This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.

The PBRH (new rental housing) rebate was not available regarding the acquisition of a newly-constructed block of four separately titled properties, each consisting of two dwelling units intended for long-term residential use, since only two (rather than four) residential units per title did not qualify as a multiple unit residential complex for PBRH purposes. Furthermore, this issue could not be remedied by consolidating the block of dwelling units into a single title after the purchase, since this test was not met at the time of the purchase.

Neal Armstrong. Summary of 11 October 2024 GST/HST Interpretation 247959 under Real Property (GST/HST) Regulations, s. 4(2)(a).

The taxpayer, who had been assessed beyond the normal reassessment period to treat a real estate gain as business income rather than a capital gain, moved to have the Crown’s Reply struck on the basis that such reporting could not be a misrepresentation for purposes of s. 152(4)(a)(i), because misrepresentation (in light of the French version) meant a misrepresentation of fact, whereas the characterization of the gain was a question of mixed fact and law.

Before rejecting this request, Gagnon J stated:

[B]oth language versions of the provision are equivalent and indeed refer to a misrepresentation of the facts. …

[T]he word “misrepresentation” in English, alone, encapsulates the concept of a false, misleading, wrong or incorrect representation in relation to facts. …

… Because the filing position of a taxpayer involves the disclosing, reporting or characterization of the taxpayer’s underlying factual situation, any false, misleading, incorrect or incomplete disclosure, reporting, or characterization of those facts could constitute a misrepresentation [of the facts]. …

[A] reasonable filing position would be one where, upon review of all of the facts and circumstances that underlie a taxpayer’s situation (fully and accurately addressed), the Minister and the taxpayer could arrive at reasonable—albeit different—conclusions or positions based on a characterization of (or an application of the law to) such facts. Indeed, such an instance would be what [Inwest] has termed a mere “difference of opinion between the CRA and the taxpayer” .. .

[T]he Court cannot agree with the Appellant’s proposition that a question of income versus capital necessarily amounts to a mere difference of opinion. The reasonableness of the Appellant’s filing position—and relatedly, whether a misrepresentation has been made—ought properly to be put before the trial judge.

Neal Armstrong. Summary of Harika v. The King, 2025 TCC 81 under s. 152(4)(a)(i).

Mr. Grenon’s RRSP subscribed $310 million for units of various income funds, which were intended to qualify as mutual fund trusts on the basis that, for each fund, 171 investors had subscribed for 100 (and only 100) units at $7.50 per unit. As they had more than 150 beneficiaries, the principal issue was whether they each satisfied the distribution condition in ITR 4801(a)(i)(A)—that there had been a lawful distribution of units of the trust to the public in circumstances in which a prospectus or similar document was not required to be filed (i.e., in reliance on a private placement exemption).

Here, the private-placement exemption that had been relied on was the offering memorandum exemption (OME) coupled with a condition stipulated in the offering memorandum (OM) that a minimum of 160 investors subscribe. The Grenon RRSP agreed that such minimum "was an essential term". The Tax Court had made a non-reversible finding that 39 of the subscribers in each fund were minors. Agreeing with the Tax Court that this thus established that such minimum had not been lawfully met, Monaghan JA stated that, like the Tax Court, she had "difficulty accepting that provincial securities regulators envisaged minors, some as young as two years old, subscribing for units based on the OME."

Moreover, she found no reasonable error in the Tax Court's “finding regarding adults signing subscriptions and paying for units for other adults and minors”, which further supported the conclusion that the income funds had not “complied with an essential term in their OMs: that they issue units to a minimum of 160 investors in compliance with the OME.”

The above finding established that the units held by Grenon RRSP were not qualified investments. In addition to assessing the Grenon RRSP for tax under s. 146(10.1) on its income, the Minister assessed it for Part XI.1 tax, computed at 1% of the non-qualified investments' acquisition date value. However, by virtue of s. 146(10), Part XI.1 tax did not apply where the acquisition date value was included in the income of the annuitant (Grenon). This was not done because he had not reported such amounts, and those years became statute-bared. Although the Crown accepted that the Minister did not have a choice as to whether to assess the annuitant pursuant to s. 146(10) or the RRSP pursuant to s. 207.1(1)(a), the Crown indicated that no amount "was included in the annuitant's income," as required for the exception from Part XI.1 tax to apply, so that such assessment of Part XI.1 tax could be made.

In rejecting this position, Monaghan JA noted that s. 56(1) provides that "there shall be included in computing the income of a taxpayer for a taxation year" the amount described in that section, including "amounts required by section 146 in respect of a [RRSP] … to be included in computing the taxpayer's income for the year," and s. 146(10), in turn, stated that where an RRSP acquired a non-qualified investment, the acquisition date value "shall be included in computing the income for the year of the taxpayer who is the annuitant." She stated that such language thus “mandates” the inclusion in the annuitant’s income irrespective of whether such income was reported or assessed by the annuitant.

Neal Armstrong. Summaries of RRSP of Grenon v. Canada, 2025 FCA 129 under Reg. 4801, s. 207.1(1)(a) and s. 152(3.1).