{"id":1226,"date":"2014-08-13T14:56:54","date_gmt":"2014-08-13T14:56:54","guid":{"rendered":"https:\/\/thor.ca\/\/blog\/?p=1226"},"modified":"2014-08-13T14:56:54","modified_gmt":"2014-08-13T14:56:54","slug":"ontario-court-of-appeal-upholds-tax-efficient-internal-financing","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2014\/08\/ontario-court-of-appeal-upholds-tax-efficient-internal-financing\/","title":{"rendered":"Ontario Court of Appeal upholds tax-efficient internal financing"},"content":{"rendered":"

In Inter-Leasing, Inc. v. Ontario (Revenue)<\/em><\/a>, 2014 ONCA 575, rev\u2019g 2013 ONSC 2927, the Ontario Court of Appeal (OCA) upheld an internal group financing arrangement which eliminated provincial income tax on interest paid by Alberta-based companies (Alberta Cos) to a BVI-incorporated company having a permanent establishment (PE) in Ontario (BVI Co).\u00a0 The Alberta Cos deducted the interest for both federal and Alberta income tax purposes (on this point, see Husky Energy Inc. v. Alberta<\/em>, 2012 ABCA 231, leave to appeal refused [2012] S.C.C.A. 411).\u00a0 BVI Co paid federal tax on the interest received, but claimed it was exempt from any Ontario tax on that interest.\u00a0 Ontario reassessed BVI Co for provincial income tax on the ground that either (1) its interest income was \u201cincome from a business\u201d carried on in Ontario, or (2) the arrangement was abusive tax avoidance which could be set aside under Ontario\u2019s general anti-avoidance rule (GAAR).\u00a0 Ontario won at trial.\u00a0 On appeal, the OCA soundly rejected both arguments:<\/p>\n

    \n
  1. The interest income was not income from a business, but rather was income from property \u2013 having regard to the Supreme Court of Canada\u2019s decisions in Canadian Marconi Company v. The Queen<\/em>, [1986] 2 S.C.R. 522 and Ensite Ltd. v. The Queen<\/em>, [1986] 2 S.C.R. 509.\u00a0 The rebuttable presumption that a corporation carries on a business was \u201cnot helpful\u201d (paragraph 31), and the activities associated with earning the interest income were virtually non-existent (paragraph 35).<\/li>\n
  2. The internal financing did not result in abusive tax avoidance.\u00a0 Prior to 2005, Ontario made a clear and deliberate choice to tax corporations based on place of incorporation \u2013 not residence (paragraph 55).\u00a0 That is, under the applicable provision a corporation incorporated outside Canada (and having a PE in Ontario) was subject to tax on its income from business, but not<\/em> on its income from property (paragraph 56).\u00a0 Here was a clear example where the underlying rationale of the provision was no broader than the text itself (paragraph 61).\u00a0 Accordingly, the internal financing arrangement did not produce a result that the provision sought to prevent, did not defeat the underlying rationale of the provision, and did not frustrate the object, spirit or purpose of the provision (paragraph 62).\u00a0 The fact is that provincial tax systems can differ, and the risks of differential tax treatment which can arise as a result have long been recognized (paragraph 58).<\/li>\n<\/ol>\n

    The OCA also rejected Ontario\u2019s claim for corporate minimum tax.\u00a0 The debt instruments held by BVI Co were situated outside Canada, and the GAAR did not apply to alter that result.<\/p>\n","protected":false},"excerpt":{"rendered":"

    In Inter-Leasing, Inc. v. Ontario (Revenue)<\/em><\/a>, 2014 ONCA 575, rev\u2019g 2013 ONSC 2927, the Ontario Court of Appeal (OCA) upheld an internal group financing arrangement which eliminated provincial income tax on interest paid by Alberta-based companies (Alberta Cos) to…<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-1226","post","type-post","status-publish","format-standard","hentry","category-corporate-tax"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/1226","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/comments?post=1226"}],"version-history":[{"count":0,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/1226\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=1226"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=1226"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=1226"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}