News of Note
The relief under s. 128.1(6)(c) for a returning Canadian is reduced if the (non-TCP) subject property has declined in value.
Email this ContentIndividuals returning to Canada and electing under s. 128.1(6)(a) can retain the original adjusted cost base (ACB) of their taxable Canadian property (TCP) owned by them continuously from the emigration time. This avoids the property’s deemed disposition at the time of emigration, thereby cancelling the departure tax.
Furthermore, if a former Canadian resident returns to Canada after owning capital property that was not TCP during the period of non-residency, that taxpayer may elect under s. 128.1(6)(c) to adjust the proceeds of disposition upon emigration and the ACB arising on immigration of every property disposed of under s. 128.1(1)(b) upon re-establishing residence.
For example, the taxpayer, on departing Canada, has shares with an FMV of $1 million and an ACB of $100,000. That FMV declines to $500,000 at the time of return. S. 128.1(6)(c) allows the reduction of the proceeds of disposition at the time of immigration by the lesser of the initial capital gain upon emigration ($900,000) and the FMV of the property on immigration ($500,000). If the taxpayer then elects under s. 128.1(6)(c) to reduce the departure tax, the capital gain upon emigration becomes $400,000, i.e., ($1,000,000 - $500,000) - $100,000.
Thus, full tax deferral is allowed if the FMV remains at $1 million, but not if it decreases.
Neal Armstrong. Summary of Balaji Katlai and Jin Wen, “Disposition of Capital Property by Returning Residents: Relief and Exceptions,” Canadian Tax Focus, Vol. 15, No. 4, November 2025, p. 12 under s. 128.1(6)(c).
To avoid multiple deductions of a life insurance policy’s ACB where there are multiple CCPC recipients of the death benefit, separate policies might be issued
Where a life insurance policy names several beneficiary corporations, the entire adjusted cost basis (ACB) of the policy is allocated to each of them for the purposes of computing their respective capital dividend accounts (CDAs), rather than being allocated in proportion to the death benefits received.
Suppose, for instance, that a holding company held a $2 million life insurance policy on the life of its main shareholder, having an ACB of $400,000, and two operating companies (A and B), were designated as the equal beneficiaries. Upon the death of the insured shareholder, each such beneficiary would receive a death benefit of $1 million. However, as reflected in 2017-0690311C6, the CDA for each corporation would be reduced by $400,000, rather than the policy ACB being allocated proportionately between the two corporations.
One solution would be for each of the two beneficiary corporations to purchase a separate $1 million policy on the life of the shareholder, with an ACB of $200,000. This would generally only result in a marginal change in the overall cost of the insurance as compared with a single policy, while avoiding the double deduction of the ACB.
Neal Armstrong. Summary of Gheys Jabbar, “Undue Reduction of the CDA for Multiple Beneficiaries of a Life Insurance Policy,” Canadian Tax Focus, Vol. 15, No. 4, September 2025, p. 11 under s. 89(1) – CDA – (d)(iii).
We have translated 7 more CRA interpretations
We have translated a CRA interpretation released last week and a further 6 CRA interpretations released in December of 1999. Their descriptors and links appear below.
These are additions to our set of 3,400 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 26 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA indicates that its position, that s. 83(2) elections and resolutions must specify dollar amounts, extends to s. 84(3) deemed dividends
9 October 2025 APFF Roundtable, Q.11 stated in relation to a cash capital dividend declared and paid by a vendor before the post-closing adjustments had been finalized:
The CRA's position, as stated in Technical Interpretation 2020-0852211C6, remains that, generally, the amount of the dividend designated under the election provided for in subsection 83(2) must be stated on Form T2054 and in the resolution authorizing that election in order for it to be considered valid, regardless of whether the election is filed within the prescribed time limits, or late and accompanied by the payment of the penalty established under subsection 83(4).
At the 2025 CTF Roundtable, CRA briefly indicated that this same position applied to an s. 84(3) deemed dividend whose exact amount was subject to post-closing adjustments (and where the authorizing corporate resolution was to refer to a formula taking any such adjustments into account).
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.14 under s. 83(2).
CRA confirms flexibility as to which corporation in a private group settles an s. 15(2.5) employee buy/sell trust
Parentco, a private corporation, wholly owns Opcos, each of which has employees who, under an employee ownership plan, are allowed to acquire and sell shares of Parentco. To this end, a trust intended to comply with the s. 15(2.5) exception from s. 15(2), will purchase and sell, for their FMV, Parentco shares to and from the employees.
CRA confirmed that, as permitted under s. 15(2.5), Parentco or any of the Opcos could settle the trust for the purpose of purchasing and selling the shares of Parentco from or to eligible employees of Parentco or of any or all of the Opcos.
Neal Armstrong. Summary of 10 October 2025 External T.I. 2025-1076451E5 under s. 15(2.5).
CRA is expanding the circumstances in which it may be prepared to issue rulings on factual matters
The Rulings Directorate is open to expanding situations in which it may issue rulings on matters that are primarily factual, provided that the taxpayer provides complete details and credible documentation to support those facts. Potential subject matters include:
- Transactions or arrangements involving crypto assets.
- Certain capital gains exemption issues, including shares’ qualification as QSBC shares.
- Whether expenditures are CEE.
- Taxability of distributions made by an Indian band to members.
- Whether distributions made by a non-profit organization disqualify it as such.
- Whether an organization has been organized as an NPO.
- Whether s. 149(1.2) allows an entity earning certain income outside its geographical boundaries to retain its exempted status under ss. 149(1)(d.5) and (d.6).
The Directorate is not currently considering rulings on the Global Minimum Tax Act given that its interpretation entails coordination with Canada’s tax partners.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.13 under General Concepts - Audit, Filing and Assessment Procedure.
CRA states that a meal allowance based solely on kilometerage is not reasonable
A transport company paid its employees a meal allowance based solely on the number of kilometers traveled in the course of their employment, which took them on travel outside the municipal area where they normally reported to work. However, their travel never required them to spend the night away from home.
With this as context, CRA stated that “a meal allowance based solely on distance, time or any other criterion cannot, in itself, be considered a reasonable allowance” for purposes of s. 6(1)(b)(vii). CRA went on to provide a non-exhaustive list of factors it considered relevant in determining whether a meal allowance is reasonable, including:
• the average cost of ordinary meals in the area where the employee is travelling;
• the availability of food options along the employee's route;
• the availability of meals provided to the employee at no cost [e.g., is mom along the route?]; …
It would seem impracticable to expect employers to document this.
Neal Armstrong. Summary of 12 November 2025 External T.I. 2022-0923141E5 F under s. 6(1)(b)(vii).
CRA rules on a 2-step distribution by a ULC to avoid Art. IV(7)(b) of the Canada-US Convention
CRA provided a ruling on the two-step approach for avoiding the application of the anti-hybrid rule in Art. IV(7)(b) of the Canada-US Income Tax Convention to a dividend deemed to be paid to US Parent by a Canadian subsidiary (“Holdco” - presumably a ULC) that is fiscally transparent for Code purposes.
Under the proposed transactions:
- Opco (a taxable Canadian corporation which is not fiscally transparent for Code purpose) redeems all of its preferred shares held by the US Parent, with the applicable Part XIII tax being remitted.
- Opco then declares and pays a dividend to Holdco out of its safe income.
- Holdco adds a balance to its common share capital account, transferred out of its retained earnings, thereby giving rise to a deemed dividend for Canadian purposes. Crucially, this transaction is disregarded for Code purposes and would be disregarded for Code purposes even if Holdco were not fiscally transparent.
- Holdco then reduces the balance in its common share capital account through a cash distribution equal to the increase in the previous step minus the amount of the Part XIII tax that was applicable to the above deemed dividend.
CRA ruled that Art. IV(7)(b) of the Convention would not apply to treat the deemed dividend as not having been paid to or derived by US Parent, so that withholding tax at the Convention-reduced rate of 5% would apply.
2012-0471921R3 is similar.
Neal Armstrong. Summary of 2025 Ruling 2024-1035241R3 under Treaties – Income Tax Conventions – Art. 4.
CRA indicates that the former partnership business need not be carried on continuously throughout the 3-month period referred to in s. 98(5)
S. 98(5) requires that, within 3 months of a Canadian partnership ceasing to exist, one of the members (the “proprietor”) must carry on the business that was previously the business of the partnership.
CRA indicated that there was no requirement that the proprietor carry on the business throughout the 3-month period, so that the business could recommence at any time during that period, i.e., the phrase "within the 3 months" does not mean "throughout the 3 months."
However, whether the former partner carried on the former partnership business and continued to use, in the course of that business, the partnership property acquired on the winding-up, was a question of fact (e.g., there might be one business even if there was a hiatus during which it was not carried on).
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.11 under s. 98(5).
Income Tax Severed Letters 10 December 2025
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Neal H. Armstrong editor and contributor