https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/345794/index.do
Barejo Holdings ULC v. The Queen (October 4, 2018 – 2018 CTC 200, Boyle J.).
Précis: This is the third in a series of Barejo cases. In the first decision, issued on November 4, 2015, Boyle J. was asked on a Rule 58 application whether certain instruments were “debt” for the general purposes of the Income Tax Act (the Act). He answered yes. The Appellant was dissatisfied and appealed to the Federal Court of Appeal which dismissed the two consolidated appeals from the Bench on November 29, 2016 on the basis that hearing the appeals: “would serve no useful purpose and give rise to an improper use of judicial resources” [para. [15]]. Both of these decisions were previously blogged on this site. Barejo applied for leave to appeal to the Supreme Court of Canada. That application was dismissed on June 22, 2017 without reasons, and with costs, by a full 9 person panel of the Supreme Court. In this decision Barejo and the Crown asked Boyle J. to rule on whether the same Notes that were at issue in Barejo No. 1 were “debt” for the purposes of paragraph 94.1(1)(a) of the Act. Justice Boyle held that they were “debt” for such purposes. Costs were reserved to the trial judge.
Decision: The nub of Justice Boyle’s decision was as follows:
[20] The Appellant has not made any submissions in this reference, nor in the 2015 reference, that are specific to why the use of the term debt in paragraph 94.1(1)(a) should be different from the meaning of debt for purposes of the Act as a whole as set out in Barejo 2015. They have not argued that the text of section 94.1 even suggests otherwise. They have not argued that the relevant context of 94.1(1)(a) might be different than the Act as a whole. By adopting and solely relying on the record of Barejo 2015 in this second reference, both parties are treating the whole Act as potentially relevant context. The Appellant has not put forward any purpose of section 94.1 or the offshore investment fund rules which might warrant a different analysis. If there is any such argument to be made relating to the text, context or purpose of section 94.1 the offshore investment fund rules or the FAPI régime, it is not obvious to me from reading that section within the OIF rules and the FAPI régime.
[21] The Appellant has not provided any evidence of its intention at the time of acquiring the Notes, nor the intentions of the issuers or SLT’s intention, even though the parties’ intentions can be relevant to a proper characterization analysis.
[22] Had the Court been informed which iteration(s) of the draft offshore investment fund legislation were current when the transactions involving the Notes were being structured and when the Notes were issued and acquired, an inference might be made as to the intended characterization of the Notes as either debt or not debt by the persons issuing them or acquiring them.
[23] The Court is tempted to draw an adverse inference against the Appellant given the absence of evidence of intention of the issuers of the Notes, the noteholder SLT, or the Appellant. The potential relevance of the parties’ intentions when issuing and acquiring the Notes and of the then “applicable” draft legislation were highlighted in Barejo 2015, as well as in the first stage of the motion for this Follow-Up Question. Presumably, if the intentions were helpful to the Appellant, it would be content to succeed on the basis those intentions were considered.
[24] However, while the Respondent may not be able to provide evidence of the subjective intentions of SLT, the Appellant or the issuers of the Notes, it could have informed the Court which was the current iteration of the draft legislation those parties were dancing around when the Notes were issued. As noted above, this might well make it clear whether SLT and/or the Appellant intended debt or non‑debt characterization for the Notes. If the Respondent does not want to succeed on the basis of the other parties’ intentions being considered, I will not force them to by making an adverse inference against the Appellant.
[25] In conclusion, no attempt has been made to show the Court that there is any reason to give the term “debt” when used in paragraph 94.1(1)(a) of the Act any different meaning than its meaning for purposes of the Act as a whole as determined in Barejo 2015.
[Footnote omitted]
Costs were reserved to the trial judge.
Comment: While this case may not have the avid readership of the Harry Potter novels, my guess is that it is likely to have as many or more iterations in the series. We will now wait with bated breath for the “reveal”, i.e., what the taxpayer has had in mind for the past 3 years.