In affirming the decision of Walker J below in the BMO case, Noël CJ stated:

[T]he Federal Court identified the correct standard of review and applied it properly. In order to explain why we come to this view, we can do no better than adopt as our own the reasons of the Federal Court.

That decision concerned the rejection by the Minister of the request of the Bank for approval of an “output method formula” ITC allocation method on the basis inter alia that such method “did not result in a reasonable approximation of the inputs it used to provide zero-rated financial services to non-residents of Canada.” “Distorting factors” identified by the Minister included what she considered to be a violation of the “first order supply rule” that “a business cannot recover GST incurred on inputs acquired to make exempt supplies, even when those exempt supplies enable the business to make other taxable supplies” and the factor that the Bank’s method, by taking into account cross-border branch loans and excluding domestic intra-bank loans effectively ignored that the latter activity also “represent[ed] real activities” that consumed inputs in a largely exempt activity.

She also stated:

I agree with the Bank’s submission that the effect of section 141.02 is to strip QIs [such as banks and investment dealers] of the right to appeal to the TCC the question of whether their ITC computation methods are fair and reasonable. ...

Both the Bank’s methodology and what the Minister might have been prepared to accept appeared to treat interest costs on foreign borrowings by the Bank as a proxy for zero-rated supplies made by it, and Walker J did not demur.

Neal Armstrong. Summary of Bank of Montreal v. Canada (Attorney General), 2021 FCA 189 under s. 141.02(18), and summaries of Bank of Montreal v. Canada (Attorney General), 2020 FC 1014, aff'd 2021 FCA 189 under s. 141.02(18), s. 141.01(5), s. 123(1) – financial service – para. (d) and Sched. VI, Pt. IX, s. 1.

A US company (“GEFI Inc.”) and UK company (“GEFI”) in the GE group formed a Delaware LP (“LP”) with GEFI Inc. as the 1% general partner and GEFI as the 99% limited partner. LP acquired five intercompany loans.

The stock of GEFI Inc. and GEFI were stapled, which caused GEFI to be deemed to be resident in the US under the Code, with a view to increasing the US foreign tax credit capacity in the US. GEFI claimed credit for the US income taxes payable by it against its UK income tax liabilities.

HMRC denied the credit. The first issue was whether GEFI was a US resident for purposes of Art. 4 of the UK-US treaty, which relevantly referred to “any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature.” Brooks J effectively applied commentary - that the quoted wording requires “effective personal attachment to a territory,” and the effective finding in Crown Forest that full or worldwide taxation is a necessary feature of the connecting criterion but is not sufficient of itself - to find that the mere stapling of the GEFI stock did not give rise to the required connection to the U.S., so that GEFI was not a US treaty resident.

This then left the issue as to whether the US taxes imposed on GEFI were imposable in accordance with the Treaty on the basis of GEFI, through its participation in LP, having a permanent establishment in the US - so that the UK was required to accord a foreign tax credit to GEFI in accordance with Art. 24 of the Treaty (similar to Art. 24 of the Canada-UK Treaty). In finding that the LP did not have a permanent establishment in the US on the basis that it was not carrying on business there under the UK concept of a business (having regard to Art. 3(2)), Brooks J indicated that there was a mere holding of five affiliate loans (albeit, in very large amounts) over the course of approximately six years, which represented “more of a passive, sporadic or isolated activity than a regular and continuous series of activities” – and noted the there was “nothing to suggest that personnel or agents acting on behalf of the LP made or conducted continuous and regular commercial activities in the US.”

Neal Armstrong. Summaries of G E Financial Investments v. The Commissioners for Her Majesty's Revenue & Customs, [2021] UKFTT 0210 (TC) under Treaties – Income Tax Conventions – Art. 4, Art. 5.

A parent corporation (“Castle”) made some of its taxable supplies of building materials to its wholly-owned subsidiary (“CBS”), which on-sold the goods to retailers. There was a s. 171(1) billing election in place between them, so that Castle was responsible for the GST/HST reporting of CBS’s sales - and so that if CBS had bothered to register and file GST/HST returns (which it did not), they would have been nil returns (assuming that a s. 156 election applied to Castle’s sales to CBS – otherwise, Castle was required to charge GST/HST, with CBS effectively being required to claim ITCs).

New rules, effective January 1, 2015, required a fresh s. 156 election to be filed with CRA. Castle and CBS filed their election late. CRA refused to exercise its discretion to accept the late election on the basis of its Guidelines in Policy Statement P-255 which relevantly required that “both corporations must have filed all GST/HST returns as required.”

Walker J found that this refusal was not unreasonable. She noted that although Castle was responsible for reporting and remitting the GST/HST on CBS’s sales, this did not detract from CBS technically being a registrant who in fact was the supplier, so that it technically was still required to file (nil) returns.

Neal Armstrong. Summary of Castle Building Group Ltd. v. Canada (National Revenue), 2021 FC 947 under ETA s. 156(4)(b)(ii).

Hogan J had found that a tax shelter partnership, which had funded the prints and advertising expenses for films that it had purchased from Twentieth Century Fox, had not incurred such expenses for an income-producing purpose because there was no real prospect that Fox would not exercise its “options” to repurchase the films – and thus no real prospect that the films would generate revenue to the partnership. He stated that “the options were shams designed to mask the parties’ agreement that Fox would reacquire the films prior to their commercial release.”

In concluding that it was not procedurally unfair for Hogan J to make his quoted finding given that the Crown pleadings had “put the appellants on notice that the Minister took the view that it was a certainty that the partnerships would not have any income from the exploitation of the films,” Woods JA stated:

There was no reason for the assumptions to explicitly use the term “sham” or to explicitly state that there was deception. But it is obvious from the relevant assumptions that the Minister did assume that there was deception with respect to the options.

Neal Armstrong. Summaries of Paletta International Corporation v. Canada, 2021 FCA 182 under General Concepts – Sham and s. 9 – capital gain v. profit – real estate.