Loblaw Financial Holdings Inc. Wins at SCC

Loblaw Financial Holdings Inc wins at SCC[1]

Supreme Court of Canada unanimously rules that Loblaw Financial Holdings Inc. was entitled to benefit from the “financial institution” exception in the “foreign accrual property income” tax rules.

For the second time in two weeks, the Supreme Court of Canada (“SCC”) has issued a significant decision in a tax case.  Again, the SCC has ruled in favour of the taxpayer and affirmed certain fundamental principles of tax law.

In Canada v. Loblaw Financial, 2021 SCC 51 (“Loblaw Financial”), the SCC unanimously agreed with the Federal Court of Appeal (“FCA”), that the income earned by Glenhuron Bank Limited. (“GBL”), a Barbados subsidiary of Loblaw Financial Holdings Inc. (“Taxpayer”) was not foreign accrual property income (“FAPI”) and therefore not taxable to the Taxpayer in Canada. In reaching this conclusion, the SCC provided helpful guidance on two issues come frequently arise in complex tax planning: (i) how courts (and taxpayers) should interpret provisions of the Income Tax Act (“Act”), such as the FAPI regime; and (ii) the relationship between a parent company and its controlled foreign affiliate.