Windsor Plastic Products Ltd. v. Minister of National Revenue, (1986) 2 F.T.R. 46 (TD)

• Judge: Muldoon, J.
• Court: Federal Court (Canada)
• Case Date: September 03, 1985
• Jurisdiction: Canada (Federal)
• Citations: (1986), 2 F.T.R. 46 (TD)

Windsor Plastic Products Ltd. v. MNR (1986), 2 F.T.R. 46 (TD)

MLB headnote and full text

Windsor Plastic Products Ltd. v. Minister of National Revenue

(No. T-1943-81)

Indexed As: Windsor Plastic Products Ltd. v. Minister of National Revenue

Federal Court of Canada

Trial Division

Muldoon, J.

February 27, 1986.

Summary:

In 1978 and 1979, Windsor (Canadian company) paid monies to Kenmar (American company) for management services. Pursuant to s. 212(1)(a) of the Income Tax Act and Article XI of the Canada-U.S. Tax Convention if the monies were a "management or administration fee or charge" they were liable to tax at a rate of 15%. Windsor failed to withhold the 15% and remit it to the Minister. The Minister determined that the 15% tax applied. Windsor appealed, submitting that the monies were management or administration fees or charges, but that s. 212(4) of the Act applied to exclude liability.

The Federal Court of Canada, Trial Division, dismissed the appeal. The court held that Windsor was liable for the 15% tax, because s. 212(4) did not apply.

Income Tax - Topic 6402

Taxable income earned in Canada by non-residents - Management or administration fee or charge - Section 212(1)(a) of the Income Tax Act and Article XI of the Canada-U.S. Tax Convention provided that a "management or administration fee or charge" paid to a non-resident was subject to a 15% tax - The resident payer was required to withhold the 15% and remit it to the Minister of National Revenue - Section 212(4) excluded liability for the tax if the non-resident's service was performed in the ordinary course of its business and the parties were dealing at arm's length - Windsor (Canadian company) paid management fees to Kenmar (American company) - Elliot, an American, controlled 40% of Windsor's shares and was the principal shareholder and president of Kenmar - The Federal Court of Canada, Trial Division, held that s. 212(4) did not apply to exclude liability for the 15% tax, because Windsor and Kenmar were not dealing at arm's length.

Words and Phrases

Arm's Length - The Federal Court of Canada, Trial Division, defined "arm's length", as found in s. 212(4)(a)(ii) of the Income Tax Act, S.C. 1970-7172, c. 63.

Cases Noticed:

Minister of National Revenue v. Sheldon's Engineering Limited, [1955] S.C.R. 637, appld. [para. 19].

Swiss Bank Corporation and Swiss Credit Bank v. M.N.R., 71 D.T.C. 5235, refd to. [para. 19].

Statutes Noticed:

Canada-U.S. Tax Convention, para. 1, art. XI [para. 1].

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 212(1)(a), sect. 212(4) [para. 3]; sect. 215(1) [para. 1].

Counsel:

Appearances: W.D. Goodman and J.E. Swystun, for the plaintiff;

H. Erlichman and S.D. Clark, for the defendant.

Solicitors of Record:

Goodman and Car, Toronto, Ontario, for the plaintiff;

F. Iacobucci, Q.C., Deputy Attorney General of Canada, Ottawa, Ontario, for the defendant.

This appeal was heard on September 3, 1985, at Toronto, Ontario, before Muldoon, J., of the Federal Court of Canada, Trial Division, who delivered the following judgment on February 27, 1986.