Words and Phrases - "lease"
J.D. Irving Limited v. Agence du revenu du Québec, 2020 QCCQ 2423, aff'd 2022 QCCA 241
The taxpayer ("JDI") and another pulp and paper company in the Irving group (“IPPL”) participated in transactions to effectively transfer non-capital losses (“NCLs”) from an oil refining company (“IOL”) in the Irving group to the taxpayer. In December 2002, IOL acquired pollution control equipment (“PCE”), that IPPL had been using in its pulp facilities, from IPPL under TA s. 85(1) and TA s. 518, at an agreed amount of $3. In the same month, JDI acquired the PCE from IOL for $120 million (claiming that amount in CCA thereon for 2002), and agreed to operate the PCE in consideration for “throughput fees” and cost reimbursements payable to it by IPPL pursuant to “Operating and Services Agreements” (“OSAs”) governed by New Brunswick law. In January 2003, after having earned about $1.3 million in throughput fees, JDI transferred the PCE “back” to IPPL on a rollover basis with an elected amount of $3. Further transactions to a similar effect were implemented in 2003, with one variation being that in May and June transactions, the PCE was sold by IOL to a wholly-owned inactive subsidiary (“IRF’) of the taxpayer, with IRF making substantial CCA claims that generated a NCL, and then being wound-up under inter alia s. 88(1.1) into the taxpayer.
The ARQ attacked on the basis that the PCE constituted leasing property to the taxpayer (and, subsequently, to IRF), so that the Quebec leasing property restriction rules denied the deduction of CCA so as to generate NCLs. In particular, although the OSAs provided that the taxpayer (and then IRF) was to operate the PCE, the taxpayer delegated to IPPL, in consideration for fees, the performance of all the such operating services, so that nothing had changed “on the ground.”
In allowing the taxpayer’s appeal and finding that the PCE generated business income rather than leasing revenue to it (and IRF), Fournier JCQ accepted that submissions of the taxpayer (quoted in English at para. 98) that a “legal right of exclusive possession is essential to the existence of a lease at common law” and that here no legal right of possession of the PCE is conferred upon IPPL under the Operating and Services Agreement, let alone an exclusive right of possession.” Furthermore (para. 109, TaxInterpretations translation) whether the taxpayer had “delegated or subcontracted to IPPL the performance of its contractual obligations (Contract Services) to operate and maintain the PCE is irrelevant”: similarly to Stubart, the taxpayer “carried on business through an agent, in this case IPPL” (para. 127).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Agency | Stubart recognized that business operations can be carried on by an affiliated agent | 231 |
| Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a) | loss consolidation transaction entailing circular transfers of depreciable property confirmed | 90 |
P-062 “Distinction Between Lease, License and Similar Arrangements” 25 May 1993
Lease confers exclusive possession
In the common law provinces, it has generally been determined that a lease normally confers exclusive possession, while a licence of real property normally would not.
24 December 2015 Internal T.I. 2014-0560831I7 - International shipping
The Taxpayer is a non-resident corporation that carries on business in many countries, including Canada. The activities of the non-resident Taxpayer in Canada help satisfy the shipping requirements of related companies (the “Related Party Customers”), who generally are residents of Canada or non-residents carrying on business in Canada and who are not themselves in the shipping business. Would the Taxpayer’s activities carried on in Canada be considered “the operation of a ship in international traffic” under the previous version of s. 81(1)(c), or as “international shipping” under the current version (so that various chartering arrangements could be considered “leases” under the new “international shipping” definition?
Respecting the former version, CRA stated:
[T]he Taxpayer never has management of the ships’ operations, in that it is not responsible for the crew nor the service and maintenance of the ships…[so that it] does not have the “Technical Management” of the ships. However…this requirement could also be met where the Taxpayer has the so-called “Commercial Management” of the ships…[which] means the right to exploit the earning capacity of the ship…[which] right does not necessarily go hand in hand with the responsibility for the crewing and maintenance of the ship. … [T]he Taxpayer would need to demonstrate that the ship owner is operating the ship under the Taxpayer’s direction and not, in effect, under the direction of the Related Party Customers.
Respecting the post-amendment version, CRA stated:
[T]hese amendments were not intended to effect any significant scope limitations. …[T[]he term “lease” as used in the specific context of the international shipping rules would include chartering arrangements whereby taxpayers do not have the Technical Management of the ship but do have the Commercial Management of the ship. As such, we are of the view that the Taxpayer may continue to qualify for the international shipping exemption in taxation years that begin after July 12, 2013 on the same basis as for taxation years beginning before that time, that is, provided that the Taxpayer has the Commercial Management of the ship.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - International Shipping | lease includes time charter | 67 |
Barclays Mercantile Industrial Finance Ltd. v. Melluish, [1990] BTC 209 (Ch. D.)
A British corporation ("WBDL") entered into a distribution agreement with a California corporation ("WBI") pursuant to which WBI was granted the right to license and to exhibit and distribute the picture, largely in Canada and the U.S., but with WBDL retaining control of the master negative. WBDL was found not to be "leasing" the film to WBI because it did not provide "exclusive possession at a rent for a term" (see p. 243).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | 136 | |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) | 240 | |
| Tax Topics - Income Tax Act - Section 83 - Subsection 83(2.1) | main purpose was to make a profit, not take deduction | 264 |
Canadian Acceptance Corp. Ltd. v. Regent Park Butcher Shop Ltd. (1969), 67 WWR 297 (Man. C.A.)
Dickson J.A. found that the hiring of a cash register was a chattel lease notwithstanding a clause that provided that the lease was irrevocable for the full term and that the aggregate rentals would not abate by reason of the hirer's right to retake possession on default. The right of the hirer to collect the full balance of rentals for the remaining term following a default (minus any proceeds received from a sale or re-leasing within the 60-day period following default) instead represented a penalty clause that was void.
Dickson J.A. also accepted a definition of a lease of chattels as "a contract by which the hirer obtains a right to use the chattel hired, in return for the payment of the price of the hiring to the owner'".