Inter-Leasing - Ontario Superior Court suggests that pure holding companies earn business income - and that avoidance of a charging provision is inherently abusive

A scheme for reducing the provincial income taxes of a Canadian public company group involved group companies paying deductible interest (via an intermediate company) to a British Virgin Islands affiliate ("Inter-Leasing"), with such interest being excluded from the taxable income earned in Canada of Inter-Leasing for Ontario purposes on the basis that it was property income.  Aston J (a family-law expert) found that this interest instead was income from a business carried on in Canada (and therefore taxable in Ontario) notwithstanding that essentially the only activities of Inter-Leasing were to acquire and hold four intercompany loans.  His reasoning might be reduced to the following syllogism:

• the core activities of a corporation are a business;
• the core activity of a pure holding company is earning investment income;
• therefore, the investment income of a pure holding company is income from a business.

He further stated that "charging provisions [whose] object and purpose is to raise revenue" are "different from a provision creating a deduction or exemption when it comes to a GAAR analysis," so that transactions, such as these, which sought to avoid a charging provision, thus were abusive under the Ontario equivalent of s. 245(4) as being contrary to this revenue-raising object.

Neal Armstrong.  Summaries of Inter-Leasing, Inc. v. Ontario (Revenue), 2013 ONSC 2927 under s. 115(1)(a)(ii) and s. 245(4).