Words and Phrases - "commission"
Canada v. Rio Tinto Alcan Inc., 2018 FCA 124
The taxpayer (“Alcan”), a Canadian public company listed on the TSX and NYSE and in Europe, incurred fees (mostly of investment dealers, law firms and a French lobbying and public relations firm in connection with its decision to make a hostile bid for a French public company (“Pechiney”) and the subsequent making and completion of that bid late in 2003. In 2004, the taxpayer determined to effect a butterfly spin-off of a portion of its (laminated products) assets, which resulted in the receipt by its shareholders of shares of a new public company (“Novelis”) in January 2005.
Pelletier JA confirmed the distinction between fees relating to acquisition and divestiture transactions of Alcan that were “incurred as part of Alcan’s decision-making process” (“oversight expenses”) and fees that “were incurred in the course of putting into effect Alcan’s decision once it had been made” (“implementation costs”) (para. 105). Accordingly, he confirmed Hogan J’s finding that the substantial portion of investment dealer fees incurred by the Alcan board that represented input to its decision to launch a hostile bid for a French public company (i.e., 65% of the Morgan Stanley fee and 35% of the Lazard Frères fee) was currently deductible, whereas the balance of the fees relating to assistance in the bid was a capital expenditure (and, thus, an addition to the adjusted cost base of the acquired shares).
In finding that the oversight expenses paid to the investment dealers would also have been deductible under s. 20(1)(bb), he rejected the Crown’s submissions that such fees were “commissions” and that they were not in respect of a “specific security” because they were in respect of all the Pechiny or Novartis shares, stating (at paras 89-90, and 96-97):
… In my view, neither “specific shares” nor “certaines actions” excludes the possibility that the provision applies to a sale of all of the shares of a particular issuer. Within the universe of all securities available to be purchased by an investor, all of the shares of particular issuer are “certaines actions” or “some shares” to the extent that they are less than the whole of all shares which an investor might purchase. They are also “specific shares” in the sense that they can be identified with precision.
To the extent that the Minister argues that paragraph 20(1)(bb) only applies to a purchase of some shares of an issuer, she should be able to identify some statutory purpose which would justify a distinction between advice related to the purchase of some shares of an issuer as opposed to advice with respect to the purchase of all the shares of that issuer. She has not done so. …
He also rejected the Crown's submission that s. 40(1)(a) should prevail over s. 20(1)(bb) as the more specific provision, stating (at para. 97) that "paragraph 40(1)(a) is no more specific than paragraph 20(1)(bb)."
Rio Tinto Alcan Inc. v. The Queen, 2016 TCC 172, aff'd 2018 FCA 124
The taxpayer, a Canadian public company listed on the TSX and NYSE and in Europe, incurred fees (mostly of investment dealers, law firms and a French lobbying and public relations firm (“Publicis”)) in connection with its decision to make a hostile bid for a French public company (“Pechiney”) and the subsequent making and completion of that bid late in 2003. In 2004, the taxpayer determined to effect a butterfly spin-off of a portion of its (laminated products) assets, which resulted in the receipt by its shareholders of shares of a new public company (“Novelis”) in January 2005.
Before turning to s. 20(1)(bb), Hogan J found that 35% of the $8.2 million fee paid to Lazard Frères related to work leading to advice to the taxpayers’ board of directors respecting whether, and on what terms, an offer should be made for the Pechiney shares and, therefore, was fully deductible under s. 9, whereas the balance relating to the negotiation and revision of the offer, was a capital expenditure (which CRA accepted was part of the cost of the Pechiney shares). The same approach indicated that 65% of the $26 million fee paid to Morgan Stanley (including respecting a fairness opinion) was fully deductible, as well as indicating that fees of Lazard Frères respecting the divestiture options incurred up to the time of board approval of the butterfly spin-off were fully deductible, and thereafter incurred on capital account.
In finding that the portion of the fees paid to Morgan Stanley and Lazard Frères respecting the Pechiney transaction, that related to the work leading up to advsing the board on wether and on what terms to launch the bid, was also deductible under s. 20(1)(bb), Hogan J first found that the fees were not “commissions,” as they were fixed and not established as a function of a percentage of sales (para. 146) and, furthermore, the two dealers were not acting as agents (para. 152). In also rejecting a Crown argument that advice on a bid for all the shares of Pechiney did not qualify as advice on the purchase of "specific" shares (referred to more broadly in the French version as "some" shares), Hogan J stated (at para. 159):
...Parliament used the expressions “specific shares” and “certaines actions” to exclude generic investment advice such as a recommendation that 10% of an investor’s savings be invested in preferred shares. In summary ... a deduction would be available where the investment advice is clear and concerns shares of a particular issuer.
Similarly, respecting the divestiture-related fees of Lazard Frères incurred up to board approval of a butterfly spin-off, these related to advice and approaches to potential third-party purchasers of the shares through which the laminated products business was held as well as to the ultimate sale (on a rollover basis) of the shares of that laminated products company to Novelis in consideration for the acquisition of (subsequently redeemed) preferred shares of Novelis, and the calculation of the Lazard Frères success fee did not represent a percentage of the value of those shares – so that those fees also were deductible under s. 20(1)(bb) as well as under s. 9.
Enterprise Foundry (N.B.) Ltd. v. MNR, 64 DTC 660 (TAB)
The taxpayer's business was the sale in Quebec through a Quebec sales force of stoves manufactured by an affiliated company whose manufacturing plant was in New Brunswick ("Enterprise Foundry"). Most administrative functions of the taxpayer's business were handled by Enterprise Foundry in consideration for a fee equal to a percentage of the taxpayer's purchases from Enterprise Foundry. In finding that these fees were commissions for purposes of Regulation 402(7) (now Regulation 402(8)), Mr. Weldon stated (p. 667):
"The word 'commission' in its context in Regulation 402(7) can only mean one thing, in my view, and that is a fee determined as a percentage of some given amount, which is precisely the present situation."
Griesbach v. Canada (M.N.R.), 91 DTC 142, [1990] 2 CTC 2593 (TCC)
The taxpayer's bonuses were not "commissions" for the purposes of s. 8. Christie J. stated (at para. 5):
To my mind the result is that in order for expenses to be deductible under that paragraph the remuneration pertaining thereto must be fixed by reference to the volume of the sales made or the contracts negotiated by the taxpayer claiming those deductions. Twenty per cent of the pre-tax gross profits of an employer with a number of employees is not synonymous with remuneration so fixed.
Consumers' Gas Co. v. MNR, 65 DTC 5138, [1965] CTC 225 (Ex Ct), briefly aff'd 67 DTC 5196 (SCC)
In connection with a rights offering the taxpayer, in addition to paying a commission to the underwriters in consideration for their services as dealers in securities, paid a fee for their services rendered in forming and managing a soliciting dealers group and in consideration for their agreement to maintain an orderly market, and paid a further fee which was alleged to be for the administrative and clerical services of the dealers in processing the rights tendered by shareholders, but which was described in the relevant agreement as a commission for each common share which a soliciting dealer procured. The taxpayer was unsuccessful in deducting any portion of the latter two fees under s. 11(1)(cb) of the pre-1972 Act because they constituted "commissions" (i.e., recompense to an agent calculated as a percentage of the amount of the transaction) which was paid on account of the security dealers' services as salesmen or dealers in securities.
MNR v. Yonge-Eglinton Building Ltd., 74 DTC 6180, [1974] CTC 209 (FCA)
In connection with the interim construction of a building, the taxpayer agreed in 1962 to pay interest on the borrowed money at a rate of 9%, plus "additional interest", in each of the 25 years after 1964 in which it was profitable, of 1% of its gross rental income from the building. The 1% fee incurred in each year arose in the course of borrowing money, and was deductible. "What appears to me to be the test is whether the expense, in whatever taxation year it occurs, arose from the issuing or selling or borrowing ... the words 'in the course of' in section 11(1)(cb) are not a reference to the time when the expenses are incurred but are used in the sense of 'in connection with' or 'incidental to' or 'arising from' and refer to the process of carrying out or the things which must be undertaken to carry out the issuing or selling or borrowing for or in connection with which the expenses are incurred" (p. 6183).
The fee was not a "commission" or "bonus", and was an "expense".