Words and Phrases - "in the course of"
President's Choice Bank v. Canada (the King), 2024 FCA 135
A corporation (“PC Bank”) in the Loblaw group, whose business was to grant credit through the operation of a MasterCard program, obtained the right to issue loyalty points (“PCB Points”) from an affiliate (the owner of rights to the program) and then started issuing PCB Points to its cardholders which could be applied by them towards purchases at Loblaw-branded stores. PC Bank received payments of $0.0075 from Loblaws for each $1.00 of sales made by Loblaws to such cardholders (that generated such points). When the PCB Points were so redeemed by the cardholders for purchases from Loblaws, PC Bank was obligated to pay the cash value of the points to Loblaws. Loblaw also agreed to pay $0.35 to PC Bank for every $1.00 of notional value of PCB Points accumulated by a PC cardholder to the extent redeemed.
Goyette JA found that that the Tax Court had made two errors of law in finding that PC Bank’s payments of the redemption amounts did not entitle it to notional input tax credits (“NITCs”) pursuant to s. 181(5) (based on the tax fraction thereof) because such amounts did not satisfy the s. 181(5) requirement of being paid “in the course of a commercial activity” of PC Bank. First, the Tax Court considered that the phrase “in the course of a commercial activity” entails an either/or test (whereas instead it did not matter that PC Bank paid those amounts in the course of its financial services business because they were also paid in the course of its commercial activity of “driving customers to Loblaws” (para. 24)) . Second, the Tax Court erred in considering profitability (i.e., that PC Bank made a net loss for every point it redeemed) in finding that the redemptions did not occur in the course of a commercial activity.
Regarding the first point, she noted that the redemption amount was not required by s. 181(5) to be paid “exclusively” or “primarily” in the course of a commercial activity, and stated (at para. 26):
Unlike the words exclusively and primarily, the phrase “in the course of” has a broad meaning; it means “incidental to” or “connected to” directly or indirectly … .
She further stated (at para. 36):
In drafting subsection 181(5), Parliament did not include explicit language that the credit be allocated only “to the extent” that the person made the payment in the course of a commercial activity. The absence of this allocative language indicates that Parliament intended to grant an NITC on the entire amount of a coupon redemption payment from the moment the payment was made in the course of a commercial activity.
She concluded (at para. 60):
Because PC Bank makes the Redemption Payment in the course of its commercial activity, it is entitled to claim NITCs.
In the course of his extended dissenting reasons, Webb JA stated (at para. 125):
Just as the scheme of the ETA does not contemplate that 100% of a particular property or service that is acquired can be considered to be used in both a commercial activity and a business of making exempt supplies, Parliament did not intend that 100% of a single payment that is made could be considered to be made in both the course of a commercial activity and in the making of exempt supplies.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) | s. 169(1) requires apportionment of an acquisition of a property or service between commercial and exempt activity | 72 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Commercial Activity | commercial activity of corporation can be at a loss | 144 |
25 April 2002 Internal T.I. 2002-0131937 F - FRAIS D'EMPRUNT-EVALUATION ARPENTAGE
A taxpayer who used a second-mortgage loan on the individual’s residence to make interest and dividend-generating investments, was required by the lender to provide a certificate of location and an appraisal. After referring to Yonge-Eglinton and before finding that the resulting costs would be deductible under s. 20(1)(e)(ii), the Directorate stated:
[A]n expense is incurred in the course of a borrowing if it is in connection with, results from or arises from the manner of carrying out or the things that must be done to make the borrowing.
Glencore Canada Corporation v. Canada, 2024 FCA 3
An integrated nickel-mining public company (“Falconbridge”), entered into merger agreements with a more junior public company (“Diamond Fields”) which, through a 75%-owned subsidiary, held a valuable deposit at Voisey’s Bay in Newfoundland. The merger agreements provided for the immediate payment by Diamond Fields of a “Commitment Fee” of $28.2 million, and for the payment of a break fee of $73.3 million (calculated to bring the total of the two fees (the “Fees”) to 2.5% of the transaction value) on the completion by Diamond Fields of any competing offer. This occurred – the offer of another public company (“Inco” – the 25% minority shareholder) was accepted by the Diamond Fields shareholders, thereby triggering the payment by Diamond Fields of the break fee.
Woods JA concluded that the fees (less a reduction for bid-related expenses pursuant to s. 12(1)(x)(_)) were required by s. 12(1)(x) to be included in computing Falconbridge’s income from a business or property. Among other findings:
- “Diamond Fields paid the Fees in order to entice Falconbridge to make an offer pursuant to the merger arrangements” so that it was “reasonable to consider that the Fees were received by Falconbridge as an inducement for the purposes of s. 12(1)(x)” (para. 61 – and in this regard “the evidence as to Falconbridge’s motivation to negotiate a fee (i.e., to deter another bidder and to earn a profit if the bid failed) is not relevant to this issue” (para. 63); and
- “The Fees were linked to Falconbridge’s operations as a nickel mining company”, which “required access to ore deposits” so that they were received “in the course of” those activities (a phrase which was essentially equated with "in connection with") (para. 70); furthermore, “the Fees were linked to an acquisition of shares that had the capacity to produce property income” so that they were “also received in the course of earning income from property” (para. 71).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 9 - Compensation Payments | break fee was a capital receipt | 188 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property | break fee was not consideration for the disposition of a merger right as there was no such “right” | 215 |
| Tax Topics - Income Tax Act - Section 54 - Capital Property | break fee was not proceeds of disposition of a capital property | 176 |
7 April 2022 CBA Roundtable, Q.14
Does Sched. VI, Pt. V, s. 2 zero-rate all property that is purchased or leased by a non-resident airline whose sole activity is to carry on the business of transporting passengers? In particular, would an aircraft that is being leased or purchased for consumption and use by the airline in transporting passengers qualify for zero-rating? CRA responded:
The words “in the course of” in section 2 are interpreted as imposing the following two requirements:
- the person must be transporting passengers or property, whether the conveyance (i.e., ship or aircraft) is mobile or immobile, at the time the person consumes, uses or supplies the property or service acquired by the person; and
- the consumption, use or supply of the property or service by the person must be connected with or arise from the provision of the service of transporting the passengers or property. …
[P]roperty and services that could be eligible for zero-rating under this provision include:
- fuel and other supplies;
- railway junction and switching charges, pilotage services, aircraft landing fees; railway right-of-way charges, and warehouse fees;
- stevedoring services;
- spare parts, repair, and maintenance services; and
- air navigation services.
We are not aware of a case where a conveyance, described in section 2 of Part V of Schedule VI, would be the actual property being supplied under the provision. As a result, it would be necessary to review all of the relevant facts surrounding a particular transaction in order to determine whether zero-rating under section 2 could occur.
28 April 2004 Internal T.I. 2004-0066991I7 F - Paiement incitatif
As an incentive for the sale of exempt life insurance policies (having a savings and investment component) a life insurance brokers would pay to clients purchasing the policies an amount equal to the first-year’s commission earned by the broker from the life insurance company.
The Directorate indicated that the incentive payments were includable in the income of such clients under s. 12(1)(x) (absent any election made under s, 12(2.2) respecting the premiums paid) given inter alia that they were received by such clients “in the course of earning income from … property,” noting in this regard that the expression “in the course of” had been interpreted expansively in Wisener (73 DTC 5065) and in Yonge-Eglinton, and further stating:
[A] life insurance policy is a source of income, that is, property acquired for the purpose of earning income from property, whether or not the life insurance policy is an exempt policy.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property | property “includes practically any type of economic interest” | 142 |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | per MacIntyre, life insurance premiums are not deductible from business income | 192 |
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".
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | 79 |
Higgs v. Olivier (1952), 33 TC 136 (C.A.)
Before going on to find that a lump sum received by an actor in consideration for his covenant not to exercise his vocation for a period of 18 months was a tax-free receipt, Sir Evershed M.R. stated (at p. 145) that "many sums of money received in the course of carrying on a trade, but not as a result of the trade as it was contemplated that it would be carried on in the normal course, may nevertheless be taxable".
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business | 129 | |
| Tax Topics - Income Tax Act - Section 9 - Expense Reimbursement | 129 |
Blok-Andersen v. MNR, 72 DTC 6309, [1972] CTC 338 (FCTD)
In the course of considering a submission that s. 85B(1)(B) of the pre-1972 Act (now s. 12(1)(b)) did not apply to an adventure in the nature of trade, Cattanach J. stated (at p. 6321):
"The phrase 'in the course of' contemplates a succession of events in a regular order. It also contemplates a result which follows from an event being set in motion. Such a result will arise in the case of an isolated sale as well as in a continuous number of sales."