Tax Exemption: The Supreme Court ruled in favor of Lobla

The Supreme Court of Canada has ruled in favor of Lobla Financial Holdings Inc. in a lawsuit between Canadian tax authorities, claiming sums of money owed to one of its subsidiaries in Barbados.

In a ruling Friday, Justice Cote ruled that Lobla was “not liable to pay tax on income earned by Glennhouran” in the years since the federal government claimed it.

In income tax returns in Canada from 2001 to 2005, 2008 and 2010, Lobla stated that Glennhuran Bank, a subsidiary of Barbados, did not include income and that such income was not subject to tax law.

The Minister of National Revenue of Canada Diane LeBautiller rejected the tax deduction and demanded from the company the payment of donations which would be considered as “foreign income collected from assets (REATB)”.

The case went to Canadian tax court, where the minister argued that the exemption did not apply. Lobla appealed to the Federal Court of Appeals, which ruled in his favor. The Minister then went to the Supreme Court of Canada, which also affirmed that the exemption applies.

In fact, if the bank mainly trades with companies not affiliated with it, it can benefit from the tax deduction in respect of this income. This is called “arm length required”.

“Glenhhuran Bank Ltd. was a regulated foreign bank with more than five full-time employees in 2001, until 2005, 2008 and 2010, but conducted its business primarily with relevant entities. Should be included as foreign income (“REATB”), the decision reads.