Words and Phrases - "fee"
Solar Power Network Inc. v. ClearFlow Energy Finance Corp., 2018 ONCA 727
A typical loan made by the lender (ClearFlow) to the borrower bore base interest rate of 12% p.a. compounded monthly, an administration fee that was charged when the Loan was initially advanced, and each time it renewed (of, say, 1.81% of the loan balance), and a “discount fee” of 0.003% per day of the outstanding principal. Sharpe JA confirmed the finding of the application judge that the administration fee was not interest, as well as his finding that the discount fee was interest, stating (at paras. 42-43):
[T]he amount of the fee did not vary according to the administrative work required by the loan as in the case of the administrative fee, and the fee was charged at a daily fixed rate unrelated to any ongoing or specific events… [It] bore all the hallmarks of the test for interest: it was consideration or compensation for the use of money, it related to the principal amount, and it accrued over time.
He went on to find that the disclosure of the “rate” of such interest through the provision of a simple formula complied with s. 4 of the Interest Act. For this and other reasons the borrower was unsuccessful in its arguments that the total interest under the loan was subject to a 5% cap imposed under s. 4.
|Locations of other summaries||Wordcount|
|Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c)||daily discount fee had the 3 attributes of interest||359|
The respondent trained and drove standardbred race horses at various Ontario race tracks, and received directly from the race track a share of the purses, calculated as 5% to the driver and 5% to the trainer.
Stratas JA stated (at paras. 19, 22):
[A] "prize" under subsection 188(2) is an honour, an award or winnings that are won by those who demonstrate superiority or achievement over and beyond the rest of the field of competitors in a competition or contest. A fee, on the other hand, is remuneration, emolument, recompense or compensation that is earned by a particular person for performing particular services under a contract of employment or other direct retainer. …
In this case, the only possible conclusion is that the monies received by the respondent are success fees for driving and training services it provided to owners, not "prizes" within the meaning of subsection 188(2)….
In support of this conclusion, he referenced Rule 18.11 of the Rules of Standardbred Racing enacted under the Racing Commission Act 2000 (Ontario), and stated (at para. 24):
[T]he Rule confirms that "drivers' and/or trainers' fees" [my emphasis] are deducted from the owners' purse money. This shows that drivers and trainers are not entitled to purse money; rather, they are entitled to their "fees" and they are entitled to have them paid from the purse money.
In 1998 the Canadian taxpayer paid $14.3 million to non-resident service providers in the ordinary course of its forestry business. The Minister assessed it for failure to withhold under Reg. 105 on the following payments:
- the portion of service fees allocated to services rendered outside of Canada according to estimates made by the service provider (with no supporting documentation being provided by them for such estimates);
- reimbursements of non-residents' out-of-pocket costs and related items, including travel time and expenses; and
- amounts paid as retainers in relation to services which the service provider expected to be rendered outside of Canada (again, without documentary support).
Bowie J. found (at paras. 6-10) that the purpose of the withholding obligations under s. 153(1)(g) and Reg. 105 was to ensure that, if a non-resident recipient of a payment is, after all the facts are known (i.e. when its annual Canadian tax returns are filed), liable to pay income tax in Canada, there will be funds available, in the form of the 15% withheld and remitted, to satisfy the obligation. He implicitly accepted that disbursements incurred by a non-resident service provider in providing its services might be “in respect of” those services. However, disbursements were not subject to Reg. 105 withholding since they are not “for” the non-resident's services, indicating (at para. 10) that the Reg. 105 wording may "properly be read as including only amounts that may be taxable in Canada in the hands of the recipient, which is to say 'income earned in Canada'." He stated (at para. 7):
[T]he appellant's obligation in respect of the disbursements is simply to repay that which the consultant has paid on the appellant's behalf in the course of rendering the service. To withhold 15% from that amount would not at all further the purpose of paragraph 153(1)(g)… . It is not difficult to foresee that if foreign service providers were to be reimbursed their expenses only to the extent of 85% until such time as they had filed a Canadian income tax return after the year end, and then waited for an assessment and a refund, that would create a considerable disincentive for them to offer their services to Canadian clients
As the expression “a fee, commission or other amount in respect of services rendered in Canada of any nature whatever” in Reg. 105 was capable of being narrowly interpreted so as to conform with what was authorized by ITA s. 153(1)(g), Reg. 105 was intra vires.
Respecting the lack of documentary support for the Canada/U.S. allocation estimates of the non-resident service providers, he stated (at para. 24, see also para. 27) that "there is no requirement at law that those be provided." A "retainer" was in reality a deposit so that it was "not a fee and not referable to any work" (para. 26). Finally, charges for time spent travelling to Canada for meetings were "not earned in Canada, and so [not] taxable in Canada" (para. 28).
|Locations of other summaries||Wordcount|
|Tax Topics - Statutory Interpretation - Regulations/Statutory Delegation||narrow construction of Reg. so as to be intra vires||188|
|Tax Topics - Statutory Interpretation - Interpretation Act - Section 16||"in respect of" in Regulation read narrowly to conform with "for" in statute||159|