The corporate taxpayer, Canada Trustco Mortgage Company, had bought some trailers from Transamerica Leasing Inc., which they rented out to Maple Assets Investments Limited. The company, on its part, rented back these trailers to their original owner, Transamerica.
Due to such a deal, Canada Trustco Mortgage Company had applied a deduction in the form of a capital cost allowance against the revenues that they acquired from the deal in question. The Minister of National Revenue did not agree with this deduction and, referring to the GAAR, argued that the deal constituted abusive tax avoidance.
The Tax Court of Canada rejected the minister’s claims; the decision was later upheld by the Supreme Court of Canada.
According to Chief Justice McLachlin and Justice Major, writing on behalf of the unanimous court, “in order to determine the purposes underlying the provisions giving rise to the tax benefit, the courts must conduct a unified textual, contextual and purposive analysis of these provisions.” As to the Canada Trustco case, the Supreme Court came to the conclusion that the deal in question was not a form of an abusive tax deal contrary to the purposes of the Income Tax Act:
“The transaction at issue was not so dissimilar from an ordinary sale-leaseback as to take it outside the object, spirit or purpose of the relevant CCA provisions of the Act. The purpose of the CCA provisions of the Act, as applied to sale-leaseback transactions, was, as found by the Tax Court judge, to permit the deduction of a CCA based on the cost of the assets acquired. This purpose emerges clearly from the scheme of the Act’s CCA provisions as a whole.”
This decision is a vindication of taxpayers’ rights to structure their affairs in such a way as to minimize tax liability.
Decided by the Supreme Court of Canada on October 19, 2005.
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