Canada v. Canada Trustco Mortgage Co.
T-589-92
MacKay J.
2/2/99
26 pp.
Active business-Appeal from Tax Court decision allowing appeal from reassessment of taxpayer's liability for tax for 1984 and 1985 taxation years of predecessor of defendant corporation-Issue whether certain income of controlled foreign affiliate of defendant's predecessor in years in question income from active business or foreign accrual property income (FAPI) of defendant's predecessor within Income Tax Act (ITA), s. 95(1)(b)-Action dismissed-Income of foreign affiliate not FAPI under Act, and not assessable as income of defendant's predecessor-Foreign affiliate Canada Trust Company B.V. (B.V.) wholly owned "controlled foreign affiliate" of Canada Permanent, and B.V.'s registered office located in Amsterdam-In 1984, B.V. earned interest on US$55.5 million promissory note, as well as payment under note, and bank interest on those funds received from note that were subsequently deposited on short term with B.V.'s bank-In 1985, received similar payment and income, and also received income from interest paid on mortgages (worth about $18,000,000) purchased that year from Canadian approved lenders under National Housing Act-MNR reassessed defendant for 1984 taxation year on basis net income from bank interest earned by B.V. was FAPI, of controlled foreign affiliate of predecessor corporation, valued at $389,543; for 1985 taxation year, assessment concerned similar income from bank interest and income earned by B.V. on mortgages held by it, income assessed at $1,802,263-First issue whether, as argued by plaintiff, income in question may be considered FAPI in light of its source and manner in which it was earned even if other income of B.V., from other sources, considered to be derived from active business or whether, as argued by defendant, general nature of B.V.'s business establishing active business carried on, and all income earned in that business not FAPI of Canadian parent corporation under ITA, s. 95(1)(b)-Second issue temporal application of concept of active business-Thus plaintiff arguing whatever assessment of B.V.'s business in 1985, could hardly be said it carried on active business in 1984-In relevant provisions of Act, FAPI clearly not including income from active business-1995 amendment to ITA expressly excluded from "active business" of controlled foreign affiliate "investment business carried on by affiliate"-Under amendment, income here in question would now be FAPI-However, amendment has no application herein-Nothing in ITA, s. 95(1)(b) as applicable in years in question, that would lead one to consider that Parliament intended "business" therein to be construed other than broadly, in accord with ITA, s. 248(1)-B.V.'s activities in 1984 and 1985 within its objects, in particular within scope of terms "to take up loans and to lend money and in general to enter into all forms of financial transactions"-Clearly business objectives-Acting within its objectives, B.V. was carrying on business-Examination of history of use of term "active business" in ITA and case law thereon-No quantitative measure of activity indicating active business carried on by company engaged in financial activities within scope of its objects-Minister's reassessments must relate to whole of income of B.V., not merely in 1984 and 1985 to income from bank deposits-Source of stream of revenue flowing into B.V.'s total income not determining factor in assessing whether income FAPI under ITA, s. 95(1)(b)-Assessment must relate to totality of B.V.'s income in light of evidence of nature of business as entity, as active business or otherwise-On evidence, B.V. carried on active business in 1984 and 1985-B.V. ultimately became established banking institution-Income Tax Act, S.C. 197071-72, c. 63, ss. 95(1)(b) (as am. by S.C. 1974-75-76, c. 26, s. 59; 1980-81-82-83, c. 140, s. 57; 1984, c. 45, s. 31), 248(1) "active business" (as am. by S.C. 1984, c. 45, s. 92).