was guaranteeing about a third of the value of the loans and collecting payments on Glenhuron's behalf. The expected return of 8.5 percent on these loans was greater than what Glenhuron was making on its other activities. But given the small value of these loans, the return did not exceed $8 million per year, whereas Glenhuron's yearly income ranged from $44.6 million to $88.6 million. In 2005, Glenhuron sold its loan portfolio to a related Irish company for $106 million, but it continued to manage the portfolio on behalf of that related company until 2009. Throughout that time, only two employees were managing the portfolio; they were laid off when management was terminated in 2009.
[ 71 ] On the non‑arm's length side, the Tax Court judge found that Glenhuron was involved in activities pertaining to equity forwards to purchase Loblaw shares and intercorporate loans. Combined, these activities are, however, insignificant in comparison to those involving short-term debt securities and swaps. I fail to see how they could reverse the tide and reach the "principally" threshold.
[ 72 ] Glenhuron's intercorporate loans were, like the loans to the truck drivers, a side business. In 2002, Glenhuron loaned $325 million for 38 days to a related corporation. It earned $3.2 million from that loan, but this represented only 5.7 percent of its income that year. In 2008, Glenhuron loaned another related corporation $300 million, which was repaid the same year, earning $1.2 million. This is also insignificant compared to Glenhuron's income of $72.7 million in 2008.
[ 73 ] Glenhuron entered into a series of equity forward contracts with a bank at arm's length, CitiBank. These contracts were, however, pegged to the shares of Loblaw Companies Ltd., a related corporation, so the Tax Court judge found these dealings not to be at arm's length. Assuming without deciding that these equity forwards are correctly classified as business conducted with persons not at arm's length, they were not significant enough to tilt the balance. Between 2003 and 2009, Glenhuron lost $108 million in total on those contracts because the stock price of the shares peaked in 2005 and then declined. The breakdown of the losses year by year was not discussed by the courts below. During the 7 years in issue (2001, 2002, 2003, 2004, 2005, 2008, and 2010), Glenhuron earned $415.1 million of gross operating income. Overall, this loss of $108 million represents 20 percent of its combined losses and gains. Contrary to the intercorporate loans and the loans to the drivers, this sum is not insignificant. Nonetheless, even when combined, the equity forwards, the intercorporate loans, and the loans to the drivers do not reach the "principally" threshold.
[ 74 ] In brief, the arm's length requirement was met during the years in issue.
VI. Conclusion
[ 75 ] For the foregoing reasons, I would dismiss the appeal with costs.
Appendix
Income Tax Act, R.S.C. 1985, c. 1 (5th supp.) [3]
95 (1) In this subdivision,
investment business of a foreign affiliate of a taxpayer means a business carried on by the affiliate in a taxation year (other than a business deemed by subsection 95(2) to be a business other than an active business carried on by the affiliate) the principal purpose of which is to derive income from property (including interest, dividends, rents, royalties or any similar returns or substitutes therefor), income from the insurance or reinsurance of risks, income from the factoring of trade accounts receivable, or profits from the disposition of investment property, unless it is established by the taxpayer or the affiliate that, throughout the period in the year during which the business was carried on by the affiliate,
(a) the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm's length) is
(i) a business carried on by it as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(A) of each country in which the business is carried on through a permanent establishment (as defined by regulation) in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,
(B) of the country in which the business is principally carried on, or
(C) if the affiliate is related to a non‑resident corporation, of the country under whose laws that non‑resident corporation is governed and any of exists, was (unless that non‑resident corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, or
(b) either
(i) the affiliate (otherwise than as a member of a partnership) carries on the business (the affiliate being, in respect of those times, in that period of the year, that it so carries on the business, referred to in paragraph (c) as the operator), or
(ii) the affiliate carries on the business as a qualifying member of a partnership (the partnership being, in respect of those times, in that period of the year, that the affiliate so carries on the business, referred to in paragraph (c) as the operator), and
(c) the operator employs
(i) more than five employees full time in the active conduct of the business, or
(ii) the equivalent of more than five employees full time in the active conduct of the business taking into consideration only
(A) the services provided by employees of the operator, and
(B) the services provided outside Canada to the operator by any one or more persons each of whom is, during the time at which the services were performed by the person, an employee of
(I) a corporation related to the affiliate (otherwise than because of a right referred to in paragraph 251(5)(b)),
(II) in the case where the operator is the affiliate,
a corporation (referred to in this subparagraph as a providing shareholder) that is a qualifying shareholder of the affiliate,
a designated corporation in respect of the affiliate, or
a designated partnership in respect of the affiliate, and
(III) in the case where the operator is the partnership described in subparagraph (b)(ii),
any person (referred to in this subparagraph as a providing member) who is a qualifying member of that partnership,
a designated corporation in respect of the affiliate, or
a designated partnership in respect of the affiliate,
if the corporations referred to in subclause (B)(I) and the designated corporations, designated partnerships, providing shareholders or providing members referred to in subclauses (B)(II) and (III) receive compensation from the operator for the services provided to the operator by those employees the value of which is not less than the cost to those corporations, partnerships, shareholders or members of the compensation paid or accruing to the benefit of those employees that performed the services during the time at which the services were performed by those employees;
(2) For the purposes of this subdivision,
(b) the provision, by a foreign affiliate of a taxpayer, of services or of an undertaking to provide services
(i) is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, to the extent that the amounts paid or payable in consideration for those services or for the undertaking to provide services
(B) are deductible, or can reasonably be considered to relate to an amount that is deductible, in computing the foreign accrual property income of a foreign affiliate of
(I) any taxpayer of whom the affiliate is a foreign affiliate, or
(II) another taxpayer who does not deal at arm's length with
the affiliate, or
any taxpayer of whom the affiliate is a foreign affiliate . . .
(l) in computing the income from property for a taxation year of a foreign affiliate of a taxpayer there shall be included the income of the affiliate for the year from a business (other than an investment business of the affiliate) the principal purpose of which is to derive income from trading or dealing in indebtedness (which for the purpose of this paragraph includes the earning of interest on indebtedness) other than
(i) indebtedness owing by persons with whom the affiliate deals at arm's length who are resident in the country in which the affiliate was formed or continued and exists and is governed and in which the business is principally carried on, or
(ii) trade accounts receivable owing by persons with whom the affiliate deals at arm's length,
unless
(iii) the business is carried on by the affiliate as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(A) of each country in which the business is carried on through a permanent establishment (as defined by regulation) in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,
(B) of the country in which the business is principally carried on, or
(C) if the affiliate is related to a non‑resident corporation, of the country under whose laws that non‑resident corporation is governed and any of exists, was (unless that non‑resident corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and
(iv) the taxpayer is
(A) a bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities resident in Canada, the business activities of which are subject by law to the supervision of a regulating authority such as the Superintendent of Financial Institutions or a similar authority of a province,
(B) a subsidiary wholly-owned corporation of a corporation described in clause 95(2)(l)(iv)(A), or
(C) a corporation of which a corporation described in clause 95(2)(l)(iv)(A) is a subsidiary wholly‑owned corporation;
Appeal dismissed with costs.
Solicitor for the appellant: Attorney General of Canada, Toronto.
Solicitors for the respondent: Osler, Hoskin & Harcourt, Toronto.
Solicitor for the intervener the Attorney General of Ontario: Attorney General of Ontario, Toronto.
Solicitors for the intervener Canadian Bankers' Association: Thorsteinssons, Toronto.
[1] The relevant sections are reproduced in an appendix to these reasons.
[2] See the definitions of "controlled foreign affiliate" and "foreign affiliate" in s. 95(1) of the ITA.
[3] As the provisions stood at all relevant times (version in force from 2000 to 2008).