Words and Phrases - "lending"
Canadian Imperial Bank of Commerce v. The King, 2024 TCC 160
In 2001 (before the three annual fiscal periods in issue) the appellant (CIBC) outsourced part of its Visa-card transaction processing and payment services to an arm’s length non-resident (“GPDI”) so that, in a typical transaction in which a Canadian cardholder presented their CIBC Visa card to a Canadian merchant, GPDI would process the point-of-sale information received from the merchant and transmit it to CIBC for credit authorization, transmit the authorization (assuming no “decline”) back to the merchant and send this and the other day’s transactions to VISA for clearing, following which there was a process involving CIBC, GPDI and VISA by which the settlement funds were paid to the merchant. GPDI would charge the merchant a merchant discount fee of, say, 2%, and pay CIBC an interchange fee of, say, 1.5% in consideration for CIBC’s authorization and payment services.
Before concluding that the interchange fees were not zero-rated on the basis of the exclusion in VI‑IX‑1(a)(ii) for a service that “relates to (a) a debt that arises from … (ii) the lending of money that is primarily for use in Canada”, Sommerfeldt J found that:
- Regarding the “relates to” test, “there only needs to be ‘some connection’ between the interchange services and the debt described in the carve‑out, and the interchange services do not need to be ancillary or incidental to the debt” and the “Slattery, Stantec and Miedzi Copper cases indicate that the phrases relating to, in relationship to, and, by extension, relates to, are to be given a wide or broad interpretation, and that a narrow view is to be avoided” (para. 54).
- In this context the verb “lend” should have “a broad meaning (recognizing that a loan arises when the lender, at the request of the borrower, pays money to a third party in satisfaction of an obligation owed by the borrower to the third party)” (para. 74), so that “when a Cardholder used a CIBC Visa Card in respect of a transaction, CIBC loaned to the Cardholder, and the Cardholder borrowed from CIBC, the monetary amount of the transaction” (para. 80).
- “in a tax context, the word primarily generally means (among other things) principally, mainly, most importantly, or more than 50%” (para. 107).
- “the loaned money was used to pay merchants located in Canada” (para. 104) so that “the money paid by CIBC indirectly to the merchants (i.e., through the Visa Payment System), in satisfaction of the Cardholders’ obligations to the merchants, was loaned money that was primarily for use in Canada” (para. 107).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 280 - Subsection 280(1) - Paragraph 280(1)(a) | due diligence defence established based on reasonable filing position | 55 |
576315 Alberta Ltd. v. The Queen, 2001 DTC 776 (TCC)
The taxpayer ("241467"), which previously had engaged exclusively in a leasing business, was found to be engaged in a financing business that included the lending of money in light of the fact that of 24 identified transactions (including non-interest-bearing loans to the shareholder or relatives, which Bonner J regarded (at para. 7, as "falling outside the scope of business"), approximately 16 were interest-bearing loans made over a four-year period including various loans to finance trucking businesses. (After noting (at para. 8) the "distinction ... to be drawn between an indebtedness which arises as a result of the deferral of payment of the whole or part of a sale price and an indebtedness which arises as a result of the loan of money," he found that the deferred balance of the purchase price of sales were not loans, with reference to another two of the 24 transactions.)
Bonner J stated (at para. 18):
241467 entered into lease and loan transactions repeatedly with a view to earning income in the form of lease payments or interest. The financing business was its ordinary business and the lending of money was part of that activity. ...Moreover the presumption arising from incorporation must be taken into account...[even for] corporations formed under some statutes...not list[ing] their corporate objects.
A loan made by the taxpayer to a corporation ("161") to enable 161 to purchase a restaurant company ("606") was made in the ordinary course of that business notwithstanding that the taxpayer also subscribed for 86% of the shares of 161 ("The acquisition by a lender of control over the borrower is a sensible arrangement particularly where the lender is advancing virtually all of the borrower's capital ..." (para. 22).) However, a subsequent loan made by the taxpayer to 606 in order to enable 606 to pay rent, taxes and other accumulated debts was not in the ordinary course of its lending business since, at the time the money was advanced, there was little hope of repayment, and less hope of ever receiving interest.