INCOME TAX |
Corporations |
Canada v. Imperial Oil Ltd.
A-548-02
2004 FCA 36, Strayer J.A.
26/1/04
31 pp.
Imperial Oil Ltd. (respondent) made three short-term loans to two wholly-owned subsidiaries of Canadian chartered banks--Loans guaranteed by banks--Loans qualify under Income Tax Act (Act), Part I.3 as investment allowance (s. 181.2)--Invesment allowance is total of carrying value at end of year for corporation's shares in another corporation, loans to another corporation, other than financial institution, and bonds, notes, mortgages of another corporation, other than financial institution--As investment allowance, loans reduce respondent's liability for large corporation tax (LCT)-- However, M.N.R. invoked general anti-avoidance rule (GAAR) in s. 245 to deny respondent most of this tax benefit --Tax Court of Canada allowed appeal from reassessment (Imperial Oil Ltd. v. Canada, 2002 DTC 1954), holding neither "misuse" of relevant statutory provisions nor "abuse" when Act read as whole--Review of purpose of GAAR, three-step GAAR analysis set out in OSFC Holdings Ltd. v. Canada, [2002] 2 F.C. 288 (C.A.)--Interpretation of "misuse", "abuse" in s. 245 in light of statutory language, policy, context--Loan to Royal Bank Export Finance Company Limited (REFCO) considered representative of three loans--Not misuse of investment allowance provisions of Act for three reasons--(1) Loan did not violate purpose for which Parliament provided short-term loan to financial institution not qualifying as investment allowance--(2) Since REFCO not financial institution, loan did not enable respondent to do indirectly what it could not do directly i.e. obtain tax advantage of investment allowance and commercial security of loan to bank--(3) Loan ordinary commercial transaction, with no artificial elements, undertaken for both tax and non-tax purposes--Appellant failed to establish Tax Court made any error in concluding no abuse because loan not contrary to any clear and unambiguous policy of Act, Part I.3 when read as whole--Minister's argument that there is clear policy corporation's capital at end of fiscal year should be representative of capital throughout year and respondent breached this policy by making 30-day loans close to end of fiscal year failed--Value of company's capital can only be measured at single moment in time--No reason to think time when corporation's capital measured representative of value of capital over year--If Parliament had intended to use average value of company's capital over year as basis for determining liability to LCT, it could have required companies to report value of their capital at several points during year and calculated LCT by reference to average capital value--However, this would have imposed very onerous administrative burden on taxpayers--Parliament may thus have chosen single valuation date, at end of company's fiscal year, purely as matter of convenience--No evidence supporting Minister's argument Part I.3 tax calculated on assumption value of corporation's capital at year end representative of value over year--Appeal dismissed-- Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 181.2, 245.