Inter-Leasing – Ontario Court of Appeal finds no GAAR abuse in structuring to access a property income exemption which reflected a deliberate policy choice

A plan to generate interest deductions in Alberta while enjoying a tax exemption on the corresponding interest income received by an Ontario affiliate (Inter-Leasing) depended on the interest income qualifying as income from property – which it did, given that essentially all Inter-Leasing did was to collect the annual interest coupons.  Unlike Marconi, Inter-Leasing did not have specific corporate objects.  The fact that earning the interest income came within its general objects was irrelevant.

Ontario's GAAR did not apply, as the exemption reflected a "deliberate decision not to tax corporations incorporated outside Canada on income from property," so that the statement in Copthorne, that "in some cases the underlying rationale of a provision would be no broader than the text itself," was apt.

Ontario corporate minimum tax was avoided by making the debts held by Inter-Leasing specialty debts and holding the deeds outside Canada.  Pardu JA rejected a Ministry submission that she should apply the Williams (i.e., Indian Act exemption) "connecting factors" tests rather than the traditional private international law tests, to determine the situs of the debt, as the Williams tests are mushy, whereas the traditional common law situs tests can be clearly applied.  (This approach also would "promote certainty" under Income Tax and Excise Tax situs tests, e.g., the situs under ITA s. 122.1(1.3)(b) of debt which is deemed real or immovable property.)

Neal Armstrong.  Summaries of Inter-Leasing, Inc. v. Ontario (Revenue), 2014 ONCA 575 under s. 115(1)(a)(ii), s. 245(4) and Ontario Taxation Act - s. 54(2)(b).