Novopharm v. MNR, (2003) 301 N.R. 275 (FCA)

• Judge: Stone, Rothstein and Malone, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: January 15, 2003
• Jurisdiction: Canada (Federal)
• Citations: (2003), 301 N.R. 275 (FCA);2003 FCA 112

Novopharm v. MNR (2003), 301 N.R. 275 (FCA)

MLB headnote and full text

Temp. Cite: [2003] N.R. TBEd. MR.015

Novopharm Limited (appellant) v. Her Majesty the Queen (respondent)

(A-24-02; 2003 FCA 112)

Indexed As: Novopharm Ltd. v. Minister of National Revenue

Federal Court of Appeal

Stone, Rothstein and Malone, JJ.A.

March 5, 2003.

Summary:

Novopharm was reassessed respecting interest deductions in the 1987 and 1988 tax year, deductions for a loan arrangement fee and consulting fee for the 1987 tax year. Novopharm's appeal to the Tax Court was dismissed (see 2002 D.T.C. 1307). Novopharm appealed.

The Federal Court of Appeal dismissed the appeal.

Income Tax - Topic 1129

Income from a business or property - Deductions - Requirement that expense be incurred for producing income - [See Income Tax - Topic 1130 ].

Income Tax - Topic 1130

Income from a business or property - Deductions - Expenses of borrowing money - A series of forty transactions created an interest deduction for Novopharm with no liability for income tax on the earnings from the borrowed funds because they were allocated to another company whose losses offset the earnings - Novopharm was reassessed for interest deductions and deductions for a loan arrangement fee and a consulting fee - The Federal Court of Appeal held that, viewing the transactions independently, Novopharm's borrowing was used for the purpose of earning income - Therefore the associated interest, loan arrangement fee and consulting fee were deductible under ss. 20(1)(c)(i), 20(1)(e)(ii) and 18(1)(a) of the Income Tax Act respectively - However, the court disallowed the deductions under s. 245(1) as the series of related transactions were pre-ordained, circular and limited in time and unduly or artificially reduced Novopharm's income.

Income Tax - Topic 9543

Tax evasion and tax avoidance - Artificial transactions - What constitutes an artificial transaction - [See Income Tax - Topic 1130 ].

Cases Noticed:

Minister of National Revenue v. Shell Canada Ltd., [1999] 3 S.C.R. 622; 247 N.R. 19, refd to. [para. 8].

Ludco Enterprises Ltd. et al. v. Canada, [2001] 2 S.C.R. 1082; 275 N.R. 133, refd to. [para. 8].

Singleton v. Minister of National Revenue, [2001] 2 S.C.R. 1046; 275 N.R. 133, refd to. [para. 8].

Mark Resources Inc. v. Minister of National Revenue (1993), 93 D.T.C. 1004 (T.C.C.), refd to. [para. 8].

Canwest Broadcasting Ltd. v. Minister of National Revenue (1996), 96 D.T.C. 1375 (T.C.C.), refd to. [para. 8].

OSFC Holdings Ltd. v. Minister of National Revenue, [2002] 2 F.C. 288; 275 N.R. 238 (F.C.A.), refd to. [para. 13].

Lipson v. Deputy Minister of Revenue of Quebec, [1979] 1 S.C.R. 833; 29 N.R. 335, refd to. [para. 18].

Minister of National Revenue v. Fording Coal Ltd., [1996] 1 F.C. 518; 190 N.R. 186 (F.C.A.), refd to. [para. 24].

Minister of National Revenue v. Central Supply Co. (1972) Ltd., [1997] 3 F.C. 674; 215 N.R. 46 (F.C.A.), refd to. [para. 24].

Minister of National Revenue v. Mara Properties Ltd., [1995] 2 F.C. 433; 179 N.R. 363 (F.C.A.), not folld. [para. 26].

Young v. Bristol Aeroplane Co., [1944] 2 All E.R. 293 (C.A.), refd to. [para. 28].

Widmont v. Minister of Employment and Immigration, [1984] 2 F.C. 274; 56 N.R. 198 (F.C.A.), refd to. [para. 28].

Armstrong Cork Canada Ltd. et al. v. Domco Industries Ltd., [1981] 2 F.C. 510; 35 N.R. 181 (F.C.A.), refd to. [para. 28].

Harris v. Minister of National Revenue, [1966] S.C.R. 489, refd to. [para. 29].

McKee v. R. (1977), 77 D.T.C. 5345 (F.C.T.D.), refd to. [para. 29].

Cardella v. Minister of National Revenue (2001), 268 N.R. 168 (F.C.A.), refd to. [para. 29].

Alberta and Southern Gas Co. v. Minister of National Revenue, [1978] 1 F.C. 454; 16 N.R. 220 (F.C.A.), refd to. [para. 30].

Minister of National Revenue v. Shell Canada Ltd., [1998] 3 F.C. 64; 223 N.R. 122 (F.C.A.), refd to. [para. 32].

Canada v. Chambers et al. (1996), 107 F.T.R. 70; 96 D.T.C. 6095 (F.C.T.D.), refd to. [para. 32].

Gibson Petroleum Co. v. R. (1997), 97 D.T.C. 1420 (T.C.C.), refd to. [para. 32].

Bronfman (Phyllis Barbara) Trust v. Minister of National Revenue, [1987] 1 S.C.R. 32; 71 N.R. 134; 87 D.T.C. 5059, refd to. [para. 40].

Phyllis Barbara Bronfman Trust - see Bronfman (Phyllis Barbara) Trust v. Minister of National Revenue.

Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536, 53 N.R. 241; 84 D.T.C. 6305; [1984] C.T.C. 294; 10 D.L.R.(4th) 1, refd to. [para. 53].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 18(1)(a) [paras. 16, 17]; sect. 20(1)(c)(i) [paras. 6, 17].

Counsel:

Terrance A. Sweeney and Ian V. MacInnis, for the appellant;

Luther Chambers, Q.C., and George Boyd Aitken, for the respondent.

Solicitors of Record:

Fogler, Rubinoff LLP, Toronto, Ontario, for the appellant;

Borden Ladner Gervais LLP, Toronto, Ontario, for the appellant;

Morris Rosenberg, Deputy Attorney General of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard in Toronto, Ontario, on January 15, 2003, before Stone, Rothstein and Malone, JJ.A., of the Federal Court of Appeal. The following reasons for judgment was delivered by Rothstein, J.A., on March 5, 2003.