Words and Phrases - "hold"
Canada v. Independent Order of Foresters, 2026 FCA 146
The taxpayer was a Canadian resident fraternal benefit society and a life insurer providing accident and sickness insurance (“accident insurance”), and individual life insurance to its members. Ss. 149(1)(k) and (3) exempted it regarding its taxable income other than from carrying on its life insurance business, and s. 149(4) provided that its taxable income from carrying on a life insurance business was to be computed “on the assumption that it had no income or loss from any other source.”
Given that the taxpayer carried on its insurance businesses both in Canada and abroad, it included the assets and liabilities of its accident insurance business in determining its Canadian investment fund (“CIF”) (i.e., the notional fund used as part of the basis for determining how much of its investment income should be allocated to its two Canadian insurance businesses).
One of the items at issue related to the portion of the Order's total surpluses (the excess of assets over liabilities) that the Order did not allocate to any specific operation (the “World Surplus”). Element I of Reg. 2400(1)(a)(2)(b) of the CIF definition referred to:
… the total of all amounts, each of which is the amount of an item reported as an asset of the insurer as at the end of the year (other than an item that at no time in the year was used or held by the insurer in the course of carrying on an insurance business)"
The Order accepted that the World Surplus assets were so reported (on the basis of being included in its OSFI-required balance sheet as per Reg. 2400(3)), but maintained that they came within the parenthetical exclusion, so that they were excluded from its CIF.
The Court stated (at para. 113):
The text leads to the following interpretation: every asset reported on the insurer’s non-consolidated balance sheet is presumptively included by element I. Only if the evidence establishes that an asset was neither used nor held in the course of carrying on an insurance business at any time in the year is that presumption rebutted.
In commenting on the exclusion, the Court stated (at para. 161):
For example, the insurer might succeed in excluding assets by demonstrating they were at all times employed and risked in (i.e., used or held in the course of carrying on) another business (Ensite; Marsh &McLennan). On the other hand, neither holding assets in a separate fund, nor failing to report the income on those assets to the regulator as insurance income, will demonstrate that those assets are held or used in a business other than an insurance business (Lutheran Life; ACTRA). Similarly, showing assets are held for an unidentified collateral purpose will not demonstrate they are within the exclusion.
The Tax Court had instead got the test backwards, i.e., by asking “what assets were used or held in the course of carrying on the insurance business” (para. 166). As the Tax Court had applied the wrong test, the matter was remitted to the Tax Court for a fresh determination.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 149 - Subsection 149(4) | multinational life insurer could not make allocations relating to its exempt accident insurance business to reduce its Canadian income from its life insurance business | 519 |
Thye RRSP of James T. Grenon (552-53721) by its Trustee CIBC Trust Corporation v. Canada, 2025 FCA 129
The appellant subscribed $310 million for units of various income funds, which were intended to qualify as mutual fund trusts on the basis that each had received subscription proceeds totaling $128,250 from 171 investors, with each such investor subscribing for 100 units at $7.50 per unit. Whether they so qualified turned on whether they each satisfied the distribution condition in ITR 4801(a)(i)(A)—that there had been a lawful distribution of units of the trust to the public in circumstances in which a prospectus or similar document was not required to be filed—and that the 150-minimum beneficiary condition in ITR 4801(b) was satisfied.
(Monaghan JA stated that she was "far from convinced" (para. 169) as to whether the parties were correct in their mutual view that an offering memorandum was not a similar distribution document to a prospectus, so that the distribution condition in ITR 4801(a)(ii)—that a class of units of the trust is qualified for distribution to the public—was not relevant. However, nothing turned on this since, in light of the definition in ITR 4803(2)(a) of "qualify for distribution to the public," this alternate distribution test, like ITR 4801(a)(i)(A), required that there have been a lawful distribution of units to the public.)
Regarding the 150-minimum beneficiary condition, Monaghan JA found that such beneficiaries need not have acquired their units in a lawful distribution to the public. She stated (at para. 133) that “the minimum beneficiary condition might also be satisfied through a unitholder transferring units to others” and (at para. 145) that she was satisfied that, in the context of the ITA, "’hold’ is intended to mean ‘own’, unless the context in which it is used indicates otherwise” – which was not the case regarding Regulation 4801. Furthermore, the ITA's use of "hold" and "acquire" suggested they have different meanings (para. 147). Thus, the test of 150 beneficiaries holding units did not require that such units have been acquired from any particular persons.
Regarding the distribution condition in ITR 4801(a)(ii), Monaghan JA found (at para. 214) that the Tax Court did not err in interpreting a distribution as meaning “distribution in the collective sense,” i.e., an issuance to all those subscribing in a particular offering. Furthermore, the reference to a "lawful" distribution referred to compliance “with the exemption relied on under relevant provincial securities laws” (para. 218). Here, the exemption from a prospectus-filing requirement that had been relied on was the offering memorandum exemption (OME) coupled with a condition stipulated in the offering memorandum (OM) that a minimum of 160 investors subscribe.
She indicated (at para. 221) that, although she accepted that “not every deviation from the prospectus requirement or prospectus exemptions, or from the terms of the prospectus or OM, will necessarily lead to the conclusion that the distribution is unlawful, even if it might attract liability or enforcement action,” the appellant agreed that such 160-investors-minimum specified in the OM "was an essential term" (para. 229). The Tax Court had made a non-reversible finding that 39 of the subscribers in each fund were minors. Agreeing with the Tax Court that this thus established that such minimum had not been lawfully met, she stated (at para. 247) that, like the Tax Court, she had "difficulty accepting that provincial securities regulators envisaged minors, some as young as two years old, subscribing for units based on the OME." She also stated (at para. 250) that "it was open to the Tax Court to find that the income funds did not take any steps to waive the condition regarding legal capacity and age of majority."
Moreover, she found no reasonable error in the Tax Court's “finding regarding adults signing subscriptions and paying for units for other adults and minors” (para. 262), contrary to the representations of the investors that each investor was purchasing "as principal." This further supported the Tax Court's conclusion (at para. 288) that the income funds had not “complied with an essential term in their OMs: that they issue units to a minimum of 160 investors in compliance with the OME.”
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 207.1 - Subsection 207.1(1) | since FMV of non-qualified investments was required to be included in the annuitant’s income (even though such inclusion was not reported or assessed) it was excluded from Pt. XI.1 tax | 369 |
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(3.1) | assessment of group RRSP return focused on Pt. XI.1 tax reporting did not start the Pt. I normal reassessment period running | 279 |
| Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Act - Section 27 - Subsection 27(1.3) | FCA raised the correctness of (and reversed) a TCC finding that was not challenged by the parties | 420 |
| Tax Topics - Income Tax Act - Section 146 - Subsection 146(10.1) | RRSP must recognize losses on non-qualified investments but such losses, if capital losses, cannot be deducted from property income from such investments | 153 |
| Tax Topics - Statutory Interpretation - Consistency | presumption that same word has same meaning, and different words have different meanings throughout the ITA | 233 |
| Tax Topics - Statutory Interpretation - Ordinary Meaning | meaning of “distribution” informed by provincial securities law | 161 |
| Tax Topics - Statutory Interpretation - French and English Version | 2-step approach to reconciling 2 versions | 298 |
25 September 2014 External T.I. 2012-0451411E5 F - Mutual Holding Corporation
Does a mutual corporation qualify as a mutual holding corporation if it holds shares of the insurance corporation indirectly? After quoting from the mutual holding corporation definition, CRA stated (TaxInterpretations translation):
[T]he legislator contemplated the direct holding and not an indirect holding of shares of the capital stock of the insurance corporation.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 139.1 - Subsection 139.1(1) - Mutual Holding Corporation | “holding” refers to direct holding/ this purpose is a question of fact | 137 |