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Statutory Interpretation - Taxation

. Stamford Kiwanis Non-Profit Homes Inc. v. Municipal Property Assessment Corp.

In Stamford Kiwanis Non-Profit Homes Inc. v. Municipal Property Assessment Corp. (Div Court, 2023) the Divisional Court considered (and dismissed) an appeal by a non-profit housing provider of a dismissal of a Superior Court declaration application [under Assessment Act, s.46] that they were property-tax exempt as a charity.

In these quotes the court considers statutory interpretation, here in the taxation context:
[16] Before the application judge, the respondents did not dispute that Stamford Homes is “a charitable, non-profit philanthropic corporation that is supported in part by public funds”. As well, the respondents conceded in oral argument that Stamford Homes, by providing subsidized rent to many of its tenants, “serves the poor as intended by the exemption”: Application Decision, at para. 3. On that basis, the application judge identified the only issue in the application as being whether Stamford Homes is “organized for the relief of the poor”: Application Decision, at para. 4.

[17] The application judge further narrowed the issue for determination by making the undisputed finding, on the evidence and applying the cases the parties cited, that the tenants of the Properties were “poor”. According to the application judge, the application turned on whether Stamford Homes “is organized for the relief of the poor” (emphasis in original): Application Decision, at para. 34.

[18] The application judge found that the evidence did not support the conclusion that Stamford Homes was “organized” for the relief of the poor. In reaching that conclusion, the application judge relied on the decision of the Court of Appeal in Religious Hospitallers of St. Joseph Housing Corp. v. Regional Assessment Commissioner (1998), 1998 CanLII 2943 (ON CA), 42 O.R. (3d) 532 (C.A.). As explained further below, the court in that case considered the application of the exemption in s. 3(1)12 (as it was prior to the 1998 amendments) to a multi-unit residential property that provided rental units to occupants on a subsidized basis. The court, at p. 8, interpreted “the words ‘organized for the relief of the poor’ to mean that it would be the corporation itself, by some form of endeavour of the corporation, which would provide the relief involved” (emphasis added). After reviewing the limited role of the housing corporation that owned the property in that case, the court determined that the housing corporation “was not ‘organized for the relief of’ the tenants within the meaning of the exemption provision”: Religious Hospitallers, at pp. 8-9.

[19] Before the application judge, Stamford Homes argued that the court was not bound to follow Religious Hospitallers because (among other things) the Court of Appeal failed to apply the principles of statutory interpretation of taxation legislation set out in Québec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secours, 1994 CanLII 58 (SCC), [1994] 3 S.C.R. 3 and other case law. The application judge rejected that submission: Application Decision, at paras. 28, 42-43. He also rejected the submission that Religious Hospitallers was distinguishable on its facts, finding on evidence that Stamford Homes’ activities “falls short of the kind of endeavour that Religious Hospitallers indicates is required”: at paras. 55-56. In doing so, the application judge noted that with one exception, other cases cited to him that interpreted the meaning of “organized for the relief of the poor” did not expressly include a requirement for “endeavour”: at paras. 36, 57-58.


VI. Interpretation of taxation statutes

A. Modern principle of statutory interpretation

[26] In Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 21, the Supreme Court concisely set out the modern principle of statutory interpretation, as previously formulated in Elmer A. Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983), at p. 87, as follows:
Today there is only one principle or approach, namely, 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.
[27] In R. v. Del Mastro, 2017 ONCA 711, 416 D.L.R. (4th) 726, at para. 61, after stating that principle, the Court of Appeal went on to state as follows:
[S]tatutory interpretation is a multi-dimensional exercise and requires a court to consider whether a particular interpretation complies with the legislative text, promotes the intention of the legislature, and produces a result that is reasonable and just, in compliance with accepted legal norms: Ruth Sullivan, Sullivan on the Construction of Statutes, 6th ed. (Markham: LexisNexis, 2014), at pp. 7-10.
B. Supreme Court’s decision in Notre-Dame de Bon-Secours

[28] In its 1994 decision in Notre-Dame de Bon-Secours, the Supreme Court of Canada considered the issue of statutory interpretation as it applies specifically to taxation legislation. In that case, the issue for determination was the application of a municipal tax exemption under Quebec provincial legislation to facilities that provided low-rent housing to indigent elderly persons.

[29] In Notre-Dame de Bon-Secours, at para. 17, the court noted that there was “a traditional rule that tax legislation must be strictly construed: this applied both to provisions imposing a tax obligation and to those creating tax exemptions.” For a provision imposing a tax liability, the burden of proving its application lay with the tax department. For an exemption provision, the taxpayer had the burden of proving that the exemption applied: Notre-Dame de Bon-Secours, at paras. 17-18.

[30] This approach reflected the traditional view that the sole purpose of taxation legislation was to raise money: see Commissioners for Special Purposes of Income Tax v. Pemsel, 1891 CanLII 21 (FOREP), [1891] A.C. 531, at p. 551; London (City) v. Ursuline Religious Diocese of London, 1964 CanLII 243 (ON CA), [1964] 1 O.R. 587 (C.A.); and Yarmouth (Township) v. London (City), 1956 CanLII 42 (ON CA), [1957] O.R. 37 (C.A.).

[31] In Notre-Dame de Bon-Secours, at para. 20, the Supreme Court went on to consider more recent case law, which recognized that “the purpose of tax legislation is no longer simply to raise funds with which to cover government expenditure. It was recognized that such legislation is also used for social and economic purposes.”

[32] At para. 22, the Supreme Court stated that “there is no longer any doubt that the interpretation of tax legislation should be subject to the ordinary rules of construction.” As in Rizzo, at para. 21, the court adopted Professor Drieger’s formulation of the modern principle of statutory interpretation. The court, at para. 25, went on to summarize the principles that applied to the interpretation of tax legislation as follows:
- The interpretation of tax legislation should follow the ordinary rules of interpretation;

- A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach;

- The teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions;

- Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute;

- Only a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer.
C. Court of Appeal’s decision in Ottawa Salus

[33] In its 2004 decision in Ottawa Salus, the Court of Appeal specifically relied on Notre-Dame de Bon-Secours in interpreting the application of s. 3(1)12(iii) of the Assessment Act.

[34] As previously noted, in the 1998 amendments to s. 3(1)12, the language requiring that the land to be “owned by the institution and occupied and used for the purposes of the institution” was amended to “land owned, used and occupied by” the charitable organization. The amended provision also removed the exemption for institutions that are “similar” to charitable institutions organized for the relief of the poor: Ottawa Salus, at paras. 5, 22.

[35] In Ottawa Salus, MPAC argued that the amended language narrowed the exemption so that it no longer applied to premises that were occupied by disadvantaged tenants rather than by the institution itself. The Court of Appeal rejected that interpretation, stating that the court below had not erred in finding that the institution “must affirmatively establish that its property falls within the four corners of the exempting provision” but that “the legislative intent and purpose of the exemption must also be kept in mind”: Ottawa Salus, at para. 16.

[36] As previously noted, the court observed that many of the institutions and organizations that had the benefit of an exemption from taxation under s. 3(1) “perform activities which are of great benefit to either discrete groups of disadvantaged persons or to society as a whole. Exemption from property tax allows these organizations to spend more of their limited resources on those activities”: Ottawa Salus, at para. 26. The court also noted that the specific purpose of s. 3(1)12(iii) was “to grant relief from property taxation to non-profit corporations ‘organized for the relief of the poor’ because the public interest in granting these organizations additional resources to relieve poverty outweighs the public interest in generating revenue through the taxation of property”: Ottawa Salus, at para. 27.

[37] At para. 28, the court held that taking into account the provision’s legislative purpose, the more expansive interpretation adopted by the court below (that is, the charity need not itself occupy the land, but the land must be used directly by the charity in carrying out its work) was the preferred interpretation that created “a balanced and just interpretation of the exemption”.

D. Court of Appeal’s decision in Religious Hospitallers

[38] In its 1998 decision in Religious Hospitallers (decided before Ottawa Salus but four years after Notre-Dame de Bon-Secours), the Court of Appeal considered the application of the exemption in s. 3(1)12 of the Assessment Act, as that provision read before the 1998 amendments.

[39] In Religious Hospitallers, the respondent housing corporation owned a 59-unit residential property used to accommodate senior citizens, which was the respondent’s only undertaking. The property was acquired from a religious order and the existing hospital building was converted for that use. Capital funding was provided by a mortgage from Ontario Housing Corporation. The units were allocated in accordance with a plan approved by the provincial Ministry of Housing. Under the plan, 20 per cent of the occupants paid market rent and the balance paid rent geared to income. The income to operate the complex was derived from rent and other charges paid by the occupants. Expenditures included payments on the mortgage loan and an administration fee to the religious order that formerly owned the property, for management of the complex. An annual budget was presented to the Ministry, which paid the respondent an amount sufficient to make up any shortfall between income and expenses.

[40] Upon the housing corporation’s application under the Assessment Act, the application judge found that the property was not exempt from municipal taxation under s. 3(1)12. On appeal, the Divisional Court reversed that decision, finding that the exemption in s. 3(1)12 applied. Upon further appeal, the Court of Appeal reversed the Divisional Court decision and restored the application judge’s decision that the property was subject to municipal land tax.

[41] In Religious Hospitallers, at p. 2, the Court of Appeal stated that the only issue in the appeal was whether the land in question met the criteria in the exemption provision. The court also stated that a taxpayer claiming an exemption “has the onus of showing that he or she comes clearly within the terms of the exemption clause” (citing its 1964 decision in Ursuline Religious and its 1957 decision in Yarmouth), the reason being that there is “no purpose in a Taxing Act but to raise money, and ... every exemption throws an additional burden on the rest of the community” (citing the 1891 English House of Lords decision in Pemsel). The Court of Appeal in Religious Hospitallers did not refer to the Supreme Court decision in Notre-Dame de Bon-Secours, decided four years earlier.

[42] After reviewing the factual background and the wording of the exemption, the Court of Appeal, at pp. 5-6, identified the only issue for determination to be whether the respondent was “organized for the relief of the poor” or a “similar incorporated institution” within the meaning of s. 3(1)12 as it then read. In doing so, the court stated that it was relevant to consider the respondent’s corporate objects, but the court also noted that corporate objects “cannot be conclusive; otherwise determining whether an exemption is available would depend purely on the drafting of the corporate objects. It is the property for which exemption is claimed and its actual operation and administration which are of primary concern in determining whether the exemption criteria are met”: at p. 7.

[43] At pp. 8-10, the Court of Appeal went on to interpret the statutory language as follows:
I read the words "organized for the relief of the poor" to mean that it would be the corporation itself, by some form of endeavour of the corporation, which would provide the relief involved. In this case, the corporation itself does very little. It raises no funds by efforts of its members for the support of the institution, such as solicitation of the public or other fund-raising projects or events. It does not manage the operation; that is done by the order of the Religious Hospitallers of St. Joseph in return for payment of an annual fee of approximately $60,000. The Housing Corporation is the registered owner of the property which it purchased from the Order, but the purchase was fully financed, and the cost of financing is paid for in total, by government funds. From the outset, the actual operation and administration were organized so that the Housing Corporation has provided nothing which is for the relief of the tenants. The total cost is borne by a combination of the tenants themselves and government.

In my view, the Housing Corporation was not "organized for the relief of" the tenants within the meaning of the exemption provision.


In our case, all of the funds to operate the Housing Corporation project come from the tenants and government sources. It is that fact which, as stated above, compels me to conclude that it is not the Housing Corporation which provides relief for the tenants in this case.

[Emphasis added.]
E. Other s. 3(1)12 case law

[44] The parties also referred to other case law, decided before and after Notre-Dame de Bon-Secours, that interpreted s. 3(1)12 of the Assessment Act, including the Supreme Court of Canada decision in Ontario (Assessment Commissioner Stouffville) v. Mennonite Home Assn. of York (County), 1972 CanLII 9 (SCC), [1973] S.C.R. 189, a decision that Stamford Homes relies on. In that case, the Supreme Court identified the issue for determination as whether the owner of a building used as a home for the aged (without any means test or inquiry upon admission) fell within the wording of the exemption in s. 3(1)12 as it was prior to the 1998 amendments, on the basis that it was “similar” to an incorporated charitable institution organized for the relief of the poor. In a split decision (three to two), the majority held that the exemption applied.

[45] After concluding that the other aspects of exemption were satisfied (including that the home was supported, in part at least, by “public funds”, which the majority interpreted to mean “funds from a government source”)[1], the majority went on to consider whether the institution was “similar” to an incorporated charitable institution organized for the relief of the poor. The majority decided that it was. To determine whether the home’s occupants were “poor”, the majority indicated that the poor “does not mean the very poorest, the absolutely destitute; the word ‘poor’ is more or less relative.” The majority adopted the finding of the court below that the home’s occupants “if they are not poor, are in similar circumstances”. The majority therefore concluded that the institution was “similar to one incorporated for the relief of the poor in that it operates for the relief of the poor.”

[46] The Supreme Court’s interpretation of the term “poor” in Mennonite Homes was adopted and refined in City of London v. Byron Optimist Sports Complex Inc. (1983), 23 M.P.L.R. 10 (Ont. C.A.), where the Court of Appeal stated that “the term ‘poor’ is a relative term and that while the persons who benefit need not be destitute, there must be an element of economic deprivation or need, the relief from which is a part of the purpose of the institution claiming the exemption.”

[47] As in Mennonite Home, the issue in Byron Optimist was whether the organization seeking the exemption was “similar” to an incorporated charitable institution organized for the relief of the poor within the meaning of the pre-1998 version of s. 3(1)12. The Court of Appeal decided that the exemption was not available since an element of economic deprivation or need was not established in that case.

[48] The Divisional Court reached a similar conclusion in LDARC Corp. and City of London (1985), 1985 CanLII 2148 (ON SC), 50 O.R. (2d) 677 (Div. Ct). In that case, the court observed that the institution in question carried on “worthwhile commendable work”, but “[i]t was not the Legislature's intention to grant tax exemptions to all worthwhile charitable institutions”: LDARC, at p. 8.

[49] Bolan J. of this court also considered the application of s. 3(1)12(iii) in MacKay Homes v. North Bay (City) [catalogued as Homes v. North Bay (City)], 2005 CanLII 5873 (Ont. S.C.), a decision considered by the application judge: Application Decision, at paras. 36-37. In that case, the owner of a housing development established for the benefit of low-income seniors sought an exemption from taxation pursuant to s. 3(1)12(iii). The court found that the property was exempt.

[50] In MacKay Homes, at para. 13, the court described the services provided directly by the board of the property owner (not an out-sourced entity) as follows:
The Applicant is the exclusive owner and operator of these rental units. It is governed by a Board of 6 Directors who serve entirely without fee, gratuity or involvement of any kind or amount whatsoever, attending to the collection of rentals, payment of mortgage installments, maintenance and repairs to the residential units, maintenance and care of the grounds, receiving applications and allotment of accommodations along with preparation and execution of lease, personal attention and assistance to individual tenants from time to time in numerous other ways.
[51] In order to determine whether the housing corporation was organized for the relief of the poor, the court stated that “there must be an element of economic deprivation or need to the tenants and it also requires that the Applicant undertakes some form of endeavor to provide the relief”: MacKay Homes, at para. 14. The court found that those elements of s. 3(1)12(iii) had been satisfied: at paras. 16-25. The court was also satisfied that the applicant was supported in part by “public funds” by CMHC financing at “a constant interest rate substantially below [market] interest rates”: at paras. 24-26.

[52] In the Application Decision, at paras. 32-33, the application judge also referred to St. Catharines Seniors Apartments Phase Three Inc. v. Municipal Property Assessment Corporation, 2015 ONSC 3896, 41 M.P.L.R. (5th) 98. In that case, the applicant owned and operated a residential apartment building the occupants of which were low-income seniors. The parties agreed that the applicant “owns, uses and occupies … a charitable, non-profit, philanthropic, residential apartment building for seniors of low income, … and that it is supported, in part, by public funds”: St. Catharines Seniors, at para. 3. Therefore, by the parties’ agreement, all the elements of s. 3(1)12(iii) were satisfied except for the requirement that the applicant be “organized for the relief of the poor”. The court then noted that if the building’s residents “satisfy ‘the poor’ requirement of paragraph 12(iii), the applicant is entitled to, and seeks, an order declaring that the property is exempt from municipal taxation”: St. Catharines Seniors, at para. 4.

[53] The court concluded that the building’s residents were poor within the meaning of s. 3(1)12(iii), with the result that the applicant was entitled to an exemption from taxation for the building.

[54] In its analysis, the court, at paras. 32-35, referred to the interpretive framework set out in Notre-Dame de Bon-Secours and Ottawa Salus, and, at paras. 40-46, also considered previous case law that interpreted the meaning of “poor” in this context. In that regard, the court noted that qualification for the exemption in s. 3(1)12(iii) did not require that the building “be occupied by the poorest of the poor” and found that the building’s residents “are not cardboard-box-in-the-park poor, but they are poor”: St. Catharines Seniors, at paras. 51-52. The court concluded that the exemption from taxation applied, giving effect to “the important public interest in providing affordable housing for poor senior citizens”: St. Catharines Seniors, at para. 53.

[55] In its submissions, Stamford Homes also refers to the Divisional Court decision in Sandy Hill Community Health Centre Inc. v. Ontario (Regional Assessment Commissioner, Region No. 3) (1997), 1997 CanLII 16223 (ON SC), 34 O.R. (3d) 226 (Div. Ct.), which considered the application of the exemption in s. 3(1)12 before the 1998 amendments to the Assessment Act. In that case, the applicants were three charitable institutions that provided basic health care in low-income neighbourhoods. The principal issues on appeal were (i) whether the institutions mainly served the poor, and (ii) whether providing health care services to the poor can be regarded as providing relief to the poor: Sandy Hill, at p. 6. To determine those issues, the court, at p. 3, described the scope of its inquiry as follows:
It is well settled that the issue of whether a corporation is organized for the relief of the poor is not determined by the statement of its objects contained in its incorporating documents. Instead, the inquiry should be directed to [an] examination of the actual activities of the corporation. It is, therefore, necessary to examine the evidence describing the work of the 3 applicants in the case at bar.
[56] After examining the evidence, the Divisional Court decided both questions in the affirmative, that is, (i) the applicants mainly served the poor, and (ii) providing health care services to the poor can be regarded as providing relief to the poor: Sandy Hill, at pp. 6, 20.
The court continues at paras 59-79 to apply this law to the appellant's arguments.

. Emergis Inc. v. Canada

In Emergis Inc. v. Canada (Fed CA, 2023) the Federal Court of Appeal considers the weight to be accorded the 'text/context/purpose' factors in statutory interpretation, here in an income tax context:
[22] The focus in this appeal is on the interpretation of the exception contained in subsection 20(12) of the ITA. Questions of statutory interpretation are to be decided based on a textual, contextual, and purposive analysis.

[23] As noted by the Supreme Court of Canada in Canada v. Loblaw Financial Holdings Inc., 2021 SCC 51:
[41] This narrow question of statutory interpretation requires us to draw upon the well-established framework that “statutory interpretation entails discerning legislative intent by examining statutory text in its entire context and in its grammatical and ordinary sense, in harmony with the statute's scheme and objects” (Michel v. Graydon, 2020 SCC 24, at para. 21). Where the rubber hits the road is in determining the relative weight to be afforded to the text, context and purpose. Where the words of a statute are “precise and unequivocal”, their ordinary meaning will play a dominant role (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, at para. 10). In the taxation context, a “unified textual, contextual and purposive” approach continues to apply (Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, at para. 22, quoting Canada Trustco, at para. 47). In applying this unified approach, however, the particularity and detail of many tax provisions along with the Duke of Westminster principle (that taxpayers are entitled to arrange their affairs to minimize the amount of tax payable) lead us to focus carefully on the text and context in assessing the broader purpose of the scheme (Placer Dome, at para. 21; Canada Trustco, at para. 11). This approach is particularly apposite in this case, where the provision at issue is part of the highly detailed and precise FAPI regime. I must emphasize again that this is not a case involving a general anti-avoidance rule. The provision at issue is part of an exception to the definition of “investment business” within the highly intricate, highly defined FAPI regime. If taxpayers are to act with any degree of certainty under such a regime, then full effect should be given to Parliament's precise and unequivocal words.
. Stonehouse Group Inc. v. Ontario (Minister of Finance)

In Stonehouse Group Inc. v. Ontario (Minister of Finance) (Ont CA, 2021) the Court of Appeal clarified a new (from 2006) tax statutory interpretation approach:
[13] It is agreed that there is no longer a special rule regarding the interpretation of taxing statutes, that is, such statutes are not to be interpreted strictly against the taxing authority as was once the case. Rather, taxing statutes are to be interpreted as any other statute would be, that is, “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.
. Lawyers’ Professional Indemnity Company v. Canada

In Lawyers’ Professional Indemnity Company v. Canada (Fed CA, 2020) the Federal Court of Appeal considered the statutory interpretation that applies to whether the Lawyers’ Professional Indemnity Company (Lawpro), a Law Society of Ontario (LSO) subsidiary, was exempt from taxation as a "public body performing a function of government in Canada":
[29] Before considering whether the Tax Court erred in its interpretation of paragraph 149(1)(d.5) of the ITA, it is first necessary to address the principles of statutory interpretation to be applied in discerning the proper meaning of the statutory provision at issue in this case.

[30] In Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, the Supreme Court of Canada identified the approach to be used in interpreting statutory provisions such as the one at issue here. There, the Court stated that the words of a statute "“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”": at para. 10, citing 65302 British Columbia Ltd. v. Canada, 1999 CanLII 639 (SCC), [1999] 3 S.C.R. 804, 179 D.L.R. (4th) 577 at para. 50.

[31] While language in a statutory provision is not to be interpreted independently of its context and legislative purpose, the Court nevertheless went on in Canada Trustco to observe that where the words of a statutory provision are precise and unequivocal, the ordinary meaning of the words will play a dominant role in the interpretive process: above at para. 10. Where, however, the words are capable of supporting more than one reasonable meaning, the ordinary meaning of the words will play a lesser role. Although the relative effects of ordinary meaning, context and purpose on the interpretive process may vary from case to case, courts must seek to read the provisions as a harmonious whole in every case: Canada Trustco, above at para. 10.
. Loblaw Financial Holdings Inc. v. Canada

In Loblaw Financial Holdings Inc. v. Canada (Fed CA, 2020) the Federal Court of Appeal considered whether income from a foreign corporation, registered as a bank, fell under a taxation exemption for arm's length banks. In the course of the case it considered the doctrine of statutory interpretation:
[41] The well-established approach to interpreting statutes in Canada, including the ITA, is to consider the text, context and purpose of the legislation in a manner that is harmonious with the statute as a whole (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 at para. 11, [2005] 2 S.C.R. 601).


[52] One error concerns how the arm’s length test is to be interpreted in the specific context of foreign banks.

[53] The Tax Court determined that a proper interpretation of the arm’s length test in a banking context requires one to examine the bank’s activities from the perspective of both the receipt and use of funds (paragraph 209). This was based on the Court’s view that a bank’s business necessarily involves two sides - receipts and uses. The Court appeared to rely entirely for this conclusion on the definition of an "“international banking business”" in the Barbados legislation.

[54] This conclusion was a legal error. Simply because Barbados legislation defines international banking in a particular manner does not mean that receipts and uses are always a necessary requirement to carry on a banking business – in Barbados or elsewhere.

[55] Canadian courts find it difficult to define the term "“banking”". The Supreme Court discussed this difficulty in the context of a constitutional matter in Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan (1979), 1979 CanLII 180 (SCC), [1980] 1 S.C.R. 433, 107 D.L.R. (3d) 1. In that case, the decision of the majority concluded that "“banking”" is an elusive concept, difficult to define, and its meaning should be based on a formal, institutional approach rather than a substantive approach, in the sense of the functions of banking. It follows that the use of the term "“bank”" in the name of the entity, and whether it is regulated, are factors to be considered, rather than the actual activities that are conducted.

[56] The Tax Court’s approach is at odds with Canadian Pioneer, which details that a formal, institutional approach should be taken to define a banking business. Using this approach, there is no reasonable basis to conclude that the arm’s length test requires both business receipts and uses.

[57] The Tax Court’s error that business receipts and uses are necessary to comply with the arm’s length test spawned two incorrect conclusions: (1) that the receipt side of the business implies an element of competition (paragraph 210), and (2) that the necessity for business receipts means that the exclusion does not apply if a business simply manages its own funds (paragraph 325). Since the term "“banking”" depends on formal factors rather than functions, it is a legal error for the Tax Court to make these inferences.

[58] In addition, the Tax Court’s focus on competition, which was dealt with at length in the Court’s reasons, is an example of a court inferring a purposive interpretation from unexpressed legislative intent. This is also a legal error. As stated by the Supreme Court of Canada: "“This Court has consistently held that courts must therefore be cautious before finding within the clear provisions of the [ITA] an unexpressed legislative intention … Finding unexpressed legislative intentions under the guise of purposive interpretation runs the risk of upsetting the balance Parliament has attempted to strike in the [ITA]”" (Shell Canada Ltd. v. Canada, 1999 CanLII 647 (SCC), [1999] 3 S.C.R. 622 at para. 43, 178 D.L.R. (4th) 26). The emphasis in the Tax Court’s reasons on an unexpressed intention of competition is not appropriate in this case which involves a FAPI scheme that is drafted with mind-numbing detail.

[59] The Tax Court also erred by conflating the rationale of the legislation for purposes of a GAAR analysis with the purpose of the legislation in a statutory interpretation analysis. These are distinctly different exercises (Canada v. Oxford Properties Group Inc., 2018 FCA 30 at paras. 40–42, [2018] 6 C.T.C. 1, citing Copthorne Holdings Ltd. v. R., 2011 SCC 63 at paras. 66, 70, [2011] 3 S.C.R. 721). It appears that the Tax Court brushed over this distinction, referring to it as "“something of a fine, legalistic point”" (paragraph 218).

[60] As discussed in the Tax Court reasons, competition is recognized as a policy rationale for limiting FAPI to passive income and as such it would be relevant in a GAAR analysis. However, Parliament has not explicitly required competition as an element of the foreign bank exclusion at issue. This may be contrasted with other FAPI provisions where a competition requirement is explicit (see, for example, subsection 95(2.4) of the ITA).

[61] The Court also erred in not respecting the fundamental principle that a corporation and its shareholders are separate and distinct entities (see Chevron Corp. v. Yaiguaje, 2015 SCC 42 at para. 95, [2015] 3 S.C.R. 69).

[62] This error is manifested in the Court’s determination that Glenhuron’s activities involving the purchase of short-term debt securities and its swap transactions were conducted with Loblaw. In each case, the Court stated that Glenhuron was acting on behalf of Loblaw whose money it was investing (paragraphs 242, 247). Except with respect to investment management services which are not relevant in this part of the analysis, Glenhuron was not managing Loblaw’s money but its own. It was an error of law for the Court to consider that Glenhuron’s money belonged to Loblaw.


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