Husky Energy Inc. v. Alberta, 2012 ABCA 231

• Judge: Hunt, Berger and Bielby, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: May 08, 2012
• Citations: 2012 ABCA 231;(2012), 533 A.R. 385

Husky Energy Inc. v. Alta. (2012), 533 A.R. 385; 557 W.A.C. 385 (CA)

MLB headnote and full text

Temp. Cite: [2012] A.R. TBEd. JL.118

Husky Energy Inc. (respondents/appellants) v. Her Majesty the Queen in Right of Alberta (appellant/respondent)

(1101-0149-AC; 2012 ABCA 231)

Indexed As: Husky Energy Inc. v. Alberta

Alberta Court of Appeal

Hunt, Berger and Bielby, JJ.A.

July 30, 2012.

Summary:

Between 2003 and 2005, the corporate tax regime in Ontario was more advantageous than that in Alberta. The Husky group of companies reorganized its corporate structure to take advantage of that through three refinancings. The Alberta Minister of Finance reassessed the Husky entities involved so that interest deductions taken under s. 20(1)(c) of the Income Tax Act (as adopted into the Alberta Corporate Tax Act) and dividend deductions under s. 112(1) were disallowed. For one of the refinancings, the Minister added back interest income that would have been declared under s. 12(1)(c) had the refinancing not occurred. Husky appealed.

The Alberta Court of Queen's Bench, in a decision reported at (2011), 514 A.R. 181, allowed the appeal, vacating the reassessments. Alberta appealed.

The Alberta Court of Appeal dismissed this appeal.

Editor's Note: This decision was released with the companion decision, Canada Safeway Ltd. v. Alberta, 536 A.R. 6; 559 W.A.C. 6.

Income Tax - Topic 1026

Income from a business or property - Income from property - Dividends (incl. term preferred shares) - [See third Income Tax - Topic 9516 ].

Income Tax - Topic 1130

Income from a business or property - Deductions - Expenses of borrowing money - [See second Income Tax - Topic 9516 ].

Income Tax - Topic 9516

Tax evasion and tax avoidance - General principles - Avoidance - What constitutes - Between 2003 and 2005, the corporate tax regime in Ontario was more advantageous than that in Alberta - The Husky group of companies reorganized its corporate structure to take advantage of that through three refinancings - The Alberta Minister of Finance reassessed the Husky entities involved so that interest deductions taken under s. 20(1)(c) of the Income Tax Act (as adopted into the Alberta Corporate Tax Act) and dividend deductions under s. 112(1) were disallowed - Kent, J., allowed Husky's appeal, rejecting Alberta's assertions that Husky's actions resulted in abusive tax avoidance under the general anti-avoidance rule (GAAR) (s. 245) - The Alberta Court of Appeal dismissed Alberta's appeal - The court rejected Alberta's assertion that the trial judge had erred in holding that all inter-corporate reorganizations and refinancings were legitimate tax reduction strategies not subject to the GAAR analysis - It was doubtful whether the judge's reasons could be interpreted so narrowly - She knew that abuse would be established if the impugned activities offended the object, spirit and purpose of the sections said to be breached - Her analysis of whether s. 112(1) was abused was based on her conclusion that, while its purpose was to avoid multiple taxation of income, it "is not to ensure that income is taxed at least once" - Her discussion of s. 112(1) contained no reference to inter-corporate refinancing and reorganization - Nothing suggested that her view of that matter provided the foundation for her application of s. 112(1) - See paragraphs 30 to 33.

Income Tax - Topic 9516

Tax evasion and tax avoidance - General principles - Avoidance - What constitutes - Between 2003 and 2005, the corporate tax regime in Ontario was more advantageous than that in Alberta - The Husky group of companies reorganized its corporate structure to take advantage of that through three refinancings - Alberta reassessed the Husky entities involved so that, inter alia, interest deductions taken under s. 20(1)(c) of the Income Tax Act (as adopted into the Alberta Corporate Tax Act) were disallowed - Kent, J., allowed Husky's appeal, rejecting Alberta's assertions that Husky's actions resulted in abusive tax avoidance under the general anti-avoidance rule (s. 245) - The Alberta Court of Appeal dismissed Alberta's appeal - The most fundamental question here was whether the trial judge had erred in deciding that the purpose of s. 20(1)(c) was not frustrated - The purpose of s. 20(1)(c) was "to create an incentive to accumulate capital with the potential to produce income by allowing taxpayers to deduct interest costs associated with its acquisition" - Alberta asserted that the refinancing and reorganization had not increased the Husky group's overall capital or its consolidated profits - Essentially, Alberta said that s. 20(1)(c) was abused because the interest for which a deduction was claimed in Alberta was not taxed in Ontario - There were several problems with this approach: (1) Alberta overemphasized the lender's circumstances instead of focussing on the borrower; (2) the principle of non-consolidation supported the view that abuse of s. 20(1)(c) could not be clearly established based on the tax treatment of a related company in another province; and (3) analogous cases supported Husky's position - It would be a stretch to find abusive avoidance simply because a taxpayer took the benefit of another province's advantageous tax treatment - This was especially so since differing provincial tax policies were a fundamental part of the Canadian federation - See paragraphs 34 to 49.

Income Tax - Topic 9516

Tax evasion and tax avoidance - General principles - Avoidance - What constitutes - Between 2003 and 2005, the corporate tax regime in Ontario was more advantageous than that in Alberta - The Husky group of companies reorganized its corporate structure to take advantage of that through three refinancings - Alberta reassessed the Husky entities involved so that, inter alia, a dividend deduction taken by the Alberta parent taxpayers under s. 112(1) of the Income Tax Act (as adopted into the Alberta Corporate Tax Act) was disallowed - Kent, J., allowed Husky's appeal, rejecting Alberta's assertions that Husky's actions resulted in abusive tax avoidance under the general anti-avoidance rule (s. 245) - The Alberta Court of Appeal dismissed Alberta's appeal - Alberta argued that since the purpose of s. 112(1) was to avoid double taxation, an inter-corporate dividend should be deductible only if there was provincial taxation of the stream of income leading to the dividend - As no Ontario tax was payable on Husky's stream of income from the interest payments, there was no possibility of double taxation and the deduction of the dividend frustrated the object of s. 112(1) - The court rejected this argument - Nothing in the language of s. 112(1) supported Alberta's interpretation - Its wording focussed on the nature of the dividend-payer, not on the source of income or the amount of tax, if any, that had been paid on that income - Clear language was required where provisions intended to make the tax consequences for one party conditional on the acts or positions of another party - Such clear language was absent here - See paragraphs 50 to 56.

Income Tax - Topic 9516

Tax evasion and tax avoidance - General principles - Avoidance - What constitutes - Between 2003 and 2005, the corporate tax regime in Ontario was more advantageous than that in Alberta - The Husky group of companies reorganized its corporate structure to take advantage of that through three refinancings - Alberta reassessed the Husky entities involved so that interest deductions taken under s. 20(1)(c) of the Income Tax Act (as adopted into the Alberta Corporate Tax Act) and dividend deductions under s. 112(1) were disallowed - Kent, J., allowed Husky's appeal, rejecting Alberta's assertions that Husky's actions resulted in abusive tax avoidance under the general anti-avoidance rule (s. 245) - The Alberta Court of Appeal dismissed Alberta's appeal - Alberta argued that it could be abusive avoidance to exploit the lack of alignment between provincial and federal tax acts - Abusive avoidance had to be found on the facts - As there was no abusive avoidance here, it was unnecessary to decide Alberta's general point - However, the court noted that "[t]he constitutional reality of Canada is that each level of government has taxation authority. Provinces are free to fully adopt the federal system, and some have done so. Alberta and Ontario have not. Each case of alleged abuse must be carefully assessed in the context of Supreme Court law." - See paragraphs 57 to 59.

Income Tax - Topic 9517

Tax evasion and tax avoidance - General principles - General anti-avoidance rule - [See all Income Tax - Topic 9516 ].

Statutes - Topic 522

Interpretation - General principles - Taxing statutes - [See third Income Tax - Topic 9516 ].

Cases Noticed:

Minister of National Revenue v. Canada Trustco Mortgage Co., [2005] 2 S.C.R. 601; 340 N.R. 1; 2005 SCC 54, refd to. [para. 8].

Copthorne Holdings Ltd. v. Minister of National Revenue, [2011] 3 S.C.R. 721; 424 N.R. 132; 2011 SCC 63, refd to. [para. 18].

Kaulius et al. v. Minister of National Revenue, [2005] 2 S.C.R. 643; 339 N.R. 323; 2005 SCC 55, refd to. [para. 19].

Mathew v. Canada - see Kaulius et al. v. Minister of National Revenue.

Lipson v. Minister of National Revenue, [2009] 1 S.C.R. 3; 383 N.R. 47; 2009 SCC 1, refd to. [para. 21].

Minister of National Revenue v. Canadian Pacific Ltd., [2002] 3 F.C. 170; 284 N.R. 216; 2001 FCA 398, refd to. [para. 32].

Novopharm Ltd. v. Minister of National Revenue (2003), 301 N.R. 275; 57 D.T.C. 5195; 2003 FCA 112, refd to. [para. 32].

Ludco Enterprises Ltd. et al. v. Ministre du Revenu national, [2001] 2 S.C.R. 1082; 275 N.R. 90, refd to. [para. 34].

Singleton v. Minister of National Revenue, [2001] 2 S.C.R. 1046; 275 N.R. 133; 2001 SCC 61, refd to. [para. 38].

Minister of National Revenue v. Shell Canada Ltd., [1999] 3 S.C.R. 622; 247 N.R. 19, refd to. [para. 44].

Minister of National Revenue v. MIL (Investments) S.A., [2006] N.R. Uned. 75; 2007 D.T.C. 5437; 2007 FCA 236, refd to. [para. 45].

RCI Environnement Inc. v. Minister of National Revenue (2008), 388 N.R. 141; 2008 FCA 419, refd to. [para. 46].

Antosko v. Minister of National Revenue, [1994] 2 S.C.R. 312; 168 N.R. 16, refd to. [para. 46].

Lehigh Cement Ltd. v. Minister of National Revenue, [2011] 4 F.C.R. 66; 403 N.R. 69; 2010 FCA 124, refd to. [para. 48].

Imperial Oil Ltd. v. Minister of National Revenue (2004), 316 N.R. 365; 2004 FCA 36, refd to. [para. 48].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 20(1)(c)(i), sect. 112(1), sect. 245 [para. 6].

Authors and Works Noticed:

Carvalho, Roberta and Clarke, Tim, Current Cases 2008-2009, 2009 British Columbia Tax Conference, generally [para. 58].

Morris, Ryan L. and Etcovitch, Andrew, (2009) Current Cases 57:2 Can. Tax J. 307, generally [para. 58].

Post-Lipson GAAR Cases (2009), Tax Topics No. 1944, generally [para. 58].

Takhmizdjian, Joseph H., Quebec Court of Appeal Applies the GAAR (2009), BLG Tax Law Bulletin, generally [para. 58].

Counsel:

A. Meghji, R. Lee and M. Biringer, for the respondents;

C.R. Davis, T. Hay and S. Chen, for the appellant.

This appeal was heard on May 8, 2012, by Hunt, Berger and Bielby, JJ.A., of the Alberta Court of Appeal. On July 30, 2012, Hunt, J.A., delivered the following reasons for judgment reserved for the court.