INCOME TAX |
Non-residents |
Munich Reinsurance Co. (Canada Branch) v. Canada
A-282-00
2001 FCA 365, Sharlow J.A.
22/10/01
16 pp.
Appeal from Tax Court's dismissal of appeal from assessment, holding interest taxable under Part I ([2000] 2 C.T.C. 2785)--Appellant, German corporation, not resident of Canada but carried on insurance business in Canada-- Subject to tax under Income Tax Act, Part I --For taxation years ending December 31, 1990, 1991, 1992, 1993, appellant overpaid instalments on account of Part I tax liability in order to avoid risk of non-deductible interest costs --Overpayment of tax determined only when return assessed--Interest payable on overpayment from June 30 of following year until overpayment refunded--Appellant received $1,436,000 in interest--Crown assessed appellant on basis interest on tax overpayments taxable under Income Tax Act, Part I--Tax Court holding interest taxable under Part I--Appellant arguing interest taxable under Part XIII--S. 212(1)(b), found in Part XIII, imposing income tax of 25% on every amount Canadian resident pays to non-resident on account of interest --Income Tax Regulations, s. 802 providing amounts taxable under Part XIII those amounts paid to taxpayer other than amounts included pursuant to Part I--Non-resident carrying on business in Canada subject to tax under Part I by virtue of s. 2(3), which requires determination in accordance with Division D of "taxable income earned in Canada"--Division D part of Part I--S. 115(1)(a)(ii) providing taxable income of non-resident includes income from business carried on in Canada--Thus any amount included in income of non-resident from business carried on in Canada taxed under Part I--Question whether interest received on tax overpayments income of insurance business carried on in Canada--S. 138(1)(d) providing computation of income of insurer under Part I governed by general provisions of Part I, except to extent overridden by s. 138--S. 138(9) requiring inclusion in income from insurance business investment income from "property used by it in the year in, or held by it in the year in the course of carrying on" insurance business in Canada--S. 138(12) defining "property used by it in the year in, or held by it in the year in the course of" as "property determined in accordance with prescribed rules"--Regulations, s. 2400 defining "property used by it in the year in, or held by it in the year in the course of" as "property that is designated or required to be designated by the insurer in respect of a taxation year"--Dispute as to whether s. 2400(1)(e) applies-- Appellant's right to refund is "investment property" if overpaid tax instalments for purpose of earning interest-- Nothing suggesting appellant paid excess tax instalments for purpose of earning interest--Tax Court holding appellant's right to refund of tax overpayments not property used or held by it in course of carrying on insurance business in Canada, but going outside s. 138(9) to find against appellant because genesis of interest on overpayment of tax income from business carried on in Canada--S. 138(9) and related regulations comprising detailed statutory scheme applicable-- Non-resident insurer who is subject to s. 138(3) required to determine what part of investment income from "property used by it in the year in, or held by it in the years in the course of carrying on" its Canadian insurance business--Interest on appellant's tax overpayments excluded from Part I income unless within scope of s. 138(9)--Question whether in this particular case appellant's right to refunds property appellant used in or held in course of carrying on insurance business-- Analysis should focus on "holding" of property--Appellant arguing overpaying tax instalments never business activity-- Possible for insurer to have investments not part of insurance business--In this case no factual basis for concluding appellant's right to tax refunds not arising as part of insurance business--Asset management decisions made by appellant to comply with tax obligations in most advantageous way were decisions as to use of assets of its insurance business, and in that sense decisions made in course of its business--Right of appellant to be paid tax overpayments right acquired in course of carrying on business--Therefore property held in course of carrying on business and property within scope of s. 138(9)-- Appeal dismissed--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 2(3), 115(1)(a)(ii), 138(1)(d),(9),(12), 212(1)(b)--Income Tax Regulations, C.R.C., c. 945, ss. 802 (as am. by SOR/79-424, s. 1), 2400(1)(e).