News of Note
Lachance - Quebec Court of Appeal applies the “presumption of coherence” regarding the Quebec equivalent of ETA s. 323 and ITA s. 227.1
Email this ContentAlthough s. 24.0.1 of the Quebec Tax Administration Act was similar to ETA's s. 323 and ITA s. 227.1, the taxpayer argued that some wording differences were sufficient to establish that the assessment of him under s. 24.0.1, as the director of a corporation that had failed to remit QST, was statute-barred because such personal assessment was made more than three years after the assessment of the corporation for the QST.
In rejecting this submission, the Court referred to “the presumption of coherence between tax laws that contain substantially the same regime and do not present fundamental differences” – and then referred to the finding in Jarrold that the only limitation period in ETA s. 323 is the two-year period in s. 323(5) running from when the individual ceased to be a director.
Neal Armstrong. Summary of Lachance v. Agence du revenu du Québec, 2025 QCCA 1476 under ETA s. 323(5).
CRA indicates that the lack of income on bitcoins suggested that they might be acquired on income account
In 2014, a Canadian resident acquired from an unrelated insolvent foreign corporation the right to receive 740 bitcoins in consideration for a payment of 75 bitcoins. Ten years later, after the winding-up process for the non-resident corporation was completed, the taxpayer received 115.2602 bitcoins in settlement of the entitlement to receive 740 bitcoins.
Regarding whether this transaction was an adventure in the nature of trade, CRA indicated that Meronek and Dally (finding that debts, owing by corporations in financial difficulty, that were acquired for nominal amounts gave rise to profits from adventures in the nature of trade on their repayment as they did not have the characteristics of an investment) “were worth mentioning.”
Here, CRA noted as relevant that the right to receive the bitcoins was not likely to generate income during the period of ownership. Additionally, the 10-year holding period might have corresponded to the time required to complete the winding-up process rather than reflecting an intention to retain the right in the long term.
However, CRA did not conclude as to whether the gains were business income or capital gains.
Neal Armstrong. Summaries of 10 September 2025 External T.I. 2025-1070171E5 F under s. 9 – capital gain v. profit – crypto, and s. 54 – ACB.
CRA confirms that forest management generally does not generate income from property, but this may not obtain where the only revenue is from stumpage and carbon offset credits
CRA stated that it generally would not consider the principal purpose of a business engaged in forest management activities (e.g., site preparation, planting, thinning and fertilizing) to be earning income from property, so that it would not have a specified investment business even with only one employee. However, it indicated that it was unclear whether this would be the result where the corporation was generating its revenues only from stumpage (i.e., was the stumpage income generated without significant related activity, or was it earned in accordance with the forest management plan, e.g., forest thinning?) and from the sale of carbon offset credits (was it simply refraining from cutting down trees or were there other activities involved, or to which this was incidental?)
CRA confirmed that if the principal purpose of the business was not to derive income from property, the corporation would not be considered to carry on a specified investment business.
Neal Armstrong. Summary of 3 September 2025 External T.I. 2024-1007671E5 under s. 125(7) – specified investment business.
Hypertec – Court of Quebec finds that expenses of a special committee formed to deal with a shareholder dispute were incurred to restore management operations and were currently deductible
As a result of an impasse in the boards of directors for the various companies in Hypertec group due to conflict between the two families owning the companies, the Louiselle family launched an oppression action against the Robert family and various companies within the group. The court then ordered the establishment of a special committee to address the group's financing needs. This committee then incurred expenses (the “Expenses”) of $1.3 million, including almost $1 million paid to PwC for an investigation of the group's finances and operations as mandated by the court order, with the balance paid as legal fees.
Fournier JCQ found that the ARQ had not pleaded at all the factual basis for denying the Expenses under the Quebec equivalent of s. 18(1)(b) and that this deficiency could not be cured by the Quebec equivalent of ITA s. 152(9).
However, Fournier JCQ went on to indicate obiter that the Expenses was not capital expenditures, stating:
[117] It is certain that any expenses aimed at resolving a deadlock in a company’s board of directors and/or better informing its shareholders are beneficial to the company and provide it with advantages that may even be enduring.
[118] However, that was not the intended result or purpose of the Expenses. These were rather incurred to restore a climate of trust and to respond to the requests of certain shareholders seeking accurate information to enable them to make the necessary decisions for the continuation of the company’s operations.
Neal Armstrong. Summaries of Hypertec Systèmes inc./Hypertec Systems Inc. v. Agence du revenu du Québec, 2025 QCCQ 6704 under s. 18(1)(a) – legal and professional fees, and s. 152(9).
CRA rules that a loan from a limited partnership to an indirect limited partner is a loan rather than a distribution
In order that “Parent,” a taxable Canadian corporation, can borrow on more favourable terms than if it did so directly:
- Parent will set up a bankruptcy-remote great-grandchild subsidiary limited partnership {“XX LP”) held through two intermediate stacked partnerships;
- through a series of transactions, Parent will transfer a business to XX LP on a rollover basis;
- XX LP will receive the loan from third-party lenders on commercial terms, including security on essentially all its assets; and
- XX LP will lend the proceeds on an unsecured basis to Parent at the same interest rate plus a nominal spread, with a right to defer interest payments, and with a matching maturity date.
CRA ruled inter alia that the proceeds of the loan to Parent will not be considered to be received by Parent on account of, in lieu of payment of, or in satisfaction of a distribution by XX LP or any of the intermediate partnerships for purposes of s. 53(2)(c)(v); and also provided a GAAR ruling.
The ruling letter referenced a legal opinion to the taxpayer that under the provincial partnership law [see, e.g., s. 12 of the Ontario Limited Partnerships Act), a limited partnership could make a loan to a limited partner. The CRA summary indicated that such loan is a loan under provincial law and that it is not an amount in lieu of a distribution because XX LP is a newly formed partnership with no income or capital prior to the proposed transactions.
Neal Armstrong. Summary of 2023 Ruling 2022-0938261R3 under s. 53(2)(c)(v).
Income Tax Severed Letters 19 Novemer 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that the transfer of a registered plan investment to the controlling individual shortly before its becoming non-qualified is a swap transaction subject to non-refundable tax
Where the controlling individual of a registered plan becomes aware that a plan investment will become a non-qualified investment or a prohibited investment (a “bad investment”), can the individual acquire that investment from the trust before it becomes bad without incurring Part XI.01 tax – or, if there is such tax, could it be refunded under s. 207.04(4)?
CRA noted that such acquisition would be a swap transaction, i.e., generally, a transfer of property between the registered plan and the controlling individual. In particular, the exception under para. (c) of the definition of swap transaction, for where the individual is entitled to a refund under s. 207.04(4), would not apply to a transfer of an investment before it becomes bad.
The s. 207.04(4) refund would not be available since, before the time of the acquisition, which would be deemed under s. 207.01(6) to be immediately before the investment becoming bad, the controlling individual had been informed that the investment would become bad.
The Minister had the discretion to waive all or part of the 50% tax under s. 207.06(2) if it was just and equitable to do so, having regard to all the circumstances, including those listed in s. 207.06(2). No comment was made on whether such relief would be provided.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.13 under s. 207.04(4).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in January of 2000. Their descriptors and links appear below.
These are additions to our set of 3,373 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 25 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA finds that the FHSA withdrawal rules could apply where a qualifying home is gifted by notarized deed to the FHSA holder
Para. (c) of s. 146.6(1) – “qualifying withdrawal” in the FHSA rules requires that the acquisition of the qualifying home be provided for in an "agreement in writing."
CRA found that this “agreement in writing” requirement was satisfied where the FHSA holder received a gift of a qualifying home from her mother pursuant to a Quebec notarized deed of gift that was signed by both parties – so that the donee could make a timely qualifying withdrawal from her FHSA even though there was no purchase price for her to fund.
Perhaps the same thing could be accomplished in a common law province if the donor and FHSA holder entered into a "gift agreement" pursuant to which the donor conveyed the home as a gift and the FHSA holder agreed to accept the gift.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.12 under s. 146.6(1) - “qualifying withdrawal” – para. (c).
CRA indicates that the FHSA rules can accommodate the acquisition of an undivided interest in a qualifying home
Para. (c) of the definition in s. 146.6(1) of a “qualifying withdrawal” from an FHSA establishes a requirement that the acquisition of the qualifying home must be provided for in a written agreement to which the individual is a party. The CRA indicated that this requirement could be satisfied by the purchase of an undivided interest in the home. For example, this could occur after the commencement of a common-law relationship by the FHSA holder purchasing a 50% undivided interest in the home from their partner.
Regarding the question of whether the same conclusion would obtain if a smaller interest were purchased, such as a 40%, or even a 1%, undivided interest, CRA indicated:
In cases where the individual intends to co-own a housing unit with one or more persons, it does not appear to be necessary that the co-ownership shares always be of equal proportions. However, in circumstances where the individual would acquire only an undivided interest, the proportion of which would appear to be disproportionate to the use of the dwelling as the individual’s principal place of residence, the written agreement could, depending on the situation, be considered not to have been entered into for the purpose of acquiring a qualifying home for the purposes of section 146.6.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.11 under s. 146.6(1) - “qualifying withdrawal” – para. (c).
Neal H. Armstrong editor and contributor